<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, l996
Commission file number 0-24520
IMSCO TECHNOLOGIES, INC.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 04-3021770
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
40 Bayfield Drive, North Andover, Massachusetts 01845
-----------------------------------------------------
(Address of principal executive offices)
(508) 689-2080
--------------
(Issuer's telephone number)
IMSCO, INC.
-----------
(Former name, former address and former fiscal
year, if changed since last report)
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 |_|.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,250,000.
<PAGE>
PART I - Financial Information
Item 1. Financial Statements.
See pages FS-1 to FS-4.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDING SEPTEMBER 30, l996; COMPARED WITH
SEPTEMBER 30, l995.
Net losses increased from $106,025 for the three months ended September
30, l995 to $405,993 for the three months ending September 30, l996, a 283%
increase. The Company had no revenues or operating income for the three months
ended September 30, l995 and September 30, l996 from continuing operations. For
the three months ended September 30, l995, the Company earned $2,510 in interest
on its interest bearing investment account. No interest was earned for the
comparable period in l996. Total general, administrative and development
expenses were $108,535 for 1995 in comparison to $405,993 for l996. The increase
in these costs from l995 to l996 was primarily due to increased business
consultants' fees, staffing and wages and salaries for research and development
being performed in l996 than incurred in l995 as the Company continues further
product research, development and refinement on its Decaffamatic and other
separation technologies. All research and development costs were expended
currently in the year incurred, rather than capitalized. This resulted in a loss
per share of $.12 for the three months ended September 30, l996 in comparison to
a loss per share of $.04 for the comparable three month period in l995.
At September 30, l995, the Company had total assets of $27,014, total
liabilities of $22,256, and total stockholders' equity of $4,758. At September
30, l996, the Company had total assets of $47,981, an increase of 77.6% from the
comparable period in l995, total liabilities of $363,769, an increase of
$341,513 from l995, and a total stockholders' deficit of $315,788, in comparison
to a stockholders' equity of $4,758 in the prior year. The increase in
liabilities primarily results from a $300,000 loan payable to Hampton Tech
Partners, LLC incurred by the Company in August 1996. The loan is due on the
earlier of (a) February 19, 1997, or (b) from the proceeds of a equity or debt
offering by the Company during the interim period.
2
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RESULTS OF OPERATIONS FOR NINE MONTHS ENDING SEPTEMBER 30, l996; COMPARED WITH
SEPTEMBER 30, l995.
Net losses increased from $ 344,172 for the nine months ended September
30, l995 to $445,424 for the nine months ending September 30, 1996 a 29.4%
increase. The Company had no revenues or operating income for the nine months
ended September 30, l995 and September 30, l996 from continuing operations. For
the nine months ended September 30, l996, the Company incurred $1,759 in
interest expense on short-term financing obtained from a private lender. No
interest was earned for 1996 or the comparable period in l995. Total general,
administrative and development expenses were $443,665 for 1996 in comparison to
$346,751 for 1995, a 27.9% increase over the prior period. The increase in these
costs from l995 to l996 was primarily due to increased business consulting fees,
staffing and wages and salaries for research and development being performed in
l996 than incurred in l995 as the Company continues further product research,
development and refinement on its Decaffamatic and electrostatic separation
technologies. All research and development costs were expended currently in the
year incurred, rather than capitalized. This resulted in a loss per share of
$.14 for the nine months ended September 30, l996 in comparison to a loss per
share of $.12 for the comparable nine month period in l995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency as of September 30, l996 of
$320,398 in comparison to a positive working capital position as of September
30, l995 of $412, which deficiency was primarily attributable to a $300,000 loan
payable which matures in the next 12 months. The Company had an accumulated
deficit of $2,292,786 at the period ended September 30, l996 in comparison to an
accumulated deficit of $ 1,763,227 at the period ended September 30, l995. The
increase in the accumulated deficit is primarily related to continuing operating
costs during the development phase without any operating income.
