<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 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 of incorporation)          (I.R.S. Employer
                                                       Identification No.)

                              150 East 58th Street
                            New York, New York 10155
                    (Address of principal executive offices)

                                 (212) 826-0440
                           (Issuer's Telephone Number)

                Securities registered under Section 12(b) of the
                                  Exchange Act:

                               Title of each class
                    -----------------------------------------
                                      None

                Securities registered under Section 12(g) of the
                                  Exchange Act:

                               Title of each class
                             -----------------------
                    Common Stock, par value $.0001 per share
                              Share Purchase Rights

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Issuer's revenue for its most recent fiscal year: $ 0

The aggregate market value of the voting common equity stock held by
non-affiliates, computed based upon the closing price on March24, 2000 was
$723,213.

The number of outstanding shares of Common Stock, par value $.01 per share, of
the Registrant as of March 20, 2000 was 3,735,201 shares.

Transitional small business disclosure format (check one) Yes [ ]  No [X]

                                     PART I
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

         The Company was incorporated in 1988 to develop, design, market, and
license its proprietary technology, which enhances image reproduction by
reducing distortion that normally occurs in the imaging process, for application
in such markets as medical imaging, graphic arts, computers, cinematography, and
television/video. Each application will be a demonstration system of hardware
and software components (an "Imatec 20/20 System") expressly developed for a
specific market. Based on the results of extensive testing, the Company has
developed an Imatec 20/20 System for medical diagnostic imaging devices which is
capable of improving the quality of film reproduction of images taken by medical
diagnostic imaging devices such as magnetic resonance imaging ("MRI"),
computerized tomography ("CT") and ultrasound scanners. The Imatec 20/20 System
for medical diagnostic imaging devices achieves this goal regardless of the type
of medical imaging film used which may result in cost savings to the user. The
Company has also developed an Imatec 20/20 System for the medical field of
teleradiology, which is the viewing of the same medical image on different
monitor screens in separate locations. Although the first applications of the
Company's technology have been for the medical diagnostic imaging field, which
only require black and white reproduction, the Company began developing an
Imatec 20/20 System designed to reduce distortions of reproduction of color
images and which is intended to facilitate the Company's development of Imatec
20/20 Systems for non-medical imaging fields.

         The Company's technology is designed to objectively measure the image
characteristics of an original image and compare it to its reproduced image,
computing the existing tone and color distortions between the two images and
correcting such distortions. Current imaging systems create reproductions that
have distortions and are usually adjusted subjectively during the reproduction
process. Aspects of the Company's technology are set forth in its patents which
have been licensed by the Company from Dr. Hanoch Shalit, the Company's
President and Chief Executive Officer. The Company has designed, built, and
tested a prototype of a device incorporating the Imatec 20/20 System which can
be used with MRI, CT, and ultrasound scanners.

         The Company entered into a license agreement as of June 25, 1995 with
Dr. Hanoch Shalit, the Company's Chairman of the Board of Directors, President,
and Chief Executive Officer (the "License Agreement"). The License Agreement
grants the Company the exclusive right to make, use, sell, and sublicense
"Patentable Image Technology," which is defined in the License Agreement as the
three United States patents, two European patents and certain U.S. and foreign
patent applications. Under the terms of the License Agreement, Dr. Shalit
received from the Company a one-time $350,000 payment in January 1996. Dr.
Shalit is also entitled to receive a flat royalty fee of $140,000 per annum,
payable in monthly installments of $11,667, for so long as the Company and any
successor of the Company is in existence (the "Annual Royalty"); provided,
however, that in the event that Dr. Shalit is no longer Chairman of the Board of
Directors, President, and Chief Executive Officer for any reason whatsoever, but
the Company or any successor of the Company continues in existence, the Annual
Royalty shall automatically be increased to $250,000 per annum. Pursuant to the
terms of the License Agreement, the Annual Royalty shall increase by 5% every
year as long as the Company or any successor of the Company is in existence. For
the year ended December 31, 1999, the Annual Royalty amounted to $166,109. The
License Agreement also grants to the Company the exclusive right as to
inventions made by Dr. Shalit in the course of his employment under his
employment agreement with the Company. The Company's obligations to pay the
Annual Royalty is to continue until the expiration of the License Agreement. The
term of the License Agreement expires when the last licensed patent expires,
whether in the United States or abroad. Under the License Agreement, the Company
is obligated to use its reasonable best efforts to make, use, sell, protect and
sublicense to others the Patentable Image Technology.

         The Company has made and presently intends to make all appropriate
filings and registrations, or take all other actions the Company believes to be
necessary, to obtain and protect all patents, trademarks, copyrights,
tradenames, and all other intellectual property rights, if any, relating to the
Company, although there can be no assurance that the Company will be able to
effectively do so.

         The Company has sent letters alleging that its patents have been
infringed to three companies. They have denied such infringement. The Company
has been advised that patent infringement litigation may be expensive, its
results uncertain due to the uncertainty of litigation and that a final
judgement may not be expected before three years.

         In February 1998, the Company and Dr. Shalit, , filed a patent
infringement complaint against Apple Computer Corp. ("Apple") in the United
States District Court for the Southern District of New York. The complaint
alleges that Apple infringed on the Patents, defined below, which were licensed
exclusively by Dr. Shalit to the Company, by making, using and selling its
ColorSync color management systems. The "Patents" are US Letter Patent No.
4,939,581, entitled, "Method and System in Video Image Hard Copy Reproduction";
Patent No. 5,115,229, entitled "Method and System in Video Image Reproduction";
and Patent No. 5,345,315, entitled "Method and System for Improved Tone and
Color Reproduction of Electronic Images on Hard Copy Using for a Closed Loop
Control." Apple filed a motion to dismiss and a motion for summary judgment in
April and February 1999.

                                       1
<PAGE>
        In January 2000, the Court granted Apple's motions. The Court held that
the inventions which are the subject of the Patents had been previously assigned
to a former employer of Dr. Shalit. The Court also held that Apple's ColorSync
system does not infringe any of the patents.

        The Company and Dr. Shalit have appealed the decision to the United
States Court of Appeals for the Second Circuit. The Company believes that the
District Court erred in determining that the inventions encompassed by the
Patents were previously assigned and that the District Court incorrectly
construed the claims of the Patents, resulting in an erroneous infringement
analysis.

         Apple has filed a motion to recover attorney's fees of approximately
$1.7 million. The Company has vigorously contested the motion and believes that
it is without merit.

IMATEC 20/20 SYSTEMS

         Imatec 20/20 Systems are designed to improve a reproduced image so that
it more closely resembles the original image in terms of tone and color.
Presently, many image reproduction applications employ manual adjustments based
on subjective assessment. The individual taking the image adjusts the image
recording device (i.e., the camera) by adjusting the light intensity, exposure
time, etc. The adjustment of these variables is based on the operator's
subjective perceptions. In the medical imaging process, however, a number of
variables, in addition to the subjective perceptions of the operator, influence
the fidelity of the final image as compared to the original image. Such
variables include ambient lighting conditions, photographic materials used,
particular equipment characteristics, calibration, and equipment age. Imatec
20/20 Systems employ an objective measurement of image tone rather than
subjective assessments of image and tone to reduce the distortion in the imaging
process caused by these variables. When used in connection with an MRI, CT, or
ultrasound scanner, the Imatec 20/20 System uses a photometer (an instrument
that measures properties relating to light, especially luminous intensity) to
measure the image tone characteristics that appear on the monitor screen of the
medical imaging device via a test pattern representing the tone of such images.
Thereafter, a densitometer (an instrument that measures the optical density of a
film) measures the image tone characteristics of the same image as reproduced on
film via a test pattern that represents the image as it appears on the film.
Thereafter, the characteristics of the screen image and the film image are
transferred to a computer which calculates the distortion function between the
two images and the required correction function. This computed correction
function is automatically transferred to a digital signal processor system that
modifies the film image reproduction signal on a pixel-by-pixel basis to create
an image reproduced on the film that more closely resembles the image and tone
characteristics as set forth on the screen.

