As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-81335
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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IMSCO TECHNOLOGIES, INC.
(Exact names of registrant as specified in its charter)
Delaware 2833 04-3021770
-------- ---- ----------
(State or other (Primary Standard Industrial (I.R.S. Employee
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
865 First Avenue
Suite 1983
New York, New York 10017
(212) 978-8454
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
----------
Timothy J. Keating
IMSCO Technologies, Inc.
865 First Avenue
New York, New York 10017
(212) 978-8454
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David E. Fleming, Esq.
Cummings & Lockwood
4 Stamford Plaza
Stamford, CT 06904
(203) 327-1700
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. |X|
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Number to be Offering Price Aggregate Registration
Securities to be Registered Registered (1) Per Unit (1) Offering Price(1)(3) Fee
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Common Stock (2).................. 5,224,000 $ 0.12 $ 627,000 $206.83
- -------------------------------------------------------------------------------------------------------
Common Stock (4) ................. 990,000 $1.00 $ 990,000 $275.22
- -------------------------------------------------------------------------------------------------------
Common Stock (5) ................. 120,000 $0.75 $ 90,000 $ 50.04
- -------------------------------------------------------------------------------------------------------
TOTAL ............................ 6,334,000 $1,717,000 $532.09*
</TABLE>
In accordance with Rules 416 and 457 under the Sections Act of 1933, the shares
of common stock registered hereby shall also be deemed to cover an indeterminate
number of additional shares of common stock to be issued as a result of the
conversion of the Debentures referred to in footnote 2 below or as a result of
the exercise of the warrants referred to in footnotes 2, 4 and 5 below to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as amended.
(2) Represents shares that may be acquired by a certain selling securityholder
named herein upon conversion of the Registrant's 8% Convertible Debentures (the
"Debentures") and, at our option, shares that may be issued in payment of the
annual 8% interest payment in kind at the assumed conversion price $.12 per
share, assuming a conversion price of $.12 per share. The maximum number of
shares of Common Stock issuable upon conversion of the Debentures is 5,224,000
which equals the maximum number of authorized shares that are available for
issuance under our Certificate of Incorporation. The actual number of shares
could be less and is based on a conversion price equal to 75% of the average of
the lowest price at which a trade is executed on any three trading days during
the twenty-two trading day period ending on the trading day immediately prior to
the date of conversion, except that the conversion price cannot be higher than
$0.50 per share. The conversion price would have been $.105 if the date of
conversion was January 10, 2000 based on a closing bid price of $.14 per share.
Includes an indeterminate number of shares which may become issuable in the
event of a stock split, stock dividend or similar transaction involving the
common stock pursuant to the antidilution provisions of the Debentures.
(3) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(g)(3) based upon the closing price of the Common Stock on
the OTC Bulletin Board on January 10, 2000.
(4) Issuable upon exercise of the 2003 Warrants. Includes an indeterminate
number of shares which may become issuable in the event of a stock split, stock
dividend or similar transaction involving the common stock pursuant to the
antidilution provisions of the Warrants.
(5) Issuable upon exercise of the 2002 Warrants. Includes an indeterminate
number of shares which may become issuable in the event of a stock split, stock
dividend or similar transaction involving the common stock pursuant to the
antidilution provisions of the Warrants.
* Previously paid.
----------
-2-
<PAGE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities nor may offers to buy be accepted
prior to the time the Registration Statement filed with the Securities and
Exchange Commission becomes effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated February 2, 2000
IMSCO TECHNOLOGIES, INC.
6,334,000 shares of common stock
The selling securityholders named in this prospectus are offering and selling up
to 6,334,000 shares of the common stock of IMSCO Technologies, Inc.
The selling securityholders may sell the shares as detailed in the "Plan of
Distribution."
Our common stock is quoted on NASD OTC Bulletin Board under the symbol "IMSO."
On January 10, 2000, the closing sales price of our common stock on OTC Bulletin
Board was $0.14.
We will receive up to $1,080,000 from the exercise of overlaying securities as
described in "the Offering."
AN INVESTMENT IN THESE SECURITIES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD READ THE DESCRIPTION OF CERTAIN RISKS UNDER THE CAPTION "RISK
FACTORS" BEGINNING ON PAGE 3 BEFORE PURCHASING THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS SUMMARY
You should read this summary together with the more detailed
information, our financial statements and the notes thereto appearing in this
prospectus. Before investing, you should also read the "Risk Factors" section of
this prospectus, to better understand the risks of investing in our common
stock.
IMSCO TECHNOLOGIES, INC.
IMSCO is a development stage company. We believe that a new field of
technology based on the fundamental electrical properties of attraction and
repulsion is ready for commercial exploitation. This technology is known as
"electrostatic separation".
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<PAGE>
During the past six years, we have researched and developed several
separation technologies, which are based on electrostatics combined with
mechanical separation. Currently, we are attempting to license our electrostatic
separation products based on their proprietary technologies.
Our objective is to capitalize on our proprietary technology and become
a leader in providing electrostatic separation technologies to others who can
incorporate our technology into a consumer product and take that product to
market. Our strategy is to license for commercialization by our licensees two of
our electrostatic separation products:
1. DECAFFOMATIC
o Patent No. 5,443,709 for "Apparatus For Separating
Caffeine From a Liquid Containing the Same"
o Patent No. 5,503,724 for "A Process For Decaffeinating
Caffeine Containing Liquid"
2. PLASMA PURE
We designed the first DECAFFOMATIC prototype in 1993. DECAFFOMATIC is
an electrostatic technology which removes substantial amounts of caffeine from
brewed beverages such as coffee and tea. Our research demonstrates that the
IMSCO decaffeination technology can remove caffeine from freshly brewed coffee.
We believe the DECAFFOMATIC devise is best suited for the institutional
marketplace. We anticipate licensing the DECAFFOMATIC technology to an unrelated
company for manufacturing, marketing, and distribution. See "Business-Marketing"
We are also attempting to license of our PLASMA PURE electrostatic
separation technology. In December 1995, we established Bio Electric Separation
and Testing, Inc. a Delaware corporation, to conduct more advanced research on
our PLASMA PURE technology and all related medical applications of our
electrostatic separation technology. With adequate funding, we estimate that it
may take a minimum of eighteen months to conduct the necessary clinical trials
and research before we submit the PLASMA PURE to the FDA for approval. If
submitted, there is no assurance that the PLASMA PURE will receive FDA approval.
Since we have limited financial resources, we are attempting to license the
PLASMA PURE technology to an unrelated company for further development and, if
appropriate, manufacturing marketing and distribution.
Although we are pursuing our PLASMA PURE technology, we are looking to
assume a leading role in the electrostatic separation technology product market,
through our unique DECAFFOMATIC technology. In order to market our DECAFFOMATIC
technology, on September 20, 1996, we entered into a media purchase agreement
with Proxhill Marketing Ltd., and Grow Marketing Inc., a division of Barter
Trust a media and advertising company. We agreed to sell Proxhill and Grow
Marketing:
shares of common stock par Value price per share
---------------------- --------- ---------------
1,136,364 $.0001 $1.32
In exchange, we received $1,500,000 of prepaid media credits to be used at our
discretion. We originally anticipated using $1,288,000 of prepaid media credits
for future public relations, marketing, and advertising. Since we plan to
license our DECAFFOMATIC technology, we may decide to sell our media to a third
party or utilize it in connection with a cooperative marketing campaign with one
of our licensees to raise additional capital.
We originally incorporated in Nevada in 1986 as IMSCO, Inc. In July
1996, we reincorporated in Delaware as IMSCO Technologies, Inc. Our corporate
operations are located in Massachusetts. Our principal place of business is
located at 865 First Avenue, New York, New York 10017, and our telephone number
is (212) 978-8454.
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<PAGE>
The Offering
- ------------
Using this prospectus, the selling securityholders may sell shares of
IMSCO common stock. They may acquire these shares by conversion or exercise of
securities in the following manner.
Common Stock Overlaying IMSCO Security
------------ -------------------------
up to 5,224,000 shares 8% convertible debentures
120,000 shares 2002 warrants; exercisable at $0.75/share
990,000 shares 2003 warrants; exercisable at $1.00/share
- --------------------------------------------------------------------------------
Total: up to 6,334,000 shares
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<PAGE>
SUMMARY FINANCIAL INFORMATION
You should read this information in conjunction with our financial
statements and the notes to those statements. We are in the development stage
and have not had operating revenue or income for any period from January 1,
1993, to the date of this Prospectus.
Years ended December 31
1997 1998
---- ----
Statement of Operations Data:
Revenue -- --
Operating Expenses 3,592,574 2,656,431
Operating Income (Loss) (3,592,574) (2,656,431)
Net Income (Loss) (3,631,105) (2,881,162)
Let (Loss) per Share ($.57) ($.39)
Weighted average shares Outstanding 6,318,281 7,370,026
Years ended December 31
1997 1998
---- ----
Balance Sheet Data:
Cash $13,780 $22,992
Current Assets 14,780 23,992
Total assets 58,940 140,061
Total liabilities 1,875,753 911,405
Accumulated deficit
during development stage (6,541,255) (8,801,226)
Total stockholders' equity (deficit) 58,940 (771,344)
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<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider the risks described below carefully and all of the information
contained in this Prospectus before deciding whether to purchase our common
stock.
WE ARE A DEVELOPMENT STAGE COMPANY AND OUR BUSINESS IS DIFFICULT TO EVALUATE
BECAUSE WE HAVE A LIMITED OPERATING HISTORY.
Our company is in a development stage. It is difficult to evaluate our
business because our revenue and income potential is unknown. An investor in our
common stock must consider the risks, delays, expenses, and difficulties we may
encounter as a development stage company in a new and rapidly evolving market.
These risks and difficulties include, but are not limited to our:
o regulatory compliance;
o competition;
o access to additional capital when required;
o development of a commercial product;
o attract and retain key personnel;
o development of consumer demand for our technologies and products.
We cannot be certain that our operating strategy will be successful or
that we will successfully manage these risks. If we fail to address adequately
any of these risks or difficulties, our business will likely suffer, our stock
may decrease in value and we may be forced to decrease or curtail operations.
Since our inception, we have not generated any revenues from
operations. Consequently, we do not have an operating history upon which
investors can evaluate our business, and investors should not rely upon our past
performance to predict our future performance. Our ability to generate revenue
and become profitable is dependent on, among other things:
o license the DECAFFOMATIC for commercialization;
o having our licensees commercialize products;
o incorporating our technologies.
We cannot be certain that we will ever become profitable. If we are
unable to generate revenues, we may need to curtail or terminate operations.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE THAT LOSSES WILL OCCUR IN THE FUTURE,
WHICH MAY DECREASE THE VALUE OF OUR STOCK.
Since our inception, we have incurred significant net losses and as of
December 31, 1998 we had an accumulated deficit of approximately $8.8 million
($8,801,226). We expect to continue to incur significant research and
development, marketing and general and administrative expenses. As a result, we
may experience further losses and negative cash flows.
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<PAGE>
IF WE ARE UNABLE TO LOCATE ADDITIONAL SOURCES OF CAPITAL IN THE FUTURE, WE MAY
BE REQUIRED TO CURTAIL OPERATIONS SUBSTANTIALLY OR ENTIRELY.
Our operations have consumed substantial amounts of cash. As we continue to
research and develop electrostatic technologies in various areas, we expect to
continue spending substantial amounts of cash. As of December 31, 1998 we had
negative working capital of $887,413. We need to raise substantial additional
funds by selling our $1.2 million of media, licensing or selling our
products, or technologies, or through additional equity or debt financings. We
cannot guarantee that any additional funding will be available. If we have
insufficient working capital, and are unable to locate additional capital on
acceptable terms, we may be required to curtail operations substantially or
entirely, including our research and development activities. Lack of funds may
seriously harm our business, financial condition and operating results and would
likely cause our stock price to decline. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
IF OUR NEW DECAFFOMATIC AND PLASMA PURE TECHNOLOGIES DO NOT RECEIVE MARKET
ACCEPTANCE, WE MAY NOT BE ABLE TO EXPAND OUR BUSINESS.
To be successful, we must, among other things:
o License our unique DECAFFOMATIC technology to a third party who will
incorporate it into a commercial product offered to the marketplace;
o Increase awareness of our DECAFFOMATIC technology;
o Establish and maintain relationships with licensees, manufacturers and
marketers and with advertisers and their advertising agencies;
o Respond to competitive and technological developments.
