U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-24520
IMSCO TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 04-3021770
- ------------------------------------- ---------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
40 Bayfield Drive,
North Andover, Massachusetts 01845
- ------------------------------------------ ----------------------------------
(Address of principal executive offices) (Zip Code)
(508) 689-2080
- -------------------------------------------------------------------------------
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 6,192,425.
IMSCO TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I - Financial Statements:
Balance Sheets - June 30, 1997 and June 30, 1996 . . . . . . . . . . 3
Statement of Operations - For the Six Months Ended June 30, 1997 and
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Cash Flows - For the Six Months Ended June 30, 1997 and
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Statement of Stockholders' Equity - For the Year Ended December 31,
1996 and the Six Months Ended June 30, 1997 . . . . . . . . . . . . 8
Notes to Unaudited Financial Statements . . . . . . . . . . . . . . 9
Management's Discussion and Analysis or Plan of Operation . . . . . 17
Part II - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
BALANCE SHEET
AS OF JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 93,018 $ 4,258
Treasury securities 0 0
Advance-tax withholdings 4,295 0
Prepaid payroll tax 941 0
Prepaid advertising 1,464,500 0
--------------------------
TOTAL CURRENT ASSETS 1,562,754 4,258
--------------------------
FIXED ASSETS
Property and equipment 138,064 76,672
Leasehold improvements 5,845 4,900
Accumulated depreciation (78,246) (78,246)
--------------------------
NET FIXED ASSETS 65,663 3,326
--------------------------
ORGANIZATION COSTS NET OF AMORTIZATION 100
DEPOSITS 21,648 390
DUE FROM OFFICERS 25,000 0
OTHER ASSETS 100 0
--------------------------
TOTAL ASSETS $ 1,675,164 $ 8,074
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,377 $ 49,927
Loan from officer 0 9,570
Accrued expenses 38,000 8,372
Accrued payroll taxes 8 0
--------------------------
TOTAL CURRENT LIABILITIES 62,385 67,869
--------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-authorized 15,000,000 shares at $.001 par value;
6,192,425 shares issued and outstanding at June 30, 1997 6,192 3,000
Additional paid-in capital 4,933,269 1,823,999
Deficit Accumulated:
Developments stage (2,705,774) (1,265,886)
Discontinued operations (620,908) (620,908)
--------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,612,779 (59,795)
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,675,164 $ 8,074
==========================
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND CUMULATIVE AMOUNTS FROM
JULY 9, 1992 (inception of the current development stage) TO JUNE 30, 1997
<TABLE>
<CAPTION>
Cumulative amounts
from current
1997 1996 development stage
---------- --------- ------------------
<S> <C> <C> <C>
Development Expense $ 40,751 $ 10,218 $ 237,614
Salaries and Wages 100,000 0 345,849
Officer Salaries 72,500 0 405,569
Payroll Taxes 19,702 0 74,972
Outside Labor 7,090 0 127,440
Professional Services 282,752 2,500 966,297
Rent 32,312 7,225 112,310
Insurance 17,796 6,828 72,634
Travel and Business Meeting 25,941 3,012 92,483
Auto Expense 739 683 25,031
Telephone and Utilities 9,026 2,970 42,723
Office Expense 10,844 2,100 51,091
Equipment Rental 14,217 0 22,562
Contribution 0 375 410
Corporate Fees 13,602 1,762 54,207
Advertising 39,075 0 40,500
------------------------------------------
TOTAL GENERAL, ADMINISTRATIVE AND DEVELOPMENT
EXPENSE 686,347 37,673 2,671,692
OTHER INCOME (EXPENSE)
Dividend and Interest Income 4,345 0 10,437
Interest Expense 0 (1,759) (9,047)
---------
Loss on sale of fixed assets (34,000) (34,000)
---------- ------------
LOSS BEFORE INCOME TAXES (716,002) (39,432) (2,704,302)
Provision for Income Tax (560) 0 (1,472)
------------------------------------------
NET LOSS FROM DEVELOPMENT (716,562) (39,432) (2,705,774)
LOSS FROM DISCONTINUED OPERATIONS 0 0 --
NET LOSS $ (716,562) $ (39,432) $ (2,705,774)
==========================================
LOSS PER SHARE $ (0.12) $ (0.01) $ (0.44)
</TABLE>
The accompanying notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
FOR THE SECOND QUARTER ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Development Expense $ 3,431 $ 652
