U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 01845
Andover, Massachusetts
(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: 6,307,925.
IMSCO TECHNOLOGIES, INC.
INDEX
Part I - Financial Statements:
Balance Sheets - September 30, 1997 and September 30, 1996 3
Statement of Operations - For the Nine Months Ended 4
September 30, 1997 and September 30, 1996
Statement of Cash Flows - For the Nine
Months Ended September 30, 1997 and September 30, 1996 6
Statement of Stockholders' Equity - For the Year
Ended December 31, 1996 and the Nine Months
Ended September 30, 1997 8
Notes to Unaudited Financial Statements 9
Management's Discussion and Analysis or
Plan of Operation 18
Part II - Other Information 22
Signatures 24
PART I - FINANCIAL INFORMATION
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
BALANCE SHEET
AS OF SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 24,545 $ 43,371
Treasury securities 0 0
TOTAL CURRENT ASSETS 24,545 43,371
----------------------------
FIXED ASSETS
Property and equipment 138,061 76,672
Leasehold improvements 5,845 4,900
Accumulated depreciation (78,246) (78,246)
----------------------------
NET FIXED ASSETS 65,660 3,326
----------------------------
ORGANIZATION COSTS NET OF AMORTIZATION 100
DEPOSITS 3,688 1,184
OTHER ASSETS 100 0
----------------------------
TOTAL ASSETS $ 93,993 $ 47,981
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 80,719 $ 42,440
Loan from officer 5,570
Loan payable - FCI 300,000
Accrued salaries 20,449
Accrued expenses 38,000 8,372
Accrued payroll taxes 10,592 7,387
----------------------------
TOTAL CURRENT LIABILITIES 149,759 363,769
----------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-authorized 15,000,000
shares at $.001 par value; 6,307,925 and
3,249,839 shares issued and outstanding at
September 30, 1997 and 1996, respectively 6,308 3,250
Additional paid-in capital 3,979,404 1,973,748
Deficit Accumulated:
Developments stage (3,420,570) (1,671,878)
Discontinued operations (620,908) (620,908)
----------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (55,767) (315,788)
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 93,993 $ 47,981
============================
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Cumulative amounts
from current
1997 1996 development stage
---- ---- ------------------
<S> <C> <C> <C>
Development Expense $ 40,751 $ 28,416 $ 237,614
Salaries and Wages 143,750 16,875 389,599
Officer Salaries 113,750 10,625 446,819
Payroll Taxes 24,456 2,104 79,726
Outside Labor 12,940 133,290
Professional Services 541,413 315,074 1,224,958
Rent 36,285 10,838 116,283
Insurance 29,928 11,036 84,766
Travel and Business Meeting 38,305 22,093 104,847
Auto Expense 870 4,282 25,162
Telephone and Utilities 11,859 5,170 45,556
Office Expense 11,809 7,569 52,057
Equipment Rental 24,842 0 33,188
Contribution 0 375 410
Corporate Fees 14,330 9,211 54,935
Advertising 39,075 0 40,500
-------------------------------------------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 1,084,362 443,665 3,069,710
OTHER INCOME (EXPENSE)
Dividend and Interest Income 5,527 0 11,619
Interest Expense 0 (309,047)
Loss from termination of lease (17,960 (17,960)
Loss on sale of fixed assets (34,000) (1,759) (34,000)
-------------------------------------------
LOSS BEFORE INCOME TAXES (1,130,796) (445,424) (3,419,098)
Provision for Income Tax (560) 0 (1,472)
-------------------------------------------
NET LOSS FROM DEVELOPMENT (1,131,356) (445,424) (3,420,570)
LOSS FROM DISCONTINUED
OPERATIONS 0 0 -
NET LOSS $(1,131,356) $(445,424) $(3,420,570)
===========================================
LOSS PER SHARE $ (0.18) $ (0.14)
</TABLE>
The accompanying notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF OPERATIONS
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Development Expense 0 $ 18,198
Salaries and Wages 43,750 16,875
Officer Salaries 41,250 10,625
Payroll Taxes 4,754 2,104
Outside Labor 5,850 0
Professional Services 108,661 312,574
Rent 3,973 3,613
Insurance 12,132 4,208
Travel and Business Meeting 12,364 19,081
Auto Expense 131 3,599
Telephone and Utilities 2,833 2,200
Office Expense 965 5,469
Equipment Rental 10,626 0
Contribution 0 0
Corporate Fees 728 7,449
Advertising 0 0
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 248,016 405,995
OTHER INCOME (EXPENSE)
Dividend and Interest Income 1,182 0
Interest Expense 0 0
Loss from termination of lease (17,960)
Loss on sale of fixed assets 0
LOSS BEFORE INCOME TAXES (264,794) (405,995)
