<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 September 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)
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 November 2, 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)
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEET - December 31, 1998 and September 30, 1999 3
STATEMENT OF OPERATIONS - For the three and nine months
ended September 30, 1998 and 1999 and November 17, 1988
(Inception) to September 30, 1999 (Cumulative) 4
STATEMENT OF STOCKHOLDERS' EQUITY - Nine months
ended September 30, 1999 5
STATEMENT OF CASH FLOWS - For the nine months ended
September 30, 1998 and 1999 and November 17, 1988
(Inception) to September 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>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
December 1999
31, 1998 (UNAUDITED)
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 13,086 $ 2,333,895
Marketable Securities 3,039,372
Other Current Assets 50,272 44,698
------------- -------------
TOTAL CURRENT ASSETS 3,102,730 2,378,593
FIXED ASSETS (net of accumulated depreciation
of $61,629 and $67,528 at December 31, 1998
and September 30, 1999, respectively) 74,602 58,885
DEPOSIT 17,920 28,574
------------- -------------
TOTAL ASSETS $ 3,195,252 $ 2,466,052
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 82,680 $ 76,328
------------- -------------
TOTAL LIABILITIES 82,680 76,328
------------- -------------
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 September 30, 1999 and December 31, 1998 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (5,636,986) (6,359,834)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 3,112,572 2,389,724
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,195,252 $ 2,466,052
============= =============
</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
September 30, 1999
1998 1999 1998 1999 (cumulative)
--------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C>
INCOME - consulting fee $ 0 $ 0 $ 0 $ 0 $ 133,973
----------
EXPENSES
Royalties (40,517) (42,543) (117,692) (123,567) (996,535)
Research and development (557,168)
General and administrative (197,671) (239,797) (547,610) (691,059) (4,500,833)
--------- --------- --------- --------- ---------
TOTAL EXPENSES (238,188) (282,340) (665,302) (814,626) (6,054,536)
--------- --------- --------- --------- ---------
LOSS FROM OPERATIONS (238,188) (282,340) (665,302) (814,626) (5,920,563)
INTEREST EXPENSE AND
AMORTIZATION AND WRITE-OFF
OF DISCOUNT AND DEBT
ISSUANCE COSTS (2,211,400)
INTEREST INCOME 43,136 29,704 134,412 91,778 607,417
--------- --------- --------- --------- ---------
LOSS BEFORE
EXTRAORDINARY INCOME (195,052) (252,636) $(530,890) (722,848) (7,524,546)
EXTRAORDINARY INCOME
FROM FORGIVENESS OF
INDEBTEDNESS 1,164,712
--------- --------- --------- --------- ---------
NET LOSS $(195,052) ($252,636) $(530,890) ($722,848) $(6,359,834)
========= ======== ========= ======== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,295,201 5,295,201 5,295,201 5,295,201 4,564,296
========= ========= ========= ========= ===========
LOSS PER COMMON SHARE
Loss before extraordinary income $(.04) $ (.05) $(.10) $(.14) $(1.65)
Extraordinary income .26
--------- --------- --------- --------- -----------
NET LOSS $ (.04) $ (.05) $ (.10) $ (.14) $ (1.39)
========= ========= ========= ========= ===========
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
----------------------- Paid-in Development
Shares Amount Capital Stage Total
--------- ---- ----------- ----------- ----------
<S> <C> <C> <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 nine months
ended September 30, 1999 (722,848) (722,848)
--------- ---- ----------- ----------- ----------
Balance September 30, 1999 3,735,201 $373 $ 8,749,185 $(6,359,834) $2,389,724
========= ==== =========== =========== ==========
</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 1999 Sept. 30, 1998
(UNAUDITED) (UNAUDITED) (Cumulative)
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(530,890) ($722,848) $(6,359,834)
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 15,717 74,657
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) 5,574 (44,698)
Deposit (10,654) (28,574)
Accounts payable and accrued expenses 16,930 (6,352) 366,711
--------- --------- -----------
NET CASH USED IN OPERATING ACTIVITIES (517,059) (718,563) (5,236,028)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 432,630 3,039,372 10,476,139
Investments in marketable securities (10,476,139)
Other 6,132 9,192
Purchases of fixed assets (148,422)
--------- --------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 438,762 3,039,372 (139,230)
--------- --------- -----------
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) 2,320,809 2,333,895
CASH - beginning 98,015 13,086 0
--------- --------- -----------
CASH - end $ 19,718 $2,333,895 $ 2,333,895
========= ========== ===========
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
nine months ended September 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 nine months ended
September 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, 1988. 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 September 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 currently 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 nine months ended
September 30, 1999 increased by $42,126 and $143,449, respectively, from
$197,671 and $547,610 in 1998 to $239,797 and $691,059 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 nine months ended September 30, 1999, interest income
decreased by $13,482 and $42,634, respectively, from $43,136 and $134,412 in
1998 to $29,704 and $91,778 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 since
inception, as of September 30, 1999, the Company had an accumulated
stockholders' deficit of $6,359,834. The Company has continued to incur losses
since September 30, 1999. Further, the Company's working capital as of September
30, 1999 decreased by $717,785 from $3,020,050 as of December 31, 1998 to
$2,302,265 as of September 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 September 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. No trial date has been set
yet.
ITEM 2. CHANGES IN SECURITIES
The 4,000,000 warrants issued by the Company in connection with its
initial public offering expired by their terms on October 28, 1999 and are no
longer listed on the OTC Bulletin Board.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,333,895
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,378,593
<PP&E> 126,413
<DEPRECIATION> (67,528)
<TOTAL-ASSETS> 2,466,052
<CURRENT-LIABILITIES> 76,328
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 8,749,185
<TOTAL-LIABILITY-AND-EQUITY> 2,466,052
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 814,626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (722,848)
<INCOME-TAX> 0
<INCOME-CONTINUING> (722,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (722,848)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