Salaries and Wages 51,417 0
Officer Salaries 34,584 0
Payroll Taxes 7,620 0
Outside Labor 7,090 0
Professional Services 47,388 0
Rent 17,134 3,613
Insurance 10,315 3,561
Travel and Business Meeting 9,831 2,084
Auto Expense 298 235
Telephone and Utilities 2,863 1,488
Office Expense 3,180 1,481
Equipment Rental 6,268 0
Contribution 0 0
Corporate Fees 3,954 960
Advertising 25 0
-----------------------
TOTAL GENERAL, ADMINISTRATIVE AND DEVELOPMENT
EXPENSE 205,398 14,074
OTHER INCOME (EXPENSE)
Dividend and Interest Income 1,100 0
Interest Expense 0 (1,759)
---------
Loss on sale of fixed assets (34,000)
----------
LOSS BEFORE INCOME TAXES (238,298) (15,833)
Provision for Income Tax (560) 0
NET LOSS FROM DEVELOPMENT (238,858) (15,833)
-----------------------
LOSS FROM DISCONTINUED OPERATIONS 0 0
NET LOSS $ (238,858) $ (15,833)
=======================
LOSS PER SHARE $ (0.04) $ (0.01)
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage)
<TABLE>
<CAPTION>
Cumulative Amounts
from current
1997 1996 development stage
---------- --------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 4,345 $ 10,437
Cash received from customers 72 57,076
Cash received from research and testing 8,187
Cash received from unemployment taxes 541 711
Cash received from travel reimbursements and other rebates 938
Cash received from employee group health insurance 2,725 2,725
Cash paid to suppliers and employees (345,199) (43,946) (2,147,707)
------------------------------------------
Net cash provided by operating activities (337,516) (43,946) (2,067,633)
Cash flows from investing activities:
Prepaid research testing (7,734)
Purchase of Fixed Assets (41,345) (119,883)
Sale of Fixed Assets 21,000 21,000
------------------------------------------
Net cash provided by investing activities (20,345) 0 (106,617)
Cash flows from financing activities:
Cash flow for non-deductible expenses
Interim loan financing 9,570 385,000
Proceeds from issuance of common stock 30,000 1,896,376
----------------------------
Net cash provided by financing activities 0 39,570 2,281,376
Net Increase in cash and cash equivalents (357,861) (4,376) 107,125
Cash and cash equivalents at beginning of period 450,879 8,634 (14,107)
Cash and cash equivalents at end of period $ 93,018 $ 4,258 $ 93,018
==========================================
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net Loss $ (682,562) $ (39,432) $ (2,671,774)
------------------------------------------
Decrease (increase) in Prepaid Advertising 35,500 (1,464,500)
Decrease (Increase) in miscellaneous receivable (5,235) (205,235)
Decrease (increase) in Due from Officers (25,000) 530 (25,120)
Decrease (increase) in Advance-Consultant 200,000 200,000
Depreciation and Amortization 2,613
Stock issued to retire debt / services 155,280 2,092,325
Increase (decrease) in Accounts Payable (4,500) (3,000) (40,074)
Increase (decrease) in Accrued Payroll Taxes (10,542) (2,044) 8
Increase (Decrease) in Accrued Expenses (456) 38,000
Decrease (increase) in Deposits (16,973)
Decrease (increase) in Accounts Receivable 2,998
Decrease in Inventory and Assets 20,100
Total adjustments 345,047 (4,514) 604,141
------------------------------------------
Net cash provided by operating activities $ (337,516) $ (43,946) $ (2,067,633)
==========================================
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF CASH FLOWS
FOR THE SECOND QUARTER ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 1,100
Cash received from customers 72
Cash received from research and testing
Cash received from unemployment taxes 541
Cash received from travel reimbursements and other rebates
Cash received from employee group health insurance 2,725
Cash paid to suppliers and employees (17,532) $ (18,301)
-----------------------
Net cash provided by operating activities (13,093) (18,301)
Cash flows from investing activities:
Prepaid research testing 0
Purchase of Fixed Assets (2,116)
Sale of Fixed Assets 21,000
----------
Net cash received from investing activities 18,884 0
Cash flows from financing activities:
Cash flow for non-deductible expenses
Interim loan financing 9,570
Proceeds from issuance of common stock 10,000
---------
Net cash provided by financing activities 0 19,570
Net Increase in cash and cash equivalents 5,790 1,268
Cash and cash equivalents at beginning of the second quarter 87,228 2,990
Cash and cash equivalents at end of the second quarter $ 93,018 $ 4,258