We cannot guarantee that we will succeed in achieving these goals, and
failure to do so could require us to crutail or terminate operations.
With respect to our PLASMA PURE technology, our initial basic research was
positive. However, the research may be inconclusive and may not be indicative of
results that will occur in human clinical trials. To continue the development of
the PLASMA PURE will require extensive additional capital investment, research,
development, testing, regulatory clearance or approvals prior to
commercialization. Due to our limited financial resources, we intend to license
the PLASMA PURE technology to a third party. There can be no assurance that our
licensee's development program will have adequate capital funding, will be
successfully completed, or obtain necessary regulatory clearance or approval on
a timely basis, if at all.
Our product development programs are subject to additional risks because
the product candidates are based on new technologies. These risks include, but
are not limited to the possibility that:
o Our technologies will prove to be ineffective;
o Any or all of our products or technologies needing FDA clearance will
prove unsafe or toxic, or fail to receive necessary regulatory approvals;
o The product candidates may be difficult to incorporate into a commercial
product, manufacture on a large scale or uneconomical tomarket;
o The proprietary rights of third parties may preclude our licensees from
marketing products utilizing our technologies;
o Third parties may market superior or equivalent technologies.
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<PAGE>
We cannot assure that any medical products using our technology will be
successfully developed or commercially accepted. We cannot assure that our
research and development activities will result in any commercially viable
products.
IF WE ARE UNABLE TO OBTAIN LICENSES FOR OUR TECHNOLOGIES, WE MAY NOT BE ABLE TO
EXECUTE OUR BUSINESS PLAN.
We have limited experience in sales, marketing and distribution. Our
strategy for commercialization of our products is to license to third parties
our technologies for incorporation into commercial products. Currently, we have
one agreement with NEWCO. We cannot assure that we will be able to enter into
additional licensing agreements on favorable terms or that current or future
agreements will ultimately be beneficial to our business.
We will depend on third party licensees to perform their responsibilities.
The amount and timing of resources which may be devoted to the performance of
their contractual responsibilities are not within our control. We cannot assure
that our licensees will perform their obligations as expected, pay additional
revenue or license fees beyond the stated minimums, or market any products under
the licensing agreements. We cannot guarantee that we will derive any revenue
from our licensees. Certain future license agreements will provide for
termination by the licensee under certain circumstances such as our bankruptcy
or insolvency or the invalidation of our patents upon a successful challenge by
a third party claiming similar or superior patent rights. We cannot guarantee
our interests will continue to coincide with those of our our licensees or that
our licensees will not develop products independently or with third parties that
will compete with our products, or that disagreements over rights or technology
or other proprietary interests will not occur. To the extent that we choose not
to or are unable to enter into future agreements, we will need substantial
additional capital to undertake the commercial development, marketing or sale of
our current and future products. We cannot assure that we will be able to market
or sell current or future products independently of these licensing agreements.
See "Business -- "Marketing."
WE MAY NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN IF WE DO NOT SUCCESSFULLY
ESTABLISH AND MAINTAIN RELATIONSHIPS WITH LICENSEES FOR THE MANUFACTUREOF
PRODUCTS INCORPORATION OUR TECHNOLOGIES.
We lack the experience, the resources and capability,to manufacture any of
our proposed products on a commercial basis. We anticipate that we will be
dependent on licensees and third party contract manufacturers or other entities
for commercial scale manufacturing of products incorporationg our technologies.
In the event we decide to establish a commercial scale manufacturing facility,
although we have no plans or intentions of doing so, we will require substantial
additional funds and personnel. We cannot assure that our licensees will develop
adequate commercial manufacturing capabilities either on their own or through
third parties. In addition, we do not anticipate establishing our own sales and
marketing capabilities in the foreseeable future. We cannot assure that our
licensees will be able to develop adequate marketing capabilities either on
their own or through third parties. See "Business -- Manufacturing; --
Marketing."
THE MARKET FOR OUR TECHNOLOGY MAY CHANGE AND CAUSE OUR TECHNOLOGY TO BECOME
OBSOLETE.
We expect technological development to continue at a rapid pace in the
electrostatic separation and biotechnology industries. We cannot guarantee that
new developments will not cause our technology to become obsolete. To be
successful, we must adapt to the rapidly changing market. To keep pace with new
technology, industry standards and customer demands, if we are able to obtain a
licensee for our initial technologies, we anticipate improving our technologies
as well as researching new products that can utilize our separation technology.
New developments may jeopardize our position in existing markets or
future markets. There can be no assurance that we will be able to successfully
enhance our electrostatic separation technologies or develop new products, or
that competitors will not develop technologies or products that render our
technologies either less marketable or obsolete.
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<PAGE>
OUR ELECTROSTATIC SEPARATION PRODUCTS RELY ON OUR INTELLECTUAL PROPERTY, AND ANY
FAILURE BY US TO PROTECT OUR INTELLECTUAL PROPERTY COULD ENABLE OUR COMPETITORS
TO MARKET PRODUCTS WITH SIMILAR FEATURES THAT MAY REDUCE DEMAND FOR OUR
PRODUCTS.
Our success will depend on our ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. Patent protection of our technologies, processes, and products
is very important to our future operations. We have been granted patents for
both our process and device for separating caffeine from a brewed beverage.
We may be subject to litigation for claims of infringement of the
rights of others or to determine the scope and validity of the intellectual
property rights of others. If other parties file applications for patents or
marks used or registered by us, we may have to oppose those applications and
participate in administrative proceedings to determine priority of rights to the
intellectual property, which could result in substantial costs to us, due to the
diversion of management's attention and the expense of such litigation, even if
we eventually obtain a favorable outcome.
Adverse determinations in such litigation could also (a) result in the
loss of certain of our proprietary rights, (b) subject us to significant
liabilities, or (c) require us to seek licenses from third parties. Any of these
results could have a material and adverse effect on the acceptance of our
electrostatic separation technologies and on our business, financial condition
and operating results.
IF WE ARE UNABLE TO ATTRACT AND MAINTAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO
CARRY OUT OUR BUSINESS PLAN.
Our future success depends on the continued service of our executive
officers. Our technologies are complex and we are substantially dependent upon
the continued service of our existing personnel. Our executive officers are
currently attempting to license our sepapation technology to a third party for
development into a commercial product and we have no research and development
personnel. The loss of any of our key employees could adversely affect our
business and slow our business development. We do not have key person life
insurance covering any of our employees.
Our future success also depends on our ability to attract and retain
highly qualified personnel. Competition for such personnel is intense, and we
cannot guarantee that we will be able to attract or retain enough highly
qualified employees in the future. If our management is unable to hire and
retain personnel in key positions, our business, financial condition and
operating results could be materially and adversely affected.
ERRORS IN OUR PRODUCTS OR THE FAILURE OF OUR PRODUCTS TO CONFORM TO
SPECIFICATIONS COULD RESULT IN OUR CUSTOMERS DEMANDING REFUNDS FROM US OR
ASSERTING CLAIMS FOR DAMAGES AGAINST US.
Because our technology is complex, it may contain errors that can be
detected at any point in the life cycle of a product containing our technology.
We may be subject to demands for refunds or claims for damages related to errors
or problems associated with our technology. We do not carry product liability
insurance. We believe that product liability insurance is expensive to maintain.
We cannot assure that product liability insurance will be available. In the
event we have product liability insurance, we cannot guarantee that the
insurance will adequately protect our assets from damage claims. A product
liability claim, whether or not successful, could seriously damage our
reputation and our business.
IF AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK FAILS TO CONTINUE IN THE FUTURE,
THE MARKET PRICE OF OUR COMMON STOCK WILL DECREASE.
There is a limited public market for our common stock on the OTC
Bulletin Board. We cannot predict whether an active public market for our common
stock will develop, or continue in the future.
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<PAGE>
As of September 30, 1999, we had approximately 7,786,508 shares
outstanding. Substantially all of the outstanding shares are freely tradable
and/or are eligible for resale under Rule 144.
If our stockholders sell or attempt to sell a significant number of
shares in the public market at the same time, while there continues to be a
limited public market available, this selling activity may:
o Make it difficult to sell our common stock at current market
prices;
o Cause the market price of our common stock to drop significantly.
Therefore, sales of substantial amounts of common stock in the public
market following this offering, or the perception that such sales will occur,
could cause the market price of our common stock to decline.
IF WE FAIL TO SUCCESSFULLY TRANSITION FROM THE RESEARCH AND DEVELOPMENT PHASE TO
THE COMMERCIAL OPERATIONS PHASE, WE MAY NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN
AND OUR STOCK PRICE WOULD FALL.
We are a development stage company and have devoted all of our
activities to research and development. We are attempting to license our
technology and progress from a research and development phase into a commercial
operations phase. If we are successful in licensing our technolgy, we will need
to hire additional key employees in the areas of licensing and technical
development. Our productivity and the quality of our products may be adversely
affected if we do not integrate and train our new employees quickly and
effectively. If we are successful in licensing our technology, we cannot be sure
that our revenues will be adequate to absorb the costs associated with a larger
overall headcount, as well as recruiting-related expenses.
If we experience significant growth, then considerable demands could
be imposed on all aspects of our business, including our administrative staff,
technical personnel, along with their respective systems. Additional expansion
may further strain our management, financial and other resources. We cannot
guarantee that our existing systems, procedures, controls, and existing space
would be adequate to support expansion of our operations.
THE UTILITY OF OUR ELECTROSTATIC SEPARATION TECHNOLOGY IS UNCERTAIN.
We are a development stage company seeking to exploit an advanced
technology, electrostatic separation technology. Because electrostatic
separation technology is in its infancy, progress in the field is being driven
by research and development, not by products and sales. To the best of our
knowledge, most applications incorporating our electrostatic separation
technologies are still being developed or have recently been introduced to
potential licensees and distributors. Due to the limited period of use and the
controlled environment in which most of our technologies are tested, we cannot
assure that our electrostatic technologies will meet performance specifications
under all conditions. We cannot be certain that we will ever be successful in
licensing our electrostatic separation technologies and/or profit from the
development of products, product sales, and licensing fees.
GOVERNMENT REGULATION MAY PREVENT OR SUBSTANTIALLY DELAY THE MARKETING OF OUR
PROPOSED PRODUCTS.
Products incorporating our technology, particularly PLASMA PURE, will
be subject to intense government regulation. If we obtain a licensee, or if we
acquire the financial resources, to pursue our PLASMA PURE product, it will be
classified as a medical device. As such, the FDA requires that we obtain a
premarket notification clearance under Section 510(k) of the Federal Food Drug
and Cosmetic Act, or an approved premarket notification prior to selling and
marketing PLASMA PURE in the United States. The 510(k) premarket notification
may be obtained if the medical device manufacturer can establish that the newly
developed product is substantially equivalent to another legally marketed
device. The FDA may also require clinical data or other evidence of safety and
effectiveness.
Currently, we have not sought FDA approval for our PLASMA PURE
product. We cannot guarantee that the FDA will approve PLASMA PURE, or if
granted, it will not be withdrawn. Government regulation may prevent or
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<PAGE>
substantially delay the marketing of our products. The delay and cost associated
with government compliance may give larger and more capitalized companies a
competitive advantage.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities must be obtained in any foreign country prior
to the commencement of marketing of the product in that country. The approval
procedure varies from country to country, can involve additional testing, and
the time required may differ from that required for FDA approval. Although some
procedures for unified filings exist for certain European countries, in general
each country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, substantial delays in obtaining required
approvals from both the FDA and foreign regulatory authorities can result after
the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN THE MAJORITY OF OUR WORLD-WIDE
COMPETITORS, WE MAY LACK THE FINANCIAL RESOURCES AND STAFF NEEDED TO CAPTURE THE
NECESSARY MARKET SHARE.
The market we intend to enter is characterized by intense competition
and an increasing number of new entrants who have developed, or are developing,
products and technologies that may compete with ours. Many of the competitors
will be larger and better financed than we are. We will face competition from
numerous sources, including other new technology and biotechnology companies. It
is our belief that competition will be based primarily on product uniqueness,
efficacy, safety, reliability, price, and patent protection.
To be competitive in the new technology market, we must:
o Attract and retain qualified scientific personnel;
o Develop new electrostatic separation technologies;
o Implement production and marketing plans;
o Obtain patent protection for our proprietary technologies;
o Secure adequate capital resources.
To be competitive, we must also respond promptly and effectively to
the challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products. Any pricing pressures or loss
of market share resulting from our failure to compete effectively could reduce
our revenue.