For the three months ended September 30, l996 the Company's cash
requirements were satisfied primarily from the cash reserves in its operating
accounts and a private placement consisting of a promissory note in the amount
of $300,000 and 150,000 shares of the Company's Common Stock for par value of
$.001 per share, made to the company by a private lender, Hampton Tech Partners,
LLC, on August 19, 1996. The promissory note bears interest at the rate of 7%
per annum and is due in full on the earlier of (a) February 19, 1997, or (b)
from the proceeds of an equity or debt placement by the Company prior to that
date.
On September 20, 1996, the Company entered into two agreements to sell an
aggregate of
3
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2,272,728 shares of its common stock, par value $.001, to two purchasers,
Hampton Tech Partners, LLC, a private investment fund based in Colorado, which
is purchasing 1,136,364 shares, and Proxhill Marketing, Ltd., a private company
based in Colorado, which is purchasing 1,136,364 shares. The sales price is
$1.32 per share and gross proceeds received are $3,000,000. The proceeds will be
paid $1,500,000 in cash and $1,500,000 in media credits at the Company's
direction. The Company intends to use the media credits during the next 18
months to market its products.
The Company does not currently possess a bank source of financing. Although
the Company believes that the above financing will be adequate to cover its
liquidity requirements over the next 12 months, it cannot be certain that these
sources of capital will be adequate. Should insufficient funds be available from
the foregoing sources, reducing the Company's present rate of expenditures which
might materially adversely affect the ability of the Company to develop and
produce competitive products and services and to market them effectively.
The Company's ability to continue in business as a going concern depends
upon its ability to generate revenues and royalties from the sale of its
technology and products, which it has not done to date, to conserve liquidity by
setting marketing and other priorities and reducing expenditures, to obtain bank
or other sources of financing and to obtain additional funds through the
placement of its common stock. The Company's ability to obtain bank financing
will require significantly improved operating results over the Company's results
for its past twelve months, the likelihood of which the Company very uncertain
given that the Company has incurred losses during its development stage and has
not had revenues from operations.
The Company's long term capital expenditure requirements will depend upon
numerous factors, including the progress of the Company's research and
development programs, the resources that the Company devotes to the development
of self-funded products, proprietary manufacturing methods and advanced
technologies, the ability of the Company to obtain licensing arrangements, and
the demand for its products if and when approved. In order to minimize capital
expenditures for manufacturing plant and equipment, the Company intends to
contract the manufacturing of its products out to third party manufacturers on
an OEM basis. In this regard, the Company entered into a three year
Manufacturing and Distribution Agreement with NEWCO Enterprises, Inc., of St.
Charles, Missouri, on September 20, 1996 for the manufacture of several devices
incorporating the Company's patented electrostatic decaffeination technology for
sale to the institutional coffee maker marketplace. As part of the Agreement,
NEWCO Enterprises, Inc., was granted the exclusive right to sell the
decaffeination technology to the office coffee supply market in North America,
and NEWCO agreed to purchase a minimum of 25,000 units in the first year, 50,000
units in the second year and 100,000 units in the third year from the Company.
On September 20, 1996, the Company also entered into a Marketing Agreement with
Hughes Edwards & Price, Inc. ("HEP"), of Traverse City, Michigan, wherein HEP
was granted the exclusive right to market and distribute the Company's
decaffeination technology and products to the institutional coffee brewer
marketplace, excluding
4
<PAGE>
office coffee supply, in North America for a period of three years. HEP agreed
to sell or purchase from the Company the following minimums of decafffeination
products: $3,000,000 in the first year, $5,000,000 in the second year and
$7,000,000 in the third year of the agreement. Sales are anticipated to commence
under the agreement in first quarter of 1997, and accordingly should contribute
to the Company's liquidity and cash flow at that time. The Company has not
previously manufactured or produced products for commercial sale. Although the
Company believes that NEWCO Enterprises, Inc., has substantial experience in the
manufacture and sale of coffee making products to the institutional coffee
supply market, and Hughes Edwards & Price, Inc., has significant experience in
marketing products to the institutional coffee maker market, because the
Company's decaffeination technology is newly developed, there can be no assuance
that NEWCO Enterprises, Inc., will be able to timely manufacture products
incorporating the Company's technology or that once manufactured, the market
will accept and need the decaffeination technology.