=======================
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net Loss $ (204,858) $ (15,833)
-----------------------
Decrease (increase) in Prepaid Advertising
Decrease (increase) in miscellaneous receivable 194,765
Decrease in Due from Officers 530
Depreciation and Amortization
Stock issued to retire debt / services
Increase (Decrease) in Accounts Payable (3,000) (1,500)
Increase (Decrease) in Accrued Payroll Taxes (1,498)
Increase (Decrease) in Accrued Expenses
Decrease (increase) in Deposits
Decrease (increase) in Accounts Receivable
Decrease in Inventory and Assets
Total adjustments 191,765 (2,468)
-----------------------
Net cash provided by operating activities $ (13,093) $ (18,301)
=======================
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid-in Accumulated Equity
Stock Capital Deficit (Deficit)
------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31 , 1995 $ 2,995 $ 1,794,004 $ (1,847,362) $ (50,363)
Issuance of DPI Additional Paid in Capital for $2.00 per share 10 19,990 20,000
Issuance of subsidiary stock 10,000 10,000
Issuance of shares of $.001 par value 197 (197)
Issuance of shares of $.001 par value for contract services 284 213,278 213,562
Issuance of shares of $.001 par value in payment of loan 227 299,773 300,000
Issuance of shares of $.001 par value for prepaid advertising 1,136 1,498,864 1,500,000
Issuance of shares of $.001 par value at $1.32 per share 775 942,845 943,620
Issuance of shares of $.001 par value for subsidiary stock 468 (468)
Loss from development for the year ended December 31, 1996 (762,758) (762,758)
-----------------------------
Balance at December 31, 1996 6,092 4,778,089 (2,610,120) 2,174,061
=======================================================
Issuance of shares of $.001 par value in consulting service 100 149,900 150,000
Stock subscription receivable 5,280 5,280
Loss from development for the three months ended
March 31, 1997 (506,601) (506,601)
Balance at March 31, 1997 6,192 4,933,269 (3,116,721) 1,822,740
Loss from development for the period April 1 through
June 30, 1997 (238,858) (238,858)
Prior period adjustment (see note) 28,897 28,897
Balance at June 30, 1997 $ 6,192 $ 4,933,269 $ (3,326,682) $ 1,612,779
=======================================================
</TABLE>
The accompanying notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
- -------------
In July 1996, IMSCO, Inc. was reincorporated in Delaware as IMSCO Technologies,
Inc. 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
Massachusetts to Delaware. Therefore, on July 18, 1996, there remained one
surviving corporation and the name surviving corporation become 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, of IMSCO
Technologies, Inc. for each one share of common stock, par value $.001 per
share, of IMSCO, Inc. previously held by him.
Imsco Technologies, Inc., a Delaware corporation, 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,
the Company 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 15,000,000 shares of common stock and 1,000,000 shares of preferred
stock authorized, of which 6,192,425 and 0, respectively are issued and
outstanding at June 30, 1997.
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 technologies 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 June 30, 1997 and June 30, 1996 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) an BioElectric Separation and
Testing, Inc. (BEST). All significant inter-company accounts and transactions
have been eliminated in consolidation.
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.
Cash Equivalents:
- -----------------
The Company considers all highly liquid investments with an original maturity
of less than three months to be cash equivalents.
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.
Estimates:
- ----------
Management uses estimates and assumptions in preparing financial statements in
accordance with general 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.
NOTE 2 LEASES:
In 1993, the Company entered into an operating lease for office space which
expired in August, 1996. The Company is currently leasing the premises as a
tenant-at-will. Rental expense for the operating lease was $7,225 and $7,225
for the six months ended June 30, 1997 and 1996, respectively. Under the terms
of the lease the Company is responsible for all utilities.