         This so-called closed loop system, which measures and compares the
image tone characteristics set forth on the screen and the image tone
characteristics reproduced on the film, adjusting for those variables that
influence the reproduced image, can take one of two forms. The Imatec 20/20
System can be an add-on to MRI, CT, and ultrasound scanners. In such instances,
the operator of the medical imaging device will be required to make adjustments
each time a variable that influences the final picture is altered, such as a
change in lighting conditions or the changing of the film. Alternatively, the
Imatec 20/20 System can also be incorporated as a component of MRI, CT, and
ultrasound scanners, in which event the Imatec 20/20 System can automatically
adjust for any change in these variables.

BUSINESS STRATEGY

         The Company's strategy is (i) to license the Company's technology and
Imatec 20/20 System developed for the medical diagnostic imaging field to
manufacturers of medical imaging products, such as scanners, cameras, and image
reproduction systems, (ii) to engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems, and (iii) to
continue its research and development activities with respect to other
applications of the Company's technology in the medical imaging field and for
other imaging fields, such as graphic arts, computer, cinematography, and
television/video. The precise scope and length of any license granted by the
Company is anticipated to be dependent upon the overall nature of the license
agreement and the remuneration to be received by the Company. The Company will
simultaneously seek to license Imatec 20/20 Systems both as an add-on device for
new and existing MRI, CT, and ultrasound scanners and as an enhancement to be
included as a component of new MRI, CT, and ultrasound scanners. The Company
does not presently intend to engage in any manufacturing, sales, distribution,
or service activities with respect to its Imatec 20/20 Systems or products that
incorporate the Company's technology, or provide technical service in connection
therewith. The Company may assist a licensee in adapting the Company's
technology or an Imatec 20/20 System and preparing a technical manual for any
product that incorporates the Company's technology or Imatec 20/20 system, but
will not engage in providing the actual technical assistance to end-users of any
such product. In the event that the Company is unable to effectively license its
technology or the Imatec 20/20 System, the Company may have to engage in
manufacturing of products incorporating its technology or the Imatec 20/20
System.

                                       2
<PAGE>
MANUFACTURING, SALES, AND DISTRIBUTION

         The Company has no present intention to engage in the manufacturing,
sales, or distribution process. In the event that due to the Company's inability
to successfully license its technology or any Imatec 20/20 System the Company
determined that it was necessary to manufacture, sell and distribute imaging
products incorporating the Company's technology or Imatec 20/20 Systems, the
Company would manufacture such products on a contract manufacturing or original
equipment manufacturer (OEM) basis and have such products distributed by a
network of independent regional distributors. The Company presently has an
arrangement with an independent third party company that provides research and
development services to the Company from time to time. Such third party also has
pre-production and production capabilities. Consequently, since such third party
is already familiar with the Company's technology, the Company would engage such
third party on an OEM basis in the event that the Company was required to
manufacture products. The Company presently does not have any relationship with
any independent retail distributors.

MARKETING

         The Company markets its technology and Imatec 20/20 Systems by a
variety of means, each of which is intended to facilitate the licensing of its
technology and Imatec 20/20 Systems. The Company attends industry trade shows in
the United States where it believes it gains additional exposure to potential
licensees for its technology and Imatec 20/20 Systems. The Company has joined
certain industry trade associations to gain exposure as well as keep current of
emerging and changing imaging standards and where feasible, to have its
representatives serve on various standards committees in the imaging field. The
Company may hire marketing personnel and consultants if required.

RESEARCH AND DEVELOPMENT

         In applying the Imatec 20/20 System designed for the medical diagnostic
imaging field to other aspects of the medical imaging field, as well as in
connection with developing Imatec 20/20 Systems for other fields, the Company
intends to engage consultants and independent contractors from time to time to
conduct research and development activities. The Company, in some instances, may
acquire certain technologies that the Company believes enhance or further the
application of the Company's technology or its Imatec 20/20 Systems to other
imaging fields, although it will only effect such acquisitions in those
instances where the Company believes that acquisition of such technologies is
more economical and efficient than engaging in the research and development
itself. The Company does not have any current arrangements or understandings at
the present time to acquire any such technologies.

         The Company incurred $15,114 in research and development activities
during the year ended December 31, 1998 and none during 1999.

COMPETITION

         The image enhancement field is subject to rapid and significant
technological change that may render an Imatec 20/20 System, or products that
incorporate the Company's technology, obsolete or incompatible with the machines
they are intended to complement. In addition, such rapid changes may impose
additional, unforeseen costs on the Company in that the Company may be required
to modify its technology and Imatec 20/20 Systems to adapt to such changes.
There can be no assurance that the Company will be able to successfully modify
or upgrade its technology and Imatec 20/20 Systems as may be necessary on a
timely basis, or at all.

         While the Company is not aware of any entities that build image
enhancement devices that compete with the Company's Imatec 20/20 Systems in the
medical imaging field, there are a number of entities that are engaged in the
research and development of image enhancement products. Some entities have, and
other entities may in the future develop technologies or products that compete
with the Company's technology or Imatec 20/20 Systems. Potential competitors of
the Company include independent companies, universities, and public and private
research organizations, most of which are well established and have
substantially greater marketing, financial, technological, and other resources
than the Company. In addition, the medical imaging field in particular is
dominated by large, well-established, highly capitalized corporations. There can
be no assurance that competitors will not succeed in securing patents and/or
developing technologies or products that are more effective than the Company's
technology or Imatec 20/20 Systems, as a result of which the Company's
technology or Imatec 20/20 Systems may become obsolete or noncompetitive.

         In the event the Company is able to fully establish intellectual
property rights with respect to the technology used by the Company, of which
there can be no assurance, third parties may attempt to exercise alleged rights
in any of their patents, trademarks, copyrights, or other intellectual property
or appropriate any patents, trademarks, copyrights, or other intellectual
property rights obtained by the Company, and the Company's failure or inability
to adequately protect any of its intellectual property rights may have a
material adverse effect on the Company. In addition, there can be no assurance
that third parties will not be able to successfully assert a claim with regard
to the Company's patents and/or the Imatec 20/20 Systems under their own
intellectual property rights.

                                       3
<PAGE>
         The Company also requires all employees to sign non-disclosure,
non-competition, confidentiality, and invention assignment agreements.

         Under the License Agreement, the Company has an exclusive, worldwide
license from Dr. Shalit to make, use, sell and sublicense to others the
Patentable Image Technology.

         In December 1998 and in February 1999, the Company filed for two new
patents in the imaging field.

         The Company intends to seek to broaden its patent protection and the
application of the Company's technology and Imatec 20/20 Systems to other
markets. When seeking to apply the Company's technology to other markets, the
Company most likely will first design a research prototype of an Imatec 20/20
System for such market to test the technology in the laboratory. Thereafter, a
production prototype of such Imatec 20/20 System will be constructed for testing
at a beta, or third party, site. After successful beta testing, the Company will
then seek to market the Imatec 20/20 System and/or license the underlying
technology.

FDA CLEARANCE

         The United States Food and Drug Administration (the "FDA") employs a
rigorous system of regulations and requirements governing the clearance
processes for medical devices, requiring, among other things, the presentation
of substantial evidence, including clinical studies, establishing the safety and
efficacy of new medical devices. The principal methods by which FDA clearance is
obtained are pre-market approval ("PMA"), which is for products that are not
comparable to any other product in the market, or filing a pre-market
notification under Section 510(k) ("510(k)") of the Federal Food, Drug and
Cosmetic Act which is for products that are substantially equivalent to products
that have already received FDA clearance. Although both methods may require
clinical testing of the products in question under an approved protocol, because
PMA clearance relates to more unique, invasive, and/or potentially higher risk
products, the PMA procedure is more complex and time consuming. Applicants
utilizing the 510(k) procedure must prove that the products for which clearance
is sought are substantially equivalent to products on the market prior to the
Medical Device Amendments of 1976, or products approved thereafter pursuant to
the 510(k) procedure. The review period for a 510(k) application is
approximately ninety (90) days from the date of filing the application, although
there can be no assurance that the review period will not extend beyond such a
period.