With respect to its PLASMA PURE technology, the Company may rely internal
cash flow from product sales in other areas, on research grants, and third-party
licensees to fund the advanced portions of its development costs, obtain
regulatory approvals, manufacture and market the Company's products. In the
event the Company decided to self-fund product development, obtain regulatory
approvals, manufacture and market its products on its own behalf, it would
require significant additional funds. No assurance can be given that such funds
would be available on terms satisfactory to the Company, it at all.
The Company believes that its existing cash and cash equivalents, together
with the net proceeds from its recent private placement and anticipated cash
flow from operations will be sufficient to meet its operating expenses and
capital expenditures requirements for at least the next 12 months. However,
there can be no assurance that the Company will have sufficient capital
resources to be able to continue as a going concern.
PART II - Other Information
Not Applicable.
5
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Balance Sheet at September 30, l995
(unaudited) and September 30, l996 (unaudited).......................... F-1
Statement of Income (Loss) for the nine
months ended September 30, l995 and l996 (unaudited).................... F-2
Statement of Cash Flows for the nine
months ended September 30, 1995 and 1996 (unaudited).................... F-3
Statement of Stockholders' Equity (Deficit) for the nine
months ended September 30, 1995 and 1996 (unaudited).................... F-4
6
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IMSCO TECHNOLOGIES, INC.
a development stage enterprise
BALANCE SHEET
at September 30, 1996 and September 30, 1995
September 30, September 30,
1996 1995
------------ -------------
ASSETS
CURRENT ASSETS
Cash and equivalents 43,371 $ 22,668
----------- -----------
TOTAL CURRENT ASSETS 43,371 22,668
FIXED ASSETS - Note 1
Property and equipment 76,672 76,772
Leasehold Improvements 4,900 4,900
Accumulated Depreciation (78,246) (78,246)
----------- -----------
NET FIXED ASSETS 3,326 3,426
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ORGANIZATION COSTS net of amortization 100 100
DEPOSITS 1,184 390
DUE FROM OFFICERS 0 530
----------- -----------
TOTAL ASSETS $ 47,981 $ 27,014
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 42,440 $ 16,603
Loan from Officer 5,570 0
Loan Payable - FCI 300,000 0
Accrued Expenses 8,372 0
Accrued Payroll Taxes 7,387 5,653
----------- -----------
TOTAL CURRENT LIABILITIES 363,769 22,256
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock - authorized 15,000,000
shares at $.001 par value; 3,249,839
and 2,975,496 shares issued and outstanding
at September 30, 1996 and 1995 respectively 3,250 2,976
Additional paid-in capital 1,973,748 1,765,009
Deficit Accumulated:
Development Stage (1,671,878) (1,124,349)
Prior Period Adjustment (See note) (17,970)
Discontinued Operations (620,908) (620,908)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (315,788) 4,758
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 47,981 $ 27,014
=========== ===========
The following notes are an integral part of these statements.