In September 1996, the Company established an office at 950 Third Avenue, New
York, New York, consisting of approximately 2,500 square feet of space, with
the intention of conducting its sales, marketing and finance related
activities. The Company has decided that it will be more efficient and cost
effective to run all of its activities from the North Andover office for the
near future and is negotiating to sub-lease or assign the lease at 950 Third
Avenue to an unrelated party. The lease at 950 Third Avenue, New York, is for a
term of five years at an annual base rental of $32 per square foot. The lease
contains standard pass-through by the unaffiliated landlord of increase in real
estate taxes and operating expenses after the first year of occupancy. The 950
Third Avenue lease was terminated on July 31, 1997. Rental expense for the
above lease was $25,087 for the six months ended June 30, 1997.
The Company entered into various leases for equipment during the year ended
December 31, 1996. Minimum future lease payments under these non-cancelable
operating leases as of December 31, 1996 are as follows:
1997 $14,676
1998 14,676
1999 11,045
Rental expense for the above leases was $14,217 and $0 for the six months ended
June 30, 1997 and 1996, respectively.
NOTE 3 FEDERAL AND STATE INCOME TAXES:
As of December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes which expire as follows:
2000 $ 4,180
2001 181,180
2002 233,280
2003 88,125
2004 70,850
Thereafter 2,609,755
$2,609,755
FS-9
The deferred tax asset from the benefit of the losses is $391,460 and $277,050
for the year ending December 31, 1996 and 1995, respectively which is offset by
an equivalent reserve account each year.
As of December 31, 1996, the Company had net operating loss carry forwards for
state income tax purposes which expire as follows:
1997 $ 259,185
1998 40,825
1999 513,690
2000 405,630
2001 762,300
$1,981,630
The deferred tax asset from the benefit of the losses is $188,250 and $115,800
for the year ending December 31, 1996 and 1995, respectively which is offset by
an equivalent reserve account each year.
State excise tax expense amounted to $560 and $0 for the six months ended June
30, 1997 and 1996, respectively.
NOTE 4 RELATED PARTY TRANSACTIONS:
In August 1996, Hampton Tech Partners, LLC acquired $300,000 in promissory
notes from the Company and 150,000 shares of Common Stock for the total
consideration of $300,000. On September 20, 1996, the Company entered into a
Purchase Agreement with Hampton Tech Partners II, LLC wherein Hampton Tech
Partners II, LLC acquired 761,000 shares of Common Stock for $1,004,520 in cash
or $1.32 per share. Private placement expenses of $77,400 were incurred during
this transaction, reducing net cash proceeds to $927,120. Hampton Partners II
received 227,273 shares in repayment of the $300,000 promissory notes with
Hampton Tech Partners, LLC and 129, 151 shares in payment of private placement
fees. Mr. Scott Robinson, a recently elected director of the Company, is a
member of Hampton Tech Partners and Hampton Tech Partners II, LLC. Mr.
Robinson's brother, Mr. Jeffrey Robinson is the sole shareholder of Hampton
Partners Investments, Inc., the Managing Member of Hampton Tech Partners and
Hampton Tech Partners II, LLC.
On September 20, 1996, the Company entered into the Media Purchase Agreement
with Proxhill Marketing Ltd., wherein Proxhill Marketing Ltd. agreed to sell
$1,500,000 of media credits to the Company in consideration for the Company
issuing $1,136,364 shares of Common Stock, representing a price of $1.32 per
share. In connection with the private placement of the Shares of Hampton Tech
Partners II, LLC, Hampton Tech Partners and Proxhill Marketing Ltd., First
Capital Investments, Inc. a broker-dealer which is a member of the National
Association of Securities Dealers, Inc. ("NASD"), received 242,272 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, Proxhill marketing Ltd. Also
received 127,262 Class D Warrants, entitling it to acquire Common Stock for the
price of $1.32 per share for a period ending July 31, 2001. As of December 31,
1996, the registration statement for the Class A Warrant Common Stock and Class
D Warrant Common Stock had not been declared effective.