Provision for Income Tax 0 0
NET LOSS FROM DEVELOPMENT (264,794) (405,995)
------------------------
LOSS FROM DISCONTINUED OPERATIONS 0 0
NET LOSS $(264,794) $(405,995)
========================
LOSS PER SHARE $ (0.04) $ (0.14)
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $ 5,527 $ 11,619
Cash received from customers 134 57,138
Cash received from research and testing 345 8,532
Cash received from unemployment taxes 187 357
Cash received from travel reimbursements
and other rebates 354 1,292
Cash received from employee group health insurance 4,783 4,783
Cash paid to suppliers and employees (450,321) $(304,833) (2,252,829)
--------------------------------------------
Net cash provided by operating activities (438,989) (304,833) (2,169,106)
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
Cash flow from financing 300,000
Interim loan financing from officers 9,570 385,000
Proceeds from issuance of common stock 33,000 30,000 1,929,376
--------------------------------------------
Net cash provided by financing activities 33,000 339,570 2,314,376
Net Increase in cash and cash equivalents (426,334) 34,737 38,652
Cash and cash equivalents at beginning of period 450,879 8,634 (14,107)
Cash and cash equivalents at end of period $ 24,545 $ 43,371 $ 24,545
============================================
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss $(1,131,356) $(445,424) $(3,120,568)
--------------------------------------------
Decrease (increase) in Prepaid Advertising 35,500 35,500
Decrease (Increase) in miscellaneous receivable (200,000)
Decrease (increase) in Due from Officers 530 (120)
Decrease (increase) in Advance-Consultant 200,000 200,000
Depreciation and Amortization (4,000) 2,613
Stock issued to retire debt / services 333,030 150,000 770,075
Increase (decrease) in Accounts Payable 51,842 (10,487) 16,268
Increase (decrease) in Accrued Payroll Taxes 42 5,342 10,592
Increase (Decrease) in Accrued Expenses 19,993 58,449
Decrease (increase) in Deposits 17,960 (794) 987
Decrease (increase) in Accounts Receivable 2,998
Decrease in Inventory and Assets 20,100
Loss on sale of Fixed Assets 34,000 34,000
Total adjustments 692,366.49 140,591 951,462
--------------------------------------------
Net cash provided by operating activities $ (438,989) $(304,833) $(2,169,106)
============================================
</TABLE>
The following notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
a development stage enterprise
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 1,182 $ 1,182
Cash received from customers
Cash received from research and testing
Cash received from unemployment taxes
Cash received from travel reimbursements
and other rebates 62
Cash received from employee group health
insurance 2,332
Cash paid to suppliers and employees (105,049) $(262,069)
------------------------
Net cash provided by operating activities (101,473) (260,887)
Cash flows from investing activities:
Prepaid research testing 0
Purchase of Fixed Assets
Sale of Fixed Assets
Net cash received from investing activities 0 0
Cash flows from financing activities:
Cash flow for non-deductible expenses
Cash flow from financing 300,000
Interim loan financing
Proceeds from issuance of common stock 33,000 0
Net cash provided by financing activities 33,000 300,000
Net Increase (decrease) in cash and cash
equivalents (68,473) 39,113
Cash and cash equivalents at beginning of
the third quarter 93,018 4,258
Cash and cash equivalents at end of the
third quarter $ 24,545 $ 43,371
========================
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss $(264,794) $(405,992)
========================
Decrease (increase) in Prepaid payroll taxes 941
Decrease (increase) in Advance tax withholding 4,295
Decrease (increase) in miscellaneous receivable
Decrease (increase) in Due from Officers 25,000
Depreciation and Amortization (4,000)
Stock issued to retire debt / services 27,750 150,000
Increase (decrease) in Accounts Payable 56,342 (7,487)
Increase (decrease) in Accrued Payroll Taxes 10,584 7,386
Increase (decrease) in Accrued Salaries 20,449
Increase (decrease) in Accrued Expenses
Decrease (increase) in Deposits 17,960 (794)
Decrease (increase) in Accounts Receivable
Decrease in Inventory and Assets
Total adjustments 163,321 145,105
------------------------
Net cash provided by operating activities $(101,473) $(260,887)
========================
</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
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Additional Total 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 47 (47)
