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, 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: 7,681,278.
<PAGE>
IMSCO TECHNOLOGIES, INC.
INDEX
Part I - Financial Statements:
Balance Sheets - September 30, 1998 and 1997 ...............................3
Statements of Operations - For the Nine months ended .......................4
September 30, 1998 and September 30, 1997 and cumulative
amounts from July 9, 1992 (inception of the current development
stage) to September 30, 1998
Statements of Operations For the Three months ended
September 30, 1998 and 1997 ................................................5
Statements of Cash Flows - For the Nine months ended .......................6
September 30, 1998 and September 30, 1997 and cumulative
amounts from July 9, 1992 (inception of the current development
stage) to September 30, 1998
Statements of Cash Flows - For the Three ...................................7
months ended September 30, 1998 and September 30, 1997
Statements of Stockholders' Equity (Deficit) For the Year ..................8
ended December 31, 1997 and the Nine Months
ended September 30, 1998
Notes to Consolidated 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 SHEETS
As of September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 81,662 $ 24,545
Prepaid Insurance 1,000 0
------------ ------------
TOTAL CURRENT ASSETS $ 82,662 $ 24,545
------------ ------------
FIXED ASSETS
Property and equipment 123,066 138,061
Leasehold improvements 5,845 5,845
Accumulated depreciation (95,060) (78,246)
------------ ------------
NET FIXED ASSETS 33,851 65,660
------------ ------------
DEPOSITS 3,499 3,688
OTHER ASSETS 0 100
------------ ------------
Total Other Assets 3,499 3,788
------------ ------------
TOTAL ASSETS $ 120,012 $ 93,993
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 134,902 $ 80,719
Notes Payable 100,000 0
Loans Payable 42,700 0
Due to Officer 6,500 0
Accrued salaries 187,059 20,449
Accrued expenses 81,831 38,000
Accrued payroll taxes 25,225 10,592
------------ ------------
TOTAL CURRENT LIABILITIES 578,217 149,760
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-authorized 1,000,000 shares at $.0001 0 0
par value;0 shares issued and outstanding
Common stock-authorized 15,000,000
shares at $.0001 par value; 7,681,278 and
6,307,925 shares issued and outstanding at
September 30, 1998 and 1997, respectively 769 631
Additional paid-in capital 10,091,083 5,379,518
Deficit Accumulated:
Developments stage (8,386,881) (3,420,570)
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) (458,205) (55,767)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 120,012 $ 93,993
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
IMSCO TECHNOLOGIES, INC.AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the
current development stage) TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cumulative amounts
from current
1998 1997 development stage
----------- ----------- ------------------
<S> <C> <C> <C>
Development Expense $ 33,341 $ 40,751 $ 296,455
Salaries and Wages 328,116 143,750 763,759
Officer Salaries 336,317 113,750 860,100
Payroll Taxes 11,085 24,456 96,111
Outside Labor 1,202,572 12,940 1,357,112
Professional Services 326,181 541,413 2,021,522
Rent 17,082 54,245 182,501
Insurance 60,049 29,928 149,650
Travel and Business Meeting 56,039 38,305 174,578
Auto Expense 15,500 870 56,039
Telephone and Utilities 7,651 11,859 57,724
Office Expense 7,204 11,809 100,477
Equipment Rental 6,677 24,842 31,502
Contribution 625 0 625
Corporate Fees 8,861 14,330 69,034
Advertising 0 39,075 225,761
Marketing Expense 20,000 0 20,000
Depreciation and Amortization 6,810 0 20,068
Litigation Settlement 0 0 1,538,392
Franchise Tax 456 560 1,987
----------- ----------- -----------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 2,444,566 1,102,883 8,023,397
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Dividend and Interest Income 0 5,527 11,633
Interest Expense (21,998) 0 (331,045)
Loss on sale of fixed assets 0 (34,000) (44,072)
----------- ----------- -----------
Other Income (Expense) - Net (21,998) (28,473) (363,484)
----------- ----------- -----------
NET LOSS $(2,466,564) $(1,131,356) $(8,386,881)
=========== =========== ===========
LOSS PER SHARE $ (.32) $ (0.18) (1.10)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
--------- ---------
Development Expense $ 341 $ 0
Salaries and Wages 65,949 43,750
Officer Salaries 129,612 41,250