For our decaffeination technology, we are not aware of any other party
that has a technology similar to our patented technology for decaffeination of
freshly brewed coffee immediately after the brewing process. However, we compete
with numerous other major coffee roasters and food products companies, such as
General Foods, nestle, Chock Full of Nuts, Melita and others, who have and use
technology for removing caffeine from green coffee beans or roasted coffee beans
prior to the beans being ground and later sold and used for brewing coffee.
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<PAGE>
For our Plasma Pure separation technology for removing viral particles
from human plasma, we compete primarily with numerous major companies including
without Johnson & Johnson, Pall Corporation, Abbott Laboratories, Inc., Baxter
Corp., Sepracor, and Hemasure, Inc. as well as research institutions and
universities that are developing blood and plasma filtration products.
We may face competition in the future from academic institutions,
hospitals and governmental agencies, in addition to public and private research
organizations. These entities may conduct research, develop competing products
or technologies, as well as seek patent protection. We may also face competition
from established companies that have not previously entered the new technology
market or from emerging biotechnology companies. Increased competition may
negatively affect our business and future operating results due to price
reductions, higher selling expenses and a reduction in our market share.
OUR ABILITY TO ISSUE PREFERRED STOCK THAT WILL HAVE PREFERENCES OVER THE COMMON
STOCK COULD ADVERSELY AFFECT THE VOTING POWER OR OWNERSHIP PERCENTAGE OF THE
COMMON STOCK.
Currently, we are authorized to issue:
security number of shares par value per share
common stock up to 15,000,000 $.0001
preferred stock up to 1,000,000 $.0001
At September 30, 1999, there were approximately 7,786,508 shares of
common stock outstanding.
Our Board of Directors is authorized, without stockholder approval, to
issue preferred stock in one or more series, to fix the voting powers,
designations, preferences, relative participating, optional, or other rights and
restrictions regarding the preferred stock. Accordingly, the Board may issue a
series of preferred stock in the future that will have preferences over the
common stock. Consequently, persons who own preferred stock may receive
preferences with respect to voting, conversion rights, payment of dividends, and
proceeds from liquidation, dissolution or winding up. These preferences could
adversely affect the voting power and ownership percentage of the common stock.
Currently, we have no plans, commitments, arrangements, or understandings to
issue any preferred stock.
IF THERE ARE SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK FOLLOWING THIS
OFFERING, THE MARKET PRICE OF THE COMMON STOCK WILL LIKELY DECLINE.
Sales of substantial amounts of common stock in the public market
following this offering, or the perception that such sales will occur, could
have a material and adverse effect on the market price of the common stock. As
of the date of this Prospectus, there are approximately five securities
broker-dealers are making a market in our common stock. However, the shares are
traded on a limited basis. If substantial amounts of our common stock are sold
in the public market the market price will likely drop.
As of September 30, 1998, approximately 7,786,508 shares of our common
stock were outstanding. Of these shares, substantially all of the shares will be
tradable in the public market without restriction, and will be eligible for
resale under Rule 144 of the Securities Act (Except for any shares held by an
"affiliate" of the company, as defined in the Securities Act).
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OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES, WHICH COULD MAKE SELLING
THE COMMON STOCK MORE DIFFICULT AND CAUSE OUR STOCK PRICE TO DECREASE.
Our common stock is a "penny stock," under Rule 3a51-1 under the
Securities and Exchange Act, unless and until the shares reach a price of at
least $5.00 per share, we meet certain financial size and volume levels, or the
shares are registered on a national securities exchange or quoted on the NASDAQ
system. The shares are likely to remain penny stocks for a considerable period
of time after the offering. A "penny stock" is subject to Rules 15g-1 through
15g-10 of the Securities and Exchange Commission. Those rules require securities
broker-dealers, before effecting transactions in any "penny stock," to deliver
to the customer, and obtain a written receipt for a disclosure document set
forth in Rule 15g-10. (Rule 15g-2); to disclose certain price information about
the stock (Rule 15g-3); to disclose the amount of compensation received by the
broker-dealer (Rule 15g-4) or any "associated person" of the broker-dealer (Rule
15g-5); and to send monthly statements to customers with market and price
information about the "penny stock" (Rule 15g-6). Our common stock will also be
subject to Rule 15g-9, which requires the broker-dealer, in some circumstances,
to approve the "penny stock" purchasers account under certain standards, and
deliver written statements to the customer with information specified in the
rules (Rule 15g-9). These additional requirements could prevent broker-dealers
from effecting transactions and limit the ability of purchasers in this offering
to sell their shares into any secondary market for our common stock.
WE DO NOT INTEND TO PAY DIVIDENDS AND YOU MAY NOT EXPERIENCE A RETURN ON
INVESTMENT WITHOUT SELLING SHARES.
We have never declared or paid a cash dividend on our common stock. We
do not anticipate paying cash dividends in the foreseeable future. Since we
currently intend to retain future earnings, if any, to fund the development, and
growth of our business; an investor will not realize a return on their
investment in our common stock without selling their shares.
THE CONVERSION OF OUR 8% CONVERTIBLE DEBENTURES COULD HAVE A DILUTIVE EFFECT
The conversion of our $600,000 8% convertible debentures and, at our
option, shares that may be issued in payment of the annual 8% interest in kind,
assuming a conversion price of $.12 per share, would result in the issuance of
up to 5,224,000 shares of common stock, or approximately 40.2% of the
outstanding shares. This number of shares is the maximum available for issuance
under our Certificate of Incorporation, after considering the shares outstanding
and the shares reserved for issuance under outstanding warrants and options.
Based on the actual trading prices of the common stock over time, the actual
number of shares of common stock issuable upon conversion of the debentures
could be less and is based on a conversion price equal to 75% of the average of
the lowest price at which a trade is executed on any three trading days during
the twenty-two trading day period ending on the trading day immediately prior to
the date of conversion, except that the conversion price cannot be higher than
$.50 per share.
Any such conversion could have an immediate negative effect on the market
price of our common stock, and will have a dilutive impact on other shareholders
such that investors who purchase shares in the open market will pay a price per
share that is 25% greater than the conversion price paid by the holder of the 8%
convertible debenturesupon their conversion.
THE EXERCISE OF OUR OUTSTANDING WARRANTS COULD HAVE A DILUTIVE EFFECT.
As of September 30, 1999, there were outstanding options and warrants to
purchase approximately 1,795,000 shares of our common stock, including the
warrants held by the selling securityholders, exercisable to purchase 1,110,000
shares. The options and warrants have exercise prices ranging from $.50 per
share to $2.00 per share. The exercise of warrants or options and the sale of
the underlying shares of common stock (or even the potential of such exercise or
sale) could have a negative effect on the market price of our common stock, and
will have a dilutive impact on other shareholders.
If we attempt to raise additional capital through the issuance of equity or
convertible debt securities, the terms upon which we will be able to obtain
additional equity capital, if at all, may be negatively affected since the
holders of outstanding warrants and options can be expected to exercise them, to
the extent they are able, at a time when we would,
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in all likelihood, be able to obtain any needed capital on terms more favorable
than those provided in such warrants or options.
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS,
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THESE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE
COMPANY.
FORWARD LOOKING STATEMENTS
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may", "will", "expect", "anticipate", "continue", or other
similar words. These statements discuss future expectations, contain projections
of results of operations or of financial condition or state other
"Forward-Looking" information. When considering such forward-looking statements,
you should keep in mind the risk factors and other cautionary statements
included in this Prospectus. The risk factors noted in the "Risk Factors"
section and other factors noted throughout this Prospectus, including certain
risks and uncertainties, could cause the actual results of IMSCO to differ
materially from those contained in any forward-looking statement.
INFORMATION ABOUT THE COMPANY
We file reports, proxy statements, and other information with the SEC. You may
read and copy any documents we file at the SEC Public Reference Room. Located
at:
o Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
or
o Seven World Trade Center, Suite 1300, New York, New York 10048
o 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
For further information concerning the Public Reference Room, please call
1-800-SEC-0330. Our filings are also available on the SEC's website, located at
www.sec.gov.
This prospectus is part of a registration statement we are filing with the SEC.
You are advised to rely on the information provided in this prospectus. We will
not authorize anyone to provide you with different information. We will not
offer common stock in any state where an offer is not permitted. The information
in this prospectus is accurate as of the date on the cover of this prospectus.
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USE OF PROCEEDS
If and when all of the warrants are exercised, the net proceeds to us after
payment of an estimated $35,000 of offering costs and expenses, are estimated to
be $1,055,000, which amount will be used for working capital by us. Except for
the proceeds upon exercise of the warrants, IMSCO will not receive any proceeds
from the sale of shares of common stock by the selling shareholders. The
proceeds from the sale of all of the remaining 5,224,000 shares and the
differential, if any, between the exercise price of the various warrants and the
market price of the common stock issuable upon exercise of the warrants will go
to the selling shareholders. See "Selling Shareholders."
CAPITALIZATION
The following table sets forth the audited capitalization of the Company as
of December 31, 1998. This information should be read in conjunction with
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements,
including the notes thereto, included elsewhere in this Prospectus.
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Actual
December 31, l998
-----------------
Common Stock,
$.001 par value
15,000,000 shares
authorized; 7,681,278
shares issued
and outstanding (1) $769
Preferred Stock -
1,000,000 shares authorized
at $.001 par value; 45,000
Series A Convertible Shares
issued and outstanding $ 5
Additional
Paid in Capital - Common $9,803,517
Additional Paid in
Capital - Series A
Convertible Preferred $ 224,995
Prepaid Advertising Credits ($1,378,496)
Accumulated Deficit ($9,422,134)
Total Stockholders' Equity(Deficit) ($771,344)
Total Liabilities and
Stockholders' Equity (Deficit) $140,061
- ------------
(1) Excludes any of the shares issuable upon conversion of our $600,000
debenture, or in lieu of cash payment of interest on the debentures,
shares issued in payment of such interest at 8% per annum of the
outstanding principal amount of the debenture; the 990,000 shares issuable
upon exercise of the 2003 warrants outstanding for the exercise price of
$1.00 per share; and the 120,000 shares of common stock issuable under the
2002 warrants outstanding for the exercise price of $.75 per share.
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SELECTED FINANCIAL DATA
The selected financial data set forth below is derived from the more detailed
financial statements appearing elsewhere in this Prospectus. You should be read
this information in conjunction with such financial statements, including the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." We are in the development stage and have no
operating income during the period from January 1, 1993, to the date of this
Prospectus.
Years ended December 31
1997 1998
---- ----
Statement of Operations Data:
Revenue -- --
Operating Expenses 3,592,574 2,656,431
Operating Income (Loss) (3,592,574) (2,656,431)
Net Income (Loss) (3,631,105) (2,881,162)
Let (Loss) per Share ($.57) ($.39)
Weighted average shares Outstanding 6,318,281 7,370,026
Years ended December 31
1997 1998
---- ----
Balance Sheet Data:
Cash $13,780 $22,992
Current Assets 14,780 23,992
Total assets 58,940 140,061
Total liabilities 1,875,753 911,405
Accumulated deficit
during development stage (5,920,317) (8,801,226)
Total stockholders' equity (deficit) (1,816,813) (771,344)
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SELLING SECURITYHOLDERS
The following table sets forth the names of the selling securityholders, the
number of shares of common stock beneficially owned by each selling
securityholder as of January 10, 2000, and the number of shares that each may
offer, and the number of shares of common stock beneficially owned by each
selling securityholder upon completion of the offering, assuming all of the
shares offered are sold. The number of shares sold by each selling
securityholder may depend upon a number of factors, including, among other
things, the market price of the common stock. None of the selling
securityholders has, or within the past three years has had, any position,
office or other material relationship with us or any of our predecessors or
affiliates.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY
NAME OF SELLING BEFORE OFFERING(1) OFFERING(1) OWNED AFTER OFFERING
SECURITYHOLDER NUMBER(2) PERCENT(3) NUMBER NUMBER PERCENT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMRO International, S.A.(5) 5,344,000(4) 40.7% 5,344,000 0 --
Mark G. Hollo(6) 300,000(14) 3.7% 300,000 0 --
Sands Brothers & Co., Ltd.(6) 300,000(14) 3.7% 300,000 0 --
BR Trust(7) 50,000(14) 0.7% 50,000 0 --
MSS Descendants Trust (18) 12,500(14) 0.2% 12,500 0 --
SBS Descendants Trust (9) 12,500(14) 0.2% 12,500 0 --
Katie and Adam Bridge
Partners(10) 12,500 0.2% 12,500 0 --
Trigger Associates, L.P.(11) 12,500 0.2% 12,500 0 --
James Stack 150,000(14) 1.9% 150,000 0 --
Amber Partners, Ltd.(12) 75,000(14) 0.96% 75,000 0 --
Complete Business Systems(13) 65,000(14) 0.83% 65,000 0 --
</TABLE>
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(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated.