FS-1
<PAGE>
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
for the Nine Months Ended September 30, 1996 and 1995
and Cumulative Amounts from July 9, 1992
(inception of the current development stage)
to September 30, 1996
Cumulative amounts
from current
1996 1995 development stage
---- ---- -----------------
DEVELOPMENT EXPENSES $ 28,416 $ 23,795 $ 171,440
SALARIES AND WAGES 16,875 75,000 220,637
OFFICER SALARIES 10,625 103,200 282,319
PAYROLL TAXES 2,104 19,031 47,368
OUTSIDE LABOR 0 0 120,350
PROFESSIONAL SERVICES 52,174 80,272 277,236
CONSULTING EXPENSES 262,900 0 262,900
RENT 10,838 11,476 68,367
INSURANCE 11,036 9,607 43,530
TRAVEL AND BUSINESS MEETINGS 22,093 15,486 53,413
AUTO EXPENSE 4,282 2,460 24,858
TELEPHONE AND UTILITIES 5,170 3,330 29,668
OFFICE EXPENSES 7,569 3,094 21,909
EQUIPMENT RENTAL 0 0 3,462
CONTRIBUTIONS 375 0 410
CORPORATE FEES 9,211 0 43,321
--------- ------- ---------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE $ 443,665 346,751 1,671,186
--------- ------- ---------
OTHER INCOME (EXPENSE):
DIVIDEND AND INTEREST INCOME 0 3,035 3,070
INTEREST EXPENSE (1,759) 0 (3,306)
LOSS BEFORE INCOME TAXES (445,424) (343,716) (1,671,422)
PROVISION FOR INCOME TAX 0 456 (456)
NET LOSS FROM DEVELOPMENT (445,424) (344,172) (1,671,878)
--------- ------- ---------
LOSS FROM DISCONTINUED OPERATIONS
(Note 1)
NET LOSS (445,424) (344,172) (1,671,878)
========= ======= =========
LOSS PER SHARE (Note 1) $ (.14) $ (.12) $ (.51)
The accompanying notes are an integral part of these statements.
FS-2
<PAGE>
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
for the Three Months Ended September 30, 1996 and 1995
and Cumulative Amounts from July 9, 1992
(inception of the current development stage)
to September 30, 1996
Cumulative amounts
from current
1996 1995 development stage
---- ---- -----------------
DEVELOPMENT EXPENSES $ 18,197 $ 444 $ 171,440
SALARIES AND WAGES 16,875 25,000 220,637
OFFICER SALARIES 10,625 30,000 282,319
PAYROLL TAXES 2,104 8,585 47,368
OUTSIDE LABOR 0 0 120,350
PROFESSIONAL SERVICES 49,674 26,391 277,236
CONSULTING EXPENSES 262,900 0 262,900
RENT 3,613 4,251 68,367
INSURANCE 4,208 2,775 43,530
TRAVEL AND BUSINESS MEETINGS 19,081 9,072 53,413
AUTO EXPENSES 3,599 949 24,858
TELEPHONE & UTILITIES 2,200 827 29,668
OFFICE EXPENSES 5,468 241 21,909
EQUIPMENT RENTAL 0 0 3,462
CONTRIBUTIONS 0 0 410
CORPORATE FEES 7,450 0 43,321
--------- ------- ---------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE $ 405,993 108,535 1,671,186
--------- ------- ---------
OTHER INCOME (EXPENSE):
DIVIDEND AND INTEREST INCOME 0 2,510 3,070
INTEREST EXPENSE 0 0 (3,306)
LOSS BEFORE INCOME TAXES (405,993) (106,025) (1,671,422)
PROVISION FOR INCOME TAX 0 456 (456)
NET LOSS FROM DEVELOPMENT (405,993) (106,481) (1,671,878)
--------- ------- ---------
LOSS FROM DISCONTINUED OPERATIONS
(Note 1)
NET LOSS (405,993) (106,481) (1,671,878)
========= ======= =========
LOSS PER SHARE (Note 1) $ (.12) $ (.04) $ (.51)
The accompanying notes are an integral part of these statements.