Issuance of shares of $.001 par value
for contract services 284 213,278 213,562.00
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
Reclassification of issuance of stock
for prepaid advertising as a reduction
from equity (1,464,500) (1,464,500)
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)
Issuance of shares of $.001 par value
at $2.00 per share 150 299,850 300,000
Loss from development for the year
ended December 31, 1996 (1,062,758) (1,062,758)
-------------------------------------------------------------
Balance at December 31, 1996 6,092 3,613,589 (2,910,120) 709,560
=============================================================
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 (477,704) (477,704)
Balance at March 31, 1997 6,192 3,768,769 (3,387,825) 387,136
Issuance of shares of $.001 par value
at $2.00 per share for consulting 75 149,925 150,000
Loss from development for the period
April 1 through June 30, 1997 (388,858) (388,858)
Issuance of shares of $.001 par value
at $1.50 per share 41 60,710 60,750
Loss from development for the period
July 1 through September 30, 1997 (264,794) (264,794)
-------------------------------------------------------------
Balance at September 30, 1997 $6,308 $3,979,404 $(4,041,478) $ (55,767)
=============================================================
</TABLE>
The accompanying notes are an integral part of these statements.
IMSCO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 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 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, 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 6,307,925 and 0, respectively are
issued and outstanding at September 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 September 30, 1997 and
September 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 $11,198 and
$10,838 for the nine months ended September 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. The lease at 950 Third Avenue, New York, was for a term of five
years at an annual base rental of $32 per square foot. The 950 Third Avenue
lease was terminated on July 10, 1997. The Company forfeited its security
deposit of $17,960 due to the termination of the lease. Rental expense for
the above lease was $25,087 for the nine months ended September 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 $24,200 and $0 for the nine months
ended September 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 2,032,140
$2,609,755
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 nine months ended
September 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.
The 150,000 shares were reported on the Consolidated Statement of
Stockholders' Equity grouped with the 197,000 shares that were issued at par
value. The Company is evaluating the need to reclassify the shares
previously issued at par value and increase interest expense by the fair
market value of the stock at the issue date. Revised financial statements
will be submitted.
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 $0 and $0 at
June 30, 1997 and 1996, respectively.
NOTE 5 RESEARCH AND DEVELOPMENT COSTS:
During the nine months ended September 30, 1997 and 1996, the Company
charged $40,751 and $28,416, respectively to research and development
expense.
NOTE 6 NONMONETARY TRANSACTION:
During the nine months ended September 30, 1997, the Company issued 193,000
shares of common stock for consulting service received, valued at $327,7500.
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.
Grow Marketing Services ("Grow") is no longer involved with providing media
services to the Company. The Company owns the media credits and they can and
will be used to finance the introduction and initial product advertising and
marketing support for the Decaffomatic products in the United States and
Canada or sold by December 31, 1997. The prepaid media credits are a salable
asset to the Company. If the media credits are sold at a discount, the
write-down will be reflected in the period that it is determined.
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 molds 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
coffeemakers 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 $1,130,658 during the nine month ended September 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 electrostatic 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 $3,420,570 for the period July 7, 1992 through
September 30, 1997.
