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 March 31, 1999
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 [ ] No [x]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,786,508.
<PAGE>
IMSCO TECHNOLOGIES, INC.
INDEX
PART I
------
Item 1. Financial Statements:
Balance Sheets - March 31, 1999 and December 31, 1998.......................3-4
Statements of Operations - For the Three months ended March 31,
1999 and 1998 and cumulative amounts from July 9, 1992
(inception of the current development stage) to March 31, 1999........5-7
Statements of Cash Flows - For the Three months ended
March 31, 1999 and 1998 and cumulative amounts from July 9, 1992
(inception of the current development stage) to March 31, 199..........8-9
Statements of Stockholders' Equity (Deficit) For the Three Months
ended March 31,1999 and for the Year ended December 31, 1998..........10-17
Notes to Consolidated Financial Statements.................................18-21
Management's Discussion and Analysis or Plan of Operation..................22-25
PART II
-------
Item 2. Changes in Securities and Use of Proceeds........................... 25
Item 6. Exhibits and Reports on Form 8-K..................................25-26
2
<PAGE>
PART I
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED BALANCE SHEETS
As of March 31,1999
1999
----
ASSETS
CURRENT ASSETS
Cash and cash $ 8,887
Prepaid 1,000
-----
TOTAL CURRENT ASSETS 9,887
FIXED ASSETS
Property and equipment 123,066
Leasehold improvements 5,845
Accumulated depreciation (101,438)
NET FIXED ASSETS 27,473
OTHER ASSETS
Deposits 3,499
Deferred Financing Costs
TOTAL OTHER ASSETS 3,499
TOTAL ASSETS $ 40,859
===========
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED BALANCE SHEETS
As of March 31,1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 193,355
Convertible Notes Payable 600,000
Accounts Payable 80,001
Accrued Salaries 176,867
Accrued Expenses 50,955
Accrued Payroll Taxes 36,637
Accrued Interest 19,672
Due to Stockholders 32,730
TOTAL CURRENT LIABILITIES 1,190,217
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-authorized 1,000,000
shares at $.0001 par value; 45,000
shares issued and outstanding 5
Common stock-authorized 15,000,000
shares at $.0001 par value;
7,786,508 issued and outstanding 779
Additional Paid-in capital-Series A
Convertible Preferred Stock 224,995
Additional paid-in capital 9,946,721
Deficit Accumulated:
Developments stage (9,322,454)
Discontinued Operations (620,908)
Prepaid advertising credit (1,378,496)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,149,358)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 40,859
============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
IMSCO TECHNOLOGIES, INC.AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 and 1998
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the
current development stage) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Cumulative Amounts
From July 9, 1992
1999 1998 to March 31, 1999
---- ---- ------------------
<S> <C> <C> <C>
Development Expense $ 8,759 $ - $ 301,773
Salaries and Wages 109,377 49,502 924,691
Officer Salaries 30,807 76,346 1,102,500
Payroll Taxes 27,101 2,672 167,973
Outside Labor - 2,132 191,136
Professional Services 70,389 94,356 978,409
Professional Services-Non cash 2,074,969
Rent 3,972 3,973 159,991
Rent-Related Party 750 - 4,500
Insurance 17,512 20,108 180,755
Travel and Business Meeting 5,806 47,082 183,735
Auto Expense 4,048 4,476 64,817
Telephone and Utilities 3,046 2,296 64,448
Office Expense 3,478 2,118 134,321
Equipment Rental 2,440 1,797 35,739
Corporate Fees - 7,600 69,981
Advertising 12,000 20,000 330,703
Depreciation and Amortization 2,520 - 26,447
Litigation Settlement - - 1,538,392
Franchise Tax - 456 1,987
-- ---- ------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE 302,005 334,914 8,537,267
OTHER INCOME (EXPENSE)
Dividend and Interest Income - - 11,633
Interest Expense (218,970) - (752,748)
Loss on sale of fixed assets - - (44,072)
-- -- -------
(218,970) (334,914) (785,187)
-------- -------- --------
(Loss) Before Income Taxes
Provision For Income Taxes
NET LOSS $( 520,975) $(334,914) $(9,322,454)
----------- ---------- ------------
LOSS PER SHARE $ (.07) $ (.05)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage) TO MARCH 31, 1999
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Cumulative Amounts
from July 9,1992 to
1999 1998 March 31,1999
---- ---- -------------------
<S> <C> <C> <C>
Net Loss $ (520,975) $ (334,914) $(9,322,454)
Issuance of Stock Purchase
