As filed with the Securities and Exchange Commission on January , 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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IMSCO TECHNOLOGIES, INC.
(Exact names of registrant as specified in its charter)
Delaware 04-3021770
(State or other (Primary Standard Industrial (I.R.S. Employee
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
40 Bayfield Drive
North Andover, Massachusetts 01845
(508) 689-2080
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
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Sol L. Berg
IMSCO Technologies, Inc.
40 Bayfield Drive
North Andover, Massachusetts 01845
(508) 689-2080
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David E. Fleming, Esq.
Epstein, Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
(212) 351-4925
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered (1) Per Unit (1) Offering Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value ....................... 2,860,227 $ 2.875 $8,223,152 $ 2835.56
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Common Stock, $.001 par value (2) ................... 242,273 $ 1.45 $ 351,294 $ 121.14
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Common Stock, $.001 (3) ............................. 400,000 $ 1.50 $ 600,000 $ 206.89
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Common Stock, $.001 (4) ............................. 50,000 $ 2.875 $ 143,750 $ 49.56
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Common Stock, $.001 (5) ............................. 127,272 $ 1.32 $ 168,000 $ 57.93
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TOTAL ............................................... 3,679,772 $ 3,262.71
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(b).
(2) Issuable upon exercise of the Class A Warrants.
(3) Issuable upon exercise of the Class B Warrants.
(4) Issuable upon exercise of the Class C Warrants.
(5) Issuable upon exercise of the Class D Warrants.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, dated January 13, 1997
IMSCO TECHNOLOGIES, INC.
3,679,772 Shares of Common Stock
The persons named under "Selling Shareholders" herein propose to sell an
aggregate of 3,552,500 shares of Common Stock (the "Shares") of IMSCO
Technologies, Inc., a Delaware corporation (the "Company") (i) in one or more
transactions (which may include block transactions) at negotiated prices or at a
price or prices related to the then current market price of the Company's Common
Stock, or (ii) to a broker (for resale by such broker as principal) at a price
or prices related to the then current market price of the Company's Common
Stock, less such discount as shall be agreed upon by a Selling Shareholder and
the Broker, or (iii) by a combination of the methods described in clauses (i)
and (ii).
Of the 3,679,772 Shares offered hereby, 2,860,228 are presently issued and
outstanding, 242,272 are issuable upon the exercise of outstanding Class A
Warrants exercisable at a price of $1.45 per Share, 400,000 are issuable upon
exercise of outstanding Class B Warrants exercisable at a price of $1.50 per
Share, 50,000 are issuable upon exercise of outstanding Class C Warrants
exercisable at a price of $2.875 per Share, and 127,272 are issuable upon
exercise of the outstanding Class D Warrants exercisable at a price of $1.32 per
Share. The Class A Warrants, Class B Warrants, Class C Warrants and Class D
Warrants are collectively referred to herein as the "Warrants." The exercise
price of the Warrants and options may change as a result of a variety of
circumstances. This Prospectus does not authorize the sale of any Warrants or
options by any person. If all of the Warrants and options are exercised, the
Company will receive proceeds of approximately $1,227,044. The proceeds from the
sale of the remaining Shares offered hereby will be received solely by the
Selling Shareholders.
The Selling Shareholders, and the brokers and dealers through which the
Shares may be offered, may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, as amended, in which event any
compensation received by such brokers and dealers may be deemed to be
underwriters' compensation under such Act.
The Common Stock is listed on the NASDAQ OTC Bulletin Board under the
symbol "IMSO". On December 31, 1996, the closing price for the Common Stock on
the OTC Bulletin Board was $2.875 per share. See "Price Range of Common Stock."
AN INVESTMENT IN THE SECURITIES OFFERED PURSUANT
TO THIS PROSPECTUS IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is January , 1996
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Room 1204, Everett
McKinley Dirksen Building, 210 South Dearborn Street, Chicago, Illinois 60604; 7
World Trade Center, New York, New York 10048; and Suite 500 East, Museum Square
Building, 5757 Wilshire Boulevard, Los Angeles, California 90036. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form SB- 2, Registration No. _________ (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Shares of which this Prospectus is a part. As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all the information set forth in the Registration Statement, including the
exhibits filed as part thereof and otherwise incorporated therein to which
reference is hereby made. Copies of the Registration Statement and the exhibits
may be inspected without charge at the offices of the Commission, and may be
obtained form the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549 upon payment of the prescribed fees. In
addition, the Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission through the Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"). The Registration
Statement of which this Prospectus forms a part has been filed electronically
through EDGAR and may be retrieved through the Commission's Web site on the
Internet.
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ii
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this Prospectus
and is qualified in its entirety by the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Investors should consider carefully the information set forth in this Prospectus
under the heading "Risk Factors."
The Company
IMSCO Technologies, Inc., a Delaware corporation ("IMSCO" or the "Company")
is a development stage company. The Company develops and is attempting to market
and license electrostatic separation technologies and related products.
Electrostatic separation takes advantage of the fundamental electrical
properties of attraction, wherein unlike or opposite charges attract each other,
and repulsion, wherein like or the same charges repel each other, and uses
charged materials to selectively separate other substances. In the last three
years, the Company developed a separation technology based on electrostatics
combined with mechanical separation. This technology was originally developed by
the Company for the specific purpose of separating viruses and viral particles
from human plasma. In 1993, the Company successfully designed an electrostatic
separation technology which removes on demand caffeine from brewed liquids, such
as coffee and tea. The Company calls its decaffeination technology the
"DECAFFOMATIC". The Company calls its plasma separation technology the "PLASMA
PURE". Having achieved successful separation of viral DNA and virus from plasma
with the PLASMA PURE in research and testing performed at the Massachusetts
General Hospital and the Mayo Clinic, the Company began researching and
developing other uses for the technology. Based on the research and testing
conducted at the Massachusetts General Hospital and testing conducted at the
Mayo Clinic, it is the Company's belief that the PLASMA PURE is capable of
removing significant amounts of infectious viral particles from human plasma
without significantly affecting the other chemical properties of the plasma.
Additionally, based on the Company's internal laboratory testing and
verification tests conducted at Lapuck Laboratories, Inc., an independent
laboratory, and tests conducted at the University of Massachusetts, the Company
believes that the DECAFFOMATIC is capable of removing in excess of 95% of the
caffeine from brewed beverages such as coffee and tea. In 1993, separate patent
applications were filed by the Company with the U.S. Office of Patents and
Trademarks for the PLASMA PURE and DECAFFOMATIC separation technologies. On
August 22, l995 the Company was granted a patent by the United States Patents
and Trademarks Office, Patent No. 5,443,709 for "Apparatus for Separating
Caffeine From a Liquid Containing the Same".
The Company's strategy is to develop into a commercial ready product the
DECAFFOMATIC and PLASMA PURE technologies and related products and other
specific separation technologies that may be used with particular proprietary
and non-proprietary products manufactured by other companies. In l995, the
Company formally established a new subsidiary called Decaf Products, Inc.
("DPI"), which was incorporated in the State of Delaware on April 5, l995, that
will manufacture and directly market the DECAFFOMATIC technology and products in
North America. Although there can be no assurances, the Company intends to
license the DECAFFOMATIC technology to another unrelated company for
manufacture, marketing and distribution in the rest of the world.
In December 1995, the Company formally established another subsidiary,
BioElectric Separation and Testing, Inc. ("BEST"), a Delaware corporation, to
further conduct research and development on the PLASMA PURE and all related
medical applications of the Company's core electrostatic separation technology.
The PLASMA PURE has not been submitted to the Food and Drug Administration
("FDA") for approval and there is no assurance that it will be approved. Given
the limited funds available to the
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1
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Company and consequent delays in conducting the necessary research and testing,
the PLASMA PURE will not likely be submitted to the FDA until at least the first
half of 1998.
The Company was originally formed in 1986 under the laws of the State of
Nevada. The Company determined in 1987 that it was in its best interest to
change its corporate domicile from Nevada to Massachusetts since the corporate
operations were located in Massachusetts, which was accomplished through action
by the shareholders and the Board of Directors in 1987. The Company's name at
that time was IMSCO Inc. In July 1996, the Company was reincorporated in
Delaware as IMSCO Technologies, Inc. In order to effectuate this change, the
Company proposed the implementation of the following plan. In May 1996, the
Company filed a Certificate of Incorporation in Delaware incorporating a new
wholly-owned subsidiary, IMSCO Technologies, Inc. The Board of Directors of the
Company at a meeting held in May 1996 voted, subject to the adoption by the
stockholders, to merge into its wholly-owned subsidiary, IMSCO Technologies,
Inc., a Delaware corporation. On July 9, 1996, the stockholders of IMSCO, Inc.,
voted to approve the change of corporate domicile from Delaware to New York.
Therefore, on July 18, 1996, there remained one surviving corporation and the
name of this surviving corporation became IMSCO Technologies, Inc. As of the
effective date of the merger, each stockholder of the Company held one share of
common stock, par value $.001 per share (the "Common Stock"), for each one share
of common stock, par value $.001 per share, previously held by him. Unless the
context otherwise requires, "IMSCO" and the "Company" refer to IMSCO
Technologies, Inc., a Delaware corporation.
The Company's principal business address is 40 Bayfield Drive, North
Andover, Massachusetts 01845 and its telephone number is (508) 689-2080.
The Offering
Securities Offered.............. 3,679,772 shares of Common Stock. See
"Description of Securities."
Common Stock.................... The Company has 15,000,000 shares of
Common Stock authorized of which
approximately 6,092,424 are issued and
outstanding as of the date hereof. See
"Risk Factors", "Dilution", and
"Description of Securities."
Common Stock to be
Outstanding
after Offering.................. 6,092,424 shares of Common Stock,
excluding the 819,544 shares that may be
issued upon exercise of the Warrants.
Risk Factors.................... Purchase of the Common Stock offered
hereby involves many significant risks
including, among others, that the
Company is a
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2
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development stage company with no
operating revenues or income history,
arbitrary offering price, the
unregistered nature of the Common Stock
being offered herein and numerous risks
associated with a development stage
business. Prospective purchasers should
consider carefully the factors specified
under "Risk Factors" and "Dilution."
OTC Bulletin
Board Symbol.................... IMSO
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3
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SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. Such
information should be read in conjunction with such financial statements,
including the notes thereto. The Company is in the development stage and has not
had operating income for any period from January 1, 1993, to the date of this
Prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended
Years ended December 31 September 30
(Unaudited)
1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets .................................... $ 20,952 $ 267,162 $ 12,980 $ 27,014 $ 47,981
Total liabilities ............................... 92,581 58,947 63,343 22,256 363,769
Accumulated deficit during development stage .... (927,129) (1,401,085) (1,847,362) (1,763,227) (2,292,786)
Total stockholders' equity ...................... (71,629) 208,215 (50,363) 4,758 (315,788)
</TABLE>
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4
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk, including, but
not limited to, the several factors described below. These securities should be
purchased only by persons who can afford a loss of their entire investment.
Investors should consider carefully the following risk factors inherent in and
affecting the business of the Company and this offering in evaluating an
investment in the securities offered hereby.
Development Stage Company - Limited Operating History.
The Company is in the development stage and its operations are subject to
all the problems, expenses, delays and other risks inherent in the establishment
of a new business enterprise, as well as the problems inherent in developing and
marketing a new product/service and in establishing a name and business
reputation. The likelihood of the success of the Company must also be considered
in connection with the rapidly and continually changing technology and the
competitive environment in which the Company will operate. There can be no
assurance that the Company's operations will result in its becoming or remaining
economically viable. Potential investors should be aware of the problems,
delays, expenses and difficulties encountered by any company in a developmental
stage, many of which may be beyond the Company's control. These include, but are
not limited to, unanticipated regulatory compliance, marketing problems and
intense competition that may exceed current estimates. The Company has had
limited revenues to date and, because it is just beginning to enter the
commercial stage, it will likely sustain operating losses for an indeterminate
time period. As of September 30, 1996, the Company had accumulated net losses of
approximately $1,671,878. There can be no assurance that the operations of the
Company will ever be profitable.
Future Capital Requirements; Uncertainty of Future Funding.
IMSCO'S operations to date have consumed substantial amounts of cash. As
the Company continues its research and development of its electrostatic
technologies in various areas, it expects to continue spending substantial
amounts over the foreseeable future. The Company anticipates that its existing
capital resources will be adequate to satisfy its current capital requirements
for at least the next 12 months. Thereafter, the Company will need to raise
substantial additional funds through equity or debt financings, or sale or
licensing of its technology and products. There can be no assurance that any
such additional funding will be available to the Company or that the Company
will have sales of its products. In the event the Company has insufficient
working capital, and is unable to locate additional capital on acceptable terms,
the Company may be required to curtail its operations substantially, including
its research and development activities, and consequently purchasers of the
Shares may suffer significant or complete economic loss of their investment.
Government Regulations.
The production and marketing of some of the Company's products, including
the PLASMA PURE, are subject to regulation for safety and efficacy by numerous
federal, state and local agencies, and comparable agencies in foreign countries.
In the United States, the Federal Food, Drug and Cosmetic Act, the Public Health
Service Act, the Controlled Substances Act and other federal statutes and
regulations govern or influence the testing, manufacture, safety, labelling,
storage, recordkeeping, approval, advertising and promotion of the Company's
proposed products and technologies. Non-compliance with applicable requirements
can result in fines and other judicially imposed sanctions including the
initiation of product seizures, injunction actions, mandatory recalls and
criminal
5
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prosecutions based on products, promotional practices, or manufacturing
practices that violate statutory requirements. In addition, administrative
remedies can involve voluntary recalls or cessation of sale of products,
administrative detention, public notice, voluntary changes in labeling,
manufacturing or promotional practices, as well as the refusal of the government
to enter into supply contracts or to approve NDAs. The FDA also has the
authority to withdraw approval of instruments and devices in accordance with
statutory procedures.
The Company's PLASMA PURE system will be considered a medical device. As
such, the FDA would require the Company to obtain either a premarket
notification clearance under Section 510(k) of the Federal, Food, Drug, and
Cosmetic Act ("510(k)"), or an approved premarket application ("PMA") prior to
sales and marketing of the device in the United States. The 510(k) premarket
notification may be obtained if the medical device manufacturer can establish
that the newly developed product is substantially equivalent to another legally
marketed device. The FDA may also require clinical data or other evidence of
safety and effectiveness.
If the manufacturer cannot establish equivalence or if the FDA determines
that the device requires more extensive review, the FDA will require the
submission of PMA. The PMA must contain nonclinical and clinical investigation
results, a description of the methods, facilities and controls used for
manufacturing, and the proposed labeling for the device. The Company must
receive FDA approval for trials to test the PLASMA PURE device. FDA review of a
PMA would take at least six months following submission of Phase III test
results, and may take longer. (See "Business -- Government Regulation" for
details on the various phases) It is currently estimated by the Company that
with adequate funding, it would take approximtely two years to receive FDA
clearance. No assurance can be given that approval of the PLASMA PURE PMA would
be granted.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities must be obtained in any foreign country prior
to the commencement of marketing of the product in that country. The approval
procedure varies from country to country, can involve additional testing, and
the time required may differ from that required for FDA approval. Although some
procedures for unified filings exist for certain European countries, in general
each country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, substantial delays in obtaining required
approvals from both the FDA and foreign regulatory authorities can result after
the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
The Company has not prepared or filed any applications with the FDA or any
governmental authority for approval of the PLASMA PURE device or any related
product. No assurance can be given that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, cause the Company to undertake costly procedures and furnish
a competitive advantage to the more substantially capitalized companies with
which the Company plans to compete. In addition, the extent of potentially
adverse government regulations which might arise from future administrative
action or legislation cannot be predicted.
Competition.
The Company competes with numerous firms, many of which are large,
multi-national organizations with worldwide distribution. These firms have
substantially greater capital resources, research and development and technical
staffs, facilities and experience in obtaining regulatory approvals, as well as
6
<PAGE>
in the manufacturing, marketing and distribution of products, than the Company.
Academic institutions, hospitals, governmental agencies and other public and
private research organizations are also conducting research and seeking patent
protection and may develop competing products or technologies on their own or
through joint ventures or other arrangements. In addition, recently developed
technologies or technologies that may be developed in the future are or could be
the basis for competitive products. No assurance can be given that the Company's
competitors will not succeed in developing technologies and products that are
more effective or less costly than any that are being developed by the Company.
The Company expects products approved for sale, if any, to compete
primarily on the basis of product uniqueness, efficacy, safety, reliability,
price and patent position. In addition, the first medical product to reach the
market in therapeutic or preventive area is often at a significant advantage
relative to later entrants into the market. The Company's competitive position
will also depend on its ability to attract and retain qualified scientific and
other personnel, develop effective proprietary products, implement production
and marketing plans, obtain patent protection and secure adequate capital
resources.
Uncertainty of Market Acceptance.
The Company has only recently commenced limited marketing activities.
Achieving market acceptance for the Company's products will require substantial
marketing efforts and the expenditure of significant funds. There is no
assurance that the Company will be able to create a successful marketing
program, or that the Company's products can be sold in a manner that will permit
the Company to achieve long range profitability.
Possible Product Obsolescence.
The Company expects technological developments to continue at a rapid pace
in the electrostatic separation industries, and there can be no assurance that
technological developments will not cause the Company's technology to be
rendered obsolete. The Company's future success, if any, will be dependent upon
its ability to remain competitive with others involved in the development,
manufacture and marketing of similar products and technologies through its
continued capability to design high quality products in a cost efficient and
timely manner, of which there can be no assurance. See "Business."
No Assurance as to Protection of Intellectual Property; Dependence on
Intellectual Property.
Patents have been granted for both method and devise in the technology for
the separation of caffeine from a brewed beverage. No other patents have, as
yet, been issued but it is expected that patents will be issued. The Company
believes that patent protection of its technologies, processes and products is
very important to its future operations. The success of the Company's proposed
products may significantly depend upon the Company's ability to obtain patent
protection. No assurance can be given that any additional patents will be issued
or if issued that they will have commercial value to the Company. When a patent
is granted, the cost of enforcing the Company's patent rights in lawsuits, if
necessary, may be significant and could interfere with the Company's operations.
Although the Company intends to file additional patent applications as
management believes appropriate with respect to any new products or
technological developments, no assurance can be given that any additional
patents will be issued, or if issued, that they will be of commercial benefit to
the Company. In addition, to anticipate the breadth or degree of protection that
any such patents may afford
7
<PAGE>
is impossible. To the extent that the Company relies on unpatented proprietary
technology, no assurance can be given that others will not independently develop
or obtain substantially equivalent or superior technology or otherwise gain
access to the Company's trade secrets, that any obligation of confidentiality
will be honored or that the Company will be able to effectively protect its
rights to proprietary technology. Further, no assurance can be given that any
products developed by the Company will not infringe patents held by third
parties or that, in such case, licenses from such third parties would be
available on commercially acceptable terms, if at all. The Company's ability to
compete effectively with other companies will depend, in part, on its ability to
maintain the proprietary nature of its technologies. The Company intends to
market its products internationally, and the laws of some foreign countries may
not protect the Company's proprietary rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's
competitors will not independently develop comparable or superior technologies.
Dependence Upon Key Management Personnel.
The success of the Company is substantially dependent upon existing
management. The Company considers Mr. Berg, Mr. Crose and Dr. Waldman to be key
executives. The loss of the services of Mr. Berg, Mr. Crose or Dr. Waldman, as
well as other key personnel, or any inability to attract and retain qualified
personnel to replace them in the event of their leaving the Company for any
reason, may adversely affect the Company's business. The Company has not applied
for key man life insurance on the lives of Mr. Berg, Mr. Crose or Dr. Waldman
and does not intend to. Because of the nature of its business, the Company will
be dependent upon its ability to attract and retain technological qualified
personnel, including competition from companies with substantially greater
resources than the Company. There is no assurance that the Company will
successfully recruit or retain personnel of the requisite expertise or in
adequate numbers to enable it to conduct its business as proposed.
Rapid Technological Change.
The market for biotechnology products has been characterized by rapid
technological change, frequent product introductions and evolving industry
requirements. The Company believes that these trends will continue into the
foreseeable future. The Company's success will depend, among other matters, upon
its ability to enhance its existing products and to successfully develop new
products that meet increasing customer requirements and gain market acceptance.
Achieving these goals will require continued substantial investment by the
Company in product development and marketing. There can be no assurance that the
Company will have sufficient resources to make these investments, that the
Company will be successful in developing product enhancements or new products on
a timely basis, if at all, or that the Company will be able to successfully
market these enhancements and new products once developed. Further, there can be
no assurance that the Company's products will not be rendered obsolete by new
industry standards or changing technology.