In 1996, Mr. Sol L. Berg, a Director and President of the Company, received
150,000 shares of Common Stock in exchange for shares of common stock in Decaf
Products, Inc. (DPI) based on a conversion of .60 IMSCO Technologies, Inc.
shares for 1.00 Decaf products, Inc. shares. In 1996, Mr. James G. Yurak, a
Director and President of the DPI subsidiary, received 75,000 shares of Common
Stock in exchange for shares of common stock in Decaf Products, Inc. (DPI)
based on a conversion of .60 IMSCO Technologies, Inc. share for 1.00 Decaf
Products, Inc. share. Mr. Yurak received another 75,000 shares of Common Stock
in February 1997 upon the one year Anniversary of his employment agreement with
DPI. 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 1996, David E. Fleming, a
member of Epstein, Becker & Green, P.C., counsel to the Company, was granted
90,000 shares of the Company's Common Stock in exchange for shares of Common
Stock in Decaf Products, Inc. (DPI) based on a conversion of .60 IMSCO
Technologies, Inc. shares for 1.00 DecafProducts, Inc. shares, which shares
will vest on January 1, 1997. In 1996, Mr. Vernon Oberholtzer, a former
Director of the Company who resigned in February 1997, 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.
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 July 31, 1995,
David E. Fleming had resigned as director of the Company.
The total balance of the Due from officer account relates to advances paid to
corporate officers for expenses incurred not directly related to the operation
of the Company. The balance owed to the Company was $25,000 and $0 at June 30,
1997 and 1996, respectively.
NOTE 5 RESEARCH AND DEVELOPMENT COSTS:
During the six months ended June 30, 1997 and 1996, the Company charged $40,751
and $10,218, respectively to research and development expense.
NOTE 6 NONMONETARY TRANSACTION:
During the three months ended June 30, 1997, the Company issued 100,000 shares
of common stock for consulting service received, valued at $150,000.
NOTE 7 COMMITMENTS:
In 1996, the Company entered into a collaborative Research Agreement with the
Polymer Sciences Division of the University of Akron, for further development
of the electrostatic decaffeination technology. The Company pays $10,000 per
month for the use of the University of Akron's facilities and the dedication of
certain professors to the Company's project.
On September 20, the Company entered into the Hughes marketing Agreement for
certain large institutional marketing of the Decaffeination System. Hughes is a
privately held corporation, based in Traverse City, Michigan, and is one of the
larger marketers of institutional coffee making equipment and supplies in North
America. The Company agreed that Hughes will have the exclusive right to sell
the DECAFFOMATIC to so-called "large institution" coffee-maker market in North
American for a period of three years. The "large institutional" marketplace is
dominated by major hotel chains and major restaurant and fast-food chains. In
exchange for these exclusive rights, Hughes agreed to sell or purchase from the
Company a minimum $3 million worth of units for the first year, $5 million
worth of units for the second year and $7 million worth of units the third
year.
Under the Hughes Agreement, the Company sells units of the Decaffeination
System to Hughes' customers for a stated price of $199 per unit for the
institutional coffee-makers. If Hughes fails to sell the minimum amount it must
purchase the difference for its own account to maintain the agreement in force.
All servicing and customer calls will be performed by Hughes. In addition to
other legal remedies, the parties can terminate the Hughes Agreement if Hughes
fails to make the specified minimum amount of Decaffeination System purchases.
Under a media Purchase Agreement with Proxhill Marketing Ltd., it contractually
agreed to finance $1.5 million of media for the Company's public relations and
advertising campaign through Grow Marketing Services ("GROW"), an independent
marketing company. In exchange for the Company issuing 1,136,363 shares of its
common stock, representing a price of $1.32 per share, the Company acquired the
$1.5 million of prepaid, dedicated media credits (the "Media Credits") and
certain media services. The media Purchase Agreement expires at the end of
sixty (60) months or upon the depletion of the prepaid media credits.
On September 20, 1996, the Company entered into an agreement with NEWCO for
certain institutional manufacturing and marketing of the Decaffeination System.
NEWCO is a privately held corporation based in St. Charles, Missouri, and is
one of the larger manufacturers and distributors of institutional coffee-making
equipment in North America. The Company agreed that NEWCO will have the
exclusive right to sell the DECAFFOMATIC to so-called "Office Coffee Supply"
("OCS") subsection of the institutional coffee-maker market and will be the
manufacturer of the DEFAFFOMATIC for the institutional marketplace in North
American for a period of three years. NEWCO further agreed to sell or purchase
from the Company for the OCS market a minimum of 25,000 units or the product
for the first year, 50,000 units for the second year and 100,000 units the
third year. Under the NEWCO Agreement, NEWCO has also agreed to pay the costs
of making final working models, and the cost of creating moulds and related
parts for the DECAFFOMATIC device for the institutional coffee-maker
marketplace. All of the technology and final commercial model designs of the
Decaffeination System will be the property of the Company.
