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, 1998
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)
(978) 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: 7,581,278.
<PAGE>
IMSCO TECHNOLOGIES, INC.
INDEX
Part I - Financial Statements:
Balance Sheets - June 30, 1998 and 1997 .......................... 3
Statement of Operations - For the Six Months Ended ............... 4
June 30, 1998 and June 30, 1997
Statement of Operations For the Three months ended
June 30, 1998 and 1997 ........................................... 5
Statement of Cash Flows - For the Six ............................ 6
Months Ended June 30, 1998 and June 30, 1997
Statement of Cash Flows - For the Three .......................... 7
Months Ended June 30, 1998 and June 30, 1997
Statement of Stockholders' Equity - For the Year ................. 8
Ended December 31, 1997 and the Six Months
Ended June 30, 1998
Notes to Unaudited Financial Statements .......................... 9
Management's Discussion and Analysis or
Plan of Operation ................................................ 12
2
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED BALANCE SHEET
As of June 30, 1998 and 1997
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,896 $ 93,018
Prepaid Taxes 5,236
Prepaid Insurance 1,000
----------- -----------
TOTAL CURRENT ASSETS $ 16,896 98,254
----------- -----------
FIXED ASSETS
Property and equipment 123,067 138,064
Leasehold improvements 5,845 5,845
Accumulated depreciation (92,790) (78,246)
----------- -----------
NET FIXED ASSETS 36,122 65,663
----------- -----------
DUE FROM OFFICER 25,000
DEPOSITS 3,499 21,748
----------- -----------
Total Other Assets 3,499 46,748
----------- -----------
TOTAL ASSETS $ 56,517 $ 210,665
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 136,352 24,378
Due to Officer 6,500
Accrued salaries 559 38,000
Accrued expenses 81,778
Accrued payroll taxes 16,811 8
----------- -----------
TOTAL CURRENT LIABILITIES 242,000 62,386
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-authorized 1,000,000
shares at $.0001 par value; 0 shares
shares issued and outstanding
Common stock-authorized 15,000,000
shares at $.0001 par value; 7,581,278 and
6,516,536 shares issued and outstanding at
June 30, 1998 and June 30, 1997, respectively 759 627
Additional paid-in capital 9,944,151 5,318,772
Deficit Accumulated:
Developments stage (7,967,217) (3,155,774)
Discontinued Operations (620,908) (620,908)
Deferred Compensation Note 4 (147,830)
Prepaid advertising credits (1,394,438) (1,394,438)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (185,483) 148,279
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 56,517 $ 210,665
=========== ===========
The following notes are an integral part of these statements.
3
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND CUMULATIVE AMOUNTS
FROM JULY 9, 1992 (inception of the current development stage) TO JUNE 30, 1998
Cumulative amounts
from current
1998 1997 development stage
----------- ----------- -----------------
Development Expense $ 33,000 $ 40,751 $ 296,114
Salaries and Wages 262,167 100,000 697,810
Officer Salaries 206,705 72,500 730,488
Payroll Taxes 11,085 19,702 96,111
Outside Labor 1,193,093 7,090 1,347,633
Professional Services 186,649 432,752 1,881,990
Rent 9,859 32,312 175,278
Insurance 37,408 17,796 127,009
Travel and Business Meeting 50,356 25,941 168,895
Auto Expense 7,193 739 47,732
Telephone and Utilities 5,266 9,026 55,339
Office Expense 4,917 10,844 98,190
Equipment Rental 4,880 14,217 29,705
Contribution 625 0 625
Corporate Fees 8,701 13,602 68,874
Advertising 0 39,075 225,761
Marketing Expense 20,000 0 20,000
Depreciation and Amortization 4,540 0 17,798
Litigation Settlement 0 0 1,538,392
Franchise Tax 456 0 1,987
----------- ----------- -----------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 2,046,900 836,347 7,625,731
OTHER INCOME (EXPENSE)
Dividend and Interest Income 0 3,245 11,633
Interest Expense 0 0 (309,047)
Loss on sale of fixed assets 0 (33,980) (44,072)
----------- ----------- -----------
Other Income (Expense) - Net 0 (30,775) (341,486)
LOSS BEFORE INCOME TAXES (2,046,900) (867,122) (7,967,217)
Provision for Income Tax 0 560 0
----------- ----------- -----------
NET LOSS $(2,046,900) $ (866,562) $(7,967,217)
=========== =========== ===========
LOSS PER SHARE $ (.28) $ (.08) $ (1.08)
The accompanying notes are an integral part of these statements.