Products Liability and Other Claims.
The Company may be subject to substantial products liability costs if
claims arise out of problems associated with the products by the Company. The
Company will seek to maintain products liability coverage for the benefit of the
Company to protect the Company against such liabilities, but there can be no
assurance that such arrangements can be made, or if made, will be effective to
insulate the assets of the Company from such claims. The Company will attempt to
maintain insurance against such contingencies, in scope and amount which it
believes to be adequate. However, there can be no
8
<PAGE>
assurance that such product liability insurance will be available, or if
available, that it will adequately insure against such claim. If such insurance
is not obtained and maintained at sufficient levels, or if any product liability
claim were brought against the Company and were sustained for a sufficient
amount, it could have a material adverse affect on the business or financial
condition of the Company.
Limited Prior Market for the Common Stock.
There has only been a limited public market for the shares of the Company
on the OTC Bulletin Board. There is no assurance that an active public market
for the Common Stock will develop in the United States at any time in the
future. Further, as long as there is a limited public market for the Company's
Common Stock, the placement of a significant number of shares for sale in the
market at any one time could be difficult to achieve at then current market
prices, and could cause a decline in the price of the Common Stock.
Volatility of Stock Price.
The market price of the shares of Common Stock, like that of the common
stock of many other technology companies, has been and is likely to be highly
volatile. Factors such as the results of clinical trials by the Company or its
competitors, other evidence of the safety or efficacy of the Company's or
competitors products, announcements of technological innovations or new
commercial products by the Company or its competitors, government regulation,
developments in patent or other proprietary rights of the Company or its
competitors, fluctuations in the Company's operating results, sales of large
amounts of stock by shareholders, and limited, undercapitalized and less
experienced market makers are among the many reasons which could have a
significant effect on the market price of the Common Stock. In addition, the
stock market has experienced and continues to experience extreme price and
volume fluctutations which have affected the market price of many technology and
biotechnology companies. See "Capitalization"and "Dilution".
Uncertainty of Market Acceptance - Lack of Marketing Arrangements.
The Company has only recently developed a basic marketing plan for its DPI
division and commenced preliminary activities. Achieving market acceptance for
the Company's products will require substantial marketing efforts and the
expenditure of significant funds. There is no assurance that the Company will be
able to create a successful marketing program, or that the Company's products
can be sold in a manner that will permit the Company to achieve long range
profitability. See "Business."
Management of Changing Business.
Due to the level of technical and marketing expertise necessary to support
its anticipated new products and customers, the Company must attract and retain
highly qualified and well-trained personnel. There are a limited number of
persons with the requisite skills to serve in these positions, and it may become
increasingly difficult for the Company to hire such personnel. The Company's
expansion may also significantly strain the Company's management, financial and
other resources. The Company believes that improvements in management and
operational controls and operations, financial and management information
systems are needed to manage future growth, should it occur. The failure to
implement such improvements could have a material adverse effect upon the
Company. See "Management."
9
<PAGE>
Products Reliability.
Most applications incorporating the Company's technologies are being
developed or have only recently been introduced to the market. As a result of
the limited period of use and the controlled environment in which most of the
Company's technologies have been tested and used to date, there can be no
assurance that they will meet their performance specifications under all
conditions or for all applications. If any of the Company's technologies fail to
meet such expectations, the Company may be required to enhance or improve that
technology, and there can be no assurance that the Company would be able to do
so on a timely basis, if at all. Any significant reliability problems could have
a material adverse effect on the Company's business and prospects.
General Economic Conditions
The operations of the Company are subject to general economic conditions,
particularly relating to consumer spending and credit card payment practices.
The risks would include any potential restrictions imposed by governmental
authorities, changes in federal, state, or local tax laws applicable to the
Company, availability of skilled labor, availability of capital for future
needs, consumer purchasing habits and trends, etc. The Company may not have
sufficient capitalization to survive lack of market acceptance and economic
exigencies in general.
Issuance of Additional Shares.
The Company is currently authorized to issue up to a total of 15,000,000
shares of Common Stock and 1,000,000 shares of preferred stock, $.001 par value
per share (the "Preferred Stock"). There are currently approximately 6,092,424
shares of Common Stock outstanding, and stock options and warrants to acquire an
additional 1,055,773 shares of Common Stock.
The Company's Board of Directors is authorized, without stockholder
approval, to issue Preferred Stock in one or more series and to fix the voting
powers and the designations, preferences and relative, participating, optional
or other rights and restrictions thereof. Accordingly, the Company may further
issue a series of Preferred Stock in the future that will have preference over
the Common Stock with respect to the payment of dividends and proceeds from the
Company's liquidation, dissolution or winding up or have voting or conversion
rights which could adversely affect the voting power and percentage ownership of
the holders of the Common Stock. The Company currently has no plans,
commitments, arrangements or understandings to issue any Preferred Stock. See
"Description of Securities -Preferred Stock."
Shares Eligible for Future Sale.
Excluding the non-public Shares which are being registered pursuant to this
Prospectus, 1,105,002 shares of Common Stock outstanding as of the date of this
Prospectus are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act. Approximately 790,000 of these restricted
securities are eligible to be sold under Rule 144. In general, under Rule 144 as
currently in effect, subject to the satisfaction of certain other conditions, a
person (or persons whose shares are aggregated under the terms of Rule 144),
including an affiliate of the Company, who has owned restricted shares of Common
Stock beneficially for at least two years, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
sale, as reported by all
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<PAGE>
national securities exchanges on which the Common Stock is traded and/or the
automated quotation system of a registered securities association, or an
approved consolidated transaction reporting system. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least three
years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market prices prevailing from time to time. The
possibility that substantial amounts of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities. See "Description of Securities" and "Shares Eligible for
Future Sale."
Dilution.
There will be immediate and very substantial dilution to the purchasers of
the shares issued in connection with the exercise of the Warrants because the
tangible book value per share of Common Stock outstanding upon completion of the
Offering is substantially less than the offering price or price at which the
Warrants are convertible into Common Stock.
Anti-takeover Provisions.
Certain provisions of Delaware law, the Certificate of Incorporation and
the Company's By-laws, as amended (the "By-laws"), could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. These provisions
and the prohibition against certain business combinations could have the effect
of delaying, deferring or preventing a change in control or the removal of
existing management of the Company. See "Description of Securities."
Absence of Dividends.
The Company has never paid any cash dividends and does not anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy."
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS,
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THOSE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE
COMPANY.
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USE OF PROCEEDS
The net proceeds of the Offering after payment of an estimated $54,000 of
offering costs and expenses are estimated to be $1,173,044, which amount will be
used for working capital by the Company.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted in the OTC Bulletin Board under
the symbol "IMSO" since November 1994. The Company's predecessor closed an
initial public offering of its Common Stock in 1986. The following table sets
forth the high and low closing quotations for the Common Stock, as reported by
NASDAQ for each fiscal quarterly period since November 1994. The quotations as
reported reflect inter-dealer quotations without retail markup, markdown or
commission and do not necessarily represent actual transactions.
High Low
---- ---
November 1994 - December 31, 1994 1.00 1.00
January 1, 1995 - March 31, 1995 2.00 1.00
April 1, 1995 - June 30, 1995 2.00 1.50
July 1, 1995 - September 30, 1995 2.00 1.25
October 1, 1995 - December 31, 1995 2.00 1.25
January 1, 1996 - March 31, 1996 2.50 1.25
April 1, 1996 - June 30, 1996 3.25 1.25
July 1, 1996 - September 30, 1996 3.87 2.25
October 1, 1996 - December 31, 1996 3.25 2.50
No dividends have been declared on the Common Stock since the inception of
the Company in 1986 and the Company does not anticipate paying any cash
dividends in the foreseeable future. On December 31, 1996, the Company had
approximately 256 holders of record and believes that it had in excess of 300
beneficial owners, and the closing "bid" price of its Common Stock on December
31, 1996 was $2.875 as reported on the Bulletin Board. A number of shares are
held of record by brokerage and other institutional firms for their customers.
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CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of September 30, 1996:
Outstanding
on September 30, l996
---------------------
Common Stock,
$.001 par value
15,000,000 shares
authorized 3,250,000
shares issued
and outstanding $ 3,250
Additional
Paid in Capital $ 1,973,748
Accumulated
Deficit 2,292,787
Total ($ 59,795)
SELECTED FINANCIAL INFORMATION
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. Such
information should be read in conjunction with such financial statements,
including the notes thereto. The Company is in the development stage and has no
had operating income during the period from January 1, 1993, to the date of this
Prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended
Years ended December 31 September 30
(Unaudited)
1993 1994 1995 1994 1995
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets ............................... $ 20,952 $ 267,162 $ 12,980 $ 27,757 $ 27,014
Total liabilities .......................... 92,581 589,947 63,343 135,332 22,256
Accumulated deficit during development stage (927,129) (1,401,085) (1,847,362) (1,250,675) (1,763,227)
Total stockholders' equity ................. (71,629) 208,215 (50,363) (107,575) 4,758
</TABLE>
- -------------------
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
RESULTS OF OPERATIONS FOR THREE MONTHS ENDING SEPTEMBER 30, l996;
COMPARED WITH SEPTEMBER 30, l995.
Net losses increased from $106,481 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
those incurred in l995 as the Company continues further product research,
development and refinement on its Decaffomatic and other separation
technologies. All research and development costs were expensed 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 $20,967 from
the comparable period in l995, total liabilities of $363,769, an increase of
$341,513 from l995, and a total stockholders' equity of $(315,788), in
comparison to a stockholders' equity of $4,758 in the prior year.
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% 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, an 30% increase over the prior period.
The increase in these costs from l995 to l996
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<PAGE>
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 Decaffomatic and Eletrostatic Separation Technologies. All
research and development costs were expensed 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.
Year ended December 31, 1995, compared with December 31, 1994.
The Company had a net loss of $406,086 for the year ended December 31,
l995, in comparison to a net loss of $473,956 for the year ended December 31,
1994. The Company had no revenues or operating income for the years ended
December 31, l995 and December 31, 1994 from continuing operations. Total
general, administrative and development expenses were $408,100 for l995 in
comparison to $473,956 for 1994. The decrease in these costs from 1994 to l995
was primarily due to less research and development being performed in l995, as
less capital was available to the Company. All research and development costs
were expensed currently in the year incurred, rather than capitalized.
At December 31, 1995, the Company had total assets of $12,980, total
liabilities of $63,343 and total stockholders' deficit of $50,363. At December
31, 1994, the Company had total assets of $267,162, total liabilities of $58,947
and total stockholders' equity of $208,215. The decline in assets during fiscal
l995 resulted from available current assets being expended for research and
development and other general and administrative expenses without any operating
income.
For year ended December 31, l994, the reduction in total assets by $99,284
and total stockholders' equity by $121,505 from the amounts earlier reported for
that period resulted from the receivable shown due at December 31, l994 under
the subscription agreements outstanding from various foreign purchasers, which
amount was reported to be subject to offset by legal expenses incurred in
Germany, offering costs and expenses and interim loans payable, being
reclassified as a reduction of paid in capital.
No provision for income taxes has been recorded due to net operating loss
carryforwards.
Year ended December 31, 1994, compared with December 31, 1993.
The Company had a net loss of $473,956 for the year ended December 31, 1994
in comparison to a net loss of $40,823 for the year ended December 31, 1993. The
Company had no revenues or operating income for the years ended December 31,
1994, and December 31, 1993, from continuing operations. Total general,
administrative and development expenses were $514,147 for 1994 in comparison to
$40,823 for 1993. The increase in these costs from 1993 to 1994 was primarily
due to more research and development being perform in 1994, particularly with
regard to the DECAFFOMATIC technology. All research and development costs were
expensed currently in the year incurred, rather than capitalized.
For the reasons described above, in contrast to the amounts earlier
reported for l994, at December 31, 1994, the Company had total assets of
$267,162, total liabilities of $58,947 and total stockholders' equity of
$208,215. At December 31, 1993, the Company had total assets of $20,952, total
liabilities of $92,581 and total stockholders' deficit of $71,629.
15
<PAGE>
No provision for income taxes has been recorded due to net operating loss
carryforwards. Interest and penalties relating to late annual minimum excise
(franchise) taxes are due and have been accrued.
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 $300,000 loan was repaid in
full in November 1996. 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 bore 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.
As of the date of this Prospectus, the $300,000 promissory note had been repaid
in full.
On September 20, 1996, the Company entered into a stock purchase agreement
and a separate media purchase agreement to sell an aggregate of 2,272,728 shares
of its common stock, par value $.001, to two purchasers, Hampton Tech Partners
II, LLC, a Colorado limited liability company, which purchased 1,136,364 shares,
and Proxhill Marketing, Limited, a private company based in Colorado ("PML"),
which purchased 1,136,364 shares. The sales price was $1.32 per share and gross
proceeds and credits received were $3,000,000. The proceeds were 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. In both stock sales, the purchasers represented that they were
"Accredited Investors" as that term is defined under Regulation D promulgated by
the Commission pursuant to the Securities Act. Of the Shares being registered
under this Prospectus, 150,000 were sold to Hampton Tech Partners, LLC,
1,136,364 were sold to HTP and 1,136,363 were issued to PML for media credits.
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 produce
competitive products and services and to market them effectively.
16
<PAGE>
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, to conserve liquidity by setting marketing and other
priorities and reducing expenditures, to obtain bank 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 presently cannot assure. Any such reductions of expenditures
might materially adversely affect the ability of the Company to produce
competitive products and services and to market these effectively.
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.
The Company believes that its existing cash and cash equivalents, together
with 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, if operating expenses are higher than expected or if cash
flow from operations is lower than anticipated, there can be no assurance that
the Company will have sufficient capital resources to be able to continue as a
going concern.
17
<PAGE>
BUSINESS
The Company
General
IMSCO Technologies, Inc. ("IMSCO" or the "Company") is a development stage
company. The Company develops and is attempting to license and market
electrostatic separation technologies and related products. Electrostatic
separation takes advantage of the fundamental electrical properties of
attraction, wherein unlike or opposite charges attract each other, and
repulsion, wherein like or the same charges repel each other, and uses charged
materials to selectively separate other substances. In the last three years, the
Company developed a separation technology based on electrostatics combined with
mechanical separation. This technology was originally developed by the Company
for the specific purpose of separating viruses and viral particles from human
plasma. The Company calls its plasma separation technology the "PLASMA PURE".
Having achieved successful separation of viral DNA and virus from plasma with
the PLASMA PURE in research and testing performed at the Massachusetts General
Hospital and the Mayo Clinic, the Company began researching and developing other
uses for the technology. Based on the research and testing conducted at the
Massachusetts General Hospital and testing conducted at the Mayo Clinic, it is
the Company's belief that the PLASMA PURE is capable of removing significant
amounts of infectious viral particles from human plasma without significantly
affecting the other chemical properties of the plasma.
In 1993, the Company successfully designed a electrostatic separation
technology which removes on demand caffeine from brewed liquids, such as coffee
and tea. The Company calls its decaffeination technology the "DECAFFOMATIC."
Based on the Company's internal laboratory testing and verification tests
conducted at Lapuck Laboratories, Inc., an independent laboratory, and tests
conducted at the University of Massachusetts and at the University of Akron, the
Company believes that the DECAFFOMATIC is capable of removing in excess of 95%
of the caffeine from brewed beverages such as coffee and tea. In 1993, separate
patent applications were filed by the Company with the U.S. Office of Patents
and Trademarks for the PLASMA PURE and DECAFFOMATIC separation technologies. On
August 22, l995, the Company was granted a patent by the United States Patents
and Trademarks Office, Patent No. 5,443,709 for "Apparatus for Separating
Caffeine From a Liquid Containing the Same."
The Company's strategy is to develop and license to, or sell as an integral
component, the PLASMA PURE and DECAFFOMATIC technologies and products to third
parties which have related or complementary proprietary and non-proprietary
products manufactured by such companies. In l995, the Company formally
established a new subsidiary called Decaf Products, Inc. ("DPI"), which was
incorporated in the State of Delaware on April 5, l995, that will directly
market the DECAFFOMATIC technology and products in North America. On September
20, 1996, DPI entered into a Manufacturing and Distribution Agreement with NEWCO
Enterprises, Inc. ("NEWCO"), of St. Charles, Missouri to manufacture a coffee
brew basket, incorporating the decaffeination technology, for DPI's sales to the
institutional coffee maker marketplace in North America (the "NEWCO Agreement").
Under the NEWCO Agreement, NEWCO was granted the exclusive right to market and
distribute the products incorporating the Company's decaffeination technology to
the so-called "office coffee supply" market segment in North America for a
period of three years. On September 20, 1996, the Company also entered into a
Marketing Agreement with Hughes, Edwards & Price, Inc.("Hughes"), of Traverse
City, Michigan, wherein Hughes was appointed the exclusive representative to
market the Company's
18
<PAGE>
decaffeination technology and products to the institutional coffee maker
marketplace, such as restaurants and hotels, in North America for a period of
three years (the "Hughes Marketing Agreement"). In exchange, Hughes agreed to
sell or purchase a minimum of $3 million worth of units the first year, $5
million worth of units the second year and $7 million worth of units the third
year from the Company. All of the units to be sold by the Company to Hughes or
its customers will be manufactured by NEWCO. NEWCO has also agreed to purchase a
minimum of 25,000 units the first year, 50,000 units the second year and 100,000
units the third year of the NEWCO Agreement of the DECAFFOMATIC device for sales
to the "office coffee supply" market. Although there can be no assurances, the
Company intends to license the DECAFFOMATIC technology to another unrelated
company for manufacture, marketing and distribution in the rest of the world.
In December 1995, the Company formally established another subsidiary,
BioElectric Separation and Testing, Inc. ("BEST"), a Delaware corporation, to
further conduct research and development on the PLASMA PURE and all related
medical applications of the Company's core electrostatic separation technology.
The PLASMA PURE has not been submitted to the Food and Drug Administration
("FDA") for approval and there is no assurance that it will be approved. Given
the limited funds available to the Company and consequent delays in conducting
the necessary research and testing, the PLASMA PURE will not likely be submitted
to the FDA until at least the first half of 1998. Such submission to the FDA is
conditioned upon a number of events, including obtaining adequate funding to
complete the necessary research and development.
From inception in 1986 until 1991, the Company developed and marketed an
automated, computerized luminometer system which tested the presence of
microorganisms in the food and beverage industry. The Company's products also
included accompanying reagent kits and other ancillary materials. However, from
1988 through 1991 the Company had limited business activity, but because of
operating costs and expenses, had an increase in its accumulated deficit of
approximately $152,163 over the four year period. Given this dormant level of
business activity from 1988 to 1991, the Company realized that it could not
continue with its luminator technology product and discontinued those
operations. Thereafter, the Company was reactivated and entered into a
development stage in July 1992.
The Company had no income from continuing operations for the years' ending
December 31, 1992, 1993, 1994 and l995. In July 1992, the Company began a new
business area of focus and engaged new engineering and biochemistry personnel
with expertise for the research and development of the electrostatic separation
systems.
The Company was originally formed in 1986 under the laws of the State of
Nevada. The Company determined in 1987 that it was in its best interest to
change its corporate domicile from Nevada to Massachusetts since the corporate
operations were now located in Massachusetts. In order to effectuate this
change, the Company proposed the implementation of the following plan. On April
16, 1987, the Company filed Articles of Organization in the Commonwealth of
Massachusetts incorporating a new wholly-owned subsidiary, IMSCO, Inc. The Board
of Directors of the Company at a meeting held on May 21, 1987, voted, subject to
the adoption by the stockholders, to merge it wholly-owned subsidiary,
Industrial Microbiology Systems, Inc., an Illinois corporation into the parent
corporation, IMS, Inc., a Nevada corporation and then once this merger was
completed, to merge the surviving parent corporation, IMS, Inc., into its
wholly-owned subsidiary, IMSCO, Inc., a Massachusetts corporation. On June 18,
1987, the stockholders of IMS, Inc., voted to approve the change of corporate
domicile from Nevada to Massachusetts. Therefore, on July 1, 1987, there
remained one surviving corporation and the name of this surviving corporation
became IMSCO, Inc. As of the effective date of the merger, each
19
<PAGE>
stockholder of the Company held one share of Common Stock, for each 20 shares of
Common Stock, par value $.001 per share, previously held by him. The Company
believed that the change of corporate domicile and accompanying merger would
consolidate the Company's operations, would reduce the number of jurisdictions
that the Company is subject to taxation and would thereby enable the management
to operate in a more cost effective manner.