Under the NEWCO Agreement, the Company sells units of the Decaffeination System
to NEWCO for a net price to the Company. The Company anticipates that the price
to be paid NEWCO, which is still being finalized until the final working and
commercial ready components are established, will be in the range of
approximately $20 per unit for small OCS type users, ranging to $200 for large,
high volume institutional coffee brewers. NEWCO takes the Decaffeination System
and in turn incorporates it into its coffee-makers and re-sells it to a variety
of end users in the OCS marketplace. The terms of the minimum purchase by NEWCO
are mandatory and are not subject to, or conditioned upon, NEWCO' s ability to
sell the units acquired. All servicing and customer calls will be performed by
NEWCO. In addition to other legal remedies, the parties can terminate the NEWCO
Agreement if NEWCO fails to make the specified minimum number of Decaffeination
System purchases.
NOTE 8 GOING CONCERN:
As shown in the accompanying financial statements, the Company incurred a net
Loss of $682,562 during the six month ended June 30, 1997. The significant
operating loss as well as the uncertainty 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 financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 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 $2,671,774 for the period
July 7, 1992 through June 30, 1997.
NOTE 10 ADVERTISING:
The costs of advertising are expensed the first time the advertising takes
place. For the six months ended June 30, 1997 and 1996, the advertising expense
was $39,075 and $0, respectively. At June 30, 1997 and 1996, $1,464,500 and $0,
respectively, of advertising was reported as a prepaid asset.
NOTE 11 EMPLOYEE INCENTIVE STOCK OPTIONS:
On May 21, 1996, the Board of Directors adopted the Employee Incentive Stock
Option Program (the "Option Program"), which provides for the issuance of up to
the lesser of 24% of the issued and outstanding Common Stock or 1,500,000
shares of Common Stock through the grant of incentive and non-qualified stock
options. Stock options will be issued by action of the Board of Directors or
its Compensation Committee (the "Administrator") to key employees of the
Company as a long-term incentive. Key employees will be designated by the
Administrator in its sole discretion; there are currently three employees so
designated. Stock Options under the Option Program will provide for an exercise
price per share determined by the Administrator (but not less than the par
value of $.001), subject to tax requirements in connection with incentive stock
options. No payment will be required from participants in connection with
grants. The options will be exercisable as specified by the Administrator at
the time of grant, although the tax benefits of incentive stock options
described below will be unavailable if the options is exercised less than one
year after grant. Options will be exercisable for a period determined by the
Administrator but not in excess of 10 years after grant. As of June 30, 1997,
an option to purchase 100,000 shares of common stock at $1.5 per share was
issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
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 no revenues from operations to date and, because it is just beginning
to enter the commercial stage, it will likely sustain operating losses for an
indeterminate time period. Since entering the development phase in July, 1992,
the Company has devoted substantially all of its resources to the research and
development of its products and technology and general and administrative
expenses. Since entering the development stage in July, 1992, the Company has
generated an accumulated deficit of $2,705,774 at June 30, 1997 and has a total
accumulated deficit of $3,326,682.
The Company had no revenue from continuing operations in years ending
December 31, 1993, December 31, 1994, December 31, 1995 or December 31, 1996.
The Company has incurred net losses in each year since its inception in 1986.
Given the dormant level of business activity from 1988 through 1991, the
Company realized that it could not continue with its luminator technology
product, discontinued operations and was reactivated and entered into a new
development stage in July 1992.
The Company's losses incurred since inception have resulted principally
from expenditures under its research and development programs, and the Company
expects to incur significant operating costs and possible losses therefrom over
the next several years due primarily to expanded research and development
efforts in the PLASMA PURE area and related medical products, preclinical and
clinical testing of its product candidates and the performance of
commercialization activities. There can be no assurance of when and whether the
Company will generate revenues or become profitable on a sustained basis, if at
all. Although the Company believes it has substantially completed the research
and development of its decaffeination technology which is called the
DECAFFOMATIC and is anticipating sales thereof to commence in 1997, the
Company's results of operations may vary significantly from quarter to quarter
due to timing of payments and other factors. The timing of the Company's
revenues, if any, may not match the timing of associated product development of
other expenses.