         Under the PMA procedure, the applicant is required to conduct
substantial clinical testing to determine the safety, efficacy, and potential
hazards of the product. The review period under a PMA application is one hundred
eighty (180) days from the date of filing, and the application is not
automatically deemed cleared if not rejected during that period. The preparation
of a PMA application is significantly more complex, expensive, and time
consuming than the 510(k) procedure. Further, the FDA can request additional
information, which can prolong the clearance process.

         In order to conduct human clinical studies for any medical procedure
proposed for the Company's products, the Company, or a licensee of the Company's
technology or Imatec 20/20 System for medical imaging applications, as the case
may be, could also be required to obtain an investigational device exemption
("IDE") from the FDA or Institutional Review Board (the "IRB") which would
further increase the time before potential FDA clearance. In order to obtain an
IDE, the Company or a licensee, as the case may be, may be required to submit an
application to the FDA or IRB, including a complete description of the product
and detailed medical protocols that would be used to evaluate the product. In
the event an application were found to be in order, an IDE would ordinarily be
granted promptly thereafter.

         While a license of the Company's will be more likely to experience the
FDA review and clearance processes than the Company directly, it may be more
difficult to sell or license the Company's technology in light of such rigorous
FDA license requirements. The Company has never sought FDA approval for its
Technology.

EMPLOYEES

         As of December 31, 1999, the Company had two full-time employees- Dr.
Hanoch Shalit, who serves as the Company's Chairman of the Board of Directors,
President, Chief Executive Officer and Chief Financial Officer and one
administrative assistant. The Company also employs part-time consultants for
marketing and computer programming.

ITEM 2. DESCRIPTION OF PROPERTY

         (a) The Company renewed for 18 months its lease which was to expire on
June 19, 1999 for approximately 5,000 square feet for its principal executive
offices at 150 East 58th Street, New York, New York 10155 pursuant to which the
Company pays rent of approximately $5,330 per month. Such lease expires on
January 31, 2001.

                                       4
<PAGE>

         (b) Investment Policies
             Not applicable.

         (c) Description of real estate and operating data
             Not applicable.

ITEM 3. LEGAL PROCEEDINGS

         See Item 1 for information concerning the Company's legal dispute with
Apple.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Price Range of Common Stock

         The common stock, par value $ .01 per share (the "Common Stock) of the
Company commenced trading on the NASDAQ NATIONAL Market on October 29, 1996
under the symbol "IMEC" . In June, 1998, the Company was delisted from the
NASDAQ National Market for failure to meet the listing requirements. The Company
is currently listed on the OTC Bulletin Board. The following table sets forth,
for the periods indicated, the high and low sales prices for the Common Stock.

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                                  1999                           1998
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       Period              High            Low           High           Low
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First quarter             1.468          0.656          $ 1.063        $ 0.250
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Second Quarter            1.625          0.687            0.750          0.250
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Third Quarter             1.531          0.687            1.750          0.250
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Fourth Quarter            0.843          0.562            0.938          0.313
-------------------------------------------------------------------------------

         On March 24, 2000, the closing price of the Common Stock was $0.38.

         As of December 31, 1999, there were 293 holders of record.

DIVIDEND POLICY

         The Company has never paid cash or other dividends and does not expect
to pay any cash or other dividends in the foreseeable future with respect to the
Common Stock. The Company's future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition, and other factors
considered relevant by the Company's Board of Directors. The Company presently
intends to retain any earnings which the Company may realize in the foreseeable
future to finance the growth of the Company.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

         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 1 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 ) to engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems, and ( iii )
to conduct its operations at least through the year ending December 31,2000;
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.

                                       5
<PAGE>
         As of March 2, 2000, all of Imatec's proprietary software systems used
in the management of its business and third-party equipment and software are
Year 2000 compliant.

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 December 31, 1998 and 1999 the Company had an accumulated
stockholders' deficit of $5,636,986 and $6,511,179, respectively. The Company
has continued to incur losses since December 31, 1999.

         To date, the Company has financed its operations principally from the
sale of securities and loans. In 1991, the Company issued 55,250 shares of
Common Stock to an investor for gross proceeds of $500,000. In 1994, the Company
issued an aggregate of 12,615 shares of Common Stock to two investors for
aggregate gross proceeds of $114,224.

         In the second and third quarters of 1995, the Company borrowed an
aggregate principal amount of $175,000 from five non-affiliated, accredited
investors pursuant to one year promissory notes. All of these investors
converted their respective loans into Units in the Bridge Financing (as
hereinafter defined).

         On November 30, 1995, the Company effected the initial closing (the
"First Closing") of a private placement (the "Bridge Financing") pursuant to
which it sold an aggregate of 37 units (the "Units") to non-affiliated,
accredited investors, each Unit consisting of (a) a 10% promissory note (the
"Note") in the principal amount of $50,000, which was repaid, in part, in
November 1996 with a portion of the net proceeds of the initial public offering
of securities of the Company (the "Initial Public Offering"), (b) 6,897 shares
of Common Stock, and (c) 50,000 warrants (the "Bridge Warrants") exercisable at
$1.00 per share.." The Company received gross proceeds from the sale of the 37
Units in the First Closing of $1,850,000, pursuant to which it issued an
aggregate of 255,194 shares of Common Stock and 1,850,000 Bridge Warrants. The
investors in the First Closing received financial statements from the Company,
which did not properly account for the Company's research and development costs.
As a result thereof, the Company circulated revised financial statements and
gave rescission offers to all of the investors in the First Closing, only one of
whom accepted such rescission offer. On April 12, 1996, the Company effected a
second closing of the Bridge Financing (the "Second Closing") pursuant to which
it received an additional $2,150,000 in gross proceeds for which it issued an
aggregate of 43 Units, consisting of notes in the aggregate principal amount of
$2,150,000, 296,591 shares of Common Stock, and 2,150,000 Bridge Warrants. The
aggregate net proceeds from the Bridge Financing were approximately $3,230,000
(after commissions and expenses) and in connection therewith the Company issued
an aggregate of 551,785 shares of Common Stock (including 25 shares of Common
Stock which resulted from rounding to the nearest whole share in connection with
the purchase of fractional units) and 4,000,000 Bridge Warrants. The Company
used the net proceeds from the Bridge Financing (i) to make a one-time payment
of $350,000 to the Company's Chairman of the Board of Directors, President, and
Chief Executive Officer, Dr. Hanoch Shalit, pursuant to the License Agreement
and (ii) for marketing and working capital purposes.

         In connection with the issuance of Notes with an aggregate principal
amount of $4,000,000, 551,785 shares of Common Stock and 4,000,000 Bridge
Warrants in the Bridge Financing, the Company recorded an original issue
discount of $1,503,570 based upon the allocation of the relative fair market
value of the Notes, Bridge Warrants, and shares of the Common Stock included in
the Units on the date of issuance. The Company incurred approximately $664,000
of offering costs related to the Bridge Financing, of which approximately
$415,000 was allocated to deferred debt issuance costs with the remainder
allocated to paid-in capital of the shares of Common Stock and Bridge Warrants
issued therein. The original issue discount was amortized over the term of the
Notes as interest expense.
<PAGE>

         In October 1996, in order to comply with listing requirements of the
NASDAQ Market, the Company restructured the Bridge Financing (the "Bridge
Financing Restructuring"). Accordingly, all of the investors in the Bridge
Financing (the "Bridge Investors") were given the choice to either (i) convert
on the closing date their entire principal and accrued interest into shares of
Common Stock at the rate of $4.00 per share, retain the Bridge Warrants, and
return all of the shares of Common Stock that they received in the Bridge
Financing ("Option A"), or (ii) upon the closing of the Initial Public Offering
receive a one time payment equal to 50% of the principal amount of their Note,
not receive any accrued interest whatsoever, and return all of the Bridge
Warrants and Common Stock that they received in the Bridge Financing ("Option
B"). Bridge Investors owning an aggregate of 38 Units elected Option A and
Bridge Investors owning an aggregate of 41 Units elected Option B. The Bridge
Investor representing the remaining one (1) Unit who failed to choose either
Option A or Option B as of March 1, 1997 was deemed to have chosen Option A by
the Company, and the Company canceled on its books and records the Common Stock
issued to him in the Bridge Financing. Consequently, the Bridge Financing was
restructured such that, upon the closing of the Initial Public Offering the
Company repaid an aggregate of $1,025,000 of principal amount of Notes with
respect to those investors who chose Option B. The balance of the principal
amount of the Notes issued in the Bridge Financing, and all accrued interest
thereon, has been forgiven and will not be repaid. In addition, the Company
issued upon the closing of the Initial Public Offering an aggregate of 525,201
shares of Common Stock and 1,950,000 Bridge Warrants to those Bridge Investors
who chose Option A. The balance of 2,050,000 Bridge Warrants and all 551,785
shares of Common Stock issued in the Bridge Financing were returned to the
Company upon the closing of Initial Public Offering.