NOTE 10 ADVERTISING:
The costs of advertising are expensed the first time the advertising takes
place. For the nine months ended September 30, 1997 and 1996, the
advertising expense was $39,075 and $0, respectively.
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 execrable 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 September 30, 1997, an option to purchase
100,000 shares of common stock at $1.5 per share was issued and outstanding.
NOTE 12 CONTINGENCIES:
Edmund Abramson v. Imsco Technologies, Inc., Case No. 97-12340 CA23, Circuit
Court of the Eleventh Judicial Circuit in and for Dad County, Florida. In
May 1997, the Company terminated the Consulting Agreement of Edmund
Abramson, then a business consultant the Company, alleging cause for such
termination. In June 2997, 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 Dad 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 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 $3,420,570 at
September 30, 1997 and has a total accumulated deficit of $4,041,478.
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 NINE MONTHS ENDING SEPTEMBER 30, 1997;
COMPARED WITH SEPTEMBER 30, 1996
Net losses increased from $445,424 for the nine months ending
September 30, 1996 to $1,131,356 for the nine months ending September 30,
1997. The Company had no revenue or operating income for the quarters ended
September 30, 1996 and September 30, 1997 from continuing operations. The
Company has interest income of $5,527 for the nine months ended September
30, 1997 and none in the comparable prior period. The general,
administrative and development expenses were $1,084,362 for the nine months
ended September 30,1997, in comparison to $ 443,665 for the nine months
ended September 30, 1996. The increase in these costs from 1996 to 1997 was
in most expense categories, including larger development expenses which
increased from $28,416 in the nine months of 1996 to $40,751 in the nine
months of 1997. Additional increased expenses were incurred in professional
services, which increased from $315,074 in the nine months of 1996 to
$541,413 in the nine 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 $43,750, $41,250 and
$4,754, respectively, for the third quarter of 1997 in comparison to
$16,875, $10,625 and $2,104 respectively for the third quarter of 1996.
Rent increased from $10,838 for the nine months ended September 30, 1996, to
$36,285 for the nine months ended September 30, 1997, an increase of $25,447
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. This lease was terminated in July, 1997. Most of
the additional costs in the third quarter of 1997 in comparison to the third
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 September 30, 1996, the Company had total assets of $47,981 and at
September 30, 1997, the Company had total assets of $93,993, an increase of
$46,012. At September 30, 1996, the Company had total liabilities of
$363,769 and at September 30, 1997, the Company had total liabilities of
$149,759. At September 30, 1997, the Company had total stock holders'
deficit of $(315,788) in comparison to a total stockholders' deficit of
$(55,767) at the comparable date in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital deficit position as of September 30,
1997, of $(55,766) in comparison to a deficit position of $(371,554) as of
September 30, 1996. The Company had an accumulated deficit of $2,292,786
for the period ended September 30, 1996, in comparison to an accumulated
deficit of $4,041,478 as of September 30, 1997. The increase in the
accumulated deficit is primarily related to continuing operating costs
without any operating income. For the nine months ended September 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.
A report on Form 8-K/A dated October 31, 1997, filed by the Company
reported the following other event:
Pursuant to action taken on October 15, 1997 by consent of the majority of
the shareholders of Imsco Technologies, Inc. (the "Company"), the following
individuals were removed from the Board of Directors of the Company: Victor
Bauer, Sol Berg, Scott Robinson, James Yurak and Alan Waldman. In the same
action, the majority of the shareholders of the Company elected the
following individuals to serve as directors: Alexander Hoffmann, Gary Graham
and Frank Lubrano. At a subsequent meeting of the Board of Directors on
October 17, 1997, Alexander T. Hoffmann was appointed Chairman of the Board
and Chief Executive Officer, Gloria Berg, Secretary to the Company and Scott
Singer was appointed Assistant Secretary and advisor to the Board of
Directors.
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/ Alexander T. Hoffmanm
Alexander T. Hoffmann, Chief
Executive Officer
Date: November 12, 1997
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