Payroll Taxes 0 4,754
Outside Labor 9,479 5,850
Professional Services 139,532 108,661
Rent 7,223 21,933
Insurance 22,641 12,132
Travel and Business Meeting 5,683 12,364
Auto Expense 8,307 131
Telephone and Utilities 2,385 2,833
Office Expense 2,287 965
Equipment Rental 1,797 10,625
Contribution 0 0
Corporate Fees 160 728
Advertising 0 0
Marketing Expense 0 0
Depreciation and Amortization 2,270 0
Litigation Settlement 0 0
Franchise Tax 0 0
--------- ---------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 397,666 265,976
--------- ---------
OTHER INCOME (EXPENSE)
Dividend and Interest Income 0 1,182
Interest Expense (21,998) 0
Loss on Sale of Fixed Assets 0 0
--------- ---------
Other Income (Expense) - Net (21,998) 1,182
--------- ---------
NET LOSS $(419,664) $(264,794)
========= =========
LOSS PER SHARE $ (.06) $ (0.04)
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the current
development stage) TO SEPTEMBER 30, 1998
<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 $ 5,527 $ 11,633
Cash paid to suppliers and employees (454,218) (444,516) (2,810,922)
----------- ----------- -----------
Net cash used in operating activities (454,218) (438,989) (2,799,289)
----------- ----------- -----------
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 used in investing activities (20,345) (104,946)
----------- ----------- -----------
Cash flows from financing activities:
Loan Financing 142,700 142,700
Interim loan financing from officers 385,000
Proceeds from issuance of common stock 379,400 33,000 2,472,304
----------- ----------- -----------
Net cash provided by financing activities 522,100 33,000 3,000,004
----------- ----------- -----------
Net Increase (decrease) in cash and cash equivalents 67,882 (426,334) 95,769
Cash and cash equivalents at beginning of period 13,780 450,879 (14,107)
----------- ----------- -----------
Cash and cash equivalents at end of period $ 81,662 $ 24,545 $ 81,662
=========== =========== ===========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss $(2,466,564) $(1,131,356) $(8,386,881)
----------- ----------- -----------
Stock warrants issued for financing 21,941 21,941
Decrease (increase) in Prepaid Advertising 35,500 213,732
Decrease (increase) in Due from Officers (120)
Depreciation and Amortization 6,810 22,681
Stock issued to retire debt / services 3,571,660 333,030 5,038,675
Increase (decrease) in Accounts Payable (31,053) 51,842 70,451
Increase (decrease) in Accrued Payroll Taxes 8,529 5,278 25,225
Increase (Decrease) in Accrued Expenses (1,540,781) 194,308 81,831
Decrease (increase) in Deposits 17,960 1,176
Decrease (increase) in 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) in Accrued Salaries 138,375 20,449 187,061
Increase (decrease) in prepaid Consulting (147,830) (147,830)
Increase (decrease) in due to Officers 3,500 6,500
----------- ----------- -----------
Total adjustments 2,012,346 692,367 5,587,592
----------- ----------- -----------
Net cash used in operating activities $ (454,218) $ (438,989) $(2,799,289)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from dividends and interest $ 0 $ 1,182
Cash paid to suppliers and employees (76,934) (102,655)
--------- ---------
Net cash used in operating activities (76,934) (101,473)
Cash flows from investing activities:
Prepaid research testing
Purchase of Fixed Assets 0
Sale of Fixed Assets 0
--------- ---------
Net cash used in investing activities 0
--------- ---------
Cash flows from financing activities:
Loan Financing 142,700
Interim loan financing from officers
Proceeds from issuance of common stock 33,000
--------- ---------
Net cash provided by financing activities 142.,700 33,000
--------- ---------
Net Increase (decrease)in cash and cash equivalents 65,766 (68,473)
Cash and cash equivalents at beginning of period 15,896 93,018
--------- ---------
Cash and cash equivalents at end of period $ 81,662 $ 24,545
========= =========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Loss $(419,664) $(264,794)
--------- ---------
Stock warrants issued for financing 21,941
Decrease (increase) in Prepaid Advertising
Decrease (increase) in Due from Officers 25,000
Depreciation and Amortization 2,270
Stock issued to retire debt / services 125,000 27,750
Increase (decrease) in Accounts Payable (1,448) 56,342
Increase (decrease) in Accrued Payroll Taxes 8,414 15,820
Increase (Decrease) in Accrued Expenses 53 17,960
Decrease (increase) in Deposits