                                       6
<PAGE>
         In connection with the Bridge Financing Restructuring, the Company (i)
wrote-off $726,602 of unamortized loan discount and $167,593 of deferred loan
costs, and, (ii) recognized income of $1,164,712 from the forgiveness of
indebtedness.

         On November 1, 1996, the Company consummated the initial public
offering of securities of the Company pursuant to which the Company sold an
aggregate of 1,000,000 shares of Common Stock and 4,000,000 Redeemable Warrants
for aggregate gross proceeds of $6,000,000.

         On November 8, 1996, the Company consummated a sale of 600,000
Redeemable Warrants included in the underwriter's over-allotment option for
aggregate gross proceeds of $150,000.

NET OPERATING LOSS CARRYFORWARDS

         As of December 31, 1999, the Company had net operating loss
carryforwards under Section 172 of the Internal Revenue Code, as amended (the
"Code"), of approximately $5,900,000 for Federal income tax purposes which may
be used to offset future taxable income through 2014.

ITEM 7. FINANCIAL STATEMENTS

         See Page F-1 hereof for the Financial Statements.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         Not Applicable.

                                       7


<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

         Directors and Officers

         The names and ages of the directors and executive officers of the
Company are set forth below.
<TABLE>
<CAPTION>
         Name                       Age     Position Held
         ----                       ---     -------------
<S>                                 <C>     <C>
         Dr. Hanoch Shalit          46      Chairman of the Board of Directors, President,
                                            Chief Executive Officer, Chief Financial Officer
                                            and Secretary

         Steven Ai                  45      Director

         Simon Cross                48      Director
</TABLE>
         The Company has agreed with Dr. Shalit that he shall be entitled to a
nominee on the Board of Directors until the expiration date of the last of the
Company's patents. The Company has also agreed with A.S. Goldman, the
underwriter of the Initial Public Offering (the "Underwriter") that, for the
period terminating on October 29, 2001, that it will use its best efforts to
cause one individual designated by the Underwriter, and acceptable to the
Company, to be elected to the Board of Directors, which individual may be a
director, officer, employee, or affiliate of such underwriter. Directors serve
until the next annual meeting of stockholders and the election and qualification
of their successors. During 1999, options were granted to the Directors to
purchase an aggregate of 300,000 shares of common stock. Through 1998, Directors
did not receive any compensation for serving on the Board of Directors. . The
officers are appointed by the directors and serve, subject to existing
employment agreements, at the discretion of the Board of Directors. There are no
family relationships among any Directors or executive officers.

         Dr. Shalit founded the Company in November 1988 and has been its
Chairman of the Board of Directors, President, Chief Executive Officer, and
Secretary since inception and Chief Financial Officer since April 1999. From
September 1982 until June 1987 Dr. Shalit was employed as a senior chemist with
Chemco Photo Products, a private imaging company. From June 1987 until November
1988, Dr. Shalit was employed by the FONAR Corporation, a public imaging company
where he was the President of the Photographic Sciences Division in charge of
production, sales, and service for the FONAR corporation's photographic
products. Dr. Shalit earned a B.S. (Honors) in the Sciences of Photography from
the Polytechnic of Central London (now known as University of Westminster) in
Great Britain in 1978 and a Ph.D. in Physics from the University of London in
1981.

         Steven Ai has been a director of the Company since November 30, 1995.
Since 1992, Mr. Ai has been the President of City Mill Co., Ltd., a private
company located in Honolulu, Hawaii, which owns and operates a chain of retail
home product stores. Prior to 1992, Mr. Ai was a manager with the public
accounting firm of KPMG Peat Marwick.

         Simon Cross has served as a director of the Company since July 15, 1996
and served as Vice President - Marketing and Sales from January 6, 1997 until
December 1997. Since January 1999, Mr. Cross is the President of a consulting
and internet related business in the United Kingdom. From February 1993, Mr.
Cross was the general manager of Shackman Instruments, a private company located
in the United Kingdom which designs and manufactures identification cameras and
associated security systems. From May 1992 to February 1993, Mr. Cross was the
sales and marketing manager of Techspan Systems plc, a private company located
in the United Kingdom which specializes in computer controlled large scale
electronic displays. From June 1990 to May 1992, Mr. Cross was the director of
X-Tek Systems Ltd., a private company located in the United Kingdom which
develops and manufactures high definition microfocus x-ray systems for
industrial inspection.


COMMITTEES OF THE BOARD OF DIRECTORS

         The Company has two committees of the Board of Directors, an Audit
Committee and a Compensation Committee.

         The Audit Committee reviews the engagement of the independent
accountants, reviews and approves the scope of the annual audit undertaken by
the independent accountants, and reviews the independence of the accounting
firm. The Audit Committee will also review the audit and non-audit fees of the
independent accountants and the adequacy of the Company's internal control
procedures. Mr. Ai is the sole member of the Audit Committee. The Audit
Committee did not meet during the year ended December 31, 1999.

                                       8
<PAGE>

         The Compensation Committee reviews executive compensation issues. The
members of the Compensation Committee are Messrs. Cross and Shalit. The
Compensation Committee met once during the year ended December 31, 1999.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons or entities who
own more than 10% of the Company's Common Stock to file initial reports of
beneficial ownership and reports of changes in beneficial ownership of the
Company's Common Stock with the Securities and Exchange Commission. Such persons
or entities are also required by SEC regulations to furnish the Company with
copies of all reports that they file under Section 16(a). To the Company's
knowledge, all Section 16(a) filing requirements applicable to such persons or
entities were complied with in 1999.

ITEM 10. EXECUTIVE COMPENSATION.

         The following table sets forth the annual and long-term compensation
for services in all capacities to the Company for the years ended December 31,
1997, 1998 and 1999 of the Chief Executive Officer of the Company, the only
executive officer of the Company whose annual compensation in 1999 exceeded
$100,000.

                           SUMMARY COMPENSATION TABLE
                               Annual Compensation
<TABLE>
<CAPTION>
                               Annual Compensation                         Long Term Compensation
                     ----------------------------------------- -----------------------------------------------
                                                    Other      Long Term              Incentive
Name and Principal                                 Annual        Stock      Options     Plan        Other
     Position         Year   Salary     Bonus   Compensation    Award(s)      SARs    Payouts   Compensation
-------------------- ------ ---------- -------- -------------- -----------  --------- --------- --------------
<S>                  <C>    <C>        <C>      <C>            <C>          <C>       <C>       <C>
                               (1)       (2)                                  (3)
Dr. Hanoch Shalit    1999     $71,194     -           -            -           -         -            -

Chairman of the      1998     $67,804     -           -            -           -         -            -
Board of Directors,
 Chief               1997     $64,575     -           -            -           -         -            -
 Executive Officer,
 Secretary and
Chief Financial
Officer
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to his employment agreement. See "Management - Employment
    Agreements."

(2) Pursuant to his employment agreement, Dr. Shalit is entitled to receive a
    bonus equal to $10,000 for every $1,000,000 of gross annual sales received
    by the Company. See "Management -- Employment Agreements."

(3) In January 2000, Dr. Shalit was granted options to acquire 100,000 shares of
    common stock exercisable at $.66, per share, through January 2009. The
    Company deemed these options to have nominal value.