4
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
Development Expense $ 33,000 $ 3,431
Salaries and Wages 212,665 51,417
Officer Salaries 130,359 34,584
Payroll Taxes 8,413 7,620
Outside Labor 1,190,961 7,090
Professional Services 92,293 197,388
Rent 5,886 17,134
Insurance 17,300 10,315
Travel and Business Meeting 3,274 9,831
Auto Expense 2,717 298
Telephone and Utilities 2,970 2,863
Office Expense 2,799 3,180
Equipment Rental 3,083 6,268
Contribution 25 0
Corporate Fees 1,701 3,954
Advertising 0 25
Marketing Expense 0 0
Depreciation and Amortization 2,270 0
Litigation Settlement 0 0
Franchise Tax 0 0
----------- -----------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 1,709,716 355,398
OTHER INCOME (EXPENSE)
Dividend and Interest Income 0 1,100
Interest Expense 0 0
Loss on sale of fixed assets 0 (34,000)
----------- -----------
Other Income (Expense) - Net 0 (32,900)
LOSS BEFORE INCOME TAXES (1,709,716) (388,298)
Provision for Income Tax 0 (560)
----------- -----------
NET LOSS $(1,709,716) $ (388,858)
=========== ===========
LOSS PER SHARE $ (.23) $ (0.06)
The accompanying notes are an integral part of these statements.
5
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage)
<TABLE>
<CAPTION>
Cumulative Amounts
from current
1998 1997 development stage
----------- ----------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 0 $ 4,345 $ 11,633
Cash paid to suppliers and employees (377,284) (341,861) (2,733,988)
----------- ----------- -----------
Net cash provided by operating activities (377,284) (337,516) (2,722,355)
Cash flows from investing activities:
Prepaid research testing (41,345) (7,734)
Purchase of Fixed Assets 21,000 (118,212)
Sale of Fixed Assets 21,000
----------- -----------
Net cash provided by investing activities (20,345) (104,946)
Cash flows from financing activities:
Interim loan financing from officers 385,000
Proceeds from issuance of common stock 379,400 2,472,304
----------- ----------- -----------
Net cash provided by financing activities 379,400 0 2,857,304
Net Increase in cash and cash equivalents 2,116 (357,861) 30,003
Cash and cash equivalents at beginning of period 13,780 450,879 (14,107)
----------- ----------- -----------
Cash and cash equivalents at end of period $ 15,896 $ 93,018 $ 15,896
=========== =========== ===========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss $(2,046,900) $ (866,562) $(7,967,217)
----------- ----------- -----------
Decrease (increase) in Prepaid Advertising 35,500 213,732
Decrease (increase) in Due from Officers (25,000) (120)
Depreciation and Amortization 4,540 20,411
Stock issued to retire debt / services 3,446,660 305,280 4,913,675
Increase (decrease) in Accounts Payable (29,605) (4,500) 71,899
Increase (decrease) in Accrued Payroll Taxes 115 (10,542) 16,811
Increase (Decrease) in Accrued Expenses (1,540,834) 194,308 81,778
Decrease (increase) in Deposits 1,176
Decrease (increase) Prepaid Insurance (1,000)
Decrease (increase) in Accounts Receivable 2,998
Decrease (increase) in Assets (1) 20,199
Loss on sale of Fixed Assets 34,000 44,072
Decrease (increase) in Cash Overdraft (18,804) 0
Increase (decrease) Accrued Salaries (48,125) 561
Increase (decrease) in prepaid Consulting (147,830) (147,830)
Increase (decrease) in due to Officers 3,500 6,500
-----------------------------------------
Total adjustments 1,669,616 529,046 5,244,862
----------- ----------- -----------
Net cash provided by operating activities $ (377,284) $ (337,516) $(2,722,355)
=========== =========== ===========
</TABLE>
The following notes are an integral part of these statements.