(2) As required by SEC regulations, the number of shares shown as beneficially
owned includes shares which could be purchased within 60 days after the date of
this prospectus. In the case of AMRO, however, the number of shares indicated is
more than the shares which can be purchased in that sixty day period. For AMRO
the table shows the estimated total of the shares which would be issued on the
conversion of all of AMRO's outstanding debentures and the issuance of shares to
pay for the accrued interest on those debentures (at an assumed conversion price
of $.12 per share) and the exercise of all of AMRO's warrants to acquire shares
of common stock described in this prospectus. However, AMRO has agreed
contractually not to convert the debentures or exercise its warrants to the
extent that such conversion or exercise would result in AMRO and its affiliates
beneficially owning more than 9.99% of the outstanding common stock.
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Thus, although some of the shares listed in the table might not be subject to
purchase by AMRO during that 60 day period, they are nevertheless included in
this table. The actual number of shares of common stock issuable upon the
conversion of the debentures and exercise of the warrants is subject to
adjustment and could be materially less than the number estimated in this table.
This variation is due to factors that cannot be predicted by us at this time.
The most significant of these factors is the future market price of our common
stock.
(3) The percentage of each selling securityholder is based on the beneficial
ownership of that selling securityholder divided by the sum of the current
outstanding shares of common stock plus the additional shares, if any, which
would be issued to that selling securityholder (but not any other
securityholder) when converting debentures or exercising any warrant or other
right in the future. For purposes of presentation in this table, the 9.99% limit
referred to in footnote (2) above has been disregarded.
(4) Represents the number of shares into which the $600,000 of debentures may be
converted, based upon an assumed conversion price of $.12 per share. The actual
conversion price will be 75% of the then prevailing market price, but no greater
than $1.00 per share. The debentures are not convertible for any number of
shares of common stock in excess of that number which would render the selling
securityholder the beneficial owner of more than 9.99% of the then issued and
outstanding shares of common stock. Includes 120,000 shares that may be acquired
upon the exercise of warrants having an exercise price of $0.75 per share. All
of these warrants are currently exercisable and expire on January 31, 2002.
(5) AMRO is beneficially owned and controlled by Mark Perkins, an individual
residing in Monte Carlo, Monaco. AMRO's principal business address is c/o Ultra
Finance, Grossmunster Platz 26, Zurich CH 8022 Switzerland.
(6) Sands Brothers & Co., Ltd. is a securities broker-dealer which is a member
of the NYSE and is owned and controlled by Steven B. Sands and Martin S. Sands,
having an address at 90 Park Avenue, New York, New York 10016.
(7) BR Trust is a trust having David Hollo, as trustee, for the benefit of the
descendents of Mark Hollo. Mark Hollo disclaims any beneficial ownership of
these warrants or shares of common stock into which they may be exercised.
(8) MSS Descendants Trust is a trust having Steven B. Sands as trustee for the
benefit of the descendants of Martin S. Sands. Martin Sands disclaims any
beneficial ownership of these warrants or the shares of common stock into which
they may be exercised.
(9) SBS Descendants Trust is a trust having Martin S. Sands as trustee for the
benefit of the descendants of Steven B. Sands. Steven B. Sands disclaims any
beneficial ownership of these warrants or the shares of common stock into which
they may be exercised.
(10) Katie and Adam Bridge Partners, L.P., a limited partnership having KNA
Bridge Partners Corp., which is controlled by and beneficially owned by Steven
Sands and Martin Sands, as the sole general partner.
(11) 12,000 shares for Trigger Associates, L.P., a limited partnership having
Trigger Investors Corp., which is controlled by and beneficially owned by Steven
Sands and Martin Sands, as the sole general partner.
(12) Amber Partners, Ltd. is controlled by and beneficially owned by John
Squire, John Squire, Jr. and Mary Squire.
(13) Complete Business Systems is controlled by and beneficially owned by
Charles M. Cerny and Don Regan.
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(14) Represents shares that may be acquired upon the exercise of warrants having
an exercise price of $1.00 per share. All of these warrants are currently
exercisable and expire on July 31, 2003.
AMRO International, S.A. acquired the debentures and warrants in a private
placement in February 1999. Each of the other selling securityholders acquired
the warrants set forth above from the Company in a private placement in October
1998. Each of the private placements was exempt from the federal registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof. Each of the selling securityholders represented they are an "accredited
investor" within the definition of that term set forth in the Securities Act of
1933, as amended.
We are registering the shares for resale by the selling securityholders in
accordance with registration rights granted to the selling securityholders. We
will pay the registration and filing fees, printing expenses, listing fees, blue
sky fees, if any, and fees and disbursements of our counsel in connection with
this offering, but the selling securityholders will pay any underwriting
discounts, selling commissions and similar expenses relating to the sale of the
shares, as well as the fees and expenses of their counsel. In addition, we have
agreed to indemnify the selling securityholders, underwriters who may be
selected by the selling securityholders and certain affiliated parties, against
certain liabilities, including liabilities under the Securities Act, in
connection with the offering. The selling securityholders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares against certain liabilities, including liabilities under the
Securities Act. The selling securityholders have agreed to indemnify us and our
directors and officers, as well as any person controlling the company, against
certain liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities under the Securities Act may be permitted to our
directors or officers, or persons controlling the company, we have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
PLAN OF DISTRIBUTION
The selling securityholders (or, subject to applicable law, their pledgees,
donees, distributees, transferees or other successors in interest) may sell
shares from time to time in public transactions, on or off the OTC Bulletin
Board, or private transactions, at prevailing market prices or at privately
negotiated prices, including but not limited to the following types of
transactions:
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus; and
- face-to-face transactions between sellers and purchasers without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling
securityholders may arrange for other brokers or dealers to participate in the
resales. The selling securityholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling securityholders have agreed
that they will not enter into any short position with respect to the common
stock. The selling securityholders also may enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares, which the broker-dealer may resell pursuant to this prospectus.
The selling securityholders also may pledge the shares to a broker or
dealer and upon a default, the broker or dealer may effect sales of the pledged
shares pursuant to this prospectus.
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Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling securityholders in amounts to
be negotiated in connection with the sale. The selling securityholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether underwriters who may be selected by the selling
securityholders, or any other broker-dealer, are acting as principal or agent
for the selling securityholders, the compensation to be received by underwriters
who may be selected by the selling securityholders, or any broker-dealer, acting
as principal or agent for the selling securityholders and the compensation to be
received by other broker-dealers, in the event the compensation of such other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this prospectus. Any dealer or
broker participating in any distribution of the shares may be required to
deliver a copy of this prospectus, including a prospectus supplement, if any, to
any person who purchases any of the shares from or through such dealer or
broker.
We have advised the selling securityholders that during such time as they
may be engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934. With certain
exceptions, Regulation M precludes any selling securityholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the common stock.
BUSINESS
Overview
- --------
IMSCO is a development stage company. We have developed and are attempting
to license electrostatic separation technologies for incorporation into
commercial products by our licensees. Electrostatic separation takes advantage
of the fundamental electrical properties of attraction, wherein unlike or
opposite charges attract each other, and repulsion, wherein like or the same
charges repel each other, and uses charged materials to selectively separate
other substances. In the last six years, we have developed several separation
technologies based on electrostatics combined with mechanical separation. This
technology was originally developed by us for the specific purpose of separating
viruses and viral particles from human plasma. In 1993, we designed an
electrostatic separation technology which removes on demand caffeine from brewed
liquids, such as coffee and tea. We call our decaffeination technology the
"DECAFFOMATIC" . We call our plasma separation technology the "PLASMA PURE".
Having achieved separation of viral DNA and virus from plasma using the
PLASMA PURE in research and testing performed by the Company at the
Massachusetts General Hospital and the Mayo Clinic, we began researching and
developing other uses for the technology. Based on our internal laboratory
testing and research conducted by us at outside research laboratories, we
believe that the DECAFFOMATIC is capable of removing substantial amounts of
caffeine from brewed beverages such as coffee and tea. In 1993, we filed
separate patent applications with the U.S. Office of Patents and Trademarks for
the PLASMA PURE and DECAFFOMATIC separation technologies. On August 22, l995 we
were granted a patent by the United States Patents and Trademarks Office, Patent
No. 5,443,709 for "Apparatus for Separating Caffeine From a Liquid Containing
the Same".
Previously in late 1996 and early 1997, we anticipated that the
decaffeinator would be incorporated into a commercial coffee brewer suitable for
the institutional user marketplace utilizing the coffee brewer electronics for
power to the decaffeinator. In late 1998 and in 1999, however, we believed that
we could design the decaffeination device to be self contained within the brew
basket, which is removable from the
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brewer, with its own independent power source. Our management believed that this
design is superior to the earlier version, more universal and interchangeable
with different institutional coffee brewer models and will be easier for the
consumer to use and, hopefully, lead to increased sales once the product is
commercialized. Consequently, during 1998 and 1999, we continued to develop and
test a DECAFFOMATIC device contained within a detachable coffee brew basket for
the institutional commercial marketplace containing the IMSCO decaffeination
technology. We believe that we have substantially completed our scientific
research for the DECAFFOMATIC by demonstrating that our electrostatic separation
technology can remove caffeine from freshly brewed coffee. Originally we hoped
to be able to develop and incorporate our technology into our own brew basket
decaffeination product for the commercial institutional coffee brewer market.
However, we have very limited financial resources and consequently we intend to
license our technology to a third party who would complete the development of a
commerical brew basket decaffenation product. Although no definitive contracts
have been signed, we intend to license the DECAFFOMATIC technology to another
unrelated company for commercial development, manufacture, marketing and
distribution . See "Business -Marketing."
Our objective is to become a leader in the development of electrostatic
separation market by capitalizing on our proprietary technology. Our strategy is
to focus on finding a licensee for commercializing and launching the
DECAFFOMATIC products. Due to limited financial and human resources we have been
unable to conduct any significant research and development on our PLASMA PURE
technology, and consequently we are focusing on finding a licensee to complete
research and development on the PLASMA PURE Although there can be no assurances,
we intend to implement our strategy by establishing licensing agreements and
distribution agreements with recognized market leaders for commerical
development, marketing and distribution of our products.
In December 1995, we established another subsidiary, BioElectric Separation
and Testing, Inc. ("BEST"), a Delaware corporation, to further conduct research
and development on the PLASMA PURE and all related medical applications of our
core electrostatic separation technology. We have only conducted limited basic
research with respect to the PLASMA PURE electrostatic separation technology and
because of our limited financial resources we were not able to conduct any
significant research and development on our PLASMA PURE technology in 1999. We
anticipate licensing the PLASMA PURE technology to a third party for further
research and development. If adequate funding were available, we estimate that
it would take a minimum of 18 months in order to conduct the necessary clinical
trials and research to submit the PLASMA PURE for approval by the United States
Food and Drug Administration ("FDA"). The PLASMA PURE has not been submitted to
the FDA for approval and, if submitted, there is no assurance that it will be
approved. Given the limited funds available to us and consequent delays in
conducting the necessary research and testing, the PLASMA PURE would not
possibly be submitted to the FDA, if at all, until funding were obtained.
Consequently, we are attempting to license this technology to a third party .
See "Business -- Research and Development."
On September 20, 1996, we entered into a media purchase agreement ("Media
Purchase Agreement") and agreed to sell an aggregate of 1,136,364 shares of our
common stock, par value $.0001, to Proxhill Marketing, Ltd., a private media and
advertising company based in Colorado ("PML"), for the sales price of $1.32 per
share and we received in exchange prepaid media in the amount of $1,500,000 to
be used at our direction. We originally planned to use the media for advertising
our own commercial brew basket product. However, because development of our
commercial brew basket decaffeinator has not yet been fully developed, at
December 31, 1998 we possessed $1,288,000 of prepaid media credits in our
inventory to use for future public relations, marketing and advertising. Since
we currently plan to license our DECAFFOMATIC technology for the commercial
marketplace, we may attempt to use our media in conjunction with our
decaffeination technology licensee in a cooperative marketing campaign or to
sell our media to a third party in order to raise additional working capital.