(4) .

EMPLOYMENT AGREEMENTS

         Dr. Hanoch Shalit, the Chairman of the Board of Directors, President,
Chief Executive Officer, Secretary and Chief Financial Officer of the Company is
employed pursuant to a five-year agreement which expires June 30, 2000. The
agreement provides for an annual base salary of $60,000, which increases at the
rate of 5% per annum, plus benefits. For 1999, Dr. Shalit received a base salary
of $71,194. Dr. Shalit is also entitled to receive a bonus of $10,000 for every
$1,000,000 of gross annual sales received by the Company. In addition, Dr.
Shalit's agreement provides that, during the term, he shall not compete with the
Company in the United States or Canada or disclose, without the Company's
consent, confidential information that has been or will be disclosed to him by
the Company. Dr. Shalit's employment with the Company shall terminate upon his
death or disability, the Company no longer being involved in the imaging
technology business, the bankruptcy of the Company or the Company having been
merged into or acquired by another company. Furthermore, Dr. Shalit's employment
may be terminated by the Company for "cause," which is defined as either
dishonesty detrimental to the best interests of the Company or willful
disloyalty to the Company.

                                       9
<PAGE>

         The Company is the sole beneficiary of a "key man" life insurance
policy on the life of Dr. Shalit in the amount of $1 million.

INDEMNIFICATION AGREEMENTS

         The Company has entered into an Indemnification Agreement with each of
its Directors and officers, and intends to enter into such an agreement with any
future officer, employee, agent, or fiduciary designated by the Board of
Directors (in each case, an "Indemnified Party"), which provides that the
Company indemnify the Director or other party thereto to the fullest extent
permitted by applicable law. The agreement includes indemnification, to the
extent permitted by applicable law, against expenses, including reasonable
attorneys' fees, judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by the Indemnified Party in connection with any
civil or criminal action or administrative proceeding arising out of the
Indemnified Party's performance of his duties as a Director, officer, agent, or
fiduciary of the Company. Such indemnification is available if the Indemnified
Party acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.

         Under the Indemnification Agreement, the entitlement of an Indemnified
Party to indemnification will be determined by a majority vote of a quorum of
disinterested Directors, or if such quorum is not obtainable, either by
independent counsel or by the stockholders of the Company, as determined by the
disinterested Directors. If a change of control of the Company has occurred, the
entitlement of such Indemnified Party shall be determined by independent counsel
to the Company, unless such Indemnified Party requests that either the Board or
the stockholders make such determination. Each Indemnification Agreement
requires the Company to advance litigation expenses at the request of the
Indemnified Party who is a party thereto whether prior to or after final
resolution of a proceeding, provided that he undertakes to repay such advances
if it is ultimately determined that he is not entitled to indemnification for
his expense. The advance of litigation expenses will therefore be mandatory upon
satisfaction of certain conditions by the Indemnified Party.

         The Company has obtained officers' and directors' liability insurance,
which provides for a maximum of $2,000,000 of coverage, subject to a $50,000
corporate reimbursement per occurrence payable by the Company. Any payments made
by the Company under an Indemnification Agreement which are not covered by the
insurance policy may have an adverse impact on the Company's earnings.

STOCK OPTION PLAN

         In February 1996, the Board of Directors of the Company adopted and the
stockholders of the Company subsequently Approved, of the Company's 1996 Stock
Option Plan ("Stock Option Plan") relating to 500,000 shares of Common Stock.
The purpose of the Stock Option Plan is to enable the Company to encourage key
employees, officers, Directors, and consultants to contribute to the success of
the Company by granting such individuals and Directors nonqualified "stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended ("ISOs"). As of March 2, 2000, ten year options to purchase 345,000
shares have been granted and outstanding under the Stock Option Plan, including
options granted in January 1999 with respect to 300,000 shares at $.66, per
share, to Dr. Shalit, Mr. Cross and Mr. Ai.

         The Stock Option Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee") which determines, in its discretion,
among other things, the recipients and vesting of grants and the number of
shares to be subject to such options.

         The Stock Option Plan provides for the granting of options to purchase
shares of Common Stock at an exercise price to be determined by the Board of
Directors or the Committee.

         Upon the exercise of an option, the holder must make payment of the
full exercise price. The Plan allows for payment in cash, shares of Common
Stock, or a combination of both. The Company may lend to the holder of an option
funds sufficient to pay the exercise price, subject to certain limitations.

         The Stock Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Stock Option
Plan may not be amended to increase the number of shares subject to the Stock
Option Plan, change the class of persons eligible to receive options under the
Stock Option Plan or materially increase the benefits of participants.

                                       10
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information as of March 15, 2000, with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the outstanding shares
of Common Stock, (ii) each officer and director, and (iii) all officers and
directors as a group.
<TABLE>
<CAPTION>
                                                     Shares Beneficially Owned(1)
Names and Addresses of Beneficial Owned                       Number                             Percentage
---------------------------------------              ---------------------------                 ----------
<S>                                                  <C>                                        <C>
Dr. Hanoch Shalit(2) (4)............                          935,177                                24.4

Carmello Cotrino....................                          663,000                                17.8
8 Homsted Circle
Marlboro, NJ  07746

Steven Ai (2) (4)...................                          136,833(3)                              3.6

Simon Cross(2) (4)..................                          100,000                                 2.6

Yoram Yosifov(2)....................                          297,000                                 8.0

Officers and directors as a group
(3 persons).........................                        1,172,010                                30.6
</TABLE>

(1) As used herein, the term beneficial ownership with respect to a security is
    defined by Rule 13d-3 under the Exchange Act, as consisting of sole or
    shared voting power (including the power to vote or direct the vote) and/or
    sole or shared investment power including the power to dispose or direct the
    disposition) with respect to the security through any contract, arrangement,
    understanding, relationship, or otherwise, including a right to acquire such
    power(s) during the next 60 days. Unless otherwise noted, beneficial
    ownership consists of sole ownership, voting, and investment power with
    respect to all Ordinary Shares shown as beneficially owned by them.

(2) The address of each of the referenced individuals is c/o the Company, 150
    East 58th Street, New York, New York 10155.

(3) 36,833 shares as beneficially owned by Steven Ai and held by The Revocable
    Trust of David C. Ai, dated July 24, 1985, as restated, of which Steven Ai
    serves as Chairman and, along with two other individuals, is a trustee.

(4) Includes100,000 shares which may be acquired under stock options.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Item 1 with respect to the Company's license agreement with Dr. Shalit.

         In 1999, the Company paid fees of $23,480 for computer consulting
services to a company, of which Mr. Cross, a Director of the Company, is an
Officer.

         Management believes that its agreements with officers, directors and
affiliates have been made on terms no less favorable to the Company than those
that were available from unaffiliated third parties. All future transactions,
including loans, between the Company and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors on the Board of Directors, and will be on terms no less favorable to
the Company than those that could be obtained from unaffiliated third parties.

                                       11
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

Exhibit No.

3.1(1)   Certificate of Incorporation of the Company.

3.2(1)   By-Laws of the Company.

4.1(2)   Form of Specimen certificate for shares of Common Stock.

4.2(3)   Revised Form of Redeemable Warrant Agreement by and between the Company
         and Continental Stock Transfer & Trust Company, including a form of
         specimen certificate for the Redeemable Warrants.

4.3(4)   Rights Agreement, effective as of August 17, 1998, between the Company
         and Continental Stock Transfer and Trust Company.

10.1(2)  Form of Financial Advisory and Consulting Agreement by and between the
         Company and the Underwriter.

10.2(1)  Employment Agreement by and between the Company and Dr. Hanoch Shalit.

10.5(2)  License Agreement by and between the Company and Dr. Hanoch Shalit as
         amended

10.6(2)  Form of Indemnification Agreement entered into with officers and
         directors.

10.7(1)  Lease for the Company's principal offices located at 150 E. 58th
         Street, New York, NY 10155. As amended.

10.7A    Amendment, dated January 31, 1999, to the lease.

10.8(2)  Form of Stock Option Plan.