In July 1996, the Company was reincorporated in Delaware as IMSCO Technologies,
Inc. In order to effectuate this change, the Company proposed the implementation
of the following plan. On May 16, 1996, the Company filed a Certificate of
Incorporation in Delaware incorporating a new wholly-owned subsidiary, IMSCO
Technologies, Inc. The Board of Directors of the Company at a meeting held in
May, 1996 voted, subject to the adoption by the stockholders, to merge into its
wholly-owned subsidiary, IMSCO Technologies, Inc., a Massachusetts Corporation.
On July 9 1996, the stockholders of IMSCO, Inc., voted to approve the change of
corporate domicile from Massachusetts to Delaware. Therefore, by virtue of a
Certificate of Merger filed with the Secretary of State for the State of
Delaware on July 18, 1996, there remained one surviving corporation and the name
of this surviving corporation is IMSCO Technologies, Inc. As of the effective
date of the merger, each stockholder of the Company held one share of Common
Stock, for each one share of Common Stock, par value $.001 per share, of IMSCO,
Inc. previously held by him.
20
<PAGE>
Products And Technologies
DECAFFOMATIC
In 1993, using its electrostatic separation technology, the Company
designed, researched and developed a successfully working prototype of the
DECAFFOMATIC device. Throughout 1994 and 1995 the Company continued to further
research and develop the DECAFFOMATIC device. To facilitate this development, in
October 1994, the Company entered into a Memorandum of Understanding with the
University of Massachusetts whereunder the Company would use the University's
facilities and engage certain of the University's professors and students to
perform further research and development on the DECAFFOMATIC device as directed
by the Company. Throughout l995, the Company continued to utilize the services
of the University of Massachusetts to conduct its research and development
activities. In 1996, the Company entered into a Research Agreement with the
Polymer Sciences Division of the University of Akron, for further development of
the electrostatic decaffeination technology.
The IMSCO separation technology has enabled the Company to build a stand-alone
decaffeinator which may be used immediately after brewing to customize the
product to individual taste and need. Throughout l995, the Company continued to
further develop and refine the DECAFFOMATIC technology in several working
prototypes that are used for demonstration and testing purposes. Additionally,
in 1996, the Company designed and built a decaffeinator that is incorporated
into the coffee maker brew basket as an integral part of the coffee brewing
process. The customer-user will need to only buy regular coffee or tea and
decaffeinate the brewed beverage on demand for those who want the decaffeinated
product. The Company anticipates that this will result in considerable cost
saving for the consumer. In the institutional marketplace, the Company believes
that such an integrated decaffeinator will produce more significant cost
savings, given the difference in price of decaffeinated ground coffee beans over
regular ground coffee beans. The Company believes that this benefit is of
primary concern to senior citizens who are on a fixed income and at the same
time, are the largest growing segment of the population. This group is also the
one that is most health conscious and concerned about chemical treatment of
coffee in most other decaffeination processes. There is no chemical treatment in
the Company's process. In August 1996, the Company entered into a Research
Agreement with the University of Akron to further development and finalize the
selection of polymers to be utilized in the DECAFFOMATIC device. The final
product is now being manufactured by NEWCO for introduction to the institutional
coffee maker market in the first half of 1997. See "Manufacturing".
Management believes that removal of caffeine from coffee and tea is
recognized as a desirable goal for health and other reasons. The Company's
research has revealed that no technology now exists for removal of caffeine from
hot brewed liquids; rather, the current technology removes caffeine from the
beans prior to brewing.
The decaffeination process of coffee and tea has been popular since the mid
1930's. It was initially started by General Foods and then adapted by Nestle's
and other multi-national companies. The first decaffeination process was a
chemical method that used Methylene Chloride. This method is still employed
today, however, not as widely. The Company believes that the chemical extraction
method is not desirable because of the harsh chemicals and health issues raised
by their use. As consumers became more health conscious in the 1980's, the use
of decaffeinated products increased. A method more frequently used utilizes
repetitive washes of the coffee beans with clean water. Although this water
treatment process is the method of choice for most coffee roasters today, the
Company believes that it is more costly and ultimately less convenient for the
consumer.
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<PAGE>
The Company is planning to market the DECAFFOMATIC devices directly in the
United States through its DPI subsidiary. The Company intends to have NEWCO
contract manufacture the DECAFFOMATIC device on an OEM basis for the Company's
North American sales.
The Company intends to focus its decaffeination technology marketing on its
recently developed internal decaffeinator for use with the automatic drip coffee
maker for both institutional and home consumer products. This integrated system
has the DECAFFOMATIC separation device directly incorporated into the coffee
maker, such that the decaffeination occurs as the consumer directs on demand as
a normal step in the coffee maker brewing process.
PLASMA PURE
The Company has designed, prototyped and tested the PLASMA PURE
electrostatic/mechanical separation device for the express purpose of separating
virus and viral particles from human plasma. The Company believes that such a
separation device could be extremely important in the battle against AIDS,
Hepatitis and other plasma borne viral infections. Based on its initial research
and test results, the Company believes that the PLASMA-PURE has the capacity to
remove a substantial amount of the viral population from a unit of contaminated
plasma without adversely affecting the clotting factors. Because of the high
cost of conducting medical research and development testing on the PLASMA PURE
and the Company's limited financial resources, the Company was only able to
conduct limited research on the PLASMA PURE over the past year. However,
assuming that the Company is able to obtain adequate financing to complete its
research and development on the PLASMA PURE technology, of which there can be no
assurance, plans are being made to approach the FDA in late 1997 or the first
half of 1998 to begin testing for the FDA approval process. The Company believes
that PLASMA PURE, with its capability of removing viruses and viral particles,
may significantly reduce the risk normally associated with transfusion of plasma
or plasma components. Management believes that the use of PLASMA PURE to filter
fresh frozen plasma will not significantly decrease yields of the clotting
components. This is achieved because of the unique electrostatic internal matrix
which enables the plasma and its clotting components to flow freely through the
device, but still remove significant amounts of virus and viral particles. The
methods currently used to inactivate viruses in plasma such as the use of
detergents or extreme heat all have the possible adverse effect of limiting the
yield of final desired procoagulant products.
The Company believes the PLASMA PURE system and its electrostatic technology
offer various growth possibilities for the Company; however, each of these areas
will require significant further research and development and the financing of
such efforts. The Company has also designed and is in the research and
development stage for a new product that is an extension of the PLASMA PURE
separator appropriately called PLASMA PURE PLUS. It would be used only for bulk
plasma fractionation and therefore be larger than PLASMA PURE and priced
differently. Another follow-up product that the Company is currently researching
and developing is a modified white blood cell filter. This device would utilize
the same technology as PLASMA-PURE, and therefore management believes its
introduction could be rapid. Management feels a second version of the white
blood cell filter could then be marketed to the diagnostic reagent market. Given
the numerous uncertainties and risk inherent with medical research in general,
and blood research in particular, there can be no assurance that any of these
plasma products and devices will ever be finally developed, or if completed that
they will receive approval from the FDA or the comparable regulatory authority
of any foreign jurisdiction. The Company
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<PAGE>
has not prepared or made application to the FDA or any governmental authority
for approval of its PLASMA PURE device or related products.
The Company believes that the core electrostatic separation technology
readily lends itself to other markets as well, particularly air filtration for
hospitals, convention centers and airplanes. Although it needs significant
amounts of additional research and testing and the financial resources to
conduct such activities, the Company believes that its electrostatic separation
technology can be applied to extra corporeally based immunotherapies which
involve an improved system for drug administration and improved systems for
removal and/or treatment of cells or other circulating materials (including
byproducts of metabolism). The Company is presently seeking an involvement with
a major pharmaceutical company to initiate such a working partnership, although
there can be no assurance that it will be able to consummate any such
agreements.
Similar to DPI, the Company recently established a new Delaware corporation
subsidiary, BioElectric Separating & Testing, Inc. ("BEST") to conduct the
continued research and development activities and pursue FDA application
relating to the PLASMA PURE and related technologies.
Marketing
Except for the marketing of the DECAFFOMATIC products in North America through
DPI and the PLASMA PURE technology through the BEST subsidiary, the Company's
current strategy is to license its technologies to other companies which have
pre-existing industry presence for use with existing proprietary or
non-proprietary products, to enter into collaborative arrangements with such
companies to develop new applications for the technology with the Company, and
to an extremely limited extent, given its current financial resources, to
develop at the Company's expense, new applications for use with specific
products and conduct clinical studies of such formulations. As is the case with
the University of Massachusetts and the University of Akron, it is believed by
the Company that the use of outside contractors is the most efficient method to
have certain aspects of its technology further developed and commercialized
while minimizing the capital investment such ventures require from the Company.
Given that DPI is newly formed and currently has no facilities to conduct such
activities, there can be no assurance that DPI will be successful in introducing
the DECAFFOMATIC technology to the consumer public, that it will have any
commercial level of acceptance by the public or that if there is some level of
commercial acceptance, that it will be sufficient for the Company of DPI to
continue supporting a marketing and advertising program or that such efforts
will ever be profitable. The Company anticipates utilizing the $1,500,000 of
prepaid media credits that it recently acquired from PML to finance the
introduction and initial product advertising and marketing support for the
DECAFFOMATIC devices in the United States and Canada. The Company is currently
interviewing advertising agencies and public relation firms who will assist the
Company in the design and implementation of an marketing campaign to introduce
DECAFFOMATIC to the public.
Research and Development; Collaborative Arrangements
The Company conducts its research and development activities through its own
staff and facilities, as well as through collaborative arrangements with
universities, contract research organizations and independent consultants.
However, at present the Company has only four full-time employees, three of whom
are devoted to research and development, and, accordingly is dependent upon
third parties to conduct
23
<PAGE>
significant research and development, laboratory testing, clinical studies, and
the procedures and processes necessary to apply for and, if possible, obtain FDA
and other regulatory approvals and manufacture and market a finished product.
Although the Company had entered into an agreement with the Massachusetts
General Hospital to conduct testing on the initial PLASMA PURE separation
technology, that agreement expired in June 1993. As part of its standard
research and development activities, the Company conducted tests at Lapuck
Laboratories, Inc. , an independent testing facility, to verify the level of
caffeine removal caused by the DECAFFOMATIC separation device. To facilitate the
development of its DECAFFOMATIC technology, in October 1994 the Company entered
into a Memorandum of Understanding with the University of Massachusetts
whereunder the Company would use the University's facilities and engage certain
of the University's professors and students to perform further research and
development on the DECAFFOMATIC device as directed by the Company. The Company
conducted various research and development activities, primarily pertaining to
the DECAFFOMATIC technology, at the University of Massachusetts during l995. The
Company believes that research facilities and arrangements necessary to continue
its further research and development of its electrostatic separation
technologies are readily available.
The Company recently entered into a Research Agreement with the University
of Akron to further develop and finalize the polymer that the Company will be
using for the DECAFFOMATIC separator. Under the University of AKRON Research
Agreement, the Company pays $10,000 per month to the University for the services
enumerated in the Agreement.
From July 1992 to December 31, l995, the Company incurred $1,183,687 of
development stage expenses and directly expended $124,978 on the research and
development of its electrostatic separation technology. The Company anticipates
incurring significant research and development expenditures in the future as the
Company continues its efforts to develop further applications and uses for its
present separation technologies and as it begins to research other technologies.
Manufacturing
On September 20, 1996, the Company entered into the NEWCO Agreement for the
development and manufacture of the decaffeination separation devices for sale in
North America to the institutional marketplace. NEWCO has made numerous working
models of the decaffeination separator that will be used by NEWCO's sales force
and Hughes' sales force to market the decaffeinator to institutional users in
North America. Depending upon the volume and use requirements of the
institutional customer, it is estimated that various models of the device will
be sold to the customer at prices ranging from $20 to $200. The Company has
requested NEWCO to manufacture working models of the decaffeinator which will be
sold to the home consumer. Over the last two years, the Company conducted
research, development and testing of the decaffeinator prototypes at the
University of Massachusetts and, since 1996, at the University of Akron to
verify and regulate the level of caffeine removed by the prototype units. The
test results indicated a significant amount (in excess of 95%) of the caffeine
was removed by the DECAFFOMATIC device.
The Company also conducted various tests at the University of Massachusetts
and University of Akron relating to the characteristics of the brewed coffee,
including pH, color, flavor and aroma of the coffee, after it has passed through
the DECAFFOMATIC device. This on-going development of the optimum device that
removes caffeine most efficiently with the minimal impact on color, taste and
aroma of the brewed coffee is being conducted at the University of Akron. The
Company intends to
24
<PAGE>
continue working with the University of Akron to further refine and develop new
decaffeination products in the future.
The Company has manufactured and supplied the PLASMA PURE separation
device, on a limited basis, for test purposes only, to research institutions and
certain other corporate or institutional partners, prospective licensees and
others. The Company has made five prototype PLASMA PURE devices to date which
were tested at the Massachusetts General Hospital and the Mayo Clinic from
August 1992 through April 1993. The test results demonstrated that the PLASMA
PURE separation technology is capable of removing significant amounts of
infectious viral particles from plasma.
The separation devices are manufactured from generally available materials,
and the Company is not dependent upon any single supplier. The Company believes
that there are numerous third party contract manufacturers similar to NEWCO
available around the world who can manufacture its products on an OEM basis. The
Company currently has insufficient resources to establish and conduct its own
commercial manufacturing activities with respect to its proposed products. If
the Company, in the future, decides to establish its own manufacturing
facilities and capabilities, at least for certain products, it would require
substantial additional funds and personnel.
Government Regulations
The production and marketing of some of the Company's products, including the
PLASMA PURE, will be subject to regulation for safety and efficacy by numerous
federal, state and local agencies, and comparable agencies in foreign countries.
The Company's PLASMA PURE system will be considered a medical device. As such,
the FDA would require the Company to apply for and obtain either a premarket
notification clearance under Section 510(k), or a PMA prior to sales and
marketing of the device in the United States. The 510(k) premarket notification
may be obtained if the medical device manufacturer can establish that the newly
developed product is substantially equivalent to another legally marketed
device. The FDA may also require clinical data or other evidence of safety and
effectiveness. In the United States, the FDA Act, govern or influence the
testing, manufacture, safety, labeling, storage, record keeping, approval,
advertising and promotion of the Company's proposed products and technologies.
Under the FDA Act, the FDA regulates the preclinical and clinical testing,
manufacturing labeling, distribution, sale and promotion of medical devices in
the United States. The FDA prohibits a device, whether or not cleared under a
510(k) premarket notification or approved under a PMA, from being marketed for
unapproved clinical uses.
Non-compliance with applicable requirements can result in fines and other
judicially imposed sanctions including the initiation of product seizures,
injunction actions, mandatory recalls and criminal prosecutions based on
products, promotional practices, or manufacturing practices that violate
statutory requirements. In addition, administrative remedies can involve
voluntary recalls or cessation of sale of products, administrative detention,
public notice, voluntary changes in labeling, manufacturing or promotional
practices. The FDA also has the authority to withdraw approval of instruments
and devices in accordance with statutory procedures.
25
<PAGE>
The Company has not prepared or made application to the FDA or any
governmental authority for approval of the PLASMA PURE device or related
products. The FDA approval procedure involves completion of pre-clinical studies
and the submission of the results of these studies to the FDA an application.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. Human clinical
trials are typically conducted in three sequential phases, but the phases may
overlap. Phase I trials consist of testing the product in a small number of
volunteers primarily for safety. In Phase II, in addition to safety, the
efficacy of the product is evaluated in a small patient population. Phase III
trials typically involve additional multi-center testing for safety and clinical
efficacy in an expanded population of patients at geographically dispersed test
sites. A clinical plan, or "protocol," accompanied by the approval of the
institutions participating in the trials, must be submitted to the FDA prior to
commencement of each clinical trial. The FDA may order the temporary or
permanent discontinuation of a clinical trial at any time if adverse safety
effects are observed in volunteers or patients. In addition, the FDA may request
Phase IV trials after approval to resolve any lingering questions.
The results of the pre-clinical and clinical studies on new medical devices
are then submitted to the FDA for approval to commence commercial sales.
Following extensive review, the FDA may grant marketing approval, require
additional testing or information or deny the application. Continued compliance
with all FDA requirements and the conditions in an approved application,
including product specifications, manufacturing process, labeling and
promotional material and record keeping and reporting requirements, is necessary
for all products. Failure to comply, or the occurrence of unanticipated adverse
effects during commercial marketing, could lead to the need for labeling
changes, product recall, seizure, injunctions against distribution or other
FDA-initiated action, which could delay further marketing until the products are
brought into compliance.
The preparation of required applications and subsequent FDA and foreign
regulatory approval process is expensive, lengthy and uncertain. If the
manufacturer cannot establish equivalence or if the FDA determines that the
device requires more extensive review, the FDA will require the submission of
PMA. The PMA must contain nonclinical and clinical investigation results, a
description of the methods, facilities and controls used for manufacturing, and
the proposed labeling for the device. The Company must receive FDA approval for
Phase I, II, and III trials to test the PLASMA PURE device. FDA review of a PMA
would take at least nine months to a year following submission of Phase III test
results, and may take longer. No assurance can be given that approval of the
PLASMA PURE PMA would be granted.
The packaging and labeling of all the Company's proposed PLASMA PURE
products will be subject to FDA regulation. Because of the extensive costs and
time involved, the Company currently intends to rely primarily on licensees and
joint venturers to obtain regulatory approvals and market its PLASMA PURE
products, when developed. No assurance can be given that the Company will reach
agreement with any proposed licensees for such products. Licensees will
generally have the right to terminate funding a product at any time for any
reason without significant penalty. The resources and attention devoted by a
licensee, if obtained by the Company, to a product are not in the Company's
control, and this can result in delays in clinical testing, the preparation and
prosecution of regulatory filings and commercialization efforts. Even if the
Company is successful in finding licensees for its products, these delays would
cause the payment of any royalties to be delayed.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities must be obtained in any foreign country prior
to the commencement of marketing of the
26
<PAGE>
product in that country. The approval procedure varies from country to country,
can involve additional testing, and the time required may differ from that
required for FDA approval. Although some procedures for unified filings exist
for certain European countries, in general each country has its own procedures
and requirements, many of which are time consuming and expensive. Thus,
substantial delays in obtaining required approvals from both the FDA and foreign
regulatory authorities can result after the relevant applications are filed.
After such approvals are obtained, further delays may be encountered before the
products become commercially available.
No assurance can be given that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company's
proposed products, cause the Company to undertake costly procedures and furnish
a competitive advantage to the more substantially capitalized companies with
which the Company plans to compete. In addition, the extent of potentially
adverse government regulations which might arise from future administrative
action or legislation cannot be predicted.
Patents and License Rights
The Company applied for U.S. patents covering its DECAFFOMATIC separation
technology and its PLASMA PURE separation technology in 1993. On August 22,
l995, the Company was issued a patent by the U.S. Commissioner of Patents and
Trademarks, Patent Number 5,443,709, for its "Apparatus For Separating Caffeine
From A Liquid Containing the Same."
The Company believes that patent protection of its technologies, processes
and products is very important to its future operations. The success of the
Company's proposed products may significantly depend upon the Company's ability
to obtain patent protection. No assurance can be given that any patents will be
issued or if issued that they will have commercial value to the Company. If a
patent is granted, the cost of enforcing the Company's patent rights in
lawsuits, if necessary, may be significant and could interfere with the
Company's operations.
Although the Company intends to file additional patent applications as
management believes appropriate with respect to any new products or
technological developments, no assurance can be given that any additional
patents will be issued, or if issued, that they will be of commercial benefit to
the Company. In addition, to anticipate the breadth or degree of protection that
any such patents may afford is impossible. To the extent that the Company relies
on unpatented proprietary technology, no assurance can be given that others will
not independently develop or obtain substantially equivalent or superior
technology or otherwise gain access to the Company's trade secrets, that any
obligation of confidentiality will be honored or that the Company will be able
to effectively protect its rights to proprietary technology. Further, no
assurance can be given that any products developed by the Company will not
infringe patents held by third parties or that, in such case, licenses form such
third parties would be available on commercially acceptable terms, if at all.
Competition
The Company competes with numerous firms, many of which are large,
multi-national organizations with worldwide distribution. These firms have
substantially greater capital resources, research and development and technical
staffs, facilities and experience in obtaining regulatory approvals, as well as
27
<PAGE>
in the manufacturing, marketing and distribution of products, than the Company.
Academic institutions, hospitals, governmental agencies and other public and
private research organizations are also conducting research and seeking patent
protection and may develop competing products or technologies on their own or
through joint ventures or other arrangements. In addition, recently developed
technologies or technologies that may be developed in the future are or could be
the basis for competitive products. No assurance can be given that the Company's
competitors will not succeed in developing technologies and products that are
more effective or less costly than any that are being developed by the Company.