6
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 0 $ 1,100
Cash paid to suppliers and employees (208,230) (14,194)
----------- -----------
Net cash provided by operating activities (208,230) (13,094)
Cash flows from investing activities:
Prepaid research testing
Purchase of Fixed Assets (2,116)
Sale of Fixed Assets 21,000
-----------
Net cash provided by investing activities 18,884
Cash flows from financing activities:
Cash flow for non-deductible expenses
Cash flow from financing
Interim loan financing from officers
Proceeds from issuance of common stock 130,000
----------- -----------
Net cash provided by financing activities 130,000 0
Net Increase in cash and cash equivalents (78,230) 5,790
Cash and cash equivalents at beginning of period 94,126 87,228
----------- -----------
Cash and cash equivalents at end of period $ 15,896 $ 93,018
=========== ===========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss $(1,709,716) $ (388,858)
----------- -----------
Decrease (increase) in Prepaid Advertising
Decrease (increase) in Due from Officers
Depreciation and Amortization 2,270
Stock issued to retire debt / services 1,638,144 150,000
Increase (decrease) in Accounts Payable (14,006) (3,000)
Increase (decrease) in Accrued Payroll Taxes 10,455
Increase (Decrease) in Accrued Expenses 194,764
Decrease (increase) in Deposits
Prepaid Insurance
Decrease (increase) in Accounts Receivable
Decrease (increase) in Assets
Loss on sale of Fixed Assets 34,000
Decrease (increase) in Cash Overdraft
Accrued Salaries (141,877)
Increase (decrease) in prepaid Consulting
Increase (decrease) in due to Officers 6,500
--------------------------
Total adjustments 1,501,486 375,764
----------- -----------
Net cash provided by operating activities $ (208,230) $ (13,094)
=========== ===========
</TABLE>
The following notes are an integral part of these statements.
7
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
SIX MONTHS ENDED June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Paid-in Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 6,092,425 $ 609 $ 5,083,572 $(2,910,120)
Warrants Issued for Cost of Advertising Credits - Restatement -- -- 108,170 --
----------- ----------- ----------- -----------
Adjusted Balance at December 31, 1996 6,092,425 609 5,191,742 (2,910,120)
Issuance of Shares for Consulting Services 100,000 10 274,990 --
Issuance of Shares on Consulting Services 75,000 8 196,867 --
Private Placement 23,000 2 34,498 --
Issuance of Shares for Professional Services 18,500 2 27,747 --
Private Placement 15,000 2 33,748 --
Issuance of Shares for Consulting Services 130,000 13 235,612 --
Private Placement 62,611 6 122,994 --
Advertising Credits Used -- -- -- --
Net [Loss] for the year ended December 31, 1997 -- -- -- (3,631,105)
----------- ----------- ----------- -----------
Balance at December 31, 1997 6,516,536 $ 652 $ 6,118,198 $(6,541,225)
=========== =========== =========== ===========
Warrants exercised 66,000 7 59,393 --
Options exercised 10,000 --
Issuance of Shares for Consulting and Prepaid Consulting 125,000 13 203,111 --
Private Placement, 180,000 --
Issuance of Shares for Services Rendered 48,727 5 66,995 --
Issuance of Shares to Settle Litigation 399,081 39 1,538,353 --
Net [Loss] for the Quarter ended March 31, 1998 -- -- -- (337,184)
---------- ----------- ----------- -----------
Balance at March 31, 1998 7,155,344 $ 716 $ 8,176,050 $(6,878,409)
=========== =========== =========== ===========
Issuance of shares for Services Rendered 339,184 34 508,742
Shares Issued 70,000 7 (7)
Options Exercised 16,750 2 14,998
Private Placement 115,000
Warrants issued 1,129,368
Net [Loss] for the Quarter ended June 30, 1998 -- -- -- (1,709,716)
----------- ----------- ----------- -----------
Balance at June 30, 1998 7,581,278 $ 759 $ 9,944,151 $(8,588,125)
=========== =========== =========== ===========
<CAPTION>
Total
Prepaid Common Stock
Advertising Stockholders'
Credits Deferred Equity
Receivable Compensation [Deficit]
----------- ------------ -----------
<S> <C> <C> <C>
Balance at December 31, 1996 $(1,500,000) -- $ 674,061
Warrants Issued for Cost of Advertising Credits - Restatement (108,170)
----------- ----------- -----------
Adjusted Balance at December 31, 1996 (1,608,170) 674,061
Issuance of Shares for Consulting Services -- 275,000
Issuance of Shares on Consulting Services -- 196,875
Private Placement -- 34,500
Issuance of Shares for Professional Services -- 27,749
Private Placement -- 33,750
Issuance of Shares for Consulting Services -- 235,625
Private Placement -- 123,000
Advertising Credits Used 213,732 213,732
Net [Loss] for the year ended December 31, 1997 -- (3,631,105)
----------- ----------- -----------
Balance at December 31, 1997 $(1,394,438) 00 $(1,816,813)
=========== =========== ===========
Warrants exercised -- 59,400
Options exercised -- 10,000
Issuance of Shares for Consulting and Prepaid Consulting -- (147,830) 55,294
Private Placement, -- 180,000
Issuance of Shares for Services Rendered -- 67,000
Issuance of Shares to Settle Litigation -- 1,538,392
Net [Loss] for the Quarter ended March 31, 1998 -- (337,184)
----------- ----------- -----------
Balance at March 31, 1998 $(1,394,438) $ (147,830) $ (243,911)
=========== =========== ===========
Issuance of shares for Services Rendered $ 508,776
Shares Issued 0
Options Exercised 15,000
Private Placement 115,000
Warrants issued 1,129,368
Net [Loss] for the Quarter ended June 30, 1998 -- (1,709,716)
----------- ----------- -----------
Balance at June 30, 1998 $(1,394,438) $ (147,830) $ (185,483)
=========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of
These Consolidated Financial Statements
8
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Basis of Presentation - The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Results for the three months and the six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
fiscal year ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1997.
