<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, 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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 11-3289398
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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 10, 1999 was 3,735,201.
Transitional small business disclosure format: Yes No X
--- ---
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET - June 30, 1999 and December 31, 1998 3
STATEMENT OF OPERATIONS - For the three and six months ended
June 30, 1998 and 1999 and November 17, 1988 (Inception) to June
30, 1999 4
STATEMENT OF STOCKHOLDERS' EQUITY - For the six months
ended June 30, 1999 5
STATEMENT OF CASH FLOWS - For the six months ended June
30, 1998 and 1999 and November 17, 1988 (Inception) to June 30,
1999 (Cumulative) 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 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December
31, 1998 June 30, 1999
-------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 13,086 $ 117,350
Marketable Securities 3,039,372 2,451,241
Other Current Assets 50,272 52,261
----------- ------------
TOTAL CURRENT ASSETS 3,102,730 2,620,852
FIXED ASSETS (net of accumulated depreciation
of $61,629 and $62,289 at December 31, 1998
and June 30, 1999, respectively) 74,602 64,124
DEPOSIT 17,920 17,920
----------- ------------
TOTAL ASSETS $ 3,195,252 $ 2,702,896
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $82,680 $60,536
----------- ------------
TOTAL LIABILITIES 82,680 60,536
----------- ------------
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 June 30, 1998 and December 31, 1999 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (5,636,986) (6,107,198)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 3,112,572 2,642,360
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,195,252 $ 2,702,896
=========== ============
</TABLE>
See notes to financial statements
3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
November 17, 1988
Three Months Ended June 30, Six Months Ended June 30, (Inception)
--------------------------- ------------------------- to
June 30,1999
1998 1999 1998 1999 (cumulative)
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
INCOME - consulting fees $ 0 $ 0 $ 0 $ 0 $ 133,973
---------- ---------- ----------- ---------- -----------
EXPENSES
Royalties (38,587) (40,511) (77,175) (81,024) (953,992)
Research and Development 0 0 0 0 (557,168)
General and Administrative (167,856) (214,621) (349,939) (451,262) (4,261,036)
--------- ---------- ----------- ---------- -----------
TOTAL EXPENSES (206,443) (255,132) (427,114) (532,286) (5,772,196)
--------- ---------- ----------- ---------- -----------
LOSS FROM OPERATIONS (206,443) (255,132) (427,114) (532,286) (5,638,223)
INTEREST EXPENSE AND
AMORTIZATION AND WRITE-OFF
OF DISCOUNT AND DEBT
ISSUANCE COSTS (2,211,400)
INTEREST INCOME 44,668 29,611 91,276 62,074 577,713
---------- ---------- ----------- ---------- -----------
LOSS BEFORE
EXTRAORDINARY INCOME (161,775) (225,521) (335,838) (470,212) (7,271,910)
EXTRAORDINARY INCOME
FROM FORGIVENESS OF
INDEBTEDNESS 1,164,712
---------- ---------- ----------- ---------- -----------
NET LOSS $ (161,775) $ (225,521) $ (335,838) $ (470,212) $(6,107,198)
========== ========== =========== ========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,295,201 5,295,201 5,295,201 5,295,201 4,546,690
========== ========== =========== ========== ===========
LOSS PER COMMON SHARE
Loss before extraordinary income $(.03) $(.04) $(.06) $(.09) $(1.60)
Extraordinary income .26
---------- ---------- ----------- ---------- -----------
NET LOSS $(.03) $(.04) $(.06) $(.09) $(1.34)
========== ========== =========== ========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(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, 1998 3,735,201 $ 373 $ 8,749,185 $(5,636,986) $ 3,112,572
Net loss for the six months
ended June 30, 1999 (470,212) (470,212)
--------- -------- ----------- ----------- ----------
Balance June 30, 1999 3,735,201 $ 373 $ 8,749,185 $(6,107,198) $2,642,360
========= ======== =========== =========== ==========
</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,
November 17,1988
(Inception) to
1998 1999 June 30, 1999
---- ---- (Cumulative)
------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (335,838) $( 470,212) $(6,107,198)
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 10,478 69,418
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) (1,989) (52,261)
Deposit (17,920)
Accounts payable and accrued expenses (59,579) (22,144) 350,919
--------- ---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (417,331) (483,867) (5,001,332)
--------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 321,967 588,131 8,024,897