Warrants 45,000 - 834,659
Decrease (increase) in Due
from Officers 2,930 3,000 2,810
Depreciation and Amortization 2,520 - 29,059
Interest Expense-Financing Cost 82,577 - 299,085
Interest Paid with Common Stock 300,253
Amortization of Prepaid
Advertising - - 229,674
Loss on Disposal of Property
And Equipment - - 44,072
Stock issued to retire
debt/services 97,961 1,808,516 2,168,876
Increase(decrease)in:
Other Assets - - 19,200
Security Deposits - - 1,176
Accounts Receivable - - 2,998
Accounts Payable (81,981) (15,599) 15,550
Accrued Payroll Taxes (11,369) (10,340) 36,637
Accrued Expenses (24,472) 1,540,834 1,538,392
Accrued Interest 19,672 - 19,672
Accrued Marketing (53,000) - -
Accrued Legal Fees - - 50,955
Cash Overdraft - (18,804) -
Accrued Salaries 23,677 93,752 176,867
6
<PAGE>
Prepaid Consulting - (147,830) -
Total adjustments 103,515 165,860 5,769,935
------- ------- ---------
Net Cash Provided by
Operating Activities $ 417,460 $ (169,054) $(3,552,519)
---------- ----------- -----------
</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 STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Cumulative
1999 1998 July 9,1992 to
March 31,1999
<S> <C> <C> <C>
Net Cash Provided by operating
activities -Forward $(417,460) $(169,054) $(3,552,519)
------- ------- --------
Cash flows from investing activities:
Prepaid research testing - - (7,734)
Purchase of Fixed Assets - - (118,212)
Sale of Fixed Assets - - 21,000
------- ------- --------
Net cash used in investing
activities - - (104,946)
------- ------- -------
Cash flows from financing activities:
Convertible Note Payable 600,000 - 600,000
Proceeds from Notes Payable - - 775,000
Proceeds form Preferred Stock - - 225,000
Interim Loans from
Stockholders - - 41,300
Payment on Loans from
Stockholders - - (11,500)
Proceeds from issuance of
common stock - 249,400 2,247,304
Payment of Notes Payable (196,645) - (196,645
------- -------- --------
Net cash provided by
financing activities 403,355 249,400 3,680,459
------- -------- ---------
Net Increase (decrease) in cash
and cash equivalents (14,105) 80,346 22,994
Cash and cash equivalents at
8
<PAGE>
beginning of period 22,992 13,780 (14,107)
-------- --------- -------
Cash and cash equivalents at
end of period $ 8,887 $ 94,126 $ 8,887
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Paid -In Capital
Number of Number of Preferred Common
Shares Amount Shares Amount Stock Stock
--------- ---------- -------- ---------- ----------- ----------
<S> <C> <C> <C>
Balance at
December 31,
1997 6,516,536 $652 $6,118,198
Exercise of
Stock Warrants 66,000 7 59,393
Issuance of
Shares in
Settlement
Litigation 399,081 39 1,538,353
Issuance of
Shares
for Service 612,911 62 903,838
Issuance of
Stock Warrants
For 600,000
Shares of
Common Stock for
Consulting
Services 656,284
Granting of Stock
Options For 266,750
Shares of Common
Stock 133,375
Private Placement
Of Common Stock 70,000 7 69,993
Exercise of Stock
10
<PAGE>
Options 16,750 2 24,998
Issuance of Stock
Warrant for
390,000 Shares
of Common for
Notes Payable 299,085
Private Placement
Of Series A
Convertible
Preferred Stock 45,000 5 224,995
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
11
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
during Deficit Prepaid Stockholders
Development Discontinued Advertising Equity
Stage Operations Credits (Deficit)
<S> <C> <C> <C> <C>
Balance at
December 31,
1997 $(5,920,317) $(620,908) $(1,394,438) $(1,816,813)
Exercise of
Stock Warrants - - - 59,400
Issuance of Shares
in Settlement
Litigation - - - 1,538,392
Issuance of Shares
for Service - - - 903,900
Issuance of Stock
Warrants For 600,000
Shares of Common
Stock for Consulting
Services - - - 656,284
Granting of Stock
Options For 266,750
Shares of Common
Stock 133,375
Private Placement
Of Common Stock - - 70,000
Exercise of Stock
Options - - 25,000
12
<PAGE>
Issuance of Stock
Warrant for 390,000
Shares of Common
for Notes Payable 299,085
Private Placement of
Series A
Convertible
Preferred Stock 225,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Paid -In Capital
Number of Number of Preferred Common
Shares Amount Shares Amount Stock Stock
--------- --------- -------- --------- ----------- ----------
Issuance of
270 Shares
Issuable
<S> <C> <C> <C> <C> <C> <C>
Pursuant to
Financing
Penalty 253
Advertising
Credits Used
Net Loss
------ -------- ------ ------ ------- --------
Balance
December
31, 1998 45,000 $ 5 7,681,278 $ 769 $245,995 $9,803,770
Issuance of
Shares for
Cancelled
Liabilities 80,000 8 74,992
Issuance of