The Company expects products approved for sale, if any, to compete
primarily on the basis of product uniqueness, efficacy, safety, reliability,
price and patent position. In addition, the first medical product to reach the
market in therapeutic or preventive area is often at a significant advantage
relative to later entrants into the market. The Company's competitive position
will also depend on its ability to attract and retain qualified scientific and
other personnel, develop effective proprietary products, implement production
and marketing plans, obtain patent protection and secure adequate capital
resources.
Product Liability
The development, manufacture and sale of the Company's products involve an
inherent risk of product liability claims and associated adverse publicity. The
Company currently does not maintain liability insurance and may need to acquire
such insurance coverage prior to the commercial introduction of some of its
products. No assurance can be given that the Company will be able to obtain
product liability insurance or, if obtainable, that it will be on financially
reasonable terms. If such insurance is not obtained and maintained at sufficient
levels, or if any product liability claim were brought against the Company and
were sustained for a sufficient amount, it could have a material adverse affect
on the business or financial condition of the Company.
Employees
As of the closing date of this Offering, the Company will have five full
time employees, one in management, three in research and development and one in
administration. The Company considers its relations with its employees to be
satisfactory. See "Management".
Environmental Quality
The Company believes that it is now in compliance with all Federal, State
and local laws relating to the protection of the environment. The Company does
not generate, store, transport or dispose of any hazardous waste, and that
management believes that none of the Company's products is regarded as a
hazardous material by the applicable regulations for the protection of the
environment. The Company does not anticipate making any capital expenditures in
the current or succeeding fiscal year for environmental control efforts
regarding its products.
Properties
The Company's principal offices are currently located at 40 Bayfield Drive,
North Andover, Massachusetts and consists of approximately 1,276 square feet.
The Company had an initial three year lease which commenced on August 12, 1993
and ended on August 11, 1996. The Company extended this lease for one additional
year. The Company pays an annual rent of $14,450.00. The Company's
administrative, research and development, and storage facilities are located
therein.
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<PAGE>
The Company also recently established a office at 950 Third Avenue, New York,
New York, consisting of approximately 2,500 square feet of space, to conduct its
marketing and finance related activities. The lease at 950 Third Avenue, New
York, New York, is for a term of five years at an annual base rental of $32 per
square foot. The lease contains standard pass-throughs by the unaffiliated
landlord of increases in real estate taxes and operating expenses after the
first year of occupancy. The 950 Third Avenue lease expires on October 31, 2001.
Upon the end of these current leases, the Company expects to be able to
either negotiate new leases with the current landlord or locate suitable
premises elsewhere for comparable fair market rent to that now being paid. The
Company believes that its property and equipment are in good operating condition
and are adequate for existing and immediately foreseeable needs.
Legal Proceedings
The Company is not aware of any material pending or threatened legal
proceedings against the Company or its officers and directors.
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<PAGE>
MANAGEMENT
The following table sets forth information with respect to each executive
officer and director of the Company. Each executive officer or director has been
appointed as of this year to serve for a term of one year.
Directors and
Executive Officers Age Position
- ------------------ --- --------
Sol L. Berg 61 President and Director
Dr. Alan Waldman 51 Vice President and Director
James Crose 63 Vice President--Engineering
Gloria Berg 60 Secretary
Mr. James Yurak 60 Director
Vernon Oberholtzer 56 Director
Victor Bauer 53 Director
Sol L. Berg
Since the latter part of 1984, Mr. Berg has devoted his full-time efforts
to the business of the Company and has served as its President since such date.
From 1982 to 1984, Mr. Berg was the Project Director and Product Manager for
United Technologies Packard in Chicago, Illinois, which is a manufacturer of
precision instrumentation. From 1980 to 1982, Mr. Berg was Product Manager for
the Hamilton Company in Reno, Nevada. Hamilton Company is a manufacturer of
precision scientific equipment. From 1974 to 1980, Mr. Berg, was the National
Accounts Manager for Bio-Rad Laboratories in Richmond, California, which
manufactures diagnostic materials and equipment. Mr. Berg received a Bachelor of
Science in Chemistry from New York University. Sol L. Berg is the husband of
Gloria Berg.
Alan Waldman, Ph.D
Dr. Alan A. Waldman, Ph.D. joined IMSCO as Executive Vice President and a
Director in 1992. Since 1988, Dr. Waldman has served as President of Waldman
Biomedical Consultancy, an international advisory group. From 1981 to 1988, Dr.
Waldman was the Technical Director for the New York Blood Center, which is the
largest blood bank in the world having annual sales in excess of $100 million.
Dr. Waldman is an authority in planning, development and automation of serologic
and diagnostic testing related to immunologic and viral markers. He is the
author of over 60 reports
30
<PAGE>
and publications. Dr. Waldman also became Chief Executive Officer of the
Company's BioElectric Separation & Testing, Inc. subsidiary in January 1996. Dr.
Waldman received his Ph.D. in Biochemistry from Tufts University.
James G. Yurak
Mr. Yurak was elected to the Board in l995 and serves as President and
Chief Executive Officer of the Decaf Products, Inc. subsidiary of the Company,
which was formed in l995 for the express purpose of manufacturing, marketing and
distributing products incorporating the Company's patented electrostatic
decaffeination separation technologies. He brings 20 years of direct experience
in the marketing and sales of coffee makers and coffee products to the Company
and DPI. He joined Mr. Coffee, Inc. in 1976 as Vice President of Sales, from
1986 to 1994 served as its Executive Vice President, where he helped direct the
growth of Mr. Coffee from a concept to a company with sales of approximately
$200 million per year. Mr. Yurak is a graduate of Colgate University.
James Crose
Mr. Crose has been Vice President of Engineering for the Company since 1992. Mr.
Crose earned a B.S. in Mechanical Engineering from Northeastern University. His
areas of expertise include: Fluidics, Vacuum Process Control, Heat Transfer in
Electronics and AutoCad 1-4. He has experience in cryogenic technology as
applied to the Titan III program at launch complexes 43 and 44 at Cape Kennedy.
He holds several electrostatic patents applying internal coatings to two-piece
cans for the canning industry. Mr. Crose has held key engineering positions with
Raytheon, Martin Marietta, Corning Glass, Sanders Assoc. and Sweetheart Cup
Corp.
Gloria Berg
Gloria Berg has served as Secretary for the Company since late l984. From l982
to l984, she was a bookkeeper and accountant for Hidden Lake Village
Condominiums, Illinois. From 1975 to l982, she was a department manager for four
departments for Famous Barr department stores. Gloria Berg is the wife of Sol L.
Berg.
Vernon S. Oberholtzer
Vernon S. Oberholtzer has been a Director of the Company since 1994. Since 1978,
Mr. Oberholtzer has been President of his own financial consulting firm,
Fletcher Capital Corporation. He has had over thirty years of diversified
business experience with both major corporations and in the securities field,
having worked with such firms as Herzog, Heine, Geduld & Company, Spencer Trask
Securities, Inc. and Donaldson, Lufkin and Jenrette. From 1964 to 1975, Mr.
Oberholtzer was employed by Shell Oil Company, where he held various managerial
assignments. He holds a Master of Science Degree in Business Financial
Management from George Washington University and a National Association of
Securities Dealers, Inc. Series 7, 39 and 63 Licenses. He is a member of the
Financial Analysts and Money Managers Society of New York.
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<PAGE>
Victor Bauer
Mr. Bauer became a Director in 1996. Mr. Bauer has over 25 years experience in
establishing product sales, marketing and distribution organizations. He is also
the President and Chief Executive Officer of Universal Sales, Inc., which is a
sales and marketing firm based in New York. Since l994, he has been President
and chief Executive Officer of BIJ Enterprises, Ltd., St. James, New York, which
entity serves as an Agent/Broker for Stone Container Corporation and Formosa
Plastics. From 1991 to 1994, he was President and Chief Executive Officer of
Royal Beverages of New York, Ltd., which was the exclusive franchised bottler
and distributor of Royal Crown Cola Company for the New York and Long Island
metropolitan area, excluding Manhattan. At Royal Beverages, Mr Bauer recruited
and supervised management teams consisting of sales manager, directors of chain
sales, controller and operations specialists, warehouse managers plus in excess
of 100 additional employees. From 1971 to 1991, Mr. Bauer was the President of
wholesale beverage distribution companies. He received a Bachelor of Science in
Business Administration from New York University in l964 and a Masters Degree in
Education from Brooklyn College in 1967.
Directors do not receive any compensation for services as directors. During
fiscal year 1996, the Company's Board of Directors performed the functions of a
compensation committee of the Board in reviewing the compensation paid to
employees, and of an audit committee in reviewing financial statements,
management and internal audits. IMSCO does not have a separate Nominating or
Compensation Committee.
Executive Compensation
The following table sets for the annual and long-term compensation of the chief
executive officer for services in all capacities for the fiscal year ended
December 31, 1993, 1994 and 1995. No employee's annual salary and bonus exceeded
$100,000 in any of those fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Individual Capacity in which Year Salary Additional
served Compensation (DPI
Shares)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sol. L. Berg President and Chief 1995 $75,300 $75,000
Executive Officer
1994 $51,944
1993 $0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
There are no arrangements known to the Company which may at a subsequent
date result in a change in control of the Company.
The Company currently provides medical insurance to all its employees.
Employment Arrangements
Effective as of September 1, 1996, the Company entered into an employment
agreement with Sol L. Berg providing for Mr. Berg's employment as the Company's
President for a three year term. Mr. Berg's salary under this agreement is
$125,000 per year. Mr. Berg is also eligible to receive an annual bonus equal to
3.5% of the "Net Earnings" in excess of $1 million per year from the Company's
"Heal & Seal" Division. The term "Net Earnings" shall mean the earnings of the
Company's "Heal & Seal" Division before taxes for each given fiscal year and
shall be conclusively determined to be those shown on the income statement for
such fiscal year by the Company in its Annual Report on Form 10-KSB as filed
with the Commission; or, if the Company shall not be subject to the reporting
requirements of Sections 13 or 15 of the Securities Exchange Act of l934, as
shown on the Company's income statement audited and certified by an independent
certified public accountant. The annual bonus shall be paid within 90 days after
the end of the Company's fiscal year end. For purposes of calculating the bonus,
the Company shall be charged in the aggregate no more than 10% of its gross
revenues by Company for royalties on licenses from Company to the Division and
for administration and management fees. The agreement also provides that Mr.
Berg shall be provided with a car by the Company and be reimbursed for
automobile insurance. Mr. Berg shall also be entitled to medical insurance,
vacation and other benefits provided to the Company's employees generally. In
the event that Mr. Berg's employment with the Company is terminated by the
Company other than for cause, Mr. Berg shall receive one year's base salary. In
connection with the exchange of his DPI stock for the Company's Common Stock,
Mr. Berg received 150,000 shares of the Company's Common Stock.
Effective February 23, 1996, as amended effective as of September 1, 1996, the
Company entered into an employment agreement with James G. Yurak providing for
Mr. Yurak's employment as the DPI's President and Chief Executive Officer for a
three year term. Mr. Yurak's salary under this agreement is $75,000 for the
first year, $125,000 for the second year and $150,000 for the third year. Mr.
Yurak is also eligible to receive an annual bonus equal to 3.5% of the "Net
Earnings" in excess of $2 million per year from the Company's DPI subsidiary.
The term "Net Earnings" shall mean the earnings of the Company's DPI subsidiary
before taxes for each given fiscal year and shall be conclusively determined to
be those shown on the income statement for such fiscal year by the Company in
its Annual Report on Form 10-KSB as filed with the Commission; or, if the
Company shall not be subject to the reporting requirements of Sections 13 or 15
of the Exchange Act , as shown on the Company's income statement audited and
certified by an independent certified public accountant. The annual bonus shall
be paid within 90 days after the end of the Company's fiscal year end. For
purposes of calculating the bonus, the DPI subsidiary shall be charged in the
aggregate no more than 10% of its gross revenues by IMSCO for royalties on
licenses from IMSCO to the DPI subsidiary and for administration and management
fees. The agreement also provides that Mr. Yurak shall be provided with a car by
the Company and be reimbursed for automobile insurance. Mr. Yurak shall also be
entitled to medical insurance, vacation and other
33
<PAGE>
benefits provided to the Company's employees generally. Mr. Yurak was also
granted 75,000 shares of the Company's Common Stock upon signing his employment
agreement and 75,000 shares after one full year of employment.
Effective as of September 1, 1996, the Company entered into an employment
agreement with James Crose providing for Mr.Crose's employment as the Company's
Vice President of Engineering for a two year term. Mr. Crose's salary under this
agreement is $75,000 per year. Mr. Crose shall also be entitled to medical
insurance, vacation and other benefits provided to the Company's employees
generally.
On August 13, 1996, the Company entered into a Business Consulting Agreement
with Mr. Edmund Abramson for a period of three years at an annual cash
compensation of $200,000, excluding benefits . The agreement also provides that
Mr. Abramson shall be provided with a car by the Company and be reimbursed for
automobile insurance. Mr. Abramson shall also be entitled to medical insurance.
In the event that Mr. Abramson's agreement with the Company is terminated by the
Company, Mr. Abramson shall receive two year's base cash compensation. Mr.
Abramson was also granted 100,000 shares of the Company's Common Stock and an
option to purchase 100,000 shares of Common Stock at $1.50 per share. See "Stock
Option Plan".
On August 13, 1996, the Company entered into a three year Consulting Agreement
with WRA Consulting, Inc. a corporation having Willa Rose Abramson, wife of
Edmund Abramson ("WRA") as its sole director and shareholder. Under the
agreement, if WRA finds $1 million in capital financing for the Company, the
Company shall grant WRA 150,000 shares of Common Stock and warrants or options
to acquire an additional 150,000 shares of Common Stock at $1.50 per share. The
agreement also grants WRA a bonus equal to 5% of the "Net Earnings" in excess of
$3 million per year from the Company. The term "Net Earnings" shall mean the
earnings of the Company before taxes for each given fiscal year and shall be
conclusively determined to be those shown on the income statement for such
fiscal year by the Company in its Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission; or, if the Company shall not be subject to
the reporting requirements of Sections 13 or 15 of the Exchange Act, as shown on
the Company's income statement audited and certified by an independent certified
public accountant. The annual bonus shall be paid within 90 days after the end
of the Company's fiscal year end. If WRA arranges a transaction with a third
party introduced by WRA which has a consideration or value to the Company of $3
million or greater, whether through a merger, acquisition, business combination
or contract, or security placement for the benefit of the Company, it shall
receive an additional 250,000 shares of the Company's Common Stock and 250,000
warrants to purchase Common Stock, exercisable at $1.50 per share for a period
ending December 31,1999. If the transaction is assisting in arranging capital
for the Company, it shall also receive an investment banking fee equal to five
percent of amounts in excess of $3 million. On January 3, 1997, under the
agreement, WRA received 400,000 Shares of Common Stock and the 400,000 Class B
Warrants entitling it to acquire Common Stock for $1.50 per Share for a period
ending December 31, 1999.
Effective as of September 1, 1996, Universal Sales, Inc., also entered into
a Sales Administration and Servicing Agreement ("Universal Agreement") with the
Company for a seven year term, providing a broad scope of sales administration
and services to the Company. As compensation for
34
<PAGE>
its services, Universal shall receive an amount equal to 2.5% of the Company's
gross revenues from operations in excess of $5 million per annum. Mr. Victor
Bauer, a Director of the Company, is also the President and a 50% shareholder of
Universal Sales. Additionally, under the Universal Agreement, Universal shall be
entitled to a sales commission equal to 2.5% of the gross revenues resulting
from all sales generated through the efforts of Universal. Universal also
received $31,500 and 75,000 Shares of Common Stock as compensation for services
rendered to the Company in 1996.
Certain Limited Liability, Indemnification and Anti-Takeover Provisions
The Company's Articles of Incorporation limit the liability of its
directors to the fullest extent permitted by the Delaware Business Corporation
Law. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for liability
for (i) any breach of the duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) dividends or other distributions of
corporate assets that are in contravention of certain statutory or contractual
restrictions, (iv) violations of certain securities law, or (v) any transaction
from which the director derives an improper personal benefit. Liability under
Federal securities laws are not limited by the Articles of Incorporation.
The Delaware Business Corporation Law requires that the Company shall
indemnify any director, officer or employee made or threatened to be made a
party to a proceeding, by reason of the former or present official capacity of
the person, against judgments, penalties, fines, settlements and reasonable
expenses incurred by the person in connection with the proceeding if certain
statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including a derivative action in the name of the Company. Reference
is made to the detailed terms of the Delaware indemnification statute for a
complete statement of such indemnification rights. The Company's Restated Bylaws
require the Company to provide indemnification to the fullest extent of the
Indemnification statute.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company is aware that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Stock Option Plan
In July 1996, the Company adopted a Non-Qualified Stock Option Plan (the
"Plan"). An aggregate of 1,500,000 shares of Common Stock are authorized for
issuance under the Plan. The Plan provides that incentive and non-qualified
options may be granted to officers, directors, consultants and key employees to
the Company for the purpose of providing an incentive to those persons to work
for the Company. The Plan may be administered by either the Board of Directors
or a committee of three directors appointed by the Board ("Committee"). The
Committee has wide latitude in determining the
35
<PAGE>
recipients of options and numerous other terms and conditions of the options.
The Board or Committee determines, among other things, the persons to whom stock
options are granted, the number of shares subject to each option, the date or
dates upon which each option may be exercised and the exercise price per share.
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's termination
of employment or consulting arrangement with the Company, except that under
certain circumstances an optionee may exercise an option within the three-month
period after such termination of employment. An optionee may not transfer any
options except that an option may be exercised by the personal representative of
a deceased optionee within the three-month period following the optionee's
death.
Employees as well as other individuals, such as outside directors, who
provide necessary services to the Company, are eligible to participate in the
Plan. Non-employees and part-time employees may receive only non-qualified stock
options. The maximum number of shares of Common Stock for which options may be
granted under the Plan is 1,500,000 shares. On August 13, 1996, 100,000 shares
of Common Stock were issued under the Plan and options to acquire 100,000 shares
of Common Stock exercisable at a price of $1.50 per share for a period of five
years were issued to Edmund Abramson a business consultant for the Company for
services rendered pursuant to his Consulting Agreement with the Company. On
October 10, 1996, 60,000 shares of Common Stock were authorized for Dr. Alan
Waldman, an executive officer and consultant to the Company, for services
rendered through 1996. Dr. Waldman's 60,000 shares of Common Stock will vest and
be issued on January 1, 1997. Mr. Vernon Oberholtzer, a Director of the Company,
was granted stock options under the Plan to acquire 10,000 Shares of the
Company's Common Stock for a price of $1.32 per Share, exercisable over a period
ending December 31, 1999.
Each Director serves until the next annual meeting of shareholders, or
until his successor is elected and qualified. The term of each officer is at the
discretion of the Board of Directors. The by-laws provide that the Chairman of
the Board of Directors has a second vote in the event that a majority vote of
the Board of Directors is not obtained.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table identifies each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, each
director of the Company and all directors and officers of the Company as a
group, and sets forth the number of shares of the Company's Common Stock
beneficially owned by each such person and such group and the percentage of the
shares of the Company's outstanding Common Stock owned by each such person and
such group. In all cases, the named person individually or together with his
spouse has sole voting power and sole investment power over the securities.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
<S> <C> <C>
Hampton Tech Partners II, LLC
8400 East Prentice Avenue
Englewood, CO 80111 1,136,363 18.6%
Hampton Tech Partners, LLC
8400 East Prentice Avenue
Englewood, CO 80111 150,000 2.5%
Proxhill Marketing, Inc.(1) 1,263,635 18.6%
9250 E. Costilla Avenue
Englewood, CO 80112
Sol L. Berg (2) 385,000(3) 6.3%
11 Royal Crest Drive
North Andover, MA 01845
Gloria Berg 165,250(4) 2.7%
11 Royal Crest Drive
North Andover, MA 01845
Dr. Alan Waldman (2) 170,000 2.8%
184 Seiffert Court
Oceanside, NY 11572
Mrs. Alexander T. Hoffman 369,900 6.0%
1660 Old Country Road
Plainview, NY 11803
Vic Bauer (2)(5) 85,000(4) 1.4%
c/o IMSCO, Inc.
40 Bayfield Drive
North Andover, MA 01845
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
James Yurak (2)(6)
c/o IMSCO, Inc.
40 Bayfield Drive
North Andover, MA 01845 75,000 1.2%
Vernon Oberholtzer (2)(7)
c/o IMSCO, Inc.
