<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, 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.)
3245 146th Place, S.E. 98007
Bellevue, Washington (Zip Code)
(Address of principal executive offices)
(425) 556-4054
(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 20, 2000 was 18,735,201.
Transitional small business disclosure format: Yes No X
---- -----
<PAGE>
IMATEC, LTD.
FINANCIAL STATEMENTS
INDEX
PART 1. - FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<S> <C>
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEET - September 30, 2000 3
STATEMENT OF OPERATIONS - Three months and Nine months Ended September 30, 2000
and 1999 4
STATEMENT OF CASH FLOWS - Nine months ended September 30, 2000 and 1999 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. - PLAN OF OPERATION 7
PART II. - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS 8
ITEM 2. - CHANGES IN SECURITIES 8
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 8
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
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 STATEMENTS (UNAUDITED)
IMATEC, LTD.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30,
2000
-------------
<S> <C>
CURRENT ASSETS
Cash $ 177,623
Note receivable - acquiree 470,000
Other current assets 79,097
----------
TOTAL CURRENT ASSETS 726,720
FIXED ASSETS 37,923
PREPAID LICENSING 500,000
DEFERRED ACQUISITION COSTS 213,358
DEPOSIT 10,654
----------
TOTAL ASSETS $1,488,655
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 7,285
----------
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 - 7,470,402 at September 30, 2000, as restated 747
Additional paid-in capital 8,748,811
Deficit ( 7,268,188)
----------
TOTAL STOCKHOLDERS' EQUITY 1,481,370
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,488,655
==========
</TABLE>
See notes to financial statements
3
<PAGE>
IMATEC, LTD.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME - consulting fees $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ----------
EXPENSES
Royalties ( 46,159) ( 42,543) ( 131,244) ( 123,567)
General and administrative ( 197,814) ( 239,747) ( 688,494) ( 691,059)
---------- ---------- ---------- ----------
TOTAL EXPENSES ( 243,973) ( 282,340) ( 819,738) ( 814,626)
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS ( 243,973) ( 282,340) ( 819,738) ( 814,626)
INTEREST INCOME 7,262 29,704 62,729 91,778
---------- ---------- ---------- ----------
NET LOSS ($ 236,711) ($ 252,626) ($ 757,009) ($ 722,848)
========== ========== ========== ==========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, AS RESTATED 7,470,402 10,590,402 7,470,402 10,590,402
========== ========== ========== ==========
BASIC NET LOSS PER COMMON SHARE, AS RESTATED $ (.03) $ (.02) $ (.10) $ (.07)
========== ========== ========== ==========
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($ 757,009) ($ 722,848)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and other amortization 15,717 15,717
Increase (decrease) in cash flows from
Other current assets ( 33,098) 5,574
Deposit ( 10,654)
Accounts payable and accrued expenses ( 33,881) ( 6,352)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ( 808,271) ( 718,563)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Prepaid licensing ( 500,000)
Loans to acquiree ( 470,000)
Acquisition expenses ( 213,358)
Proceeds from sale of marketable securities 3,039,372
---------- ----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES ( 1,183,358) 3,039,372
---------- ----------
INCREASE (DECREASE) IN CASH ( 1,991,629) 2,320,809
CASH - beginning 2,169,252 13,086
---------- ----------
CASH - end $ 177,623 $2,333,895
========== ==========
</TABLE>
See notes to financial statements
5
<PAGE>
IMATEC, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. LINE OF BUSINESS
Imatec, Ltd. (Company) was incorporated on November 17, 1988 to develop, design,
market and license image reproduction and enhancement products. The Company had
been in the development stage since its inception. Upon the closing on the
acquisition (Note 4), the Company will cease its existing business and continue
the business of the acquiree.
2. 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.
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, 2000 are not necessarily indicative of the
results to be expected for the full year.
3. LOSS PER SHARE
Basic loss per share was computed based upon the weighted average number of
common shares and common share equivalents outstanding, as restated for the
stock split. Dilutive loss per common share has not been presented because it
was anti-dilutive.
4. ACQUISITION AND OTHER SUBSEQUENT EVENTS
On May 26, 2000, and as amended July 19, 2000, the Company entered into an
agreement to acquire substantially all the assets of Sequel Technology
Corporation (Sequel) through a newly formed, wholly-owned company, in exchange
for 15,000,000 shares of the Company's common stock and the assumption of
liabilities of approximately $2,200,000 of Sequel, including a bank loan of
$752,930 and $850,000 to a related party. The Company has also agreed to lend
Sequel up to $500,000, with interest at 10%, per annum. As of September 30,
2000, the note receivable from Sequel was $470,000. The acquisition closed on
October 20, 2000.