Decrease (increase) in Prepaid Insurance
Decrease (increase) in Accounts Receivable
Decrease (increase) in Assets
Loss on sale of Fixed Assets
Decrease (increase) in Cash Overdraft
Increase (Decrease) in Accrued Salaries 186,500 20,449
Increase (decrease) in prepaid Consulting
Increase (decrease) in due to Officers
--------- ---------
Total adjustments 342,730 163,321
--------- ---------
Net cash used in operating activities $ (76,934) $(101,473)
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
( A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 11, 1997 AND THE
NINE MONTHS ENDED September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Paid-in
Shares Amount Capital
--------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996 6,092,425 $ 609 $ 5,083,572
Warrants Issued for Cost of Advertising Credits - Restatement -- -- 108,170
--------- ------------ ------------
Adjusted Balance at December 31, 1996 6,092,425 609 5,191,742
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 -- -- --
--------- ------------ ------------
Balance at December 31, 1997 6,516,536 $ 652 $ 6,118,198
========= ============ ============
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 -- -- --
--------- ------------ ------------
Balance at March 31, 1998 7,155,344 $ 716 $ 8,176,050
========= ============ ============
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 -- -- --
--------- ------------ ------------
Balance at June 30, 1998 7,581,278 $ 759 $ 9,944,151
========= ============ ============
Issuance of shares for Services Rendered 100,000 10 124,990
Warrants issued 21,942
Net [Loss] for the Quarter ended September 30, 1998 -- -- --
--------- ------------ ------------
Balance at September 30, 1998 7,681,278 $ 769 $ 10,091,083
========= ============ ============
Total Common
Prepaid Stock
Advertising Stockholders'
Accumulated Credits Deferred Equity
Deficit Receivable Compensation (Defitit)
------------- ------------ ------------ -----------
Balance at December 31, 1996 $ (2,910,120) $ (1,500,000) -- $ 674,061
Warrants Issued for Cost of Advertising Credits - Restatement -- (108,170)
------------- ------------ ---------- ------------
Adjusted Balance at December 31, 1996 (2,910,120) (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) -- (3,631,105)
------------- ------------ ---------- ------------
Balance at December 31, 1997 $ (6,541,225) $ (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) -- (337,184)
------------- ------------ ---------- ------------
Balance at March 31, 1998 $ (6,878,409) $ (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) -- (1,709,716)
------------- ------------ ---------- ------------
Balance at June 30, 1998 $ (8,588,125) $ (1,394,438) $ (147,830) $ (185,483)
============= ============ ========== ============
Issuance of shares for Services Rendered $ 125,000
Warrants issued 21,942
Net [Loss] for the Quarter ended September 30, 1998 (419,664) -- (419,664)
------------- ------------ ---------- ------------
Balance at September 30, 1998 $ (9,007,789) $ (1,394,438) $ (147,830) $ (458,205)
============= ============ ========== ============
</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 nine months ended September
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"] and
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, "earnings 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
earnings 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 earnings 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 nine months ended September 30, 1998, 100,000 and
612,911 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 were issued. The following expenses
were charged to the value of such services rendered:
Three Months ended Nine Months ended
September 30, 1998 September 30, 1998
------------------ ------------------
Deferred Compensation $147,830
Consulting $125,000 238,044
Salaries and Wages 367,026
Travel 27,000
Marketing Expense 20,000
Professional Services 104,000
-------- --------
Totals $125,000 $903,900
- ------ ======== ========
[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 action 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 $419,664 and $2,466,564 during the three months and nine months ended
September 30, 1998, respectively. The significant operating loss
10
<PAGE>
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 $8,386,881 for the period July 7, 1992
through September 30, 1998.