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.
Earnings [Loss] Per Share - Earnings per share of common stock reflects the
weighted average number of shares outstanding for each period. The Financial
Accounting Standards Board ["FASB"], has issued Statement of Financial
Accounting Standards ["SFAS"] No. 128, "earning per share", which is effective
for financial statements issued for periods ending after December 15, 1997.
Accordingly, earnings per share data in the financial statements for the year
ended December 31, 1997, have been calculated in accordance with SFAS No. 128.
Prior period earnings per share data have been recalculated as necessary to
conform prior years data to SFAS No. 128.
SFAS No. 128 supercedes Accounting Principles Board Opinion No. 15, "earnings
per share," and replaces its primary earnings per share with a new basic earning
per share representing the amount of earnings for the period available to each
share of common stock outstanding during the reporting period. SFAS No. 128 also
requires a dual presentation of basic and diluted earnings per share on the face
of the statement of operations for all companies with complex capital
structures. Diluted earnings per share reflects the amount of earning for the
period available to each share of common stock outstanding during the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidulutive
effect on earnings per share [i.e., increasing earnings per share or reducing
loss per share]. The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
Stock Options and Similar Equity Instruments - On January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for stock
options and similar equity instruments [collectively "Options"] issued to
employees and directors, however, the Company will continue to apply the
intrinsic value based method of accounting for options issued to employees
prescribed by Accounting Principles Board ["APB"] Opinion No. 25, "Accounting
for Stock Issued to Employees" rather than the fair value based method of
accounting prescribed by SFAS No. 123. SFAS No.123 also applies to transactions
in which an entity issues its equity instruments to acquire goods and services
from non-employees. Those transactions must be accounted for based on the fair
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
9
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[2] Stockholders' Equity
For the three months and six months ended June 30, 1998, 339,184 and 512,911
shares were issued by the Company for consulting, salaries and professional
services rendered to the Company. Such services were valued at common stock
price on the date such shares issued. The following expenses were charged to the
value of such services rendered:
Three Months ended Six Months ended
June 30, 1998 June 30, 1998
------------------ ----------------
Deferred Compensation $ $147,830
Consulting 57,750 113,044
Salaries and Wages 367,026 367,026
Travel 27,000
Marketing Expense 20,000
Professional Services 84,000 104,000
-------- --------
Totals $508,776 $778,900
======== ========
[3] Legal Proceedings
In June 1997, an action was commenced against the Company by Edmund Abramson and
by WRA Consulting, Inc. in the Eleventh Judicial Circuit of Dade County,
Florida. Abramson alleged breach of contract, claims damages of $1,400,000, plus
attorneys fee. WRA alleged breach of contract, 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 claims damages in the amount of
$800,000, plus attorneys fees. In January 1998, the action was settled by the
Company agreeing to issue a total of 438,410 shares of common stock and 400,000
warrants to purchase common stock at $1.32 and $2.00 respectively.
On March 5, 1998, an action was commenced against the Company by BPV
Enterprises, Inc. doing business as Universal sales in the Supreme Court of the
State of New York, County of Suffolk. The plaintiff alleges breach of contract,
claiming damages of $337,000 plus attorney's fees. In addition, plaintiff also
claims that the Company owes it 75,000 shares of common stock and 75,000
warrants to purchase common stock for recruitment services that it performed for
the Company during 1996. The Company cannot predict the outcome of this matter
although it believes it has meritorious defenses and will vigorously defend the
action. However, if such actions is unsuccessful, it may have a material adverse
impact on the results of operations and financial condition of the Company.