40 Bayfield Drive
North Andover, MA 01845 0 *
WRA Consulting, Inc. (8)
1800 Northeast 114th St.
Miami, FL 33181 400,000 6.5%
All Officers and Directors 880,250 14.5%
as a group (6 persons)
</TABLE>
- ---------------
(1) Does not include 127,272 Shares isssuable to Proxhill Marketing, Ltd., upon
exercise of the Class D Warrants for the exercise price of $1.32 per Share.
(2) Denotes a director of the Company.
(3) The shares shown as owned by Sol L. Berg do not include either (i) 165,250
shares owned by his wife, Gloria Berg, or (ii) 150,000 shares owned
directly by Sol L. Berg's three adult children, since Mr. Berg has
disclaimed any interest and may not be deemed to have voting or investment
power over these shares.
(4) The shares shown as owned by Gloria Berg do not include either (i) 235,000
shares owned by her husband, Sol L. Berg, or (ii) 150,000 shares owned
directly by Sol L. Berg's three adult children, since Mrs. Berg may not be
deemed to have shares voting or investment power over these shares.
(5) Includes 75,000 Shares beneficially owned by Mr. Bauer through Universal
Sales, Inc., and 10,000 Shares that are directly owned by Mr. Bauer's sons,
Ian and Jason Bauer. Does not include the Class C Warrants which entitle
Mr. Bauer to acquire 50,000 Shares at an exercise price of $2.875 per
Share, exercisable over a period of three years ending December 31, 1999.
(6) Does not include the 75,000 shares of Common Stock to be granted to Mr.
Yurak one year after his employment agreement.
(7) Excludes options to purchase 10,000 shares at a price of $1.50 per share.
(8) Excludes Class B Warrants to purchase up to 400,000 shares of Common Stock
at a price of $1.50 per share, which underlying shares issuable upon
exercise of the Class B Warrants are being registered in this offering. The
sole shareholder and director of WRA Consulting, Inc. is Willa Rose
Abramson, the wife of the Company's consultant, Edmund Abramson. Mr.
Abramson has disclaimed any interest in and may not be deemed to have
voting or investment power over those shares.
* Less than 1%
There are no arrangements known to the Company which may, at a subsequent
date, result in a further change in control of the Company.
38
<PAGE>
CERTAIN TRANSACTIONS
In August 1996, Hamton Tech Partners, LLC ("Hampton") acquired $300,000 in
promissory notes from the Company and 150,000 shares of Common Stock for the
total consideration of $300,000. The notes were repaid in full on October 22,
1996. On September 20, 1996, the Company entered into a Purchase Agreement with
HTP wherein HTP acquired 1,136,363 shares of Common Stock for $1,500,000 in cash
or $1.32 per share. Shares acquired by Hampton and HTP are being registered
pursuant to this Registration Statement.
On September 20, 1996, the Company entered into a Media Purchase Agreement
with PML, wherein PML agreed to sell $1,500,000 of media credits to the Company
in consideration for the Company issuing 1,136,363 shares of Common Stock,
representing a price of $1.32 per share. The Shares acquired by PML are being
registered pursuant to this Registration Statement. In connection with the
private placement of the Shares to Hampton I, Hampton II and PML, First Capital
Investments, Inc., a broker-dealer which is a member of the National Association
of Securities Dealers, Inc. ("NASD"), received the 242,273 Class A Warrants
entitling it to acquire Common Stock for the price of $1.45 per Share
exercisable over a period ending July 31, 2001. For advertising and marketing
services rendered to the Company in 1996 and 1997, PML also received the 127,272
Class D Warrants, entitling it to acquire Common Stock for the price of $1.32
per Share for a period ending July 31, 2001.
In 1996, Mr. Sol L. Berg, a Director and President of the Company, received
150,000 shares of Common Stock as compensation for services rendered. In 1996,
Mr. James G. Yurak, a Director and President of the DPI subsidiary, received
75,000 shares of Common Stock for services rendered. In 1996, Dr. Alan Waldman
entered into an understanding that he shall receive 100,000 shares of Common
Stock representing payment for services due him under his consulting agreement
through December 31, 1996, with the shares vesting and being issued on January
1, 1997. In l996, David E. Fleming, a member of Epstein, Becker & Green, P.C.,
counsel to the Company, received 90,000 shares of the Company's Common Stock for
various legal services rendered to the the Company over the prior two years,
which shares will vest on January 1, 1997. In 1996, Mr. Vernon Oberholtzer, a
Director of the Company, received stock options to acquire 10,000 Shares for a
price of $1.32, exercisable over a period ending December 31, 1999. In 1996,
Universal Sales, Inc. ("Universal"), a sales and marketing company of which Mr.
Victor Bauer, a Director of the Company, is President and a 50% shareholder,
received cash compensation in the amount of $31,500, and 75,000 shares of Common
Stock for services rendered to the Company, including the recruitment of the
services of Mr. Abramson for the Company.
SELLING SHAREHOLDERS
All of the Common Shares registered are to be offered for the account of
the following shareholders (the "Selling Shareholders"). The following sets
forth certain information with respect to the Selling Shareholders. The Company
has no knowledge of the intentions of any of the Selling Shareholders to
actually sell any of the shares listed under the column "Shares to be Sold."
39
<PAGE>
<TABLE>
<CAPTION>
Ownership Shares Ownership Percentage of
Prior to be After Class Owned
Selling Shareholder to Offering(1) Sold Offering After Offering(1)
- ------------------- -------------- ---- -------- -----------------
<S> <C> <C> <C> <C>
Hampton Tech Partners I, LLC 150,000 150,000 150,000 2.5%
Hampton Tech Partners II, LLC(1) 1,136,363 1,136,363 1,136,363 18.6%
Proxhill Marketing, Limited 1,263,635 1,263,635 1,263,635 18.6%(2)
First Capital Investments, Inc.(3) 242,272 242,272 242,272 0
WRA Consulting, Inc.(4) 800,000 800,000 800,000 6.5%
Victor Bauer (5) 50,000 50,000 50,000 0
</TABLE>
(1) Of the 1,136,363 Shares reflected by HTP, 18,940 are being registered on
behalf of Mr. Bernard L. Shaw, who elected to directly purchase $25,000 of
Shares at $1.32 per Share under HTP's Agreement with the Company.
(2) Includes 127,272 Shares issuable upon exercise of the Class D Warrants. The
percentage of class reflects the 1,136,363 Shares outstanding and held at
the date of this Prospectus.
(3) Includes 242,272 Shares issuable upon exercise of the Class A Warrants.
None of these Shares are currently outstanding
(4) Includes 400,000 Shares issuable upon exercise of Class B Warrants. The
sole officer, director and shareholder of WRA Consulting, Inc., is Willa
Rose Abramson. The percentage of class reflects that 400,000 Shares are
currently outstanding.
(5) Includes 50,000 Shares issuable upon exercise of the Class C Warrants. Mr.
Bauer is a Director of the Company. None of these Shares are currently
outstanding.
Hampton I, Hampton II and PML, the holders of 2,460,228 of the Shares being
registered hereunder, have agreed to contractually have the Shares restricted on
sale under a "lock-up" agreement. Under the lock-up agreement, one-third (1/3)
of the Shares will be released at any time after the effective date of the
Registration Statement. After the release of the initial one-third of the
Shares, the remaining two-thirds (2/3) of the Shares shall be locked-up until
July 15, 1997. During the "lock-up" period, after this Prospectus has become
effective, Hampton and Hampton II shall each have the right to distribute the
Shares to their respective shareholder-members, provided that each
shareholder-member shall be individually subject to the "lock-up" time periods.
After the respective "lock-up" has expired, each holder, including the various
shareholder-members of Hampton II, shall only sell Shares at the same rate as
permitted under Rule 144.
PLAN OF DISTRIBUTION
Any or all of the Shares may be sold from time to time directly to
purchasers by the Selling Shareholders. The sale of the Shares by the Selling
Shareholders may be effected from time to time in transactions (which may
include block transactions) in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at
40
<PAGE>
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholders may
effect such transactions by selling shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholder and/or the
purchasers of Shares for whom such broker-dealers may act as agent or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Shareholder and any broker-dealers that act in connection with
the sale of the Shares hereunder may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any discounts, concessions
or commissions received by them and any profit on the resale of Shares as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act.
At the time a particular offer of Shares is made, to the extent required, a
supplement to this Prospectus will be distributed which will set forth the terms
of the offering, including the name or names of any underwriters, dealers or
agents, the purchase price paid by any underwriter for shares purchased from the
Selling Shareholder and any discounts, concessions or commissions and other
items constituting compensation from the Selling Shareholder and any discounts,
concessions or commissions allowed or reallowed or paid to dealers, including
the proposed selling price to the public.
The Company is paying certain expenses (other than commissions and
discounts of underwriters, dealers or agents) incident to the offering and sale
for the Shares to the public, which are estimated to be approximately $54,000.
If the Company is required to update this Prospectus during such period, it may
incur additional expenses in excess of the amount estimated above.
In order to comply with certain states' securities laws, if applicable, the
Shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states the Shares may not be sold unless they
have been registered or qualify for sale in such state or an exemption from
regulation or qualification is available and is complied with.
41
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue an aggregate of 15,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. The Preferred Stock may be
issued in such series, and with such rights, designations and privileges as the
Board of Directors of the Company may, from time to time, authorize.
Common Stock
Holders of the Common Stock are entitled to one vote per share and, subject
to the rights of the holders of the Preferred Stock (discussed below), to
receive dividends when and as declared by the Board of Directors and share
ratably in the assets of the Company legally available for distribution in the
event of the liquidation, dissolution or winding up of the Company.
Holders of the Common Stock do not have subscription, redemption or
conversion rights, nor do they have any preemptive rights. In the event the
Company were to elect to sell additional shares of its Common Stock following
this Offering, investors in this Offering would have no right to purchase
additional shares of such stock and consequently, their percentage of equity
interest in the Company would be diluted.
The shares of Common Stock offered hereby will be, when issued and paid
for, fully paid and not liable for further call or assessment.
Holders of the voting stock do not have cumulative voting rights, which
means that the holders of more than half of the shares of voting stock can elect
all of the Company's Directors, if they choose to do so, and in such event the
holders of the remaining shares would not be able to elect any Directors. The
Board is empowered to fill any vacancies on the Board created by the resignation
of Directors.
Except as otherwise required by the Delaware Corporation Law, all
shareholder action (other than the election of Directors, who are elected by a
plurality vote) is taken by vote of a majority of shares of voting stock present
at a meeting of shareholders at which a quorum (a majority of the issued and
outstanding shares of the Company's voting stock) is present in person or by
proxy.
Preferred Stock
Pursuant to its Certificate of Incorporation, the Company is authorized to
issue a maximum of 1,000,000 shares of Preferred Stock in such series and with
such rights, designations and privileges (including voting rights and dividends)
as the Board of Directors may, from time to time, authorize. To date, no
Preferred Stock has been issued or designated as to terms. The Company currently
has no plans, arrangements, commitments or intentions to issue any of the
Preferred Stock.
<PAGE>
Warrants and Options
As of December 31, 1996, there were warrants and stock options outstanding
to purchase an aggregate of approximately 1,055,773shares of Common Stock at
exercise prices ranging from $1.45 to $2.00 per share. The warrants and options
contain provisions for the adjustment of the exercise prices in certain events,
including sales of Common Stock at less than the exercise price, stock
dividends, stock splits, reorganizations, reclassifications or mergers. The
warrants and options expire on various dates between February 1999 and October
2001. The holders of the Class A Warrants, Class B, Class C and Class D Warrants
are entitled to registration rights for the underlying Common Stock, which
underlying shares represent 242,272 Shares, 400,000 Shares, 50,000 and 127,272
Shares, respectively.
The 242,272 Class A Warrants entitle the registered holder thereof to
purchase one share of Common Stock at a price of $1.45 per share, subject to
adjustment in certain circumstances. The Class A Warrants will expire at 5:00
p.m., New York City time, on July 31, 2001.
The 400,000 Class B Warrants entitle the registered holder thereof to
purchase one share of Common Stock at a price of $1.50 per share, subject to
adjustment in certain circumstances. The Class B Warrants will expire at 5:00
p.m., New York City time, on December 31, 1999.
The 50,000 Class C Warrants entitle the registered holder thereof to
purchase one share of Common Stock at a price of $2.875 per share, subject to
adjustment in certain circumstances. The Class C Warrants will expire at 5:00
p.m., New York City time, on December 31, 1999.
The 127,272 Class D Warrants entitle the registered holder thereof to
purchase one share of Common Stock at a price of $1.32 per share, subject to
adjustment in certain circumstances. The Class D Warrants will expire at 5:00
p.m., New York City time, on July 31, 2001.
The exercise price and number of shares of Common Stock issuable on
exercise of the Warrants are subject to adjustments under certain circumstances,
including in the event of a stock dividend, recapitalization, reorganization,
merger or consolidation of the Company. However, the Warrants are not subject to
adjustment for issuances of Common Stock at a price below their respective
exercise prices. The warrantholders do not have the rights or privileges of
holders of Common Stock, including, without limitation, the right to vote on any
matter presented to stockholders for approval.
Transfer Agent
The Transfer Agent and Registrar for the Company's Common Stock is
Progressive Transfer Company. The Company acts as its own transfer registrar for
the Warrants.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering based on the shares outstanding on
December 31, 1996, the Company will have 6,092,424 shares of Common Stock
outstanding. Of these shares, aproximately 4,987,422 shares, including the
outstanding shares being registered in this Prospectus, will be freely tradable
without restriction or further registration under the Securities Act, except for
any shares held by an "affiliate" of the Company (as defined in the Securities
Act and the rules and regulations thereunder) which will be subject to the
limitations of Rule 144.
All of the remaining 1,105,002 shares are deemed to be "restricted
securities", as that term is defined under Rule 144 promulgated under the
Securities Act, as such shares were issued in private transactions not involving
a public offering. Approximately 790,000 such shares are eligible for sale under
Rule 144.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has beneficially owned
the restricted shares of Common Stock to be sold for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on an exchange or NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned the shares
of Common Stock to be sold for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described above.
No prediction can be made as to the effect, if any, that market sales of
restricted shares of Common Stock or the availability of such shares for sale
will have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the public
market would likely adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities in the future.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The By-laws of the Company provide for the indemnification of the directors
and officers of the Company, for certain liabilities and costs incurred by them
in connection with performance of their duties. This indemnification may include
indemnification for liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
44
<PAGE>
LEGAL MATTERS
The law firm of Epstein, Becker & Green, P.C., 250 Park Avenue, New York,
New York 10177 has acted as counsel for the Company in connection with the
validity of the Common Stock offered hereby. Mr. David Fleming, a member of
Epstein, Becker & Green, P.C., owns 115,000 Shares of the Company's Common
Stock.
EXPERTS
The financial statements for each of the two years ended December 31, l993,
and l994 and the one year ended December 31, 1995 appearing in this Prospectus
and Registration Statement have been so included in reliance on the reports of
David Miller & Company, CPA, and Gordon Harrington & Osborn, P.C., respectively,
independent accountants, given on the authority of said firms as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and this offering, reference is made to the Registration Statement,
including the exhibits and schedules filed therewith, copies of which may be
obtained at prescribed rates from the Commission at its principal office at 450
Fifth Street N.W., Washington, D.C. 20549, and at the following regional offices
of the Commission: 75 Park Place, New York 10007, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400 Chicago, Illinois, 60604.
Descriptions contained in this Prospectus as to the contents of any agreement or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
agreement or document.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited and reported upon by its independent
public accountants.
45
<PAGE>
DAVID P. MILLER
CERTIFIED PUBLIC ACCOUNTANT
PROFESSIONAL OFFICES
84 LEWIS STREET
LYNN, MA 01902
(617) 598-6640
(617) 598-2433 (FAX)
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and
Stockholders of IMSCO, Inc.
I have examined the accompanying balance sheet of IMSCO, Inc. a development
stage enterprise, as of December 31, 1994 and 1993 and the related statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 1994 and 1993 and cumulative amounts from July 9, 1992 (inception
of the current development stage) to December 31, 1994. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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 statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly the
financial position of IMSCO, Inc. as of December 31, 1994 and 1993, and the
results of operations and its cash flows for the years then ended and the
cumulative amounts from July 9, 1992 to December 31, 1994 in conformity with
generally accepted accounting principles. The accompanying financial statements
have been prepared assuming that the company will continue as a going concern.
As discussed in Notes 2 and 3 to the financial statements, the Company has
suffered continuing losses from now discontinued operations and development
stage operations. Although the Company has a net capital of $86,710 at December
31, 1994, the continuing losses raise substantial doubt about its ability to
continue as a going concern. The financial statements of a going concern
contemplate the realization of assets and the liquidation of liabilities in the
normal course of business. All research and development expenses are presented
on the statement of operations. In addition, current liabilities exceeded
current assets by $92,008 at December 31, 1993. Management's plans in regard to
these matters are also described in Notes
FS-1
<PAGE>
Independent Auditor's Report
Board of Directors and
Stockholders of IMSCO, Inc.
March 24, 1995
Page 2
7 and 8. The financial statements do not include any adjustments relating to
recoverability and classification of liabilities that might result from the
outcome of this uncertainty.
David P. Miller
Certified Public Accountant
March 24, 1994
Lynn, Massachusetts
Except for (Note-10) dated April 11, 1996
FS-2
<PAGE>
IMSCO, INC.
a development stage enterprise
BALANCE SHEET
at DECEMBER 31, 1993 and DECEMBER 31, 1994
December 31, December 31,
1994 1993
------------ ------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 163,282 573
----------- -----------
TOTAL CURRENT ASSETS $ 163,282 573
FIXED ASSETS - Note 1
Property and equipment 76,772 74,224
Leasehold Improvements 4,900 4,900
Accumulated Depreciation (78,246) (78,246)
----------- -----------
NET FIXED ASSETS 3,426 878
----------- -----------
ORGANIZATION COSTS net of amortization 100 100
DEPOSITS 540 540
DUE FROM OFFICERS 530 18,861
----------- -----------
TOTAL ASSETS $ 167,878 $ 20,952
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 67,725 $ 92,581
Accrued Payroll Taxes 13,443
-----------
TOTAL CURRENT LIABILITIES 81,168 92,581
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock - authorized 3,000,000 shares
at $.001 par value; 1,934,990 and
2,805,190 shares issued and outstanding at
December 31, 1993 and 1994 respectively 2,841 1,935
Additional paid-in capital 1,525,145 853,565
Deficit Accumulated:
Development Stage (820,368) (306,221)
Discontinued Operations (620,908) (620,908)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 86,710 (71,629)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 167,878 $ 20,952
=========== ===========
The following notes are an integral part of these statements.
FS-3
<PAGE>
IMSCO, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 and DECEMBER 31, 1994 and CUMULATIVE AMOUNTS
FROM JULY 9, 1992 (inception of the current development stage) to
DECEMBER 31, 1994
Cumulative amounts
from current
1994 1993 development stage
---- ---- -----------------
DEVELOPMENT EXPENSES $ 60,283 $ 17,136 $ 112,266
SALARIES AND WAGES 60,812 121,117
OFFICER SALARIES 100,766 161,236
PAYROLL TAXES 9,635 648 24,857
OUTSIDE LABOR 120,350 120,350
PROFESSIONAL SERVICES 74,402 1,100 108,628
RENT 16,860 7,580 42,440
INSURANCE 10,693 819 19,941
TRAVEL AND BUSINESS MEETINGS 11,405 1,337 22,566
AUTO EXPENSE 6,614 5,388 17,996
TELEPHONE AND UTILITIES 7,428 3,476 20,272
OFFICE EXPENSES 3,271 814 10,874
EQUIPMENT RENTAL 1,225 3,462
CONTRIBUTIONS 35 35
INTEREST EXPENSE 1,547 1,547
CORPORATE FEES 30,046 1,300 32,781
--------- --------- ---------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE $ 514,147 40,823 820,368
--------- --------- ---------
LOSS BEFORE INCOME TAXES (514,147) (40,823) (820,368)
INCOME TAX EXPENSE -- -- --
NET LOSS FROM DEVELOPMENT (514,147) (40,823) (820,368)
--------- --------- ---------
LOSS FROM DISCONTINUED OPERATIONS
(Note 1) Net Loss (514,147 (40,823) (820,368)
========= ========= =========
LOSS PER SHARE (Note 1) $ (.18) $ (.02) $ (.29)
The following notes are an integral part of these statements.