[6] Loans Payable
On September 29, 1998, the Company entered into loan agreements to borrow
$100,000 at a rate of ten percent (10%). Principal and interest are due on
January 31, 1999. A non-interest bearing demand note for $10,000 with David
Fleming, Legal Counsel to the Company, was entered into on August 10, 1998.
11
<PAGE>
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 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 an
accumulated deficit of $8,386,881 at September 30, 1998 and has a total
accumulated deficit of $9,007,789.
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 develop, test and sell the Company's products. The Company's
ability to generate 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 to 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 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 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 ENDED SEPTEMBER 30, 1998;
COMPARED WITH SEPTEMBER 30, 1997
Net losses increased from $264,794 for the three months ended September 30, 1997
to $419,664 for the three months ended September 30 1998. The Company had no
revenue or operating income for the quarters ended September 30, 1997 and
September 30, 1998 from continuing operations. The Company had interest income
of $1,182 for the three months ended September 30, 1997 and none in 1998. The
general administrative and development expenses were $397,666 for the three
months ended September 30, 1998, in comparison to $265,976 for the three months
ended September 30, 1997. The increase in these costs from 1997 to 1998 was in
most expense categories, including insurance expenses which increased from
$12,132 in the three months of 1997 to $22,641 in 1998. Increased expenses were
incurred in professional services, which increased from $108,661 in the three
months of 1997 to $139,532 in the three months of 1998. Salaries and wages,
officers salaries and related payroll taxes were $65,949, $129,612, and $0,
respectively, for the third quarter of the 1998 in comparison to $43,750,
$41,250 and $4,754 respectively for the third quarter of 1997. Outside labor
increased from $5,850 for the three months ended September 30, 1997 to $9,479
for the three months ended September 30, 1998. Rent decreased from$21,933 for
the three months ended September 30, 1997, to $7,223 for the three months ended
September 30, 1998 a decrease of $14,710 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
third quarter of 1998 in comparison to the third 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 September 30, 1998, the Company had total assets of $120,012 and at December
31, 1997, the Company had total assets of $58,940, an increase of $61,072. At
December 31,1997 the Company had total liabilities of $1,875,753 and at
September 30, 1998 the Company had total liabilities of $578,217. At September
30, 1998 the Company had total stockholders' deficit of $(458,205) in comparison
to a total stockholders' deficit of $(1,816,813) at December 31, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit position as of September 30, 1998, of
$(495,555) 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 $9,007,789 as of September 30,
1998. The increase in the accumulated deficit is primarily related to continuing
operating costs without any operating income. For the three months ended
September 30, 1998, the Company's cash requirements were satisfied from the
proceeds of loans. During the three months ended September 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:
-------------------------
November _________, 1998 Alexander T. Hoffmann, Chief
Executive Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 81,662
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82,662
<PP&E> 128,911
<DEPRECIATION> 95,060
<TOTAL-ASSETS> 120,012
<CURRENT-LIABILITIES> 578,217
<BONDS> 0
0
0
<COMMON> 769
<OTHER-SE> (458,974)
<TOTAL-LIABILITY-AND-EQUITY> 120,012
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 419,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (419,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (419,664)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