(1)      Incorporated by reference to the corresponding exhibit to the Company's
         Registration Statement on Form SB-2, Registration No. 333-3589, dated
         May 13, 1996 and Amendment No. 1 to the Company's Registration
         Statement on Form SB-2, Registration No. 333-3589, dated June 24, 1996.

(2)      Incorporated by reference to the corresponding exhibit to Amendment No.
         1 to the Company's Registration Statement on Form SB-2, Registration
         No. 333-3589, dated June 24, 1996.

(3)      Incorporated by reference to the corresponding exhibit to Amendment No.
         3 to the Company's Registration Statement on Form SB-2, Registration
         No. 333-3589, dated October 11, 1996.

(4)      Incorporated by reference to the Company's Form 8-A dated September
         16,1998.

(5)      Incorporated by reference to the Company's Form 8-K, dated March 20,
         2000.


                                       12
<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.



Date: March ____, 2000                   By: /s/ Hanoch Shalit
                                             -----------------
                                             Hanoch Shalit
                                             Chairman of the Board of Directors,
                                             President, Chief Executive Officer
                                             and Chief Financial Officer

      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

         Name                       Title                             Date
/s/ Hanoch Shalit      Chairman of the Board of Directors,      March ___, 2000
-------------------    President, Chief Executive
                       and Financial Officer
   Hanoch Shalit


/s/ Steven Ai          Director                                 March ___, 2000
---------------
    Steven Ai

/s/ Simon Cross        Director                                 March ___, 2000
-----------------
    Simon Cross


                                       13
<PAGE>


                                  IMATEC, LTD.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                              FINANCIAL STATEMENTS



                                      INDEX

INDEPENDENT AUDITORS' REPORT                                             F-2

BALANCE SHEET - December 31, 1998 and 1999                               F-3

STATEMENT OF OPERATIONS                                                  F-4
November 17, 1988 (Inception) to December 31, 1999 (Cumulative)
and years ended December 31, 1998 and 1999

STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY -
November 17, 1988 (inception) to December 31, 1999                       F-5

STATEMENT OF CASH FLOWS - November 17, 1988 (Inception)
to December 31, 1999 (Cumulative) and years ended
December 31, 1998 and 1999                                               F-6

NOTES TO FINANCIAL STATEMENTS                                         F-7 - F-11



                                      F-1
<PAGE>


Stockholders and Board of Directors                          February 16, 2000
Imatec, Ltd.
New York, New York


                          INDEPENDENT AUDITORS' REPORT

    We have audited the accompanying balance sheet of Imatec, Ltd. (A
Development Stage Enterprise) as of December 31, 1998 and 1999, and the related
statements of operations, Stockholders' (deficit) equity and cash flows for the
years ended December 31, 1998 and 1999 and November 17, 1988 (Inception) to
December 31, 1999 (Cumulative). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Imatec, Ltd. (A Development
Stage Enterprise), as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1999 and
November 17, 1988 (Inception) to December 31, 1999 (Cumulative) in conformity
with generally accepted accounting principles.

    The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. If the Company is unsuccessful in the
litigation discussed in Note 10 to financial statements, there will be
substantial doubt about whether the Company will be able to continue as a going
concern. Management believes it will be successful. These financial statements
do not include any adjustment that might result from an unsuccessful outcome of
this matter.


                                             /s/ Most Horowitz & Company, LLP
                                             ---------------------------------
                                                 Most Horowitz & Company, LLP

New York, New York



                                       F-2


<PAGE>
                                  IMATEC, LTD.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                                  BALANCE SHEET
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                     ------------------------------

                             ASSETS                                      1998              1999
                                                                     -----------        -----------
<S>                                                                 <C>                 <C>
Current Assets
      Cash (Note 4)                                                  $   13,086          $2,169,252
      Marketable Securities (Note 5)                                  3,039,372
      Other Current Assets                                               50,272              45,999
                                                                     -----------         ----------
      Total Current Assets                                            3,102,730           2,215,251

FIXED ASSETS (net of accumulated depreciation
      of $61,629 and $82,591, at December 31,
      1998 and 1999, respectively)                                       74,602              53,640
DEPOSIT                                                                  17,920              10,654
                                                                     -----------         ----------
TOTAL ASSETS                                                         $3,195,252          $2,279,545
                                                                     ===========         ==========


              LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
      Accounts Payable and Accrued Expenses                          $   82,680          $   41,166
                                                                     -----------         ----------
TOTAL LIABILITIES                                                        82,680              41,166
                                                                     -----------         ----------

COMMITMENTS AND CONTINGENCIES (Notes 7,8 and 10)

STOCKHOLDERS' EQUITY (Note 3)
      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 December 31, 1998 and 1999                             373                 373
      Additional paid-in capital                                      8,749,185           8,749,185
      Deficit accumulated during the development stage               (5,636,986)         (6,511,179)
                                                                     -----------         ----------
TOTAL STOCKHOLDERS' EQUITY                                            3,112,572           2,238,379
                                                                     -----------         ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $3,195,252          $2,279,545
                                                                     ==========          ==========

</TABLE>
                 See accompanying notes to financial statements.

                                       F-3


<PAGE>
                                  IMATEC, LTD.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                             STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                                  November 17,
                                                              Years Ended December 31,          1988 (Inception)
                                                          ---------------------------------      to December 31
                                                               1998              1999           1999 (Cumulative)
                                                          ----------------   --------------   ----------------------
<S>                                                       <C>                <C>              <C>
INCOME - consulting fees                                                                            $133,973
                                                                                              ----------------------
EXPENSES
      Royalties (Note 7)                                      $ (158,209)      $(166,109)         (1,039,077)

      Research and Development                                   (15,114)                           (557,168)
      General and administrative                                (776,659)       (831,680)         (4,641,454)
                                                              ----------       ---------         -----------
TOTAL EXPENSES                                                  (949,982)       (997,789)         (6,237,699)
                                                              ----------       ---------         -----------
LOSS FROM OPERATIONS                                            (949,982)       (997,789)         (6,103,726)

INTEREST AND AMORTIZATION AND
      WRITE-OFF OF DISCOUNT AND
      DEBT ISSUANCE COSTS (Note 3)                                                                (2,211,400)
INTEREST INCOME                                                  173,323         123,596             639,235
                                                              ----------       ---------         -----------
LOSS BEFORE EXTRAORDINARY INCOME                                (776,659)       (874,193)         (7,675,891)
EXTRAORDINARY INCOME FROM
      FORGIVENESS OF DEBT                                                                          1,164,712
                                                              ----------       ---------         -----------
NET LOSS                                                      $ (776,659)      $(874,193)        $(6,511,179)
                                                              ==========       =========         ===========
Average number of common shares
    outstanding  (Note 2)                                      5,295,201       5,038,762           4,440,646
                                                              ==========       =========         ===========
Loss per common share:
      Loss before extraordinary income                            ($0.15)         ($0.17)             ($1.73)
      Extraordinary income                                                                              0.26
                                                              ----------       ---------         -----------
Net Loss per common share                                         ($0.15)         ($0.17)             ($1.47)
                                                              ==========       =========         ===========
</TABLE>
                 See accompanying notes to financial statements.