The Company's ability to achieve sales and increase its levels of revenue
will depend upon its ability to secure additional financing and future
licensees, if any, and successfully develop, test and sell the Company's
products. The Company's ability to general significant revenue and become
profitable is dependent in large part on its commercializing the Company's
leading product, the DECAFFOMATIC, expanding its manufacturing contracts with
third party manufacturers, entering into additional marketing agreements and
the ability of its marketing contractors to successfully commercialize products
incorporating the Company's technologies. There can be no assurance that the
operations of the Company will generate significant revenue or will ever be
profitable.
Statements included in this "Management's Discussion and Analysis or Plan
of Operation" Section, and in other sections of the Report and in prior and
future filings by the Company with the Securities and Exchange Commission, in
the Company's prior and future press releases and in historical or current
facts are "forward-looking statements" made pursuant to safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made. There are numerous risk
factors that in some cases have affected and in the future could affect the
Company's actual results and could cause the Company's actual financial and
operating performance to differ materially from that expressed in any
forward-looking statement. The following discussion and analysis should be read
in conjunction with the Financial Statements and notes to Financial Statements
which appear elsewhere in this report.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDING JUNE 30, 1997;
COMPARED WITH JUNE 30, 1996
Net losses increased from $39,432 for the six months ending June 30, 1996
to $716,562 for the six months ending June 30, 1997. The Company had no revenue
or operating income for the quarters ended June 30, 1996 and June 30, 1997 from
continuing operations. The Company has interest income of $4,345 for the six
months ended June 30, 1997 and none in the comparable prior period. The
general, administrative and development expenses were $686,347 for the six
months ended June 30,1997, in comparison to $ 37,673 for the six months ended
June 30, 1996. The increase in these costs from 1996 to 1997 was in most
expense categories, including larger development expenses which increased from
$10,218 in the six months of 1996 to $40,751 in the six months of 1997.
Additional increased expenses were incurred in professional services, which
increased from $2,500 in the six months of 1996 to $ 282,752 in the six months
of 1997, which increases were primarily from additional legal costs and filing
fees incurred in connection with the Company's patent applications for its
technology. Salaries and wages, officers salaries and related payroll taxes
were $51,417, $34,584 and $7,620, respectively, for the second quarter of 1997
in comparison to $0 in total for the second quarter of 1996. Rent increased
from $7,225 for the six months ended June 30, 1996, to $32,312 for the six
months ended June 30, 1997, an increase of $25,087 which was primarily due to
the additional office lease and costs incurred as a result of the Company
leasing office space at 950 Third Avenue, New York, New York in October 1996.
Most of the additional costs in the second quarter of 1997 in comparison to the
second quarter of 1996 were related to further development, refinement and
early stage marketing efforts of the Company's Decaffamatic separation
technology. All research and development costs were expensed currently in the
year incurred, rather than capitalized.
At June 30, 1996, the Company had total assets of $8,074 and at June 30,
1997, the Company had total assets of $1,675,164, an increase of $1,667,090. At
June 30, 1996, the Company had total liabilities of $67,869 and at June 30,
1997, the Company had total liabilities of $62,385. At June 30, 1997, the
Company had total stock holders' equity of $1,612,779 in comparison to a total
stockholders' deficit of $(59,795) at the comparable date in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital as of June 30, 1997, of $1,500,369 in
comparison to a deficit position of $(63,611) as of June 30, 1996. The Company
had an accumulated deficit of $1,886,794 for the period ended June 30, 1996, in
comparison to an accumulated deficit of $3,326,682 as of June 30, 1997. The
increase in the accumulated deficit is primarily related to continuing
operating costs without any operating income. For the six months ended June 30,
1997, the Company's cash requirements were satisfied from the cash reserves in
its operating and investment accounts.
The Company does not currently possess a bank source of financing and has
not had any revenues. The Company cannot be certain that its existing sources
of cash will be adequate to meet its liquidity requirements. Therefore, the
Company is considering the following options to meet its liquidity
requirements:
(a) attempting to raise additional funds through the sale of equity
securities to persons or entities who are not presently
stockholders of the Company;
(b) attempting to obtain a bank line of credit; and
(c) 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.