We were originally formed in 1986 under the laws of the State of Nevada. In
1987 we changed its corporate domicile from Nevada to Massachusetts since the
corporate operations were located in Massachusetts, which was accomplished
through action by the shareholders and the Board of Directors in
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1987. Our name at that time was IMSCO, Inc. In July 1996, we reincorporated in
Delaware as IMSCO Technologies, Inc. In order to effectuate this change, we
proposed the implementation of the following plan. In May 1996, we filed a
Certificate of Incorporation in Delaware incorporating a new wholly-owned
subsidiary, IMSCO Technologies, Inc. The Board of Directors of the Company at a
meeting held in May 1996 voted, subject to the adoption by the stockholders, to
merge into its wholly-owned subsidiary, IMSCO Technologies, Inc., a Delaware
corporation. On July 9, 1996, the stockholders of IMSCO, Inc., voted to approve
the change of corporate domicile from Massachusetts to Delaware. Therefore, on
July 18, 1996, there remained one surviving corporation and the name of this
surviving corporation became IMSCO Technologies, Inc. As of the effective date
of the merger, each stockholder of the company held one share of common stock,
par value $.0001 per share, of IMSCO Technologies, Inc. for each one share of
common stock, par value $.001 per share, of IMSCO, Inc. previously held by him.
PRODUCTS AND TECHNOLOGIES
We are in the development stage, and have only recently begun to enter the
early stage of product commercialization with our DECAFFOMATIC technology and
products. The development of any products will require significant further
research, development, testing and regulatory approvals and additional
investment prior to commercialization. Substantially all of our resources have
been,and for the foreseeable future will continue to be, dedicated to the
discovery, development and commercialization of electrostatic separation
technologies, most of which are still in the early stages of development and
testing. However, given our limited financial resources, we are attempting to
license our technologies to a third party who can complete the commercial
development, manufacture and market of a product incorporating our technology.
While we believe that we have substantially completed our scientific research
for the DECAFFOMATIC by demonstrating that our electrostatic separation
technology can remove caffeine from freshly brewed coffee, it has not been
developed and incorporated into a commercial ready product. Most of 1998 and
1999 was devoted to further development, design and testing of the
decaffeination device as a self contained device within a detachable commercial
brew basket market. There are a number of challenges that we must successfully
address to complete any of our development efforts. With respect to PLASMA PURE,
although the results of our initial basic research were positive, it may be
inconclusive and may not be indicative of results that will be obtained in human
clinical trials if conducted by us. We plan to license the PLASMA PURE
technology to a third party. Even if we were able to obtain necessary funding
and conducts clinical trials, as results of particular preclinical studies and
clinical trials are received, we may abandon projects such as PLASMA PURE, which
we might otherwise have believed to be promising from early initial testing. We
are presently pursuing product opportunities that will require extensive
additional capital investment, research, development, testing, regulatory
clearance or approvals prior to commercialization. Accordingly, our strategy is
to license our technology to a third party who has the resources to complete the
research and development. There can be no assurance that our development
programs will ever obtain necessary capital funding, will be successfully
completed, or that required regulatory clearance or approvals will be obtained
on a timely basis, if at all.
In addition, our technology and product development programs are subject to
risks of failure inherent in the development of potential products based on new
technologies. These risks include the possibility that the technologies used by
us will prove to be ineffective or any or all of our potential products or
technologies needing FDA clearance will prove to be unsafe or toxic or otherwise
fail to receive necessary regulatory approvals; that the product candidates, if
safe and effective, will be difficult to commercially manufacture, to
manufacture on a large scale or uneconomical to market; that the proprietary
rights of third parties will preclude us or our licensees from marketing
products utilizing our technologies; or that other parties will market superior
or equivalent products. Accordingly, there can be no assurance that our, or our
licensee's research and development activities will result in any commercially
viable products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- "Research and Development"
and "-- Competition."
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DECAFFOMATIC
TECHNOLOGY RESEARCH AND DEVELOPMENT
In 1993, using our electrostatic separation technology, we designed,
researched and developed a successfully working prototype of the DECAFFOMATIC
device. Since that time, we have continued research and development in an effort
to integrate our scientific decaffeination technology into a commercial ready
model for the institutional coffee maker marketplace. Previously in late 1996
and 1997, we anticipated that the decaffeinator would be incorporated into a
commercial coffee brewer suitable for the institutional user marketplace
utilizing the coffee brewer electronics for power to the decaffeinator. In late
1998, we believed that we could design the decaffeination device to be self
contained within the brew basket, which is removable from the brewer, with its
own independent power source. Our management believes that this design is
superior to the earlier integrated version, more universal and interchangeable
with different institutional coffee brewer models and will be easier for the
consumer to use and, hopefully, lead to increased sales once the product is
commercialized. Consequently, during 1998 and 1999, we continued to develop and
test a DECAFFOMATIC device contained within a detachable coffee brew basket for
the institutional commercial marketplace containing our decaffeination
technology. We believe that we have substantially completed our scientific
research for the DECAFFOMATIC by demonstrating that our electrostatic separation
technology can remove caffeine from freshly brewed coffee. However, we have not
completed the development of the commercial ready brew basket decaffeinator for
the commercial institutional coffee brewer market. The Company conducted
research and development at Arthur D. Little & Company in Cambridge,
Massachusetts pursuant to an agreement which commenced in October 1998. Under
the ADL Agreement, ADL (1) conducted tests to determine levels of caffeine in
other major brands of "deccafeinated" coffee beans to establish a baseline
against which the our DECAFFOMATIC device shall be evaluated, (2) evaluated our
prototype devices with respect to rates of decaffeination, and flavor, color and
aroma of the decaffeinated brew, and (3) assisted the Company in developing a
commercial device that will have the appropriate attributes to maximize
decaffeination, while minimizing the impact on flavor, color and aroma. We
agreed to pay ADL $120,000 for the contract research and development services.
Our development work is not complete. Given our limited finanical resources, we
intend to license our patented technology and proprietary information to a third
party who can complete the commerical development of the DECAFFOMATIC. However,
we have not yet negotiated or signed any such agreements. See "Business
- -Marketing."
MARKET
Our separation technology has enabled us to build a prototype stand-alone
decaffeinator which may be used immediately after brewing coffee to remove
caffeine from coffee. If the technology can be incorporated into a commerical
product, we anticipate that the commercial customer-user will need to only buy
regular coffee or tea and decaffeinate the brewed beverage on demand for those
who want the decaffeinated product. We believe that this will result in
considerable cost saving for the consumer. Although there can be no assurance,
in the institutional marketplace, we believe that such an integrated
decaffeinator will produce more significant cost savings, given the difference
in price of decaffeinated ground coffee beans over regular ground coffee beans.
We also feel that this benefit is of primary concern to senior citizens who are
on a fixed income and at the same time, are the largest growing segment of the
population. We anticipate that this group is also the one that is most health
conscious and concerned about chemical treatment of coffee in most other
decaffeination processes. There is no chemical treatment in our process.
Our management believes that removal of caffeine from coffee and tea is
recognized as a desirable goal for health and other reasons. Our research has
revealed that no technology now exists for removal of caffeine from hot freshly
brewed liquids; rather, the current technology removes caffeine from the whole
coffee beans prior to brewing.
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The decaffeination process of coffee and tea has been popular since the mid
1930's. It was initially started by General Foods and then adapted by Nestle's
and other multi-national companies. The first decaffeination process was a
chemical method that used Methylene Chloride. This method is still employed
today, however, not as widely. We believe that the chemical extraction method by
soaking the whole beans in Methylene Chloride is not desirable because of the
harsh chemicals, the after-taste and health issues raised by their use. The use
of Methylene Chloride to decaffeinate beans became illegal in most European
nations last year. As consumers became more health conscious in the 1980's, the
use of decaffeinated products increased. A method more frequently used today
utilizes repetitive washes of the whole coffee beans with clean water known as
the "Swiss Water Treatment" method. Although this water treatment process is the
method of choice for most coffee roasters today, we believe that it is more
costly than our electrostatic process, it may not remove high levels of the
caffeine inside the whole beans and ultimately less convenient for the consumer.
We intend to find a licensee for our decaffeination technology and to focus
decaffeination technology development and marketing on our internal
decaffeinator for use with the automatic drip coffee maker for both
institutional and home consumer products.
PLASMA PURE
TECHNOLOGY RESEARCH AND DEVELOPMENT
We have designed, prototyped and done promising initial basic research on
the PLASMA PURE electrostatic/mechanical separation device for the express
purpose of separating virus and viral DNA particles from human plasma. Due to
our very limited financial resources, no significant research and development
was conducted on the PLASMA PURE technology over the last four years. Based on
our initial research , although there can be no assurance, we believe that the
PLASMA-PURE has the capacity to remove a substantial amount of the viral
population from a unit of contaminated plasma without adversely affecting the
clotting factors. We estimate that if we were able to obtain adequate financing
to complete our research and development on the PLASMA PURE technology, we would
take approximately 18 months of testing before making application to the FDA for
approval, which cannot be assured. Although significant amounts of research need
to be conducted, we believe that PLASMA PURE, with its potential capability of
removing viruses and viral particles, if eventually developed and approved,
which cannot be assured, may significantly reduce the risk normally associated
with transfusion of plasma or plasma components. Although significant additional
research needs to be conducted, our management believes that the use of PLASMA
PURE to filter fresh frozen plasma may not significantly decrease yields of the
clotting components. We believe this is achieved because of the unique
electrostatic internal matrix which enables the plasma and its clotting
components to flow freely through the device, but still remove significant
amounts of virus and viral particles, which are targeted by the electrostatics.
The methods currently used to inactivate viruses in human plasma such as the use
of detergents or extreme heat all have the possible adverse effect of limiting
the yield of final desired procoagulant products. Given our limited financial
resources, we are attempting to license the PLASMA PURE technology to a third
party for further research and development.
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MARKETS
We believe the PLASMA PURE system and its electrostatic technology offer
various growth possibilities , however, each of these areas will require
significant further research and development, the financing of such efforts and
FDA approval before they can be commercialized, if possible at all. Earlier we
also designed and were in the earliest research and development stage for a new
product that is an extension of the PLASMA PURE separator appropriately called
PLASMA PURE PLUS. We intended that it would be used only for bulk plasma
fractionation and therefore be larger than PLASMA PURE and priced differently.
Another follow-up product that we would like to conduct research and development
on if adequate financing were available, which we do not currently have, is a
modified white blood cell filter. This device would utilize the same technology
as PLASMA-PURE, and therefore we believe its introduction could be more rapid
than it has been for the PLASMA PURE device. Our management feels a second
version of the white blood cell filter could then be marketed to the diagnostic
reagent market. However, given the numerous uncertainties and risk inherent with
medical research in general, and blood research in particular, the needed
financing involved to conduct such research which we do not possess, there can
be no assurance that any of these plasma products and devices will ever be
finally developed, or if completed that they will receive approval from the FDA
or the comparable regulatory authority of any foreign jurisdiction. We have not
prepared or made application to the FDA or any governmental authority for
approval of our PLASMA PURE device or related products.
We believe that our core electrostatic separation technology lends itself
to other markets as well, particularly air filtration for hospitals, convention
centers and airplanes. Although it needs significant amounts of additional
research and testing and the financial resources to conduct such activities,
which we do not currently possess, we believe that our electrostatic separation
technology may have applications to extra corporeally based immunotherapies
which involve an improved system for drug administration and improved systems
for removal and/or treatment of cells or other circulating materials (including
byproducts of metabolism). Because of our limited financial resources, our
strategy is to attempt to license these technologies to third parties for
further research and development.
Similar to DPI, in 1995 we established a new Delaware corporation
subsidiary, BioElectric Separating & Testing, Inc. to conduct the continued
research and development activities and pursue FDA application relating to the
PLASMA PURE and related technologies. Due to lack of funding, BEST has been
inactive over the last three years.
MARKETING
Our current strategy is to license our products and technologies to other
companies which have pre-existing industry presence in their respective fields
and to enter into collaborative arrangements with such companies to develop new
applications for the technology with the contract partner's own products. We
have limited experience in sales, marketing and distribution. To date, we have
one such agreement with NEWCO Enterprises, Inc. ("NEWCO"), which is a
manufacturer and distributor of coffee brewers for the industrial market, based
in St. Charles, Missouri . There can be no assurance that we will be able to
enter into additional agreements on terms favorable to us if at all, or that
current or future agreements will ultimately be beneficial to us.
The NEWCO Manufacturing and Distribution Agreement.
