<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, 2000.
/ / 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 August 10, 2000 was 3,735,201.
Transitional small business disclosure format: Yes No X
---- -----
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IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
INDEX
PART 1. - FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
ITEM 1. - FINANCIAL STATEMENTS
<S> <C>
BALANCE SHEET - June 30, 2000 and December 31, 1999 3
STATEMENT OF OPERATIONS - Three months and Six months Ended June 30, 1999
and 2000 and November 17, 1988
(Inception) to June 30, 2000 (Cumulative) 4
STATEMENT OF STOCKHOLDERS' EQUITY - Six months ended June 30, 2000 5
STATEMENT OF CASH FLOWS - Six months ended June 30, 1999 and 2000 and
November 17, 1988 (Inception) to June 30, 2000 (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 9
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT (UNAUDITED)
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30,
2000 December
----
(UNAUDITED) 31, 1999
----------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $1,489,517 $2,169,252
Note receivable - acquiree 200,000
Other Current Assets 36,979 45,999
---------- ----------
TOTAL CURRENT ASSETS 1,726,496 2,215,251
FIXED ASSETS (net of accumulated depreciation of $83,251 and $72,773
at June 30, 2000 and December 31, 1999, respectively) 43,162 53,640
DEFERRED ACQUISITION COSTS 127,000
DEPOSIT 10,654 10,654
---------- ----------
TOTAL ASSETS $1,907,312 $2,279,545
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 189,231 $ 41,166
---------- ----------
TOTAL LIABILITIES 189,231 41,166
---------- ----------
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 June 30, 2000 and December 31, 1999 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (7,031,477) (6,511,179)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,718,081 2,238,379
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,907,312 $2,279,545
========== ==========
</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
(Inception) to
1999 2000 1999 2000 June 30, 2000
---- ---- ---- ---- (cumulative)
-----------------
<S> <C> <C> <C> <C> <C>
INCOME - consulting fees $ 0 $ 0 $ 0 $ 0 $ 133,973
----------- ----------- ----------- ---------- -----------
EXPENSES
Royalties (40,511) (42,542) (81,024) (85,085) (1,124,162)
Research and Development 0 0 0 0 (557,168)
General and Administrative (214,621) (221,029) (451,262) (490,680) (5,132,134)
----------- ----------- ----------- ---------- -----------
TOTAL EXPENSES (255,132) (263,571) (532,286) (575,765) (6,813,464)
----------- ----------- ----------- ---------- -----------
LOSS FROM OPERATIONS (255,132) (263,571) (532,286) (575,765) (6,679,491)
INTEREST EXPENSE AND
AMORTIZATION AND WRITE-
OFF OF DISCOUNT AND DEBT
ISSUANCE COSTS (2,211,400)
INTEREST INCOME 29,611 25,972 62,074 55,467 694,702
----------- ----------- ----------- ---------- -----------
LOSS BEFORE
EXTRAORDINARY INCOME (225,521) (237,599) (470,212) (520,298) (8,196,189)
EXTRAORDINARY INCOME
FROM FORGIVENESS OF
INDEBTEDNESS 1,164,712
----------- ----------- ----------- ---------- -----------
NET LOSS $ (225,521) $ (237,599) $ (470,212) $ (520,298) $(7,031,477)
=========== =========== =========== ========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,295,201 3,735,201 5,295,201 3,735,201 2,727,640
=========== =========== =========== ========== ===========
LOSS PER COMMON SHARE
Loss before extraordinary income $ (.04) $ (.06) $ (.09) $ (.14) $ (3.01)
Extraordinary income .43
----------- ----------- ----------- ---------- -----------
NET LOSS $ (.04) $ (.06) $ (.09) $ (.14) $ (2.58)
=========== =========== =========== ========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
-------------- Paid-in Development
Shares Amount Capital Stage Total
------ ------ ------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1999 3,735,201 $373 $ 8,749,185 ($6,511,179) $2,238,379
Net loss for the six months
ended June 30, 2000 (520,298) (520,298)
--------- ---- ----------- ----------- ----------
Balance June 30, 2000 3,735,201 $373 $ 8,749,185 $(7,031,477) $1,718,081
========= ==== =========== =========== ==========
</TABLE>
See notes to financial statements
5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
November 17, 1988
(Inception) to
SIX MONTHS ENDED JUNE 30, June 30, 2000
2000 1999 (Cumulative)
---- ---- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (520,298) $ (470,212) $(7,031,477)
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 10,478 10,478 90,380
Net loss on disposal of fixed assets 5,932
Forgiveness of indebtedness (1,164,712)
Increase (decrease) in cash flows from
Other current assets 9,020 (1,989) (36,979)
Deposit (10,654)
Accounts payable and accrued expenses 148,065 (22,144) 479,614
------------ ------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (352,735) (483,867) (5,753,406)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 588,131 10,544,622
Investments in marketable securities (10,544,622)
Purchases of fixed assets (148,422)
Note receivable (200,000) (200,000)
Deferred acquisition costs (127,000) (127,000)
Other 9,192
------------ ------------ -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (327,000) 588,131 (466,230)
------------ ------------ -----------
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 (1,075,000)
Payments of notes payable (245)
------------ ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,709,153
------------ ------------ -----------
INCREASE (DECREASE) IN CASH (679,735) 104,264 1,489,517
CASH - beginning 2,169,252 13,086
------------ ------------ -----------
CASH - end $ 1,489,517 $ 117,350 $ 1,489,517
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes $ 820 $ 23,698 $ 56,331
------------ ------------ -----------
Cash paid for interest NONE NONE $ 6,893
============ ============ ===========
</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, 1999 of Imatec, Ltd. (Company), as filed with the
Securities and Exchange Commission. The December 31, 1999 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, 2000 are not necessarily indicative of the results to
be expected for the full year.