Investments in marketable securities (10,476,139)
Other 9,193
Purchases of fixed assets (148,422)
--------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 321,967 588,131 (2,590,471)
--------- ---------- -----------
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
--------- ---------- ----------
(DECREASE) INCREASE IN CASH (95,364) 104,264 117,350
CASH - beginning 98,015 13,086
--------- ---------- ----------
CASH - end $ 2,651 117,350 117,350
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes $ 21,464 23,698 $ 57,175
========= ========== ==========
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)
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. (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
six months ended June 30, 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 six months ended June
30, 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., as discussed in Item I, 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 June 30, 2000; however,
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 and six months ended June 30,
1999 increased by $46,765 and $101,323, respectively, from $167,856 and $349,939
in 1998 to $214,621 and $451,262 in 1999. These increases resulted from
increased litigation expenses net of decreases in other expenses. The Company is
continuing to reduce general and administrative expenses.
For the three and six months ended June 30, 1999, interest income decreased by
$15,057 and $29,202, respectively, from $44,668 and $91,276 in 1998 to $29,611
and $62,074 in 1999, resulting from the use of marketable securities.
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 and 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
June 30, 1999, the Company had an accumulated stockholders' deficit of
$6,107,198. The Company has continued to incur losses since June 30, 1999.
Further, the Company's working capital as of June 30, 1999 decreased by $459,734
from $3,020,050 as of December 31, 1998 to $2,560,316 as of June 30, 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 June 30, 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
Apple litigation 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 against
Apple Computer Corp. (Apple) in the United States District Court, Southern
District, New York for damages of $1.1 billion. The complaint alleges that Apple
has infringed on three United States Letters Patent, issued to Dr. Shalit, by
making, using, and/or selling its "ColorSync" color management systems and
inducing others to do so. The patents are exclusively licensed by Dr. Shalit to
the Company and are: 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 alleges Apple willfully,
knowingly, and without the Company's consent infringed on the Company's rights
thereunder. The Company is seeking a preliminary and permanent injunction
enjoining Apple from infringing, inducing others or contributing to the alleged
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 Company's
patents 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
The following matters were submitted to a vote of the stockholders of
the Company at an Annual Meeting held on July 12, 1999. The holders of 2,972,147
shares of Common Stock were present or represented by proxy and, accordingly, a
quorum was present and matters were voted on as follows:
(a) The following persons were elected directors of the Company:
Votes for Votes against Votes Withheld
Dr. Hanoch Shalit 2,918,298 0 53,849
Steven Ai 2,918,298 0 53,849
Simon Cross 2,918,298 0 53,849
(b) The following resolution was submitted to a vote of stockholders at
the meeting:
To ratify the appointment of Most Horowitz & Company, LLP, as the
certified public accountants of the Company. The resolution was passed
with 2,951,349 shares voting in favor, 19,798 shares voting against and
1,000 shares abstaining.
9
<PAGE>
ITEM 5. OTHER INFORMATION
Not applicable.
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:_________________ , 1999
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, 1999 and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 117,350
<SECURITIES> 2,451,241
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,620,852
<PP&E> 126,413
<DEPRECIATION> (62,289)
<TOTAL-ASSETS> 2,702,896
<CURRENT-LIABILITIES> 60,536
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 8,749,185
<TOTAL-LIABILITY-AND-EQUITY> 2,702,896
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 532,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (470,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (470,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (470,212)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