- ---------------------------------------------------
On September 20, 1996, we entered into the NEWCO Agreement for certain
institutional manufacturing and marketing of the Decaffeination System. NEWCO is
a privately held corporation based in St. Charles, Missouri, and is one of the
larger manufacturers and distributors of institutional coffeemaking equipment in
North America. We agreed that NEWCO will have the exclusive right to sell the
DECAFFOMATIC to so-called "Office Coffee Supply" ("OCS") subsection of the
institutional coffeemaker market and will be the manufacturer of the
DECAFFOMATIC for the institutional marketplace in North American for a period of
three years. NEWCO further agreed to sell or purchase
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from the Company for the OCS market a minimum of 25,000 units of the product for
the first year, 50,000 units for the second year and 100,000 units the third
year. In consideration and on account of the exclusive arrangement under the
NEWCO Agreement, NEWCO agreed to pay the costs and expenses of all materials and
services which NEWCO shall incur in the development of the DECAFFOMATIC device
for the institutional coffeemaker marketplace. Under the NEWCO Agreement, all of
the technology and final commercial model designs of the Decaffeination System
will be our property.
Under the NEWCO Agreement, we will sell units of the Decaffeination System
to NEWCO for a net price to us. NEWCO will take the Decaffeination System and in
turn incorporates it into its coffeemakers and re-sells it to a variety of end
users in the OCS marketplace. The terms of the minimum purchase by NEWCO are
mandatory and are not subject to, or conditioned upon, NEWCO's ability to sell
the units acquired. All servicing and customer calls will be performed by NEWCO.
We can terminate the NEWCO Agreement if NEWCO fails to make the specified
minimum number of Decaffeination System purchases.
We believe that our exclusive agreement with NEWCO in the areas covered
will allow us to establish a presence in the market more quickly and on a more
cost-effective basis than we could achieve by building our own manufacturing
facility or our own sales, marketing and service network in the relatively
fragmented OCS market, that consists primarily of small office users.
Our electrostatic separation devices will be manufactured from generally
available materials, and we do not anticipate that our licensee manufacturing
partners will be dependent upon any single supplier. We believe that there are
numerous third party contract manufacturers similar to NEWCO available around
the world who can manufacture our DECAFFOMATIC products on an OEM basis. We
currently have insufficient resources to establish and conduct our own
commercial manufacturing activities with respect to our proposed products. In
the future, if we decide to establish our own manufacturing facilities and
capabilities, at least for certain products, we would require substantial
additional funds and personnel.
Previously in 1996 and 1997, we and NEWCO anticipated that the
decaffeinator would be incorporated directly into the coffee brewer, utilizing
the coffee brewer electronics for power. In late 1997 and 1998, we estimated
that we could design the decaffeination device to be self contained within the
brew basket, which is removable from the brewer, with its own power source. We
believe that this independent design is superior to the earlier version, more
interchangeable with different coffee brewer models and will be easier for the
consumer to use. As of this date, the detail engineering for the production
molds has been completed for the institutional coffeemaker-brew basket that will
be used for large institutions. However, our development for the commercial
ready brew basket is not yet complete and no production or sales have commenced
by NEWCO. Consequently, we are seeking a licensee with adequate resources to
complete the commerical development of the institutional deffeination brew
basket device. As a commercial ready model is being developed, testing is
required to ensure that it has all the desired specifications, such as brewing
and decaffeination speed, appropriate taste, color and aroma and ease of
customer removal of the separation device, safety design and reliability on
repeated usage.
Media Purchase Agreement
- ------------------------
Under the Media Purchase Agreement, PML contractually agreed to provide
$1.5 million of media for our public relations and advertising campaign through
Grow Marketing Services, an independent media agency and marketing company. In
exchange for our issuing 1,136,363 shares of our common stock, representing a
price of $1.32 per share, we acquired $1.5 million of prepaid, dedicated media
credits receivable and certain media services.
The media advertising services provided by GROW include conducting market
research services for the purpose of formulating a media plan to optimize the
benefits of the media advertising campaign. Then,
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based on a media plan developed by us, GROW secures suitable advertising time on
television, radio, or cable systems, or advertising space in newspapers,
magazines, or other publications of mass appeal.
At the closing of a media purchase transaction PML has agreed to deliver
cash, media, media credit and/or other media-related assets to GROW as payment
for media extended to us. PML then delivers to us a pre-paid purchase order
acknowledging our payment of the media cost from GROW under the terms set forth
in the agreement.
When we originally intended to directly market our DECAFFOMATIC products in
North America, we planned to use the remaining $1,288,000 of media to finance
the introduction and initial product advertising and marketing support for the
DECAFFOMATIC products. However, since we do not presently intend to pursue the
direct marketing of our decaffeination products, we may use the media in
conjunction with a cooperative marketing campaign with our licensee or we may
sell the media to a third party advertiser as a means of generating additional
needed working capital.
Given that we have conducted no independent market research or consumer
focus groups activities, there can be no assurance that the DECAFFOMATIC
technology, if developed into a commercial ready product, will be accepted by
the consumer public, that it will have any commercial level of acceptance by the
public or that if there is some level of commercial acceptance, that it will be
sufficient for us or a licensee of ours to continue supporting a marketing and
advertising program or that such efforts will ever be profitable.
We have only recently commenced limited marketing activities to potential
licensees of our decaffeination technology and products. Achieving market
acceptance for products incorporating our separation technology will require
substantial marketing efforts and the expenditure of significant funds. There
can be no assurance that our licensees will be able to commercialize
successfully or achieve market acceptance of their products incorporating our
technologies. There is no assurance that we or our licensees will be able to
create a successful marketing program, or that products incorporating our
licensed technology can be sold in a manner that will permit us to achieve long
range profitability. Further, there can be no assurance that our competitors
will not develop competing technologies that are less expensive or otherwise
superior to our licensees products incorporating our technology. The failure of
our licensees to market successfully products incorporating our technology would
have a material adverse effect on our business and financial conditions and
could cause us to cutail our operations.
We will be dependent for revenues upon the success of our third party
licensees in performing their responsibilities. The amount and timing of
resources which may be devoted to the performance of their contractual
responsibilities by ourlicensees are not within our control. There can be no
assurance that such licensees will perform their obligations as expected, pay
any additional revenue or license fees beyond the stated minimums to us or
market any products under the licensing agreements, or that we will derive any
revenue from such arrangements. There can be no assurance that our interests
will coincide with those of our licensees or that the licensees will not develop
independently or with third parties products which could compete with products
incorporating our licensed technology, or that disagreements over rights or
technology or other proprietary interests will not occur. To the extent that we
choose not to or are unable to enter into future agreements, we would experience
substantially increased capital requirements to undertake the commercial
development, marketing or sale of current and future products incorporating our
technology. There can be no assurance that we would be able to market or sell
our current or future products incorporating our technology independently in the
absence of such licensing agreements.
Research and Development
- ------------------------
During 1999, we conducted our research and development activities through
our own staff and facilities, as well as through a contractual arrangement with
ADL. However, because of our limited financial resources, we have curtailed our
internal research and development activities and are seeking a licensee of our
technology who will complete the research and hopefully develop a commerical
product.
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We believe that the use of outside research and laboratory facilities is the
most efficient method to have certain aspects of our technology further
researched and developed by experienced scientific and technical personnel.
During 1999, we had one agreement in effect with Arthur D. Little & Co. of
Cambridge, Massachusetts, for the use of its laboratory facilities and
assistance of their scientific and technical personnel. From July 1992 to
December 31, l998, we incurred a development stage deficit of $8,801,226 Because
of our limited financial resources, we currently plan to license our separation
technologies to third parties for further research and development. Even if we
were able to obtain needed additional financing, of which there can be no
assurance and we have no intent, we would anticipate incurring significant
research and development expenditures in the future efforts to develop further
applications and uses for our separation technologies.
MANUFACTURING
We currently do not own or operate manufacturing facilities for commercial
production of our DECAFFOMATIC or any other products. In addition, we have no
intention of acquiring or developing any manufacturing facilities, nor do we
have any financial capability to acquire any such facilities. Instead, we intend
to rely on our licensees and their third party contract manufacturers to
manufacture products incorporating our technology. There can be no assurance
that such arrangements will be successful or that any licensee will be able to
develop or provide adequate manufacturing capabilities for commercial scale
production. Although we have no plans or intentions of doing so, in the event we
decide to establish a commercial scale manufacturing facility, we would require
substantial additional funds and personnel and will be required to comply with
extensive regulations applicable to such facility. There can be no assurance
that our licensees will be able to develop adequate commercial manufacturing
capabilities either on our own or through third parties.
GOVERNMENT REGULATIONS
The production and marketing of some of the potential products
incorporating our separation technology, including the PLASMA PURE, will be
subject to regulation for safety and efficacy by numerous federal, state and
local agencies, and comparable agencies in foreign countries. Our PLASMA PURE
system will be considered a medical device. As such, the FDA would require us or
our licensee to apply for and obtain either a premarket notification clearance
under Section 510(k), or a PMA prior to sales and marketing of the device in the
United States. The 510(k) premarket notification may be obtained if the medical
device manufacturer can establish that the newly developed product is
substantially equivalent to another legally marketed device. The FDA may also
require clinical data or other evidence of safety and effectiveness. In the
United States, the FDA Act, govern or influence the testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion
of the Company's proposed products and technologies.
Under the FDA Act, the FDA regulates the preclinical and clinical testing,
manufacturing labeling, distribution, sale and promotion of medical devices in
the United States. The FDA prohibits a device, whether or not cleared under a
510(k) premarket notification or approved under a PMA, from being marketed for
unapproved clinical uses.
Non-compliance with applicable requirements can result in fines and other
judicially imposed sanctions including the initiation of product seizures,
injunction actions, mandatory recalls and criminal prosecutions based on
products, promotional practices, or manufacturing practices that violate
statutory requirements. In addition, administrative remedies can involve
voluntary recalls or cessation of sale of products, administrative detention,
public notice, voluntary changes in labeling, manufacturing or promotional
practices. The FDA also has the authority to withdraw approval of instruments
and devices in accordance with statutory procedures.
We have only conducted very preliminary initial basic testing on our PLASMA
PURE technology and have not prepared or made application to the FDA or any
governmental authority for approval of the
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PLASMA PURE device or related products. Because of our limited financial
resources, we plan to license our PLASMA PURE technology to a third party. The
FDA approval procedure involves completion of pre-clinical studies and the
submission of the results of these studies to the FDA an application.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. Human clinical
trials are typically conducted in three sequential phases, but the phases may
overlap. Phase I trials consist of testing the product in a small number of
volunteers primarily for safety. In Phase II, in addition to safety, the
efficacy of the product is evaluated in a small patient population. Phase III
trials typically involve additional multi-center testing for safety and clinical
efficacy in an expanded population of patients at geographically dispersed test
sites. A clinical plan, or "protocol," accompanied by the approval of the
institutions participating in the trials, must be submitted to the FDA prior to
commencement of each clinical trial. The FDA may order the temporary or
permanent discontinuation of a clinical trial at any time if adverse safety
effects are observed in volunteers or patients. In addition, the FDA may request
Phase IV trials after approval to resolve any lingering questions.
The results of the pre-clinical and clinical studies on new medical devices
are then submitted to the FDA for approval to commence commercial sales.
Following extensive review, the FDA may grant marketing approval, require
additional testing or information or deny the application. Continued compliance
with all FDA requirements and the conditions in an approved application,
including product specifications, manufacturing process, labeling and
promotional material and record keeping and reporting requirements, is necessary
for all products. Failure to comply, or the occurrence of unanticipated adverse
effects during commercial marketing, could lead to the need for labeling
changes, product recall, seizure, injunctions against distribution or other
FDA-initiated action, which could delay further marketing until the products are
brought into compliance.
The preparation of required applications and subsequent FDA and foreign
regulatory approval process is expensive, lengthy and uncertain. If the
manufacturer cannot establish equivalence or if the FDA determines that the
device requires more extensive review, the FDA will require the submission of
PMA. The PMA must contain nonclinical and clinical investigation results, a
description of the methods, facilities and controls used for manufacturing, and
the proposed labeling for the device. We must receive FDA approval for Phase I,
II, and III trials to test the PLASMA PURE device. FDA review of a PMA would
take at least nine months to a year following submission of Phase III test
results, and may take longer. If ever submitted, no assurance can be given that
approval of the PLASMA PURE PMA would be granted.