FS-4
<PAGE>
IMSCO, INC.
a development stage enterprise
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 and 1994 and
CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the
current development stage) to DECEMBER 31, 1994
<TABLE>
<CAPTION>
Cumulative amounts
from current
1994 1993 development stage
---- ---- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ $ 1,500 $ 57,004
Cash received from research and testing 8,187 8,187
Cash received from unemployment taxes 170 170
Cash received from travel reimbursement 530 530
Cash paid to suppliers and employees (389,959) (24,289) (723,976)
Net cash provided by operating activities (389,259) (14,602) (658,085)
Cash flows from investing activities:
Prepaid Research Testing (7,734)
Purchase of Fixed Assets ---------
(2,548) (2,548)
--------- ---------
Net cash provided by investing activities (2,548) (10,282)
Cash flows from financing activities:
Interim Loan financing 85,000 85,000
Proceeds from insurance of common stock 469,516 14,240 760,756
--------- --------- ---------
Net cash provided by financing activities 554,516 14,240 845,756
Net increase in cash and cash equivalents 162,709 (362) 177,389
Cash and cash equivalents at beginning of year 573 935 (14,107)
--------- --------- ---------
Cash and cash equivalents at end of year $ 163,282 $ 573 $ 163,282
========= ========= =========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss (514,147) (40,823) (820,368)
Decrease in Due from Officers 18,331 (650)
Depreciation and Amortization 2,613
Contract Services paid with common stock 117,970 (1,500) 116,470
Increase in Accounts Payable (24,856) 7,876 3,274
Increase (Decrease) in Accrued Payroll 13,443 (5,350) 13,443
Decrease in Utility Deposits 4,135
Decrease in Accounts Receivable 2,998
Decrease in Inventory 20,000
Decrease in Prepaid Testing 25,195
Total Adjustments 124,888 26,221 162,283
--------- --------- ---------
Net cash provided by operating activities (389,259) (14,602) (658,085)
========= ========= =========
</TABLE>
The following notes are an integral part of these statements.
FS-5
<PAGE>
IMSCO, INC.
a development stage enterprise
STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993 and 1994
<TABLE>
<CAPTION>
Total
Additional Accumulated Stockholders'
Common Stock Paid-In Capital Deficit Equity
------------ --------------- ------- ------
<S> <C> <C> <C> <C>
Balance at January 2, 1993 1,911 $ 849,339 886,508 $ (35,058)
Issuance of 2,740 shares of $.001 par
value common stock for $1.00 per share 3 2,737 2,740
Issuance of 1,500 shares of $.001 par
value common stock to extinguish debt 2 1,498 1,500
Issuance of 10,000 shares of $.001 par
value common stock for contract
services performed in 1992 10 9,990 10,000
To properly allocate 1992 stock issued 10 (10) --
Current year (loss) from development $ (40,823)
Balance at December 31, 1993 $ 2,933 $ 853,565 $ (927,129) $ (71,629)
========= ========== ============ ===========
Issuance of 5,200 shares of $.001 par
value for $0.50 per share $ 5 $ 2,595 $ 2,600
Issuance of 15,000 shares of $.001 par
value for $1.00 per share 15 $ 14,985 15,000
Issuance of 100,000 shares of $.001 par
value for contract services performed 100 $ 99,900 100,000
(loss) from development January 1
through March 31, 1994 (115,901) (155,901)
Issuance of 65,000 shares of $.001 par
value for $1.00 per share 65 $ 64,935 65,000
(loss) from development April 1
through June 30, 1994 (122,025) (122,025)
Issuance of 20,000 shares of 5.001 par
value for $1.00 per share 20 19,980 20,000
Issuance of 20,000 shares of $.001 par
value for retirement of notes (Note ) 86 94,215 85,000
(loss) from development July 1 through
September 30, 1994 (85,540) (85,540)
Issuance of 300,000 shares of $.001 par
value for $.81 per share 300 242,700 $ 243,000
Issuance of 35,940 shares of $.001 par
value for $.50 per share 36 17,934 17,970
Subscribed 280,000 shares of $.001 par
value for $.81 per share, 155,000 issued 01/96 280 222,920 223,200
Subscription receivable (Note 10) (99,284) (99,284)
(loss) from development October 1 through
December 31, 1994 (190,601) (190,601)
Balance at December 31, 1994 32,841 $1,525,145 $(1,441,276) $ 86,710
========= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
FS-6
<PAGE>
IMSCO, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The financial statements presented are those of IMSCO, Inc., otherwise referred
to as the "Company." During the years 1994 and 1993, the Company sold 906,140
and 4,240 of its common stock to directors and other individuals for $469,516
and $4,240, respectively.
There are 3,000,000 shares of common stock authorized, or which 2,841,130 and
1,934,990 are issued and outstanding at December 31, 1994 and 1993. At December
31, 1994, subsequent to the originally issued statements, $99,284 subscription
receivables have been reclassified as a reduction in additional paid in capital.
Warrants to purchase 116,000 shares for $.90 per share were outstanding at
December 31, 1994.
Until July 7, 1992, IMSCO, Inc. was engaged in the sale of an automated
luminometer and an accompanying reagent system that measures raw material for
microbiological contamination. The Company discontinued operations and
liquidated the remaining inventory of reagents on April 16, 1993. Due to a lack
of demand for the technology developed, the Company changed its focus and began
applying its engineering and medical talents to the development of a separation
system. No revenue has been received from current products to date. The
technology developed has two prototypes. Tests of the Company's decaffeination
technology have successfully removed caffeine from coffee. In addition, The
Plasma Pure has been tested and can remove viruses from plasma.
FS-7
<PAGE>
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed principally by the
straight-line method for financial reporting purposes and by Modified
Accelerated Cost Recover System (MACRS) guidelines for income tax purposes. No
depreciation expense was charged to development stage operations for the year
1994 and 1993.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of
accounting.
EARNINGS (LOSS) PER SHARE
The computations of earnings (loss) per share of Common Stock is based on the
number of shares outstanding at the date of the financial statements.
DEFERRED REGULATION S PLACEMENT COSTS
In connection with the non-United States placement of Common Stock of the
Company in 1994 (See Note 7), all costs are subsequent to December 31, 1993. The
Regulation placement costs are offset against proceeds received from the
placement.
PROVISION FOR TAXES
No provision for income taxes has been recorded due to net operating loss carry
forwards $1,441,276 and $927,129 at December 31, 1994 and 1993 respectively.
Interest and penalties relating to late annual minimum excise taxes were due at
December 31, 1993 and have been accrued and subsequently paid.
Note 2. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the
FS-8
<PAGE>
liquidation of liabilities until it is able to emerge from its current
development stage and operate in the normal course of business. However, the
company had no operating income for the year ended December 31, 1994 and 1993
from continuing operations and an accumulated deficit of $1,441,276 and
$927,129. Proceeds from the successful completion of the Regulation S placement
provide a net working capital of $82,114 and $(92,008) respectively. The
company's liabilities are primarily related to development stage operations at
December 31, 1994 and to operating costs and lease commitments from discontinued
operations at December 31, 1993. The financial statements do not include any
adjustments relating to the recoverability of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence which includes proposed and anticipated royalty
income from newly developed filtration products will allow the Company to emerge
from its current development stage in 1995 and continue in the normal course of
business.
Note 3. DEVELOPMENT STAGE ENTERPRISE
On July 7, 1992, the Company discontinued regular operations relating to the
sale of an automated luminometer. On July 22, 1992, the company and The General
Hospital Corporation, doing business as Massachusetts General Hospital, entered
a research agreement for $45,100, to perform the research and evaluation using
the Company's electro-static filter. As defined by the Financial Accounting
Standards Board Statement No. 7, the Company is now a development stage
enterprise and it has been devoting substantially all of its efforts to
developing, engineering and obtaining patents for new technologies relating to
separation technologies for the medical and consumer product sectors. The
Company applied for United States Patents covering its Decaffeination and Plasma
Pure separation technologies in 1993. With a prototype, marketing of its product
began in December, 1993. Although no income has been received, letters of
interest and royalty agreement negotiations have begun. (See Note 2) The
cumulative deficit during the development stage is $820,368 and $306,221 for the
period July 7, 1992, through December 31, 1994, and period ended December 31,
1993, respectively.
FS-9
<PAGE>
Note 4. LEASE COMMITMENTS
OPERATING LEASE
On August 11, 1993 the Company entered into a three year office lease for space
located at Forty Bayfield Drive, North Andover, Massachusetts. The annual rental
cost is $14,450. Rent expense for the year ended December 31, 1993 was $16,860.
Prior to this lease, the Company was a tenant-at-will for office space in
Andover, Massachusetts. No payments were made in 1993 and a payment arrangement
subject to a court judgment of $19,100 has been entered with Lawrence Savings
Bank. The current outstanding balance is $13,940 at December 31, 1994.
Note 5. DUE FROM OFFICER
The total balance from the Due to Officer account relates to advances paid to
corporate officers for expenses incurred not directly to the operation of IMSCO,
Inc. The balance owed to IMSCO, Inc. is $530 at December 31, 1994.
Note 6. OUTSTANDING DIRECTOR REPRESENTING COMPANY
IN REGULATION S PLACEMENT
Mr. David E. Fleming, Esq., a director of the Company is a partner with Campbell
and Fleming, P.C., the law firm representing the Company in the non-United
States placement. A $10,000 fee was paid to Campbell and Fleming, P.C. upon the
successful completion of the placement. No fees were paid to Mr. Fleming or his
firm in 1993.
Note 7. LOAN AND COMMON STOCK PURCHASE WARRANT
On April 12, 1994, D.H. Vermogensverwaltungs0und Beteiligungsgesellschaft mbH
("D.H.") was granted the right to purchase 25,000 fully paid and non-assessable
shares of the Company's Common Stock, par value $.001 per share before April 30,
1999. In addition, interim financing of $25,000 was
FS-10
<PAGE>
received by the company from D.H. pursuant to a promissory note, payable in full
on July 31, 1994 bearing interest at eight (8%) percent per annum, payable at
maturity. This note was extended to October 10, 1994 and was repaid on October
10, 1994. Interest accrued was $899. In addition, D.H. exercised it's right to
purchase 25,000 shares of Common Stock par value $.001.
Note 8. REGULATION S PLACEMENT
On April 11, 1994, the Company entered into an agreement with D.H. regarding a
non-United States placement of up to 500,000 shares of common stock, $.001 par
value per share, of the Company on a "best efforts" basis, in an offering
conducted in compliance with Regulation S promulgated under the Securities Act
of 1933, as amended, for a period continuing through July 31, 1994, which was
extended through mutual agreement through December 31, 1994. Subscriptions for
580,000 shares were received by the Company in the 4th quarter.
Note 9. RESEARCH AGREEMENT TO TEST AND DEVELOP MATERIALS
FOR USE IN DECAFFEINATOR DEVICE
A memorandum of agreement between the Company and University of Massachusetts
Lowell was entered on October 31, 1994. The emphasis of the research performed
was to test and develop materials for use in a decaffeinator device. The
contract amount of $33,000 has been charged to development expenses. As of
December 31, 1994, $22,000 has been paid and $11,000 is included in accounts
payable.
Note 10. STOCK SUBSCRIPTION RECEIVABLE
Receivable reflects amounts due under Regulation S subscription agreements at
December 31, 1994 from various purchasers, which amount is subject to offset by
legal expenses incurred in Germany, offering costs and expenses and interim
loans payable. This balance has been reclassified as a reduction of additional
paid in capital.
FS - 11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMSCO, INC.
By: /s/Sol L. Berg
-----------------------
Sol L. Berg, President
Date: April 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Sol L. Berg
- ----------------------------------------------
Sol L. Berg, President and Director
Date: April 10, 1996
/s/Alan Waldman
- ----------------------------------------------
Dr. Alan Waldman, Vice President and Director
Date: April 10, 1996
/s/Gloria Berg
- ----------------------------------------------
Gloria Berg, Secretary-Treasury
Date: April 10, 1996
/s/James G. Yurak
- ----------------------------------------------
James G. Yurak, Director
Date: April 10, 1996
- ----------------------------------------------
/s/Vernon Oberholtzer
Vernon Oberholtzer, Director
- ----------------------------------------------
Date: April 10, 1996
FS - 12
<PAGE>
IMSCO, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
As of December 31, 1995
Gordon
& Harrington Osborn, P.C.
Certified Public Accounts
<PAGE>
Gordon, Richard Hart Harrington, CPA
& Harrington Osborn, P.C. Kenneth J. Osborn, CPA
Certified Public Accounts Michael P. Rurak, CPA
Denise S. Roy, CPA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Imsco, Inc.:
We have audited the accompanying consolidated balance sheet of Imsco, Inc. ( a
development stage enterprise) and subsidiaries as of December 31, 1995, and the
related consolidated statement of operations and deficit and cash flows for the
year ended December 31, 1995 and the cumulative amounts from July 9, 1992
(inception of the current development stage) to December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Imsco, Inc. (a
development stage enterprise) and subsidiaries as of December 31, 1995 and the
results of their consolidated operations and their consolidated cash flows for
the year ended December 31, 1995 and the cumulative amounts from July 9, 1992
(inception of the current development stage) to December 31, 1995 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $406,086 during the year ended December 31,
1995, and as of that date, had a working capital deficiency of $54,709 and net
deficit of $50,363. As discussed in Notes 1, 8 and 9, the Company has suffered
continuing losses from now discontinued losses and development stage operations.
The continuing losses raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Gordon Harrington & Osborn, P.C.
North Andover, MA
April 11, 1996
30 Massachusetts Avenue, North Andover, MA 01845-3413 - Tel. (508) 689-0601 -
Fax (508)794-0077
Affiliated Conference of Practicing Accountants International, Inc.
<PAGE>
IMSCO, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
As of DECEMBER 31, 1995
Current assets:
Cash and equivalents $ 8,634
-----------
Property and equipment:
Furniture and fixtures 76,672
Leasehold improvements 4,900
Less accumulated depreciation (78,246)
-----------
Net property and equipment 3,326
-----------
Other assets:
Organization costs net of amortization of $28,060 100
Deposits 390
Due from officer 530
-----------
Total other assets 1,020
-----------
Total assets $ 12,980
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 52,927
Accrued payroll taxes 2,044
Accrued expenses 8,372
Total current liabilities 63,343
Minority interest -0-
Stockholders' equity (deficit):
Common stock - par value $.001 per share,
3,000,000 shares authorized; 2,994,839
shares issued and outstanding 2,995
Additional paid-in capital 1,794,004
Accumulated deficit :
Development stage (1,226,454)
Discontinued operations (620,908)
-----------
Total accumulated deficit (1,847,362)
-----------
Total stockholders' deficit (50,363)
-----------
Total liabilities and stockholders' deficit $ 12,980
===========
See accompaning notes to consolidated financial statements.
FS-3
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
For the Year Ended December 31, 1995 and Cumulative Amounts
from JULY 9, 1992 (inception of the current development stage)
Cumulative Amounts
from current
1995 development stage
---------- ------------------
Operating expenses:
Development expenses $ 30,759 $ 143,025
Salaries and wages 82,645 203,762
Officers' salaries 110,458 271,694
Payroll taxes 20,407 45,264
Outside labor 120,350
Professional services 116,434 225,062
Rent 15,088 57,528
Insurance 12,553 32,494
Travel and business meetings 8,754 31,320
Auto expense 2,580 20,576
Telephone and utilities 4,226 24,498
Office expense 3,468 14,342
Equipment rental 3,462
Contributions 35
Corporate fees 1,328 34,109
----------- -----------
Total operating expenses 408,700 1,227,521
Other income (expense):
Interest and dividend income 3,070 3,070
Interest expense ( 1,547)
----------- -----------
Loss before provision for income taxes (405,630) (1,225,998)
Provision for income taxes (456) (456)
----------- -----------
Net loss from development (406,086) (1,226,454)
===========
Accumulated deficit-development
stage at beginning of year (820,368)
-----------
Accumulated deficit-development
stage at end of year (1,226,454)
-----------
Accumulated deficit-discontinued operations (620,908)
-----------
Total accumulated deficit $(1,847,362)
===========
Net loss per common share $ (14)
===========
Weighted average number of shares outstanding 2,899,790
===========
See accompanying notes to consolidated financial statements.
FS-4
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995 and Cumulative Amounts
From JULY 9, 1992 (inception of the current development stage)
Cumulative Amounts
from current
1995 development stage
---------- ------------------
Cash flows for operating activities:
Cash received from dividends and interest $ 3,070 $ 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 408 938
Cash paid to suppliers and employees (320,126) (1,044,102)
----------- -----------
Net cash used by operating activities (316,648) (974,733)
----------- -----------
Cash flows from investing activities:
Prepaid Research Testing (7,734)
Purchase of Fixed Assets (2,548)
-----------
Net cash provided by investing activities (10,282)
----------- -----------
Cash flows from financing activities:
Interim Loan financing 85,000
Proceeds from issuance of common stock 162,000 922,756
----------- -----------
Net cash provided by financing activities 162,000 1,007,756
----------- -----------
Net decrease in cash and cash equivalents (154,648) 22,741
Cash and cash equivalents at beginning of year 163,282 (14,107)
----------- -----------
Cash and cash equivalents at end of year $ 8,634 $ 8,634
=========== ===========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net loss $ (406,086) $(1,226,454)
----------- -----------
Decrease in Due from Officers (650)
Depreciation and amortization 2,613
Contract Services paid with common stock 107,013 223,483
Increase (decrease) in accounts payable (14,798) (11,524)
Increase (decrease) in accrued payroll taxes (11,399) 2,044
Increase in accrued expenses 8,372 8,372
Decrease in utility deposits 150 4,285
Decrease in accounts receivable 2,998
Decrease in inventory and assets 100 20,100
----------- -----------
Total adjustments 89,438 251,721
----------- -----------
Net cash used by operating activities $ (316,648) $ (974,733)
=========== ===========
See accompanying notes to consolidated financial statements.
FS-5
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Total
Stockholders'
Common Additional Accumulated Equity
Stock Paid-in Capital Deficit (Deficit)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 2,751 $ 1,525,235 $(1,441,276) $ (86,710)
Issuance of 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)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
FS-6
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. Summary of Significant Accounting Policies:
Organization:
Imsco, Inc. is currently a development stage enterprise which has developed
a core technology that achieves molecular separation with innovative
applications of electrostatics. Until July 7, 1992, IMSCO, Inc. was engaged
in the sale of an automated luminometer and an accompanying reagent system
that measures raw material for microbiological contamination. The Company
discontinued operations and liquidated the remaining inventory of reagents
on April 16, 1993. Due to a lack of demand for the technology developed,
the Company changed its focus and began applying its engineering and
medical talents to the development of a separation system. No revenue has
been received from current products to date. The technology developed has
two prototypes. Tests of the Company's decaffeination technology have
successfully removed caffeine from coffee. In addition, The Plasma Pure has
been tested and can remove viruses from plasma.
There are 3,000,000 shares of common stock authorized, of which 2,994,839
are issued and outstanding at December 31, 1995.
The Company's subsidiaries, Decaf Products, Inc. (DPI) and BioElectric
Separation and Testing, Inc.; (BEST) (the subsidiaries) were formed in
1995. DPI was formed to market a unique proprietary technology to
decaffeinate coffee. BEST was founded to create systems to improve human
therapy, by developing new diagnostics and improved methods for production
and use of drugs, biologics, and extracorporeal devices. As of December 31,
1995 the subsidiaries had minimal activity, did not own any assets and are
not liable for any liabilities.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries Decaf Products, Inc. (DPI) and BioElectric Separation
and Testing, Inc., (BEST). All significant intercompany accounts and
transactions have been eliminated in consolidation.
FS-7
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. Summary of Significant Accounting Policies: (Continued)
Property and Equipment:
Property and equipment are stated at cost. Significant additions or
improvements extending asset lives are capitalized; normal maintenance and
repair costs are expended as incurred. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets ranging
from five to ten years. No depreciation expense was charged to development
stage operations for the year ended December 31, 1995.
Cash Equivalents:
The Company considers all highly liquid investments with an original
maturity of less than three months to be cash equivalents.
Loss per Common Share:
Loss per common share is based on the weighted average number of common
shares and common equivalent shares outstanding during the year ended
December 31, 1995.
Estimates:
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the financial statements.
2. Leases:
In 1993, the Company entered into an operating lease for office space which
expires in August, 1996. Rental expense for the operating lease was $15,088
for the year ended December 31, 1995. Under the terms of the lease the
Company is responsible for 15% of operating expense and maintenance costs
of the leased property, including 15% of any increase in real estate taxes.
The Company is responsible for all utilities.