Alexander T. Hoffman, chairman of the Company, is a 50% shareholder of BPV
Enterprises.
[4] Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
As shown in the accompanying financial statements, the Company incurred a net
Loss of $1,709,716 and $2,046,900 during the three months and six months ended
June 30, 1998, respectively. The significant operating
10
<PAGE>
loss as well as the uncertain 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 and sell its products to manufacturers.
The Company 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.
There can be no assurance that management's plans to reduce operating losses and
obtain additional financing to fund operations will be successful. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
[5] 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 $7,967,217 for the period July 7, 1992
through June 30, 1998.
11
<PAGE>
Management's Discussion and Analysis of 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 the 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 development
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 the technology and general and administrative expenses. Since
entering the development stage in July,1992, the Company has generated and
accumulated deficit of $7,967,217 at June 30, 1998 and has a total accumulated
deficit of $8,588,125.
The Company had no revenue from continuing operation in the years ending through
December 31, 1997. 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 operation and was reactivated and entered into
a new development stage in July 1992.
The Company's losses incurred since the inception have resulted principally from
expenditures under its research and development programs, and the Company
experts 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 the
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 1998, the
Company's results of operations may vary significantly for 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 level of revenue depend
upon its ability to secure additional financing and future licenses, if any, and
successfully development, test and sell 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 in 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 include 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 t differ materially from
those
12
<PAGE>
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 an 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 the 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 THREE MONTHS ENDING JUNE 30, 1998;
COMPARED WITH JUNE 30, 1997
Net losses increased from $388,858 from the three months ending June 30, 1997 to
$1,709,716 for the three months ending June 30 1998. The Company had no revenue
or operating income for the quarters ended June 30, 1997 and June 30, 1998 from
continuing operation. The Company has interest income of $1,100 for the three
months ended June 30, 1997 and none in 1998. The general administrative and
development expenses were $1,709,716 for the three months ended June 30, 1998,
in comparison to $355,398 for the three months ended June 30, 1997. The increase
in these costs from 1997 to 1998 was in most expense categories, including
development expenses which increased from $3,431 in the three months of 1997 to
$33,000 in 1998. Additional decreased expenses were incurred in professional
services, which decreases from $197,388 in the three months of 1997 to $92,293
in the three months of 1998, which decreases were primarily from legal costs and
filing fees incurred in connection with the Company's patent applications from
its technology in 1997. Salaries and wages, officers salaries and related
payroll taxes were $212,665, $130,359, $8,413, respectively, for the second
quarter of the 1998 in comparison to $51,417, $34,584 and 7,620 respectively for
the second quarter of 1997. Rent decreased from$17,134 for the three months
ended June 30, 1997, to $5,886 for the three months ended June 30, 1998 a
decrease of $11,248 which was primarily due to the termination of the 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 second quarter of 1998 in
comparison to the second quarter of 1997 were related to further development,
refinements and early stage marketing efforts of the Company's Decaffamatic
seperation technology. All research and development costs were expensed
currently in the year incurred, rather than capitalized.
At June 30, 1998, the Company had total assets of $56,517 and at December 31,
1997, the Company had a total assets of $58,940, a decrease of $2,423. At
December 31,1997 the Company had total liabilities of $1,875,753 and at June 30,
1998 the Company had total liabilities of $242,000. At June 30, 1998 the Company
had total stockholders' deficit of $(185,483) in comparison to a total
stockholders' deficit of $(1,816,813) at December 31, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital deficit position as of June 30, 1998, of
$(225,104) in comparison to a deficit position of $(1,860,973) as of December
31, 1997. The Company had an accumulated deficit of $6,541,225 at December 31,
1997, in comparison to an accumulated deficit of $8,588,125 as of June 30, 1998.
The increase in the accumulated deficit is primarily related to continuing
operating costs without any operating income. For the three months ended June
30, 1998, the Company's cash requirements were satisfied from the proceeds of
common stock sales. During the three months ended June 30, 1997, the Company's
cash requirements were satisfied from its investments and cash on hand from the
proceeds of prior common stock sales.
13
<PAGE>
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.
14
<PAGE>
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:
----------------------------
Alexander T. Hoffmann, Chief
Executive Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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