The packaging and labeling of all our proposed PLASMA PURE products, if
developed, will be subject to FDA regulation. Because of the extensive costs and
time involved, we currently intends to rely primarily on licensees and joint
venturers to obtain regulatory approvals and market our PLASMA PURE products,
when developed. No assurance can be given that we will reach agreement with any
proposed licensees for such products. Licensees will generally have the right to
terminate funding a product at any time for any reason without significant
penalty. The resources and attention devoted by a licensee, if obtained by us,
to a product are not in our control, and this can result in delays in clinical
testing, the preparation and prosecution of regulatory filings and
commercialization efforts. Even if we are successful in finding licensees for
our products, these delays would cause the payment of any royalties to be
delayed.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities must be obtained in any foreign country prior
to the commencement of marketing of the product in that country. The approval
procedure varies from country to country, can involve additional testing, and
the time required may differ from that required for FDA approval. Although some
procedures for unified filings exist for certain European countries, in general
each country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, substantial delays in obtaining required
approvals from both the FDA and foreign regulatory authorities can result after
the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.
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No assurance can be given that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of our proposed
products, cause us to undertake costly procedures and furnish a competitive
advantage to the more substantially capitalized companies with which we plan to
compete. In addition, the extent of potentially adverse government regulations
which might arise from future administrative action or legislation cannot be
predicted.
PATENTS AND LICENSE RIGHTS
Our success depends in large part on our ability to obtain patents,
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. We applied for U.S. patents covering our
DECAFFOMATIC separation technology and its PLASMA PURE separation technology in
1993. On August 22, l995, we were issued a patent by the U.S. Commissioner of
Patents and Trademarks, Patent Number 5,443,709, for its "Apparatus For
Separating Caffeine From A Liquid Containing the Same." On December 11, 1996, we
received notice from the U.S. Patent Office that its core patent application for
the electrostatic separation technology for removing substances from a fluid had
been allowed. That patent was subsequent issued as Patent No. 5,503,724 for "A
Process For Decaffeinating Caffeine Containing Liquid"
We believe that patent protection of our technologies, processes and
products are very important to our future operations. The success of our
proposed products may significantly depend upon our ability to obtain patent
protection. No assurance can be given that any patents will be issued or if
issued that they will have commercial value to us. If a patent is granted, the
cost of enforcing our patent rights in lawsuits, if necessary, may be
significant and could materially interfere with our operations.
Although we intend to file additional patent applications as management
believes appropriate with respect to any new products or technological
developments, no assurance can be given that any additional patents will be
issued, or if issued, that they will be of commercial benefit to us. In
addition, to anticipate the breadth or degree of protection that any such
patents may afford is impossible. To the extent that we rely on unpatented trade
secrets and proprietary technology, no assurance can be given that others will
not independently develop or obtain substantially equivalent or superior
technology or otherwise gain access to our trade secrets, that any obligation of
confidentiality will be honored or that we will be able to effectively protect
our rights to proprietary technology. Further, no assurance can be given that
any products developed by us will not infringe patents held by third parties or
that, in such case, licenses form such third parties would be available on
commercially acceptable terms, if at all.
COMPETITION
We and our potential licensees compete with numerous firms, many of which
are large, multi-national organizations with worldwide distribution. These firms
have substantially greater capital resources, research and development and
technical staffs, facilities and experience in obtaining regulatory approvals,
as well as in the manufacturing, marketing and distribution of products, than we
do. Academic institutions, hospitals, governmental agencies and other public and
private research organizations are also conducting research and seeking patent
protection and may develop competing products or technologies on their own or
through joint ventures or other arrangements. In addition, recently developed
technologies or technologies that may be developed in the future are or could be
the basis for competitive products. No assurance can be given that our
competitors will not succeed in developing technologies and products that are
more effective or less costly than any that are being developed by us.
We expect products approved for sale, if any, to compete primarily on the
basis of product uniqueness, efficacy, safety, reliability, price and patent
position. We intend to license our technology to third parties for commerical
development, manufacturing and marketing. Accordingly, our licensees will also
confront the same competitive challenges that we face.
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PRODUCT LIABILITY
The development, manufacture and sale of products incorporating our
technology involve an inherent risk of product liability claims and associated
adverse publicity. We currently do not maintain liability insurance and may need
to acquire such insurance coverage prior to the commercial introduction of some
of the products incorporating our technology by our licensees. No assurance can
be given that we will be able to obtain product liability insurance or, if
obtainable, that it will be on financially reasonable terms. It is anticipated
that the liability insurance for the types of products to be marketed by our
licensees, if available, will be very expensive. If such insurance is not
obtained and maintained at sufficient levels, and if any product liability claim
were brought against us and were sustained for a sufficient amount, it could
have a material adverse affect on our business and financial condition, which
could cause us to cutail or discontinue operations.
EMPLOYEES
As of the date hereof, we have two part-time employees, one in management
and one in administration. None of our employees is represented by a labor
union. We consider our relations with our current employees to be satisfactory.
See "Management" .
ENVIRONMENTAL QUALITY
We believe that we are now in compliance with all Federal, State and local
laws relating to the protection of the environment. We do not generate, store,
transport or dispose of any hazardous waste, and that management believes that
none of our products is regarded as a hazardous material by the applicable
regulations for the protection of the environment. We do not anticipate making
any capital expenditures in the current or succeeding fiscal year for
environmental control efforts regarding our products.
DESCRIPTION OF PROPERTY
Our principal offices are currently located at 865 First Avenue, New York,
New York, in a shared office arrangement provided for no charge through an
affiliate of one of our directors on an oral, month-to-month rental basis.Upon
the end of the current rental arrangement at 865 First Avenue, if we are
successful in licensing our technology and have adequate finacial resources, we
expect to be able to either negotiate a new lease with the current landlord or
locate suitable premises elsewhere for fair market rent. We believe that our
property and equipment are in good operating condition and are adequate for
existing and immediately foreseeable needs.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- -------
We are in the development stage and our operations are subject to all the
problems, expenses, delays and other risks inherent in the establishment of a
new business enterprise, as well as the problems inherent in developing and
marketing a new product/service and in establishing a name and business
reputation. The likelihood of our success must also be considered in connection
with the rapidly and continually changing technology and the competitive
environment in which we will operate. There can be no assurance that our
operations will result in our becoming or remaining economically viable.
Potential
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investors in our common stock should be aware of the problems, delays, expenses
and difficulties encountered by any company in a developmental stage, many of
which may be beyond our control. These include, but are not limited to,
unanticipated regulatory compliance, marketing problems and intense competition
that may exceed current estimates. We have had no revenues from operations to
date and, because we are just beginning to enter the commercial stage, we will
likely sustain operating losses for an indeterminate time period. Since entering
the development phase in July 1992, we have devoted substantially all of our
resources to the research and development of our products and technology and
general and administrative expenses. Since entering the development stage in
July 1992, we have generated an accumulated deficit of $8,801,479 at December
31, 1998 and have a total accumulated deficit of $9,422,387.
We had no revenues from continuing operations in years ending December 31,
1996, December 31, 1997, or December 31, 1998. We have incurred net losses in
each year since our inception in 1986. Given the dormant level of business
activity from 1988 through 1991, we realized that we could not continue with our
earlier luminator technology product, we discontinued operations and were
reactivated and entered into a new development stage in July 1992.
Our losses incurred since inception have resulted principally from
expenditures under its research and development programs, and we expect to incur
significant operating costs and possible losses therefrom over the next several
years due primarily to expanded research and development efforts in the PLASMA
PURE area and related medical products, preclinical and clinical testing of its
product candidates and the performance of commercialization activities. There
can be no assurance of when and whether we will generate significant revenues or
become profitable on a sustained basis, if at all.
Our ability to achieve sales and revenue will depend upon our ability to
license our technology to a third party licensee, if any, and for the licensee
to successfully develop, test and sell products incorporating our technology.
Our ability to generate revenue and become profitable is dependent in large part
on obtaining a licensee who can commercialize our lead product, the
DECAFFOMATIC, , entering into additional licensingagreements for our separation
technology and the ability of our licensees to commercialize successfully
products incorporating our technologies. There can be no assurance that our
operations will generate revenue or will ever be profitable. The following
discussion and analysis should be read in conjunction with the Financial
Statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Net losses decreased from $3,631,105 for the year ended December 31, 1997
to $2,881,162 for the year ending December 31, 1998, a 20.6% decrease. We had no
revenues or operating income for years ended December 31, 1997 and December 31,
1998 from continuing operations. For the year ended December 31, 1998, we had no
interest income. $5,541 in interest was earned for the comparable period in
1997.
Total operating expenses were $2,656,431 for 1998 in comparison to
$3,592,574 for 1997, a decrease of 26%. The decrease in these costs from 1997 to
1998 was primarily due to a significant decrease in litigation settlement costs,
as well as decreased advertising and research and development expenses. All
research and development costs were expensed currently in the year incurred,
rather than capitalized. This resulted in a loss per share of $(.39) for the
year ended December 31, 1998, in comparison to a loss per share of $(.57) for
the year ended December 31, 1997.
At December 31, l998, the Company had total assets of $140,061. Total
liabilities of $911,405 and total stockholders' deficit of $(771,344).
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
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Net losses increased to $3,631,105 for the year ended December 31, 1997
from $1,062,758 for the year ending December 31, 1996, a 242% increase. We had
no revenues or operating income for years ended December 31, 1996 and December
31, 1997 from continuing operations. For the year ended December 31, 1997, we
earned $5,541 in interest on its interest bearing investment account. $3,022 in
interest was earned for the comparable period in 1996.
Total operating expenses were $3,592,574 for 1997 in comparison to $758,280
for 1996. The increase in these costs from 1996 to 1997 was primarily due to
increased outside consultants' and professional fees, litigation settlement
costs, higher costs under research agreements with outside institutions, and
more staffing and wages and salaries for research and development being
performed in 1997 than those incurred in 1996 as the Company continues further
product research, development and refinement on its Decaffomatic and other
separation technologies. All research and development costs were expensed
currently in the year incurred, rather than capitalized. This resulted in a loss
per share of $(.33) for the year ended December 31, 1996, in comparison to a
loss per share of $(.57) for the year ended December 31, 1997.
At December 31, l997, we had total assets of $58,940. Total liabilities of
$1,875,753 and total stockholders' deficit of $(1,816,813).
LIQUIDITY AND CAPITAL RESOURCES
We had negative working capital as of December 31, l997, of $1,860,973 in
comparison to a negative working capital position as of December 31, l998 of
$887,413. We had an accumulated deficit of $9,422,387 at the period ended
December 31, l998, in comparison to an accumulated deficit of $6,541,225 at the
period ended December 31, l997. The increase in the accumulated deficit is
primarily related to continuing operating costs during the development phase
without any operating income.
We have financed operations from entering the development phase in July
1992 (through December 31, 1998) primarily through the private placement of our
stock and, to a lesser extent, through borrowings from notes payable. For the
year ended December 31, l998, our cash requirements were satisfied primarily
from the cash reserves in its operating accounts, a private placement of
$225,000 shares of our Series A convertible preferred stock to one purchaser and
$390,000 of total borrowings from private lenders evidenced by 10% Senior
Convertible Notes. The outstanding principal balance of the 10% Senior
Convertible Notes is approximately $108,000 at September 30, 1999, which amount
is currently due, unless they are converted by their holders into our common
stock. Additionally, in February 1999, the Company completed a $600,000
Convertible Debenture private placement to one accredited investor, which
resulted in net proceeds to the Company of $522,000 after payment of placement
fees and expenses. The $390,000 of 10% Senior Convertible Notes and the $600,000
Convertible Debentures all were sold as non-public offerings and all of the
purchasers represented that they were "Accredited Investors" as defined under
SEC Regulation D. Additionally, at December 31, 1998, the Company had $1,378,496
of remaining prepaid media available for execution of its public relations,
advertising and marketing campaign for its decaffeination technology. The
prepaid media was obtained by the Company on September 20, 1996, when it entered
into the Media Purchase Agreement with PML, which received 1,136,364 shares in
consideration for $1,500,000 in prepaid Media Credits to be used at our
direction. PML also received 127,262 Class D Warrants entitling it to acquire
common stock for the price of $1.32 per share for a period ending July 31, 2001.
In the Media Purchase Agreement the purchaser of the shares represented that it
was an "Accredited Investor" as that term is defined under Regulation D
promulgated by the Commission pursuant to the Securities Act. We currently
intend to either use the media in conjunction with a cooperative advertising
campaign conducted by our licensee or sell the media to a third party to raise
additional working capital for our operations and repayment of our indebtedness.