FS-8
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
2. Leases: (Continued)
Minimum future lease payments under noncancelable operating leases as of
December 31, 1995 are as follows:
Year ending December 31:
1996 $9,632
=====
3. Federal and State Income Taxes:
The Company has tax net operating loss carryforwards of approximately
$1,847,000 at December 31, 1995. The deferred tax benefit of any losses is
completely reserved for
As of December 31, 1995, the Company had net operating loss carryforwards
for federal income tax purposes which expire as follows:
2000 $ 4,183
2001 181,179
2002 233,280
2003 88,127
2004 70,849
Thereafter 1,269,382
---------
$1,847,000
==========
As of December 31, 1995, the Company had net operating loss carryforwards
for state income tax purposes which expire as follows:
1996 $ 732
1997 259,185
1998 40,823
1999 513,691
2000 405,630
----------
$1,220,061
==========
State excise tax expense amounted to $456 for the year ended December 31, 1995.
FS - 9
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
4. Related Party Transactions:
During the year ended December 31, 1994, advances were made to a corporate
officer. No terms of repayment have been established concerning this
advance. As of December 31, 1995, amounts due from an officer were $530.
During the year ended December 31, 1995, a director of the Company, David
E. Fleming, Esquire was also a partner with Campbell and Fleming, P.C. a
law firm which provides certain services for the Company. As of December
31, 1995, David E. Fleming had resigned as a director of the Company.
In April 1994, the Company entered into a "best efforts" placement letter
agreement with D.H., for 500,000 shares of common stock at a minimum of
$.90 per share. This placement letter agreement was amended on August 29,
1994. DH also arranged the placement of another 80, 000 shares of Common
Stock as a supplement to the Regulation S placement. Mr. Dirk Hagee, a
director of IMSCO is the managing director and majority shareholder of DH.
Upon closing of the offering, the Company paid DH a commission of $52,200
which is at the rate of ten percent (10%) of all monies raised in that
offering and also granted to DH warrants to 116,000 shares of common stock
of the Company. These warrants are exercisable for up to five years after
issuance at the same price paid by purchasers of the placement.
Additionally, the placement agreement provides that upon completion of the
placement, DH shall have the right to designate two directors of a five
member board of directors of the Company for a period of three years.
DPI is headed by Mr. James Yurak, a Director of the Company who was granted
on September 30, 1995, 5% of the outstanding shares of DPI and performance
based escrowed stock for up to 15% additional shares of DPI for nominal par
value. Under the arrangement, 5% of the escrowed stock will be released if
the sales of DPI reach $10 million in a fiscal year, 5% will be released
after one year of service to DPI.
5. Research and Development Costs:
During the year ended December 31, 1995, the Company charged $30,759 to
research and development expense.
FS - 10
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
6. Nonmonetary Transactions:
During the year ended December 31, 1995, the Company issued common stock
for services rendered based upon the fair market value of services
received. The following summarizes the capital stock issued in lieu of cash
of services received:
Description Charged
of Service Shares Issued Common Stock Paid in Capital to Expense
Research 22,000 $22 $21,978 22,000
Accounting & auditing 74,790 $75 $60,971 $61,046
Other professional 9,510 $10 $11,004 $11,014
In addition, the Company issued 12,923 shares in payment of a prior
obligation valued at $12,953.
7. Commitments:
The Company entered an agreement with the University of Massachusetts to
provide certain services in connection with the testing and development of
materials for use in a decaffeinator device for the period November 1, 1994
through December 31, 1994. During the year ended December 31, 1995, the
University of Massachusetts continued to provide research services to the
Company for which it received 10,000 shares of common stock.
8. Going Concern:
As shown in the accompanying financial statements, the Company incurred a
net loss of $406,086 during the year ended December 31, 1995, and as of
that date, the Company's current liabilities exceeded its total assets by
$54,709 and its total liabilities exceeded its total assets by $50,363.
Those factors, as well as the uncertain conditions that the Company faces
regarding sources of financing, create an uncertainty about the Company's
ability to continue as a going concern. Management of the Company has
developed a business plan to finance the Company through licensing of its
technology and individual patent rights to its subsidiaries. The plan calls
for the subsidiaries to seek partners for manufacturing and marketing. The
subsidiaries will also seek financing through a public offering. The
ability of the Company to continue as a going concern is dependent on the
plan's success. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
FS - 11
<PAGE>
IMSCO, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
9. Development Stage Enterprise:
On July 7, 1992, the Company discontinued regular operations relating to
the sale of an automated luminometer. On July 22, 1992, the Company and the
General Hospital Corporation, doing business as Massachusetts General
Hospital, entered a research agreement for $45,100, to perform the research
and evaluation using the Company's electro-static filter. As defined by the
Financial Accounting Standards board Statement No. 7, the Company is now a
development stage enterprise and it has been devoting substantially all of
its efforts to developing, engineering and obtaining patents for new
technologies relating to separation technologies for the medical and
consumer product sectors. The Company applied for United States Patents
covering its decaffeination and Plasma Pure separation technologies in
1993. With a prototype, marketing of this product began in December, 1993.
Although no income has been received, letters of interest and royalty
agreement negotiations have begun. The cumulative deficit during the
development stage is $1,226,454 for the period July 7, 1992 through
December 31, 1995.
FS - 12
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this Prospectus, and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of these securities in any state to any person to whom it
is unlawful to make such offer or solicitation in such state. The delivery of
this Prospectus at any time does not imply that information herein is correct as
of any time subsequent its date.
----------
TABLE OF CONTENTS
Page
----
Available Information ..................................................... (ii)
The Company ............................................................... 1
Risk Factors .............................................................. 4
Use of Proceeds ........................................................... 11
Price Range of Common Stock ............................................... 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 13
Business .................................................................. 17
Management ................................................................ 29
Security Ownership of Certain Beneficial
Owners and Management .................................................... 36
Certain Transactions ...................................................... 38
Selling Shareholders ...................................................... 38
Plan of Distribution ...................................................... 39
Description of Securities ................................................. 41
Shares Elible for Future Sale ............................................. 42
Indemnification for Securities Act Liabilities ............................ 43
Legal Matters ............................................................. 44
Experts ................................................................... 44
Financial Statements ...................................................... F-1
Until _______, 1997, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
46
<PAGE>
3,679,772
Common Shares
IMSCO TECHNOLOGIES, INC.
January__, 1997
47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
IMSCO Technologies, Inc. (the "Company") is incorporated in Delaware. Under
Section 145 of the General Corporation Law of the State of Delaware, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any action, suit or
proceeding. Article Tenth of the Certificate of Incorporation and Article III of
the Bylaws of the Company provide for indemnification of directors and officers
to the fullest extent permitted by the General Corporation Law of the State of
Delaware. Reference is made to the Certificate of Incorporation of the Company,
filed as Exhibit 3.1 hereto.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 (relating to liability for unauthorized acquisitions or redemptions
of, or dividends on, capital stock) of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Article Ninth of the Company's Certificate of
Incorporation contains such a provision.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Commission and to NASDAQ.
Filing Fee--Securities and Exchange Commission ............... $ 3,270.00
Fees and Expenses of Accountants ............................. 2,500.00
Fees and Expenses of Counsel ................................. 40,000.00
Printing and Engraving Expenses .............................. 2,000.00
Blue Sky Fees and Expenses ................................... 5,000.00
Transfer Agent fees .......................................... 500.00
Miscellaneous Expenses ....................................... 1,000.00
-------------
Total ................................................ $ 54,272.00
48
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
On September 20, 1996, the Company sold to Hampton Tech Partners II, LLC,
1,136,363 shares of Common Stock for $1.32 per share, which was paid in cash by
October 18, 1996. Also, on September 20, 1996, the Company sold an aggregate of
1,136,363 shares of Common Stock to PML, pursuant to a Media Purchase Agreement
in exchange for prepaid media credits having an aggregate value of $1.5 million.
Both the $1.5 million cash equity placement of the 1,136,363 shares of Common
Stock to ("HTP"), LLC, and the $1.5 million media credit purchase and exchange
of 1,136,363 shares of Common Stock to Proxhill, Ltd. Both placements were
arranged by First Capital Investments, Inc., a broker-dealer which is a member
of the National Association of Securities Dealers, Inc., ("FCI") received a
commission in the amount of 10% of the amount received by the Company from the
sale of the Common Stock. Additionally, FCI, received a warrant to acquire an
amount of shares equal to 10% of the total amount of Common Stock placed by them
on behalf of the Company, exercisable for the price of $1.45 per share over a
period of five years. In August 1996, the Company sold 150,000 shares of Common
Stock at a price of $0.01 per share and a $300,000 in promissory note to Hampton
Tech Partners, LLC. All three of the purchasers represented to the Company that
they were "accredited investors" as such term is defined in Regulation D
promulgated by the Commission pursuant to the Securities Act. To the Company's
knowledge, none of these investors, nor any of their affiliates, were, at the
time of their investment in the Company, nor currently are, affiliated or
associated with FCI, or any other broker-dealer. The Company issued all such
securities in reliance upon the exemption from the registration requirements of
the Securities Act contained in Section 4(2) thereof.
Item 27. Exhibits.
*3.1 -- Amended and Restated Certificate of Incorporation.
*3.2 -- Bylaws of the Company.
*4.1 -- Form of Common Stock Certificate.
4.2 -- Form of Class A Common Stock Purchase Warrant.
4.3 -- Form of Class B Common Stock Purchase Warrant.
4.4 -- Form of Class C Common Stock Purchase Warrant.
4.5 -- Form of Class D Common Stock Purchase Warrant.
**5 -- Opinion of Campbell & Fleming, P.C.
49
<PAGE>
23.1 -- Consent of Gordon Harrington & Osborn, P.C. (Included at
page II-_).
23.2 -- Consent of David Miller, CPA. (Included at page II-_).
23.3 -- Consent of Campbell & Fleming, P.C. (Included in Exhibit 5).
24 -- Power of Attorney (Included at page II-_).
- --------------------
* Previously filed.
** To be filed by Amendment.
Item 28. Undertakings.
The undersigned small business issuer hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) For determining liability under the Securities Act, treat
each post-effective amendment asnew registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of an
offering.
(d) The undersigned small business issuer hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreements, certificates in such denominations and registered in such names
as required by the underwriters to permit prompt delivery to each
purchaser.
50
<PAGE>
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(ii) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the ___ day of
January, 1997.
IMSCO Technologies, Inc.
By:
-----------------------------
Sol L. Berg, President
52
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Sol L. Berg, Gloria Berg, Alan
Waldman, James Yurak, Vernon Oberholtzer, Victor Bauer constitutes and appoints
Sol L. Berg, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to act, without the other, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as full to all intents and purposes as he might or could be in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, their substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
- --------------------------- President, Director January __, 1997
Sol L. Berg Principal Executive Officer and
Principal Accounting Officer
- --------------------------- Secretary, Director January __, 1997
Gloria Berg
- --------------------------- Director January __, 1997
Alan Waldman
- -------------------------- Director January __, 1997
James G. Yurak
- -------------------------- Director January __, 1997
Vernon Oberholtzer
- -------------------------- Director January __, 1997
Victor Bauer
</TABLE>
53
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IMSCO Technologies, Inc.
North Andover, Massachusetts
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 11, 1996, relating to the
financial statements of IMSCO Technologies, Inc., as of December 31, 1995, which
is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Gordon Harrington & Osborn, P.C.
North Andover, Massachusetts
January 6, 1997
54
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IMSCO Technologies, Inc.
North Andover, Massachusetts
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 11, 1996, relating to the
financial statements of IMSCO Technologies, Inc., as of December 31, 1993, and
1994, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
David Miller, Certified Public Accountant
North Andover, Massachusetts
January 6, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibits Pages
- ------ -------- -----
<S> <C> <C>
*3.1 -- Amended and Restated Certificate of Incorporation .......................................
*3.2 -- Bylaws of the Company ...................................................................
*4.1 -- Form of Common Stock Certificate ........................................................
4.2 -- Form of Class A Common Stock Purchase Warrant ...........................................
4.3 -- Form of Class B Common Stock Purchase Warrant ...........................................
4.4 -- Form of Class C Common Stock Purchase Warrant ...........................................
**5 -- Opinion of Campbell & Fleming, P.C ......................................................
23.1 -- Consent of Gordon, Harrington & Osborn, P.C. (Included at page II-_) ....................
23.2 -- Consent of David Miller, CPA (Included at page II-_) ....................................
23.3 -- Consent of Campbell & Fleming, P.C. (Included in Exhibit 5) .............................
24 -- Power of Attorney (Included at page II-7) ...............................................
</TABLE>
- -------------------------------
* Previously filed.
** To be filed by Amendment.
THIS WARRANT AND THE COMMON STOCK FOR WHICH IT MAY BE EXERCISED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN OBTAINED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTIONS THEREOF, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
IMSCO TECHNOLOGIES, INC.
CLASS "A" COMMON STOCK PURCHASE WARRANT
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged by IMSCO TECHNOLOGIES, Inc., (the "Company"), FIRST
CAPITAL INVESTMENTS, INC., (the "Holder") is hereby granted the right to
purchase at any time from the date hereof until 5:00 P.M., New York City time,
on July 31, 2001 (the "Expiration Date"), 242,273 fully paid and nonassessable
shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock").
This Warrant is exercisable at the Exercise Price (as hereinafter defined)
per share of Common Stock issuable hereunder, payable in cash or by certified
or official bank check. Upon surrender of this Warrant with the annexed
Subscription Form duly executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, at the Company's principal executive
offices presently located at 40 Bayfield Drive, North Andover, Massachusetts
01845, the registered holder of this Warrant shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the holder hereof, in whole or in part (but not as to fractional
shares of Common Stock), during the period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
shares of Common Stock purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the shares of Common Stock purchasable
hereunder.
2. Issuance of Stock Certificate.
The issuance of certificates for shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof including,
without limitation, any tax that may be payable in respect thereof, and such
certificates shall (subject to the provisions of Section 3 hereof) be issued in
the name of, or in such names as may be directed by, the holder hereof;
provided, however, that the Company shall not be required to pay any income tax
to which the holder hereof may be subject in connection with the issuance of
this Warrant or of shares of Common Stock upon the exercise of this Warrant; and
provided further, that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
any such certificate in a name other than that of the holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
3. Restrictions on Transfer.
3.1 Restrictions on Transfer. The holder of this Warrant, by acceptance
hereof, agrees that, absent an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the disposition of the
Warrant or Common Stock issued or issuable upon exercise hereof (the "Warrant
Shares"), such holder will not sell or
<PAGE>
transfer any or all of such Warrant or Warrant Shares, as the case may be,
without first providing the Company with an opinion of counsel (which may be
counsel for the Company) reasonably acceptable to it to the effect that such
sale or transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Such holder consents to the Company making a notation
on its records giving instructions to any transfer agent of the Warrant or
Warrant Shares in order to implement such restrictions on transferability.
3.2 Transfer Restrictions Legend. Each certificate representing Warrant
Shares, unless at the time of exercise such Warrant Shares are registered under
the Act, shall bear a legend in substantially the following form on the face
thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER THE ACT, UNLESS
IN THE OPINION OF COUNSEL TO THE ISSUER AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a distribution under a registration statement covering the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby may be transferred as
contemplated by such holder without violation of the registration requirements
of the Act.
4. Exercise Price and Redemption.
4.1 Initial and Adjusted Exercise Prices. The initial exercise price shall
be $1.45 per share of Common Stock from the date hereof through July 31, 2001.
The adjusted exercise price shall be the price that shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 6 hereof.
4.2 Exercise Price. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price depending upon the context.
5. Adjustments of Exercise Price and Number of Shares.
5.1 Subdivision and Combination of Common Stock. In case the Company shall
at any time subdivide (by any stock split, stock dividend or otherwise) or
combine (by any reverse stock split or otherwise) the outstanding shares of
Common Stock, the Exercise Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
5.2 Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 5, the aggregate number of
shares of Common Stock issuable upon the exercise of this Warrant (and of all
the Warrants) shall be obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant (and of all the Warrants) immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
5.3 Reclassification, Consolidation, Merger, etc. In case of any
consolidation or merger of the Company with or into another entity, or the sale
of all or substantially all of its assets to another entity shall be effected,
or in case of any capital reorganization or reclassification of the Common Stock
of the Company, then, as a condition of such consolidation, merger or sale,
reorganization or reclassification of the Common Stock of the Company, lawful
and adequate provision shall be made whereby the Warrant holder shall thereafter
have the right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Warrants, such
shares of stock, or of securities, interests or assets (other than cash) as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable by the Warrant
2
<PAGE>
holder had such consolidation, merger, sale, reorganization or reclassification
not taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Warrant holder to the end that the
provisions hereof (including without limitation provisions for adjustment of the
Exercise Price) shall thereafter be applicable, as nearly as may be in relation
to any shares of stock, securities, interests or assets thereafter deliverable
upon the exercise of such Warrant rights.
5.4 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of this Warrant or, of any Warrant Shares;
(b) If the amount of said adjustment shall be less than one cent ($.01)
per share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment that, together with any adjustment so carried forward,
shall amount to at least one cent ($.01) per share.
6. Exchange and Replacement of Warrant.
Subject to Section 3 hereof, this Warrant is exchangeable without expense,
upon the surrender hereof by the registered holder at the principal executive
office of the Company, for a new Warrant or Warrants of like tenor and date
representing in the aggregate the right to purchase the same number of shares as
are purchasable hereunder in such denominations as shall be designated by the
registered holder hereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
7. Elimination of Fractional Interests.
The Company shall not be required upon the exercise of this Warrant to
issue stock certificates representing fractions of shares of Common Stock, but
shall instead pay in cash, in lieu of any fractional share of Common Stock to
which such holder would be entitled if such fractional share were issuable, in
an amount equal to the fair market value of a share of Common Stock as of the
date of such exercise.
8. Reservation of Shares.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and nonassessable.
9. Notices to Holders.
Nothing contained in this warrant shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter/ or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
this warrant and prior to its exercise, any of the following events shall occur:
(a) The Company shall take a record of the holders of its shares of Common
Stock for the purpose of effecting a transaction described in Section
5.1;
3
<PAGE>
(b) A dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed to be voted upon by the stockholders of the Company;
or
(c) A merger or consolidation of the Company with or into any other
company shall be proposed to be voted upon by the stockholders of the
Company;
then, in any one or more of said events, the Company shall give written notice
of such event to the holder of this warrant at least fifteen (15) days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend or distribution
resulting from such event, or entitled to vote on such proposed transaction,
dissolution, liquidation, winding up, sale, merger or consolidation. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with any such proposed
transaction, dissolution, liquidation, winding up, sale, merger or
consolidation.
10. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered holder of this Warrant, to the address of such
holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of this
Warrant; or at such other address as the registered holder or the
Company may hereafter have advised the other.
11. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
12. Headings.
The Section headings in this Warrant have been inserted for purposes of
convenience only and shall have no substantive effect.
13. Law Governing.
This Warrant is delivered in the State of New York and shall be construed
and enforced in accordance with, and governed by, the laws of the State of New
York regardless of the jurisdiction of creation or domicile of the Company or
its successors or of the holder at any time hereof.
WITNESS the signature of the duly authorized officer of the Company.
IMSCO TECHNOLOGIES, INC.
By: Sol L. Berg
---------------
Title: President
-------------
4
<PAGE>
SUBSCRIPTION FORM
(To Be Executed By The Registered Holder
In Order To Exercise The Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
_____________shares of Common Stock of IMSCO TECHNOLOGIES, INC. covered by this
Warrant according to the conditions hereof and herewith makes payment of the
Exercise Price of such shares in full.
--------------------
Signature
--------------------
--------------------
Address
Dated: , 19 .
5
THIS WARRANT AND THE COMMON STOCK FOR WHICH IT MAY BE EXERCISED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN OBTAINED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTIONS THEREOF, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
IMSCO TECHNOLOGIES, INC.
CLASS "B" COMMON STOCK PURCHASE WARRANT
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged by IMSCO TECHNOLOGIES, Inc., (the "Company"), WRA
CONSULTING, INC., (the "Holder") is hereby granted the right to purchase at any
time from the date hereof until 5:00 P.M., New York City time, on December 31,
1999 (the "Expiration Date"), 400,000 fully paid and nonassessable shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock").
This Warrant is exercisable at the Exercise Price (as hereinafter defined)
per share of Common Stock issuable hereunder, payable in cash or by certified
or official bank check. Upon surrender of this Warrant with the annexed
Subscription Form duly executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, at the Company's principal executive
offices presently located at 40 Bayfield Drive, North Andover, Massachusetts
01845, the registered holder of this Warrant shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the holder hereof, in whole or in part (but not as to fractional
shares of Common Stock), during the period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
shares of Common Stock purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the shares of Common Stock purchasable
hereunder.