FS-2a
<PAGE>
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF CASHFLOWS
for the Nine Months Ended September 30, 1996 and 1995
and Cumulative Amounts from July 9, 1992
(inception of the current development state)
<TABLE>
<CAPTION>
Cumulative amounts
from current
1996 1995 development stage
---- ---- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 3,185 $ 3,070
Cash received from customers 57,004
Cash received from research and testing 8,187
Cash received from unemployment taxes 170
Cash received from travel reimbursements
and other rebates 250 938
Cash paid to suppliers and employees ($304,833) (283,163) (1,348,935)
--------- -------- ----------
Net cash provided by operating activities (304,833) (279,728) (1,279,566)
Cash flows from investing activities:
Prepaid research testing (7,734)
Purchase of Fixed Assets (2,548)
----------
Net cash provided by investing activities 0 0 (10,282)
Cash flows from financing activities:
Cash flow for non-deductible expenses (1,386)
Cash flow from financing 300,000 300,000
Interim loan financing from officer 9,570 94,570
Proceeds from issuance of common stock 30,000 140,500 952,756
--------- -------- ----------
Net cash provided by financing activities 339,570 139,114 1,347,326
Net Increase in cash and cash equivalents 34,737 (140,614) 57,478
Cash and cash equivalents at beginning of year 8,634 163,282 (14,107)
Cash and cash equivalents at end of year $ 43,371 $ 22,668 $ 43,371
========= ======== ==========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVI TIES
Net Loss ($445,424) ($344,172) ($1,878,128)
Decrease in Due from Officers 530 (120)
Depreciation and Amortization (4,000) (1,387)
Stock issued to retire debt/services 150,000 100,885 579,733
Increase (Decrease) in Accounts Payable (10,487) (28,901) (22,011)
Increase (Decrease) in Accrued Payroll Taxes 5,342 (7,790) 7,386
Increase (Decrease) in Accrued Expenses 8,372
Decrease (Increase) in Deposits (794) 150 3,491
Decrease in Accounts Receivable 2,998
Decrease in Inventory and Assets 100 20,100
Total adjustments 140,591 64,444 598,562
Net cash provided by operating activities ($304,833) ($279,728) ($1,279,566)
</TABLE>
The accompanying notes are an integral part of these statements.
FS-3
<PAGE>
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
Statement of Stockholders' Equity (Deficit)
for the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity (Deficit)
----- ------- ------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $2,751 $ 1,525,235 ($1,441,276) ($ 86,710)
Issuance of 82,444 shares of $.001
par value for $1.25 per share 83 102,417 102,500
Issuance of shares of $.001 par
value for $1.25 per share 14 17,986 18,000
Issuance of shares of $.001 par
value for contract services
performed 119 106,894 107,013
Issuance of shares of $.001 par
value for $1.55 per share 11 16,989 17,000
Issuance of shares of $.001 par
value for $1.50 per share 17 24,483 24,500
Loss from development for the
year ended December 31, 1995 (406,086) (406,086
------ ----------- ----------- ---------
Balance at December 31, 1995 2,995 1,794,004 (1,847,362) (50,363)
====== =========== =========== =========
Issuance of DPI Additional Paid
in Capital for $2.00 per share $ 20,000 $ 20,000
Loss from development for the
period January 1 through March 31, 1996 (23,599) (23,599)
Balance at March 31, 1996 2,995 1,814,004 (1,870,961) (53,962)
Issuance of shares of $.001 par
value for $2.00 per share 5 9,995 10,000
Loss from development for the period
April 1 through June 30, 1996 (15,833) (15,833)
Balance at June 30, 1996 $3,000 $ 1,823,999 ($1,886,794) (59,795)
Issuance of shares of $.001 par value 150 (150)
Issuance of shares of $.001 par value
for $1.50 per share for service
rendered - E. Abramson 100 149,900 150,000
Loss from development for the period
July 1 through September 30, 1996 (405,993) (405,993)
Balance at September 30, 1996 $3,250 $ 1,973,749 ($2,292,787) ($315,788)
</TABLE>
The accompanying notes are an integral part of these statements.
FS-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
October 24, l996 IMSCO Technologies, Inc.
By: Sol L Berg
----------------------------------------
Sol L. Berg
President
(Principal Executive, Financial Officer
and Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 43,371
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 81,572
<DEPRECIATION> (78,246)
<TOTAL-ASSETS> 47,981
<CURRENT-LIABILITIES> 363,769
<BONDS> 0
0
0
<COMMON> 3,250
<OTHER-SE> (319,038)
<TOTAL-LIABILITY-AND-EQUITY> 47,981
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 443,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,759
<INCOME-PRETAX> (445,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> (445,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (445,424)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