                                       F-4


<PAGE>
                                  IMATEC, LTD.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
               NOVEMBER 17, 1988 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>

                                                                                             Deficit
                                                  Common Stock                             Accumulated
                                          -----------------------------    Additional      During the
                                                                            Paid-In        Development
                                             Shares          Amount         Capital           Stage             Total
                                          --------------   ------------  --------------  -----------------  ---------------
<S>                                       <C>               <C>          <C>             <C>                <C>
Issuance of shares                            1,105,000           $111         $   889                            $  1,000
Contribution of shares                          (82,875)            (8)              8                                   0
Issuance of shares                               55,250              5         499,995                             500,000
Issuance of shares                               27,625              3              (3)                                  0
Contribution of shares                          (12,615)            (1)              1                                   0
Issuance of shares                               12,615              1         114,223                             114,224
Net loss for the period inception
  to December 31, 1994                                                                        $ (617,515)         (617,515)
Issuance of shares                            1,105,000            110                                                 110
Issuance of shares and warrants
  in bridge financing                           262,091             26         714,156                             714,182
Expenses of bridge financing                                                  (136,188)                           (136,188)
Net loss for the year ended
  December 31, 1995                                                                             (662,594)         (662,594)
Cancellation of shares of
  bridge financing                               (6,897)            (1)        (16,973)                            (16,974)
Issuance of shares and warrants
  in bridge financing                           296,591             30         808,152                             808,182
Expenses of bridge financing                                                  (118,535)                           (118,535)
Issuance of shares and warrants
  in public offering                          1,000,000            100       6,149,950                           6,150,050
Expenses of public offering                                                 (1,367,163)                         (1,367,163)
Cancellation of shares of
  bridge financing restructuring              (551,785)            (56)                                                (56)
Issuance of shares in
  bridge financing restructuring                525,201             53       2,100,673                           2,100,726
Net loss for the year ended
  December 31, 1996                                                                           (2,072,618)       (2,072,618)
Net loss for the year ended
  December 31, 1997                                                                           (1,507,600)       (1,507,600)
                                              ---------           ----      ----------       -----------        ----------
                                              3,735,201            373       8,749,185        (4,860,327)        3,889,231
Net loss for the year ended
    December 31, 1998                                                                           (776,659)         (776,659)
                                              ---------           ----      ----------       -----------        ----------
                                              3,735,201            373       8,749,185        (5,636,986)        3,112,572
Net loss for the year ended
    December 31, 1999                                                                           (874,193)         (874,193)
                                              ---------           ----      ----------       -----------        ----------
                                              3,735,201           $373      $8,749,185      $ (6,511,179)       $2,238,379
                                              =========           ====      ==========      ============        ==========
</TABLE>

                 See accompanying notes to financial statements


                                       F-5

<PAGE>
                                  IMATEC, LTD.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                November 17,
                                                                                              1988 (Inception)
                                                                                               to December 31,
                                                                   Years Ended December 31,         1999
                                                                     1998           1999        (Cumulative)
                                                                --------------- ------------- -----------------
<S>                                                             <C>              <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net Loss                                                     ($776,659)      ($874,193)     ($6,511,179)
     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                           20,963          20,962           79,902
      Net loss on disposal of fixed assets                                                            5,932
      Forgiveness of indebtedness                                                                (1,164,712)
      Increase (decrease) in cash flows from:
        Other current assets                                       (29,146)          4,273          (45,999)
        Deposit                                                                      7,266          (10,654)
        Accounts payable and accrued expenses                       14,944         (41,514)         331,549
                                                                  --------      ----------       ----------
NET CASH USED IN OPERATING ACTIVITIES                             (769,898)       (883,206)      (5,400,671)
                                                                  --------      ----------       ----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of marketable securities                   686,632       3,117,855       10,554,622
    Investments in marketable securities                                           (78,483)     (10,554,622)

    Purchases of fixed assets                                       (5,443)                        (148,422)
    Other                                                            3,780                            9,192
                                                                  --------      ----------       ----------
NET CASH (USED IN) PROVIDED BY
INVESTMENT ACTIVITIES                                              684,969       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
    Payments of notes payable                                                                    (1,075,000)
    Payment of organization expenses                                                                   (245)
                                                                  --------      ----------       ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                         7,709,153
                                                                  --------      ----------       ----------

INCREASE (DECREASE) IN CASH                                        (84,929)      2,156,166        2,169,252
CASH - beginning                                                    98,015          13,086
                                                                  --------      ----------       ----------
CASH - ending                                                      $13,086      $2,169,252       $2,169,252
                                                                  ========      ==========       ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    Cash paid for income taxes                                     $20,680         $21,034          $54,511
                                                                  ========      ==========       ==========
    Cash paid for interest                                            None             $75           $6,893
                                                                  ========      ==========       ==========
</TABLE>

                 See accompanying notes to financial statements.

                                       F-6



<PAGE>
                                  IMATEC, LTD.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS

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 has been in the development stage since its inception. The Company does
not intend to pursue its line of business until there is a resolution of its
patent litigation (Note 10).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

      Marketable Securities

      Marketable securities had been classified as available-for-sale and
recorded at fair value.

      Fixed Assets

      Fixed assets, consisting of office equipment and furniture, were stated at
cost and are being depreciated on the straight-line method over the estimated
useful lives of the assets of three to seven years.

      Debt Issuance Costs and Discounts

      Debt issuance costs on the Bridge Notes (Note 3) were capitalized and
amortized on the straight-line method over the term of the notes payable.

      Discounts on the Bridge Notes were amortized on the interest method over
the term of the notes payable.

      Patents

      Patent costs have been charged to operations as incurred as their
realizability was uncertain and were included in research and development
expenses. Effective January 1, 1996, the Company adopted SFAS No. 121
(Accounting for the Impairment of Long-Lived Assets), without material effect.

      Research and Development Costs and Royalty Expenses

      Research and development costs and royalty expenses (Note 7) have been
charged to operations as incurred.

      Advertising Costs

      Advertising costs have been charged to operations as incurred and were
included in general and administrative expenses.

      Stock Based Compensation

      Compensation costs for stock options granted to employees and
non-employees have been based on the fair value method.

      Loss Per Common Share

      Loss per common share was computed based on the weighted average number of
common shares and common share equivalents outstanding during the year. All
shares and per share amounts have been retroactively restated to reflect the
reverse stock split on May 2, 1995, and the stock split on October 19, 1995. The
1,105,000 shares issued in May 1995 and the shares and warrants issued in the
Bridge Financing (Note 3) have been treated as outstanding for all periods in
calculating loss per common share because such shares were issued at prices
below the public offering price (Note 3).

                                      F-7
<PAGE>
     Fully-dilutive loss per common share has not been presented because it was
anti-dilutive. Effective February 1997, the Company adopted SFAS No.128
"Earnings Per Share" without material effect.

3.    CAPITALIZATION

      Issuance of Common Stock

      On December 1, 1988, the Company issued 1,105,000 shares for $1,000. On
September 20, 1991, a stockholder contributed 82,875 shares to the Company and
the Company reissued 55,250 shares of common stock for $500,000 and 27,625
shares in exchange for assistance with raising equity. Also in 1991, the
stockholder gave 102,300 shares, to a third party of common stock of the Company
for assistance with raising equity for the Company. The Company valued the
27,625 and 102,300 shares at $25,000 and $92,580, respectively, the values of
the consulting services and charged additional paid-in-capital.

      During 1994, two stockholders contributed 12,615 shares to the Company and
the Company reissued the shares for $114,224, including the capitalization of a
loan payable.

      On May 30, 1995, the Company issued 1,105,000 shares of common stock in
exchange for $110. Had the private placement not been fully sold, the Company
could have reacquired up to the total of these shares for $110.

      Reverse Stock Split

      On May 2, 1995, the Company had a one-for-four reverse stock split. All
shares and per share amounts have been retroactively restated to reflect the
reverse stock split.

      Reincorporation

      On September 20, 1995, the Company reincorporated in Delaware, authorizing
20,000,000 shares of $.0001 par value common stock and 2,000,000 shares of
$.0001 par value preferred stock.

      Stock Split

      On October 19, 1995, the Company authorized a 22,100 for 1 stock split and
issued 2,210,000 shares of new common stock in exchange for 100 shares of old
common stock. All shares and per share amounts have been retroactively restated
to reflect the stock split.

      Bridge Financing

      On November 30, 1995 and April 12, 1996, the Company had closings under a
private placement. Under the private placement, the Company issued 10%
promissory notes in the aggregate principal amount of $1,900,000 and $2,100,000
(Bridge Notes), 262,091 and 289,694 shares of common stock and warrants to
purchase 1,900,000 and 2,100,000 shares of common stock (Bridge Warrants),
respectively. The Company has allocated $2, for each share, and $.10, for each
warrant, of the proceeds of the private placement to the common stock and
warrants, the values of the shares and warrants at the dates of issuance.