2. Issuance of Stock Certificate.
The issuance of certificates for shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof including,
without limitation, any tax that may be payable in respect thereof, and such
certificates shall (subject to the provisions of Section 3 hereof) be issued in
the name of, or in such names as may be directed by, the holder hereof;
provided, however, that the Company shall not be required to pay any income tax
to which the holder hereof may be subject in connection with the issuance of
this Warrant or of shares of Common Stock upon the exercise of this Warrant; and
provided further, that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
any such certificate in a name other than that of the holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
3. Restrictions on Transfer.
3.1 Restrictions on Transfer. The holder of this Warrant, by acceptance
hereof, agrees that, absent an effective registration statement under the
Securities Ac t, covering the disposition of the Warrant or Common Stock issued
or issuable upon exercise hereof (the "Warrant Shares"), such holder will not
sell or
<PAGE>
transfer any or all of such Warrant or Warrant Shares, as the case may be,
without first providing the Company with an opinion of counsel (which may be
counsel for the Company) reasonably acceptable to it to the effect that such
sale or transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Such holder consents to the Company making a notation
on its records giving instructions to any transfer agent of the Warrant or
Warrant Shares in order to implement such restrictions on transferability.
3.2 Transfer Restrictions Legend. Each certificate representing
Warrant Shares, unless at the time of exercise such Warrant Shares are
registered under the Act, shall bear a legend in substantially the
following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER THE
ACT, UNLESS IN THE OPINION OF COUNSEL TO THE ISSUER AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a distribution under a registration statement covering the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby may be transferred as
contemplated by such holder without violation of the registration requirements
of the Act.
4. Exercise Price and Redemption.
4.1 Initial and Adjusted Exercise Prices. The initial exercise price shall
be $1.50 per share of Common Stock from the date hereof through December 31,
l999. The adjusted exercise price shall be the price that shall result from time
to time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 6 hereof.
4.2 Exercise Price. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price depending upon the context.
5. Adjustments of Exercise Price and Number of Shares.
5.1 Subdivision and Combination of Common Stock. In case the Company shall
at any time subdivide (by any stock split, stock dividend or otherwise) or
combine (by any reverse stock split or otherwise) the outstanding shares of
Common Stock, the Exercise Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
5.2 Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 5, the aggregate number of
shares of Common Stock issuable upon the exercise of this Warrant (and of all
the Warrants) shall be obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant (and of all the Warrants) immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
5.3 Reclassification, Consolidation, Merger, etc. In case of any
consolidation or merger of the Company with or into another entity, or the sale
of all or substantially all of its assets to another entity shall be effected,
or in case of any capital reorganization or reclassification of the Common Stock
of the Company, then, as a condition of such consolidation, merger or sale,
reorganization or reclassification of the Common Stock of the Company, lawful
and adequate provision shall be made whereby the Warrant holder shall thereafter
have the right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Warrants, such
shares of stock, or of securities, interests or assets (other than cash) as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable by the Warrant
2
<PAGE>
holder had such consolidation, merger, sale, reorganization or reclassification
not taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Warrant holder to the end that the
provisions hereof (including without limitation provisions for adjustment of the
Exercise Price) shall thereafter be applicable, as nearly as may be in relation
to any shares of stock, securities, interests or assets thereafter deliverable
upon the exercise of such Warrant rights.
5.4 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of this Warrant or, of any Warrant Shares;
(b) If the amount of said adjustment shall be less than one cent ($.01)
per share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment that, together with any adjustment so carried forward,
shall amount to at least one cent ($.01) per share.
6. Exchange and Replacement of Warrant.
Subject to Section 3 hereof, this Warrant is exchangeable without expense,
upon the surrender hereof by the registered holder at the principal executive
office of the Company, for a new Warrant or Warrants of like tenor and date
representing in the aggregate the right to purchase the same number of shares as
are purchasable hereunder in such denominations as shall be designated by the
registered holder hereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
7. Elimination of Fractional Interests.
The Company shall not be required upon the exercise of this Warrant to
issue stock certificates representing fractions of shares of Common Stock, but
shall instead pay in cash, in lieu of any fractional share of Common Stock to
which such holder would be entitled if such fractional share were issuable, in
an amount equal to the fair market value of a share of Common Stock as of the
date of such exercise.
8. Reservation of Shares.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and nonassessable.
9. Notices to Holders.
Nothing contained in this warrant shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter/ or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
this warrant and prior to its exercise, any of the following events shall occur:
(a) The Company shall take a record of the holders of its shares of Common
Stock for the purpose of effecting a transaction described in Section
5.1;
3
<PAGE>
(b) A dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed to be voted upon by the stockholders of the Company;
or
(c) A merger or consolidation of the Company with or into any other
company shall be proposed to be voted upon by the stockholders of the
Company;
then, in any one or more of said events, the Company shall give written notice
of such event to the holder of this warrant at least fifteen (15) days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend or distribution
resulting from such event, or entitled to vote on such proposed transaction,
dissolution, liquidation, winding up, sale, merger or consolidation. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with any such proposed
transaction, dissolution, liquidation, winding up, sale, merger or
consolidation.
10. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered holder of this Warrant, to the address of
such holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of
this Warrant; or at such other address as the registered holder or the
Company may hereafter have advised the other.
11. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
12. Headings.
The Section headings in this Warrant have been inserted for purposes of
convenience only and shall have no substantive effect.
13. Law Governing.
This Warrant is delivered in the State of New York and shall be construed
and enforced in accordance with, and governed by, the laws of the State of New
York regardless of the jurisdiction of creation or domicile of the Company or
its successors or of the holder at any time hereof.
WITNESS the signature of the duly authorized officer of the Company.
IMSCO TECHNOLOGIES, INC.
By: Sol L. Berg
---------------------
Title: President
------------------
4
<PAGE>
SUBSCRIPTION FORM
(To Be Executed By The Registered Holder
In Order To Exercise The Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
_____________shares of Common Stock of IMSCO TECHNOLOGIES, INC. covered by this
Warrant according to the conditions hereof and herewith makes payment of the
Exercise Price of such shares in full.
-----------------------
Signature
-----------------------
-----------------------
Address
Dated: , 19 .
5
THIS WARRANT AND THE COMMON STOCK FOR WHICH IT MAY BE EXERCISED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN OBTAINED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTIONS THEREOF, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
IMSCO TECHNOLOGIES, INC.
CLASS "C" COMMON STOCK PURCHASE WARRANT
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged by IMSCO TECHNOLOGIES, Inc., (the "Company"), VICTOR
BAUER (the "Holder") is hereby granted the right to purchase at any time from
the date hereof until 5:00 P.M., New York City time, on December 31, 1999 (the
"Expiration Date"), 50,000 fully paid and nonassessable shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock").
This Warrant is exercisable at the Exercise Price (as hereinafter defined)
per share of Common Stock issuable hereunder, payable in cash or by certified or
official bank check. Upon surrender of this Warrant with the annexed
Subscription Form duly executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, at the Company's principal executive
offices presently located at 40 Bayfield Drive, North Andover, Massachusetts
01845, the registered holder of this Warrant shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the holder hereof, in whole or in part (but not as to fractional
shares of Common Stock), during the period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
shares of Common Stock purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the shares of Common Stock purchasable
hereunder.
2. Issuance of Stock Certificate.
The issuance of certificates for shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof including,
without limitation, any tax that may be payable in respect thereof, and such
certificates shall (subject to the provisions of Section 3 hereof) be issued in
the name of, or in such names as may be directed by, the holder hereof;
provided, however, that the Company shall not be required to pay any income tax
to which the holder hereof may be subject in connection with the issuance of
this Warrant or of shares of Common Stock upon the exercise of this Warrant; and
provided further, that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
any such certificate in a name other than that of the holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
3. Restrictions on Transfer.
3.1 Restrictions on Transfer. The holder of this Warrant, by acceptance
hereof, agrees that, absent an effective registration statement under the
Securities Act, covering the disposition of the Warrant or Common Stock issued
or issuable upon exercise hereof (the "Warrant Shares"), such holder will not
sell or
<PAGE>
transfer any or all of such Warrant or Warrant Shares, as the case may be,
without first providing the Company with an opinion of counsel (which may be
counsel for the Company) reasonably acceptable to it to the effect that such
sale or transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Such holder consents to the Company making a notation
on its records giving instructions to any transfer agent of the Warrant or
Warrant Shares in order to implement such restrictions on transferability.
3.2 Transfer Restrictions Legend. Each certificate representing Warrant
Shares, unless at the time of exercise such Warrant Shares are registered under
the Act, shall bear a legend in substantially the following form on the face
thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER THE ACT, UNLESS
IN THE OPINION OF COUNSEL TO THE ISSUER AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a distribution under a registration statement covering the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby may be transferred as
contemplated by such holder without violation of the registration requirements
of the Act.
4. Exercise Price and Redemption.
4.1 Initial and Adjusted Exercise Prices. The initial exercise price shall
be $2.875 per share of Common Stock from the date hereof through December 31,
l999. The adjusted exercise price shall be the price that shall result from time
to time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 6 hereof.
4.2 Exercise Price. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price depending upon the context.
5. Adjustments of Exercise Price and Number of Shares.
5.1 Subdivision and Combination of Common Stock. In case the Company shall
at any time subdivide (by any stock split, stock dividend or otherwise) or
combine (by any reverse stock split or otherwise) the outstanding shares of
Common Stock, the Exercise Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
5.2 Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 5, the aggregate number of
shares of Common Stock issuable upon the exercise of this Warrant (and of all
the Warrants) shall be obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant (and of all the Warrants) immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
5.3 Reclassification, Consolidation, Merger, etc. In case of any
consolidation or merger of the Company with or into another entity, or the sale
of all or substantially all of its assets to another entity shall be effected,
or in case of any capital reorganization or reclassification of the Common Stock
of the Company, then, as a condition of such consolidation, merger or sale,
reorganization or reclassification of the Common Stock of the Company, lawful
and adequate provision shall be made whereby the Warrant holder shall thereafter
have the right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Warrants, such
shares of stock, or of securities, interests or assets (other than cash) as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable by the Warrant
2
<PAGE>
holder had such consolidation, merger, sale, reorganization or reclassification
not taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Warrant holder to the end that the
provisions hereof (including without limitation provisions for adjustment of the
Exercise Price) shall thereafter be applicable, as nearly as may be in relation
to any shares of stock, securities, interests or assets thereafter deliverable
upon the exercise of such Warrant rights.
5.4 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of this Warrant or, of any Warrant Shares;
(b) If the amount of said adjustment shall be less than one cent ($.01)
per share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment that, together with any adjustment so carried forward,
shall amount to at least one cent ($.01) per share.
6. Exchange and Replacement of Warrant.
Subject to Section 3 hereof, this Warrant is exchangeable without expense,
upon the surrender hereof by the registered holder at the principal executive
office of the Company, for a new Warrant or Warrants of like tenor and date
representing in the aggregate the right to purchase the same number of shares as
are purchasable hereunder in such denominations as shall be designated by the
registered holder hereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
7. Elimination of Fractional Interests.
The Company shall not be required upon the exercise of this Warrant to
issue stock certificates representing fractions of shares of Common Stock, but
shall instead pay in cash, in lieu of any fractional share of Common Stock to
which such holder would be entitled if such fractional share were issuable, in
an amount equal to the fair market value of a share of Common Stock as of the
date of such exercise.
8. Reservation of Shares.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and non assessable.
9. Notices to Holders.
Nothing contained in this warrant shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter/ or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
this warrant and prior to its exercise, any of the following events shall occur:
(a) The Company shall take a record of the holders of its shares of Common
Stock for the purpose of effecting a transaction described in Section
5.1;
3
<PAGE>
(b) A dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed to be voted upon by the stockholders of the Company;
or
(c) A merger or consolidation of the Company with or into any other
company shall be proposed to be voted upon by the stockholders of the
Company;
then, in any one or more of said events, the Company shall give written notice
of such event to the holder of this warrant at least fifteen (15) days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend or distribution
resulting from such event, or entitled to vote on such proposed transaction,
dissolution, liquidation, winding up, sale, merger or consolidation. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with any such proposed
transaction, dissolution, liquidation, winding up, sale, merger or
consolidation.
10. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered holder of this Warrant, to the address of such
holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of this
Warrant; or at such other address as the registered holder or the
Company may hereafter have advised the other.
11. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
12. Headings.
The Section headings in this Warrant have been inserted for purposes of
convenience only and shall have no substantive effect.
13. Law Governing.
This Warrant is delivered in the State of New York and shall be construed
and enforced in accordance with, and governed by, the laws of the State of New
York regardless of the jurisdiction of creation or domicile of the Company or
its successors or of the holder at any time hereof.
WITNESS the signature of the duly authorized officer of the Company this
3rd day of January , 1997.
IMSCO TECHNOLOGIES, INC.
By: Sol L. Berg
-----------------------
Title: President
--------------------
4
<PAGE>
SUBSCRIPTION FORM
(To Be Executed By The Registered Holder
In Order To Exercise The Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
_____________shares of Common Stock of IMSCO TECHNOLOGIES, INC. covered by this
Warrant according to the conditions hereof and herewith makes payment of the
Exercise Price of such shares in full.
------------------------
Signature
------------------------
------------------------
Address
Dated: , 19 .
5
THIS WARRANT AND THE COMMON STOCK FOR WHICH IT MAY BE EXERCISED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN OBTAINED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTIONS THEREOF, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
IMSCO TECHNOLOGIES, INC.
CLASS "D" COMMON STOCK PURCHASE WARRANT
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged by IMSCO TECHNOLOGIES, Inc., (the "Company"),PROXHILL
MARKETING, LTD.., (the "Holder") is hereby granted the right to purchase at any
time from the date hereof until 5:00 P.M., New York City time, on July 31, 2001
(the "Expiration Date"), 127,272 fully paid and nonassessable shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock").
This Warrant is exercisable at the Exercise Price (as hereinafter defined)
per share of Common Stock issuable hereunder, payable in cash or by certified or
official bank check. Upon surrender of this Warrant with the annexed
Subscription Form duly executed, together with payment of the Exercise Price for
the shares of Common Stock purchased, at the Company's principal executive
offices presently located at 40 Bayfield Drive, North Andover, Massachusetts
01845, the registered holder of this Warrant shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the holder hereof, in whole or in part (but not as to fractional
shares of Common Stock), during the period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
shares of Common Stock purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the shares of Common Stock purchasable
hereunder.
2. Issuance of Stock Certificate.
The issuance of certificates for shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof including,
without limitation, any tax that may be payable in respect thereof, and such
certificates shall (subject to the provisions of Section 3 hereof) be issued in
the name of, or in such names as may be directed by, the holder hereof;
provided, however, that the Company shall not be required to pay any income tax
to which the holder hereof may be subject in connection with the issuance of
this Warrant or of shares of Common Stock upon the exercise of this Warrant; and
provided further, that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
any such certificate in a name other than that of the holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
3. Restrictions on Transfer.
3.1 Restrictions on Transfer. The holder of this Warrant, by acceptance
hereof, agrees that, absent an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the disposition of the
Warrant or Common Stock issued or issuable upon exercise hereof (the "Warrant
Shares"), such holder will not sell or
<PAGE>
transfer any or all of such Warrant or Warrant Shares, as the case may be,
without first providing the Company with an opinion of counsel (which may be
counsel for the Company) reasonably acceptable to it to the effect that such
sale or transfer will be exempt from the registration and prospectus delivery
requirements of the Act. Such holder consents to the Company making a notation
on its records giving instructions to any transfer agent of the Warrant or
Warrant Shares in order to implement such restrictions on transferability.
3.2 Transfer Restrictions Legend. Each certificate representing Warrant
Shares, unless at the time of exercise such Warrant Shares are registered under
the Act, shall bear a legend in substantially the following form on the face
thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER THE ACT, UNLESS
IN THE OPINION OF COUNSEL TO THE ISSUER AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a distribution under a registration statement covering the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby may be transferred as
contemplated by such holder without violation of the registration requirements
of the Act.
4. Exercise Price and Redemption.
4.1 Initial and Adjusted Exercise Prices. The initial exercise price shall
be $1.32 per share of Common Stock from the date hereof through July 31, 2001.
The adjusted exercise price shall be the price that shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 6 hereof.
4.2 Exercise Price. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price depending upon the context.
5. Adjustments of Exercise Price and Number of Shares.
5.1 Subdivision and Combination of Common Stock. In case the Company shall
at any time subdivide (by any stock split, stock dividend or otherwise) or
combine (by any reverse stock split or otherwise) the outstanding shares of
Common Stock, the Exercise Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
5.2 Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 5, the aggregate number of
shares of Common Stock issuable upon the exercise of this Warrant (and of all
the Warrants) shall be obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant (and of all the Warrants) immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
5.3 Reclassification, Consolidation, Merger, etc. In case of any
consolidation or merger of the Company with or into another entity, or the sale
of all or substantially all of its assets to another entity shall be effected,
or in case of any capital reorganization or reclassification of the Common Stock
of the Company, then, as a condition of such consolidation, merger or sale,
reorganization or reclassification of the Common Stock of the Company, lawful
and adequate provision shall be made whereby the Warrant holder shall thereafter
have the right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Warrants, such
shares of stock, or of securities, interests or assets (other than cash) as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable by the Warrant
2
<PAGE>
holder had such consolidation, merger, sale, reorganization or reclassification
not taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Warrant holder to the end that the
provisions hereof (including without limitation provisions for adjustment of the
Exercise Price) shall thereafter be applicable, as nearly as may be in relation
to any shares of stock, securities, interests or assets thereafter deliverable
upon the exercise of such Warrant rights.
5.4 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of this Warrant or, of any Warrant
Shares;
(b) If the amount of said adjustment shall be less than one cent
($.01) per share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment that, together with any adjustment so carried forward, shall
amount to at least one cent ($.01) per share.
6. Exchange and Replacement of Warrant.
Subject to Section 3 hereof, this Warrant is exchangeable without expense,
upon the surrender hereof by the registered holder at the principal executive
office of the Company, for a new Warrant or Warrants of like tenor and date
representing in the aggregate the right to purchase the same number of shares as
are purchasable hereunder in such denominations as shall be designated by the
registered holder hereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
7. Elimination of Fractional Interests.
The Company shall not be required upon the exercise of this Warrant to
issue stock certificates representing fractions of shares of Common Stock, but
shall instead pay in cash, in lieu of any fractional share of Common Stock to
which such holder would be entitled if such fractional share were issuable, in
an amount equal to the fair market value of a share of Common Stock as of the
date of such exercise.
8. Reservation of Shares.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and non assessable.
9. Notices to Holders.
Nothing contained in this warrant shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter/ or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
this warrant and prior to its exercise, any of the following events shall occur:
(a) The Company shall take a record of the holders of its shares of
Common Stock for the purpose of effecting a transaction described in
Section 5.1;
3
<PAGE>
(b) A dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed to be voted upon by the stockholders of the Company; or
(c) A merger or consolidation of the Company with or into any other
company shall be proposed to be voted upon by the stockholders of the
Company;
then, in any one or more of said events, the Company shall give written notice
of such event to the holder of this warrant at least fifteen (15) days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend or distribution
resulting from such event, or entitled to vote on such proposed transaction,
dissolution, liquidation, winding up, sale, merger or consolidation. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with any such proposed
transaction, dissolution, liquidation, winding up, sale, merger or
consolidation.
10. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered holder of this Warrant, to the address of
such holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of
this Warrant; or at such other address as the registered holder or the
Company may hereafter have advised the other.
11. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
12. Headings.
The Section headings in this Warrant have been inserted for purposes of
convenience only and shall have no substantive effect.
13. Law Governing.
This Warrant is delivered in the State of New York and shall be construed
and enforced in accordance with, and governed by, the laws of the State of New
York regardless of the jurisdiction of creation or domicile of the Company or
its successors or of the holder at any time hereof.
WITNESS the signature of the duly authorized officer of the Company.
IMSCO TECHNOLOGIES, INC.
By: Sol L. Berg
--------------------
Title: President
--------------
4
<PAGE>
SUBSCRIPTION FORM
(To Be Executed By The Registered Holder
In Order To Exercise The Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
_____________shares of Common Stock of IMSCO TECHNOLOGIES, INC. covered by this
Warrant according to the conditions hereof and herewith makes payment of the
Exercise Price of such shares in full.
----------------------
Signature
----------------------
----------------------
Address
Dated:___________, 19 .
5