Shares for
Cancelled
Liabilities 25,230 2 22,959
Issuance of
Warrants-
Loan extension 21,000
14
<PAGE>
Issuance of
Warrants -
New Debt 24,000
Net Loss
Balance
December 31, ------ -------- --------- ------ -------- ----------
1999 45,000 $ 5 7,786,508 $ 779 $245,995 $9,946,721
====== ======== ========= ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
during Defecit Prepaid Stockholders
Development Discontinued Advertising Equity
Stage Operations Credits (Deficit)
<S> <C> <C> <C> <C>
Issuance of
Shares Pursuant
To Financing
Penalty 253
Advertising
Credits Used 15,942 15,942
Net Loss (2,881,162) (2,881,162)
--------- ---------- ----------- ----------
Balance
December
31, 1998 $(8,801,479) $(620,908) $(1,378,496) $ (771,344)
Issuance of Shares
For Cancelled
Liabilities 75,000
Issuance of Shares
For Cancelled
Liabilities 22,961
Issuance of
Warrants-Loan
Extension 21,000
Issuance of
Warrants-
New Debt 24,000
Net Loss
March 31,
1999 (520,975) - - (520,975)
16
<PAGE>
--------- ---------- ----------- ----------
Balance
March 31,
1999 $(9,322,454) $620,908 $(1,378,496) $(1,149,358)
========== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated Financial
statements.
17
<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 ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ended December 31, 1999. 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, 1998.
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 ["FAS 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 three
Month ended March 31, 1999 and the year ended December 31, 1998, have been
calculated in accordance with 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
18
<PAGE>
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.
[2] Stockholders' Equity
For the three months ended March 31, 1999, 105,230 with a market value of
$97,961 were issued for current and past due invoices of $102,230 for
advertising and marketing services rendered to the Company.
[3] Convertible Notes Payable
On February 9, 1999, the Company completed a private offering of $600,000 of 8%
convertible debentures due January 21, 2002 and 120,000 warrants to purchase the
Company's common stock at $1.50 per share until January 31, 2002. Interest is
payable quarterly in cash or common stock at the option of the Company. The
debentures are convertible in $5,000 multiples into shares of the Company's
common stock at a conversion price for each share of common stock equal to 75%
of the market price at the conversion date, but no more than $1.00 per share.
The 25% fair market value adjustment at the date of issue will be an additional
cost to the Company in the year exercised.
19
<PAGE>
[4] Defaults on Convertible Promissory Notes
Two of the senior secured convertible promissory notes payable due January
31,1999 were extended until May 25, 1999 and in consideration of the extension
the exercise price of the warrants was decreased to $.40 per share. This
resulted in a financing cost of $21,000 and was recorded in the quarter ending
March 31, 1999. The Company did not pay these notes on May 25, 1999. The Company
has not received any notice of default, however, all five of the senior secured
convertible promissory notes are deemed to be in default in the total amount of
$118,355 plus interest because of the failure to receive and extension or pay
timely.
[5] 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.
On December 24, 1998, a second action was commenced against the Company and the
Chairman and Chief Executive Officer of the Company by BPV Enterprises, Inc.
doing business as Universal sales, and Victor Bauer in the Superior Court of the
State of New York, County of Suffolk. The plaintiff alleges breach of contract
under a sales and service administration agreement claiming a commission equal
to 2.5% of the Company's sales in excess of $5,000,000 per year and a standard
sales commission equal to 2.5% per year of revenue derived from customers
obtained by the plaintiff. The plaintiff also alleges the amount of potential
lost commissions to be $25,000,000. Additional causes of action, against the
Chairman and Chief Executive Officer of the Company include breaches of his
roles and duties for the plaintiff and unjust enrichment. The Company's counsel
cannot predict the outcome of this matter although it believes it has
meritorious defenses and will vigorously defend the action. However, if such
20
<PAGE>
defenses are unsuccessful, it may have a material adverse impact on the results
of operations and financial condition of the Company.