      In February 1996, a sale to an investor for one unit of the first closing
for $50,000 was cancelled., The notes, shares, and warrants were canceled and
then all were resold in the second closing. The cancellation has been included
net in the amounts of the second closing.

      The Company received net proceeds from the private placement of $1,517,834
and $1,811,635, respectively, after disbursements of:

                                       F-8



<PAGE>
                                          November 30, 1995       April 12, 1996
                                          -----------------       --------------

  Commission                                  $ 190,000            $ 210,000
  Non-accountable expense allowance              57,000               63,000
  Other expenses of placement agent              10,166               15,365
  Exchanges of notes payable                    125,000               50,000
                                              ---------            ---------
                                              $ 382,166            $ 338,365
                                              =========            =========

      In addition, the Company incurred additional expenses of $101,223 under
the first closing and $23,569 under the second closing. Total expenses of the
private placement have been allocated between the Bridge Notes and common stock.

      Each Bridge Warrant was exercisable to purchase one share of common stock
at $1, per shares, commencing a year from closing for a period of five years.
Upon the public offering, each Bridge Warrant was exchanged for a Redeemable
Warrant.

      Bridge Financing Restructuring

      In October 1996, the Company restructured the Bridge Financing. Upon the
public offering, all investors in the Bridge Financing chose either to: (A)
convert the principal amount of their Bridge Note plus all accrued interest into
shares of common stock, at $4, per share, return all the common stock received
in the Bridge Financing and exchange their Bridge Warrants for redeemable
warrants or (B) receive a cash payment equal to 50% of the principal amount of
their Bridge Notes, not receive any accrued interest and return all the shares
of common stock and Bridge Warrants that they received in the Bridge Financing.
One investor representing $50,000 of the Bridge Notes, 6,897 of the Bridge
shares and 50,000 of the Bridge Warrants, did not advise the Company whether he
will choose option A or option B. This investor was deemed to have chosen option
A by the Company.

      As a result, the Company converted $1,950,000 principal amount of Bridge
Notes and $150,672 of accrued interest thereon into 525,201 shares of common
stock and repaid $1,025,000 of principal amount of Bridge Notes. In addition,
all 551,785 shares of common stock and the balance of 2,050,000 Bridge Warrants
issued in the Bridge Financing were returned to the Company and 1,950,000 of
Bridge Warrants were exchanged for Redeemable Warrants upon the closing of the
public offering. As a result of the restructuring, the Company wrote-off
unamortized loan discount of $726,602 and deferred loan costs of $167,593 and
the recognized forgiveness of indebtedness income of $1,164,712.

      Public Offering

      On November 1, 1996 the Company completed a public offering of 1,000,000
shares of common stock, at $5, per share, and 4,000,000 redeemable warrants, at
$.25, per warrant (Redeemable Warrant). Each redeemable warrant was exercisable
to purchase one share of common stock at $6.50, per share, through October 1999.
All Redeemable warrants expired without being exercised. In addition, the
Company granted the underwriter an overallotment option for 45 days from the
date of the offering to purchase up to an additional 150,000 shares of common
stock and an additional 600,000 Redeemable Warrants. The option was exercised
for all the Redeemable Warrants.

      The underwriter of the public offering received a discount of 10% and
non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering. The Company also retained the underwriter as a financial
consultant for a period of two years for $48,000, paid upon closing of the
public offering. In addition, the Company sold to the underwriter, for nominal
consideration, warrants (Underwriter's Warrants) to purchase 100,000 shares of
common stock and 400,000 Redeemable Warrants. The Underwriter's Warrants are
exercisable at prices of $6.00 and $.30, per share, and, per Redeemable Warrant,
respectively, for a period of four years commencing one year from the date of
the offering. The Redeemable Warrants underlying the Underwriter's Warrants were
exercisable at $8.125, per share, and expired without having been exercised.

                                       F-9


<PAGE>


      The Company received net proceeds from the public offering of $4,782,887
after disbursements of:

       Underwriter's discount                            $  615,000
       Professional fees                                    374,128
       Underwriter's non-accountable expense allowance      184,500
       Printing expenses                                    113,304
       Blue sky fees                                         59,713
       Other expenses of underwriter                         14,800
       ther                                                   5,718
                                                         ----------
                                                         $1,367,163
                                                         ==========

      Stock Option Plan

      In February 1996, the Company adopted a nonqualified stock option plan
under which it may grant options for up to 500,000 shares of common stock. The
Company may not grant any options with a purchase price less than fair market
value of the common stock as of the date of the grant.

      In January 1999, the Company granted options to purchase 345,000 shares of
common stock, exercisable at $.66, per share, through January 2009, as follows:

            Officer/director                  100,000
            Other directors                   230,000
            Employee (1)                       15,000
                                              -------
                                              345,000
                                              =======

      (1) Exercisable after December 1999

      As of December 31, 1999, no options have been exercised

      Reserved Shares

      As of December 31, 1999, the Company has reserved the following shares of
common stock:

                  Stock option plan                   500,000
                  Underwriter's warrants
                                                      100,000
                                                     --------
                                                      600,000
                                                     ========

4. CONCENTRATION OF CASH

      The Company from time to time has cash in financial institutions in excess
of insured limits. In assessing its risk, the Company's policy is to maintain
funds only with reputable financial institutions.

5. MARKETABLE SECURITIES

      As of December 31, 1999, marketable securities, which consisted of money
market mutual funds, approximated cost.


                                      F-10

<PAGE>
6. INCOME TAXES

      As of December 31, 1998 and 1999, the tax effects of timing differences
between financial statement and income tax reporting were as follows:

                                                    December 31,
                                         ------------------------------
                                              1998            1999
                                         ---------------  -------------
Research and development costs              $  220,000     $  220,000
Net operating loss carryforward              2,400,000      2,000,000
                                            ----------     ----------
                                             2,620,000      2,220,000
Valuation allowance                         (2,620,000)    (2,220,000)
                                            ----------     ----------
                                               None           None
                                            ==========     ==========

      As of December 31, 1999, the Company has net operating loss carryforwards
available to reduce future taxable income of approximately $5,900,000 expiring
through 2014.

7. LICENSE AGREEMENT

      The Company is committed under a license from a stockholder/officer
(President, Chief Executive Officer, Chief Financial Officer and Chairman of the
Board) of the Company to make, use, sell and otherwise exploit certain
technologies under patents (Note 10), including future technologies. The Company
paid the stockholder/officer a non-refundable advance royalty of $350,000 in
January 1996 and, commencing July 1, 1995, an annual royalty of $140,000. If the
stockholder/officer ceases to be employed by the Company, the annual royalty
increases to $250,000. The annual royalty shall increase at the rate of 5%, per
annum. The license agreement shall end when the last patent expires.

8. EMPLOYMENT AGREEMENT

      The Company is committed under an employment agreement with a stockholder
to be President, Chief Executive Officer and Chairman of the Board of Directors
expiring on the earlier of July 1, 2000, the Company being no longer involved in
the technology business or a bankruptcy, merger or reorganization of the
Company. Compensation under the agreement shall be $60,000, per year, 5% annual
increases and a bonus equal to 1% of annual sales. In addition, the employee
shall receive director's and officer's liability insurance, an automobile lease
up to $8,400, per year, disability insurance for 60% of salary through age 65,
Company paid disability of 40% of salary for one year and a life insurance
policy of $1,000,000.

9. PROFIT-SHARING PLAN

      The Company has a discretionary, defined-contribution profit-sharing plan
covering all of its eligible employees. The Company made no contributions for
the years ended December 31, 1998 and 1999.

10. LITIGATION

     In February 1998, the Company and an officer filed a patent infringement
complaint for $1.1 billion against Apple Computer Corp. (Apple), alleging
infringement on certain of the Company's patents (Note 7). 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 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.

                                      F-11

<PAGE>




11. RELATED PARTY TRANSACTIONS

     During the year ended December 31, 1999, a computer consulting company,
which a director of the Company is an officer, was paid fees of $23,480.

     During the year ended December 31, 1998, a former director was paid
attorney's fees of $34,645.







                                      F-12