2. LOSS PER SHARE
Basic loss per share was computed based upon the weighted average number of
common shares and common share equivalents outstanding. Dilutive loss per common
share has not been presented because it was anti-dilutive.
3. PREFERRED STOCK
The Board of Directors have designated, subject to stockholder approval, a Class
A preferred stock, convertible into common stock at $1.50, per share.
4. ACQUISITION
On May 30, 2000, the Company agreed, subject to closing conditions, to acquire
the assets of Sequel Technology Corporation (Sequel) in exchange for 15,000,000
shares of the Company's common stock, subject to adjustment, and the assumption
of liabilities of Sequel, of approximately $2,000,000. The Company has also
agreed to lend Sequel up to $500,000, with interest at 10%, per annum.
Subsequent to June 30, 2000, the Company incurred additional expenses of
approximately $55,000.
7
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ITEM 2. PLAN OF OPERATION
The Company was organized on November 17, 1998. The Company was involved in
significant patent litigation against Apple Computer Corp. ("Apple"), as
discussed in Item 1 of Part II herein. As the litigation has been resolved, the
Company believes, based upon its internal budgets, that its available cash
resources will be sufficient for the Company to either: (a) continue its
existing business by: (i) engaging 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) engaging in marketing activities to
facilitate the licensing of the Company's technology and its Imatec 20/20
Systems, and (iii) conduct its current operations at least through the year
ending June 30, 2001, as originally planned; or (b) assuming the Sequel
acquisition closes, to pursue Sequel's business. The Company has no plans to
pursue its historical business plan if the acquisition closes as scheduled.
The Company does not intend to utilize any cash resources towards research and
development or the purchase and/or sale of any significant equipment, except for
expenses in connection with the acquisition and termination of its license
agreement. In addition, assuming the acquisition occurs, the Company will hire
all of Sequel's employees.
General and administrative expenses for the three and six months ended June 30,
2000 increased by $6,408 from $39,418, respectively, from $214,621 and $451,262
in 1999 to $221,029 and $490,680, respectively, in 2000. 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, 2000, interest income decreased by
$3,639 and $6,607, respectively, from $29,611 and $62,074 in 1999 to $25,972 and
$55,467 in 2000, respectively, resulting from the use of marketable securities
and cash.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been in the development stage and, primarily as a consequence of
expenses incurred in connection with research and development activities, at
June 30, 2000, the Company had accumulated stockholders' deficit of $7,031,477.
The Company has continued to incur losses since June 30, 2000.
As a result of the outcome of the Apple litigation, the Company conducted a
search for a transaction designed to enhance stockholder value and has selected
Sequel Technology Corporation, a network and internet resource management ,
allocation and utilization company. The Company has entered into an agreement,
subject to closing conditions, to acquire the assets and operations and assume
the liabilities of Sequel in exchange for common stock, subject to the closing
conditions. The acquisition will not require any cash outlay, except for
expenses of the transaction. The Company believes that the remaining cash, after
the payment to terminate the license agreement of $500,000 and the expenses of
the acquisition of approximately $182,000, will be sufficient to sustain the
Company through at least June 30, 2001 or until anticipated financing of Sequel
is obtained.
8
<PAGE>
Assuming the closing conditions are not met, 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, 2001, 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 whether or not the
acquisition occurs. There can be no assurance that the Company will be
successful in its plan of operation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1998, the Company and an officer filed a patent infringement
complaint for $1.1 billion against Apple Computer Corp. (Apple) in the United
States District Court for the Southern District of New York, alleging
infringement on certain of the Company's patents. In 1999, Apple filed motions
to dismiss and for summary judgement. In January 2000, the Court granted Apple's
motions, held that the inventions, which are the subject of the patents had been
previously assigned and held a certain system does not infringe.
The Company and the officer have appealed the decision to the United States
Court of Appeals for the Second Circuit and believe the court erred in
determining the previous assignment and incorrectly construed the claim of the
patents.
In addition, Apple filed a motion to recover attorney's fees of approximately
$1,700,000. The Company and the officer have vigorously contested the motion and
believe the action for fees is without merit.
On May 13, 2000, the motion for attorney's fees was overturned.
ITEM 2. CHANGES IN SECURITIES
The board of directors have designated, subject to stockholder approval, a Class
A preferred stock, convertible into $1.50, per share.
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
On May 30, 2000, the Company agreed to acquire the assets of Sequel Technology
Corporation (Sequel) in exchange for 15,000,000 shares of the Company's common
stock, subject to adjustment, and the assumption liabilities of approximately
$2,000,000 of Sequel.
The Company has also agreed to lend Sequel up to $500,000, with interest at 10%,
per annum, to repay certain outstanding debts and for working capital.
As of closing, the Company will terminate its license agreement with Dr. Hanoch
Shalit in exchange for $500,000 plus the Company's existing intellectual
property.
Also at closing, the Company's current directors and officers will resign.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - Exhibit 15 - Letter on unaudited financial information
Exhibit 27 - Financial data schedule
Forms 8-K - June 6, 2000 - Item 5. Other Information - Asset Purchase Agreement
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 10, 2000
10
<PAGE>
Board of Directors
Imatec, Ltd.
New York, NY
INDEPENDENT ACCOUNTANTS' REPORT
We have reviewed the accompanying balance sheet of Imatec, Ltd. as of
June 30, 2000, and the accompanying statements of operations, stockholders'
equity and cash flows for the three months and six months then ended. These
interim financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the interim financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying interim financial statements in order
for them to be in conformity with generally accepted accounting principles.
August 10, 2000 By: /s/ Most Horowitz & Company, LLP
----------------------------------------
Most Horowitz & Company, LLP
11