As a result of the acquisition, the Company will terminate the license agreement
by making a final payment to the stockholder/officer of $500,000, plus the
assignment of all intellectual properties related to the license, including the
name "IMATEC." The Company will also pay severance to the two employees of the
Company, rent to terminate the lease, etc. for an aggregate of approximately
$52,000.
Through September 30, 2000, the Company incurred expenses of $213,358 in
connection with the acquisition and approximately $15,000, thereafter.
On July 19, 2000, the Board of Directors designated 500,000 shares of Series A
Convertible Preferred Stock, par value of $.0001, per share, with a stated value
of $5, per share, and convertible into common stock at one share to ten shares,
provided the certificate of designation of such shares was filed promptly
following the closing of the acquisition of Sequel.
-6-
<PAGE>
Immediately prior to the closing, the Company approved a one-for-two stock split
for common stockholders of record on October 2, 2000, and will issue 3,735,201
shares of common stock and additional options to purchase 345,000 shares of
common stock under the stock option plan. All references to the number of common
shares and per share amounts have been restated to give retroactive effect to
the stock split for all periods presented.
On October 24, 2000, a majority of the stockholders approved an Amendment to
the Company's Certificate of Incorporation to: (1) change the name of the
Company to Sequel Technology Corporation and (2) increase the authorized shares
of common stock to 40,000,0000.
The Company has sold 150,000 shares of Series A Convertible Preferred Stock in
exchange for $750,000. The Company also has an irrevocable subscription for
20,000 additional shares of Series A Convertible Preferred Stock, which the
subscriber is in default.
The Company has also sold three irrevocable units (Units) for $50,000, per Unit.
In addition, the Company has irrevocable subscription agreements for seven
additional Units, which the subscriber is in default. Each Unit consists of
$50,000 Series A Senior Notes (Notes) and 50,000 shares of common stock. The
Notes are due January 1, 2002 and bear interest at 12%, per annum.
The conversion of the Series A Convertible Preferred Stock will occur
immediately upon amendment of the Certificate of Incorporation of the Company to
increase the capitalization to provide for a sufficient number of shares of
common stock. The issuance of the shares of common stock pursuant to the sale of
the Units will occur in November 2000.
On November 27, 2000, the Company intends to file the Certificate of Amendment
to the Company's Certificate of Incorporation.
ITEM 2. PLAN OF OPERATION
The Company was organized on November 17, 1988 to develop, design, market and
license image reproduction and enhancement products. As a result of the outcome
of the litigation with Apple Computer Corp. and the Company's search for a
transaction designed to enhance stockholder value, the Company has selected
Sequel Technology Corporation (Sequel). The Company has acquired the assets and
assumed certain liabilities of Sequel in exchange for common stock. The Company
will continue the operations of Sequel and has no plans to pursue the image
reproduction business. The Company has hired, all of Sequel's employees,
appointed all new directors and, effective November 27, 2000, intends to change
its name to Sequel Technology Corporation.
Sequel develops and markets software, which monitors and controls Internet
access and usage. For the year ended December 31, 1999 and 1998, revenues were
$748,000 and $734,000 and net loss was $7,400,000 and $8,000,000, respectively.
In addition, Sequel leases approximately 6,900 square feet through January 31,
2001 and has twelve full time employees.
HISTORICAL INFORMATION
General and administrative expenses for the three and nine months ended
September 30, 2000 (decreased) increased, respectively, slightly from the three
and nine months ended September 30, 1999, resulting from increased litigation
expenses net of decreases in other expenses.
For the three and nine months ended September 30, 2000, interest income
decreased by $22,442 and $29,049, respectively, from $29,704 and $91,778 in 1999
to $7,262 and $62,729 in 2000, respectively, resulting from the use of
marketable securities and cash.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, working capital was $719,435, a decrease of $1,454,650
since December 31, 1999, resulting from the cost of the Apple litigation,
operating expenses, the final payment on the license agreement and the expenses
of the acquisition.
-7-
<PAGE>
The Company had been in the development stage and, primarily because of expenses
incurred in connection with research and development activities, at September
30, 2000, the Company had accumulated stockholders' deficit of $7,268,188. The
Company has continued to incur losses since September 30, 2000.