[6] 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 $520,975 for the three months ended March 31, 1999. The significant
operating 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.
[7] 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 $9,322,454 for the period July 7, 1992
through March 31, 1999.
21
<PAGE>
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 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 it's 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 $9,322,454 at September 30, 1998 and has a
total accumulated deficit of $9,943,362.
The Company had no revenue from continuing operation in the years ending through
December 31, 1998. 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
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 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
22
<PAGE>
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 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 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 March 31,1999;
COMPARED WITH March 31,1998
Net losses increased from $334,914 for the three months ended March 31, 1998 to
$520,975 for the three months ended March 31, 1999. The Company had no revenue
or operating income for the quarters ended March 31, 1998 and March 31, 1999
from continuing operations. The general administrative and development expenses
were $302,005 for the three months ended March 31, 1999, in comparison to
$334,914 for the three months ended March 31, 1998. The decrease in these costs
from 1999 to 1998 was in most expense categories, including officers salaries of
$45,439, travel and business meetings of $41,276, professional services of
$23,967 and advertising of $8,000. These savings were partially offset by
increased salaries of $59,835, increased payroll taxes of $24,429, and increased
development costs of $8759. All research and development costs were expensed
currently in the year incurred, rather than capitalized.
At March 31, 1999 the Company had total assets of $40,859 and total liabilities
of $1,190,217 and total stockholders' deficit of $(1,149,358).
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit position as of March 31,1999 of
$(1,180,330) in comparison to a deficit position of $(887,413) as of December
31, 1998. The Company had an accumulated deficit of $9,943,362 at March 31,
1999, in comparison to an accumulated deficit of
23
<PAGE>
$9,422,387 as of December 31, 1998. The increase in the accumulated deficit is
primarily related to continuing operating costs without any operating income.
For the three months ended March 31, 1999, the Company's cash requirements were
satisfied from the private placement of $600,000 of 8% convertible debentures
and from issuing 105,230 shares with a current value of $97,961 in payment of
$102,300 of accounts payable.
The Company does not currently possess a bank source of financing and has not
had any revenues. The Company cannot be certain that it's 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
24
<PAGE>
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 2. Changes in Securities and Use of Proceeds.
(c) On February 9, 1999, the Company completed a private offering of
$600,000 of Convertible Debentures due January 31, 2002 (the "Debentures") and
120,000 Common Stock Purchase Warrants exercisable at $1.50 per share for a
period ending January 31, 2002 (the "Warrants"). The Debentures and Warrants
were issued and sold to one investor in accordance with Securities and Exchange
Commission Regulation D and have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be offered or sold in the
United States absent registration under the Securities Act or applicable
exemption from the registration requirements thereof.
The Debentures are unsecured obligations of the Company and will mature on
January 31, 2002. Interest on the Debentures is payable quarter-annually on
February 1, May 1, August 1 and November 1 of each year, commencing May 1, 1999.
Interest at the Company's option may be paid in cash or in common stock of the
Company. The investor may convert the Debentures into shares of common stock at
a price equal to the lesser of (i) 75% of the Market Price (as defined in the
Purchase Agreement) on the conversion notice date, or (ii) $1.00 per share;
provided that the investor shall not acquire 10% or more of the outstanding
shares of common stock of the Company, through conversion or otherwise, except
in the event of a tender offer or merger or acquisition of the Company.
The Warrants permit the holder to acquire 120,000 shares of Common Stock at an
exercise price of $1.50 per share for a period ending January 31, 2002. The
Warrants contain certain standard anti-dilution provisions. The Holder has
certain demand registration rights and piggy-back registration rights with
respect to the Common Stock issuable upon exercise upon exercise of the Warrants
and the Common Stock issuable upon conversion of the Debenture.
The net proceeds of the offering, after deducting underwriting discounts and
commissions and expenses payable by the Company, were approximately $522,000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 27 - Financial Data Schedule
25
<PAGE>
(b) Reports on Form 8-K.
The Company filed two reports on Form 8-K during the quarterly
period ended March 31, 1999 as follows:
(1) The Company filed a report on Form 8-K on January 25, 1999 to
report the receipt of a Complaint from BPV Enterprises, Inc. d/b/a/ Universal
Sales, asserting that the Company was in breach of contract.
(2) The Company filed a report on Form 8-K on February 19, 1999 to
report the completion of the private offering more fully described in Item 2
above.
26
<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: /s/ Timothy J. Keating
-------------------------------
August 31, 1999 Timothy J. Keating,
Chief Executive Officer
27
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<NAME> Imsco Technologies, Inc.
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