The Company's future capital requirements will depend on numerous
factors, including (i) the progress of its research and product development
programs, including clinical studies, (ii) the effectiveness of product
commercialization activities and marketing agreements, including the
development and progress of sales and marketing efforts and manufacturing
operations, (iii) the ability of the Company to maintain existing marketing
agreements and establish and maintain new marketing agreements, (iv) the costs
involved in preparing, filing, prosecuting, defending and enforcing
intellectual property rights and complying with regulatory requirements, and
(v) the effect of competing technological and market developments. 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.
Unless the Company is able to generate revenues or obtain additional
financing in the future, the continuing losses incurred by the Company in its
development phase raise substantial doubt about the Company's ability to
continue as a going concern. Therefore, the Company's ability to continue in
business as a going concern depends upon its ability to sell products, to
generate licensing fees 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 offering of its securities. 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. Similarly, the Company's ability to obtain
funds through an offering of its debt securities is limited by its lack of
revenue. In any event, there is no assurance that any expenditure reductions,
financings or other measures that the Company may be able to effect will enable
it to meet its working capital requirements.
PART II - Other Information
Item 1. Legal Proceedings.
Edmund Abramson v. Imsco Technologies, Inc., Case No. 97-12340 CA23,
Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida.
In May 1997, the Company terminated the Consulting Agreement of Edmund
Abramson, then a business consultant to the Company, alleging cause for such
termination. In June 1997, the Company was served with a complaint filed by
Edmund Abramson alleging breach of contract and claiming damages of $400,000,
plus attorneys fees. The Company filed an Answer denying the claims and
asserted a nine count counterclaim seeking substantial money damages. Discovery
in the case has not yet commenced. Although the Company believes it has
meritorious defenses to the plaintiff's claims, the Company is not currently
able to assess its potential exposure in this case. However, the Company
intends to vigorously defend the lawsuit and pursue its meritorious
counterclaims and seek money damages. If the Company is unsuccessful in
defending the lawsuit, it could have a material adverse effect on the Company.
WRA Consulting, Inc. v. Imsco Technologies, Inc., Case No. 97-12336 CA21,
Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida.
In May 1997, the Company terminated the Consulting Agreement of WRA Consulting,
Inc., then a financial consultant to the Company, alleging cause for such
termination. In June 1997, the Company was served with a complaint filed by WRA
Consulting, Inc. alleging breach of contract, for among other reasons, failure
of the Company to deliver 150,000 registered shares of common stock and 150,000
warrants to purchase common stock to WRA Consulting, Inc., and claiming damages
on account thereof in the amount of $800,000, plus attorneys fees. The Company
filed an Answer denying the claims and asserted a nine count counterclaim
seeking substantial money damages. Discovery in the case has not yet commenced.
Although the Company believes it has meritorious defenses to the plaintiff's
claims, the Company is not currently able to assess its potential exposure in
this case. However, the Company intends to vigorously defend the lawsuit and
pursue its meritorious counterclaims and seek money damages. If the Company is
unsuccessful in defending the lawsuit, it could have a material adverse effect
on the Company.
Item 6. Exhibits and Reports on Forms 8-K
A report on Form 8-K dated July 21, 1997, filed by the Company reported
the following other event:
On July 11, 1997, Hughes, Edwards & Price, Inc. ("Hughes") notified Imsco
Technologies, Inc. (the "Company") of its desire to terminate the Marketing
Agreement ("Agreement") entered into with the Company on September 20, 1996, in
order to pursue other opportunities such as restaurant management. Termination
of the Agreement was brought about by mutual consent and is effective
immediately. The Company is currently in discussions with Newco Enterprises
("Newco") about prospective terms and conditions for a new marketing agreement
to market the Company's decaffeination technology and products to the
institutional coffee maker marketplace in North America. Although Hughes was
appointed the exclusive representative to market the Company's decaffeination
technology and products to the institutional coffee maker marketplace, such as
restaurants and hotels, in North America for a period of 3 years, Hughes had
not yet sold any products for the Company.
SIGNATURES
Pursuant to the requirements 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 Technologies, Inc.
By: /s/ Sol L. Berg
----------------------------------
Sol L. Berg, President and
Chief Accounting Officer
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