Although, the acquisition did not require any cash outlay, except for expenses
of the transaction and the termination of the license agreement, the Company is
suffering from a chronic lack of working capital. The Company believes that the
remaining cash, together with the proceeds collected to date from the sales of
Series A Convertible Preferred Stock of $750,000 and the Series A Senior Notes
and common stock of $150,000, will be sufficient to sustain the Company through
at least November 23, 2000. The Company is currently making efforts to raise
additional capital and will continue to seek further equity or debt financing
until profitability is achieved. There is no assurance that additional financing
will be obtained of profitability achieved.
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.
The Company intends to discontinue participation in the action as soon as
reasonably practicable.
ITEM 2. CHANGES IN SECURITIES
On July 19, 2000, the Board of Directors designated 500,000 shares of Series A
Convertible Preferred Stock, par value of $.0001, per share, with a stated value
of $5, per share, and convertible into common stock at one share to ten shares,
provided the certificate of designation of such shares was filed promptly
following the closing of the acquisition of Sequel Technology Corporation.
Immediately prior to the closing, the Company approved a one-for-two stock split
for common stockholders of record on October 2, 2000, and will issue 3,735,201
shares of common stock and additional options to purchase 345,000 shares of
common stock under the stock option plan. All references to the number of common
shares and per share amounts have been restated to give retroactive effect to
the stock split for all periods presented.
On October 24, 2000, a majority of the stockholders approved an Amendment to
the Company's Certificate of Incorporation to: (1) change the name of the
Company to Sequel Technology Corporation and (2) increase the authorized shares
of common stock to 40,000,0000.
-8-
<PAGE>
The Company has sold 150,000 shares of Series A Convertible Preferred Stock in
exchange for $750,000. The Company also has an irrevocable subscription for
20,000 additional shares of Series A Convertible Preferred Stock, in respect
with which the subscriber is in default.
The Company has also sold three irrevocable units (Units) for $50,000, per Unit.
In addition, the Company has irrevocable subscription agreements for seven
additional Units, in respect with which the subscriber is in default. Each Unit
consists of $50,000 Series A Senior Notes (Notes) and 50,000 shares of common
stock. The Notes are due January 1, 2002 and bear interest at 12%, per annum.
The conversion of the Series A Convertible Preferred Stock will occur
immediately upon amendment of the Certificate of Incorporation of the Company to
increase the capitalization to provide for a sufficient number of shares of
common stock. The issuance of the shares of common stock pursuant to the sale of
the Units will occur in November 2000.
On November 27, 2000, the Company intends to file the Certificate of Amendment
to the Company's Certificate of Incorporation, as more fully described in the
Schedule 14C Information Statement filed on November 7, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has obtained the written consents of certain of its stockholders of
record on October 24, 2000, representing 12,585,000 shares of common stock, of a
total of 18,735,201 shares of common stock, to approve amendments to the
Company's Certificate of Incorporation to: (1) change name of the Company to
Sequel Technology Corporation and (2) increase the number of authorized shares
of common stock from 20,000,000 to 40,000,000.
ITEM 5. OTHER INFORMATION
ACQUISITION
On May 26, 2000, and as amended July 19, 2000, the Company entered into an
agreement to acquire substantially all the assets of Sequel Technology
Corporation (Sequel) through a newly formed, wholly-owned company, in exchange
for 15,000,000 shares of the Company's common stock and the assumption of
liabilities of approximately $2,200,000 of Sequel, including a bank loan of
$752,930 and $850,000 to a related party. The Company has also agreed to lend
Sequel up to $500,000, with interest at 10%, per annum. As of September 30,
2000, the note receivable from Sequel was $470,000. The acquisition closed on
October 20, 2000.
As a result of the acquisition, the Company will terminate the license agreement
by making a final payment to the stockholder/officer of $500,000, plus the
assignment of all intellectual properties related to the license, including the
name "IMATEC." The Company will also pay severance to the two employees of the
Company, rent to terminate the lease, etc. for an aggregate of approximately
$52,000.
Through September 30, 2000, the Company incurred expenses of $213,358 in
connection with the acquisition and approximately $15,000, thereafter.
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/A - October 26, 2000 - Item 5. Other Information - Asset Purchase
Agreement
-9-
<PAGE>
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.
Dated: November 20, 2000 By: /s/ Rand Ross Schulman
---------------------------------------
Rand Ross Schulman
Chief Executive Officer
Dated: November 20, 2000 By: /s/ Mark Southern
---------------------------------------
Mark Southern
Chief Financial Officer