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We do not currently possess a bank source of financing. Our negative
working capital (current assets less current liabilities) at December 31, 1998
was $887,413. Our management believes that unless we are able to sell the
$1,378,496 of media, obtain additional capital financing or license or sell our
technology, none of which can be assured, we cannot be certain that our current
capital will be adequate to continue as a going concern. We have recently
contracted operations by terminating or not renewing the employment of three
persons and not renewing the lease of our prior office in North Andover,
Massachusetts. We are seeking to license our technology to a third party for
further research and development and, because of our limited resources, have
cutailed our own research and development activities pending licensing our
existing technology. Should insufficient funds from these potential sources be
available, reducing our present rate of expenditures further might materially
adversely affect our ability to license our technologies. Our ability to
continue in business as a going concern depends upon our ability to generate
revenues and royalties from the sale or licensing of our technology, to sell our
media from Grow Marketing to conserve liquidity by setting marketing and other
priorities and reducing expenditures, to obtain additional funds through the
placement of our securities. We intend to license our technogies to third party
licensees and have no plans for long term capital expenditures.
We believe that our existing cash together with proceeds from the possible
sale of some or all of the $1.37 million of media from Grow Marketing, will be
sufficient to meet its operating expenses and capital expenditures requirements
for the next 3 months. Our future capital requirements, however, will depend on
numerous factors, including (i) the progress of our licensing of our
decaffeination technology , (ii) the effectiveness of our licensee's efforts to
commercilize a product incorporating our separation technology, including the of
the licensee's sales and marketing efforts and manufacturing operations, (iii)
our ability to establish new licensing 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.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently a limited public trading market for our common stock.
There are currently five market-makers for our common stock. Our common stock
has traded on a limited basis on the OTC Bulletin Board under the symbol "IMSO"
since November 15, 1994. Our stock registrar and transfer agent is Progressive
Transfer Company, Salt Lake City, Utah.
The following table sets forth the high and low closing quotations for the
common stock, as reported by NASDAQ for each fiscal quarterly period during
1998. The quotations as reported reflect inter-dealer quotations without retail
markup, markdown or commission and do not necessarily represent actual
transactions.
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High Low
---- ----
January 1, 1998 - March 31, 1998 $2.687 $1.375
April 1, 1998 - June 30, 1998 2.062 1.312
July 1, 1998 - September 30, 1998 1.656 0.906
October 1, 1998 - December 31, 1998 1.468 0.625
Holders of Common Stock
-----------------------
Approximate Number of Record Holders
Title of Class (As of December 31, 1998)
-------------- ------------------------------------
Common Stock, $.001 par value 278
A number of shares are held of record by brokerage and other institutional firms
for their customers.
Dividends
---------
We have never declared or paid a cash dividend on its common stock, and it
is anticipated that we will retain any future earnings for use in our business
and not pay cash dividends. Declaration and payment of dividends are within the
discretion of our Board of Directors, which will review such dividend policy
from time to time.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information concerning the executive
officers, directors and key employees of the Company:
The current directors of the Company are set forth in the following table:
YEAR FIRST
OFFICE WITH ELECTED AS
NAME COMPANY AGE DIRECTOR
Timothy J. Keating Chairman & Chief 36 1999
Executive Officer
Gary A. Graham Director 51 1997
Each Director is elected for a period of one year and thereafter serves
until his successor is duly elected by the stockholders.
The Directors of the Company are not currently compensated as Directors,
but the Board of Directors may in the future determine to pay directors' fees
and reimburse directors for expenses related to their activities. Directors do
not receive any compensation for services as directors. During fiscal year 1999,
the Company's Board of Directors performed the functions of a compensation
committee of the Board in reviewing the compensation paid to employees, and of
an audit committee in reviewing financial statements, management and internal
audits. We do not have a separate Nominating or Compensation Committee.
The current executive officers of the Company are set forth in the
following table:
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YEAR
FIRST ELECTED OFFICE
NAME AGE INTO OFFICE WITH COMPANY
Timothy J. Keating 36 1999 Chief Executive Officer
Gary A. Graham 51 1997 Director and Secretary
There are no employment contracts with the executive officers. The Company
had an employment agreement with Sol L. Berg, its former President, who was
terminated on March 10, 1999 and, Alexander Hoffmann, its former Chief Executive
Officer who resigned in August 1999. Officers serve at the will of the Board of
Directors.
There are no other significant employees of the Company and there are no
family relationships.
TIMOTHY J. KEATING (AGE 36)
Mr. Keating became a Director of the Company in March 1999, when he was
elected to fill a vacancy on the Board of Directors and was elected Chairman and
Chief Executive Officer in August 1999 upon the resignation of Mr. Alexander T.
Hoffmann. Mr. Keating operates his own investment firm , Keating Investments,
Inc., based in San Francisco, California. Prior to forming his own firm, was a
principal and portfolio manager in a private partnership investing in microcap
companies. Prior to that time, Mr. Keating founded and ran the European Equity
Derivative Products Department for Nomura International plc, in London, England.
Prior thereto he was a proprietary arbitrage trader and head of the European
Equity Trading Department at Bear Stearns International Limited, London. Mr.
Keating is a graduate of Harvard College.
GARY A. GRAHAM (AGE 51)
Mr. Graham became a Director of the Company in October 1997 and secretary
of the Company in October 1999. He is the president of First Capital financial
services Corporation, which is an investment advisor to the Company, Proxhill
Marketing, Ltd., and First Capital Investments, Inc., a registered broker dealer
and member of the National Association of Securities Dealers, Inc. In 1996,
First Capital Investments, Inc., served as a placement agent for the Company in
connection with its private placement of $1.5 million of common stock and its
purchase of $1.5 million of prepaid media from Proxhill Marketing, Ltd. Mr.
Graham also serves as a member of the Board of Directors of Proxhill Marketing,
Ltd., First Capital Financial Services Corporation and First Capital
Investments, Inc. He received a Bachelor of Science in Business administration
from Dyke College.
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EXECUTIVE COMPENSATION
Summary Compensation Table
- --------------------------
The following table set forth the annual and long-term compensation of the
chief executive officer and other executive officers for services in all
capacities for the fiscal years ended December 31, 1997 and 1998, whose total
annual salary and bonus exceeded $100,000 in any of those fiscal years.
SUMMARY COMPENSATION TABLE
Additional
Name of Individual Capacity Year Salary Compensation
- ------------------ -------- ---- ------ ------------
Alexander Hoffmann Former Executive 1998 $150,000 $275,000(1)
Offier 1997 $ 25,962 $105,600
Sol L. Berg Former President 1998 $125,000 $ 86,070(2)
1997 $115,625
1996 $100,000(2)
James A. Yurak Former Director 1998
1997 $100,000(3)
1996 $100,000
Alan D. Waldman Former Director 1998
1997
1996 $132,000(4)
(1) Amounts for 1998 represents accrual of entire salary due under employment
agreement and grant of 250,000 options to acquire the Company's common
stock at $1.50 per share. At the date of grant the stock had a fair market
value of $2.00 per share, and 100,000 shares of common stock issued for
past services. In connection with the signing of his employment agreement
in October 1997, Mr. Hoffmann was granted 80,000 shares of unregistered
common stock of the Company. The value of shares shown use the same $1.32
price per share that shares were sold to Hampton Tech Partners II, LLC in
October 1996. He is also entitled to an annual salary of $150,000.
(2) Amounts for 1998 represents accrual of entire salary due under employment
agreement and issuance of 57,380 shares of common stock issued for past
services. Consist of 150,000 shares of the Company received by Mr. Berg
pursuant to the general exchange of the Company's shares for shares of DPI
conducted in May 1996. In November of 1995, Mr. Berg had received 250,000
shares of DPI for assigning his patent to the decaffeination technology and
for other services rendered. When all of the shares of DPI not owned by the
Company were exchanged by the respective DPI shareholders in May 1996 for
Company shares on a 0.6 Company shares to DPI share basis, Mr. Berg
received the 150,000 shares of the Company.
(3) In connection with the signing of his amended employment agreement in
September 1996, Mr. Yurak was granted 75,000 shares of unregistered common
stock of the Company. He also received 75,000 shares of unregistered common
stock of the Company in March 1997. The value of shares shown use the same
$1.32 price per share that shares were sold to Hampton Tech Partners II,
LLC in October 1996.
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(4) For his services the Company agreed to issue Dr. Waldman 100,000 shares of
common stock in October 1996 which shares did not vest and were not
delivered until January 1997. The value of shares shown use the same $1.32
price per share that shares were sold to Hampton Tech Partners II, LLC in
October 1996.
There are no arrangements known to the Company which may at a subsequent
date result in a change in control of the Company.
The Company currently provides medical insurance to all its employees.
Employment Arrangements
- -----------------------
We currently have no employment agreements.
Effective as of October 1, 1997, the Company entered into an employment
agreement with Alexander T. Hoffmann providing for Mr. Hoffmann's employment as
the Company's Chief Executive Officer and Chairman for a three year term. Mr.
Hoffmann's salary under this agreement was $150,000 per year. Mr. Hoffmann
resigned in August 1999 and waived any severance or future fringe benefits from
us.
Effective as of October 1, 1997, the Company entered into an employment
agreement with Sol L. Berg providing for Mr. Berg's employment as the Company's
President for a three year term. Mr. Berg's salary under this agreement was
$125,000 per year. The agreement also provided that Mr. Berg shall be provided
with a car by the Company and be reimbursed for automobile insurance. Mr. Berg
shall also be entitled to medical insurance, vacation and other benefits
provided to the Company's employees generally. In the event that Mr. Berg's
employment with the Company is terminated by the Company other than for cause,
Mr. Berg shall receive six months' base salary. Mr. Berg's Employment Agreement
was terminated by the Company in March 1999.
As of February 26, 1997, DPI entered into a consulting agreement with Mr.
James G. Yurak, a former director , to provide marketing and sales consulting
services and advice to DPI through December 31, 1999. Under Mr. Yurak's
agreement, he was paid a base retainer of $12,000 per year and will be paid a
per diem fee of $1,000 when specific services are expressly requested by DPI.
From February 23, 1996 through February 26, 1997 Mr. Yurak served as a Director
of the Company and was President and Chief Executive Officer of DPI. As total
compensation for such services Mr. Yurak was also granted 75,000 shares of the
Company's common stock upon signing his employment agreement and 75,000 shares
after one full year of employment.
Effective as of October 1, 1997, the Company entered into an employment
agreement with James Crose providing for Mr. Crose's employment as the Company's
Vice President of Engineering for a two year term. Mr. Crose's salary under this
agreement is $85,000 per year. Mr. Crose shall also be entitled to medical
insurance, vacation and other benefits provided to the Company's employees
generally. Because of our limited finacial resources, Mr. Crose's agreement was
not renewed after its term ended on September 30, 1999.
Except as described above, there are presently no pension or other plans or
arrangements pursuant to which remuneration is proposed to be paid in the future
to any of the officers or directors of the Company other than as set forth
above. At the present time, the directors do not receive compensation of any
form. We do not provide life, health or medical plans to officers or employees.
Except as provided above, we have no employment contracts with any executive
officers or other employees.
CERTAIN LIMITED LIABILITY, INDEMNIFICATION AND ANTI-TAKEOVER MEASURES
Our Articles of Incorporation limit the liability of its directors to the
fullest extent permitted by the Delaware Business Corporation Law. Specifically,
our directors will not be personally liable for monetary
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damages for breach of fiduciary duty as directors, except for liability for (i)
any breach of the duty of loyalty to us or our shareholders, (ii) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions, (iv)
violations of certain securities law, or (v) any transaction from which the
director derives an improper personal benefit. Liability under Federal
securities laws are not limited by the Articles of Incorporation. The Delaware
Business Corporation Law requires that we shall indemnify any director, officer
or employee made or threatened to be made a party to a proceeding, by reason of
the former or present official capacity of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in our name. Reference is made to the detailed terms of the Delaware
indemnification statute for a complete statement of such indemnification rights.
Our Restated Bylaws require us to provide indemnification to the fullest extent
of the indemnification statute.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we are aware that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Except as described above, there are presently no pension or other plans or
arrangements pursuant to which remuneration is proposed to be paid in the future
to any of our officers or directors..
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table identifies each person known to us as of December 31,
1998 to be the beneficial owner of more than five percent of our common stock,
each of our directors and all of our directors and officersas a group, and sets
forth the number of shares of our common stock beneficially owned by each such
person and such group and the percentage of the shares of our outstanding common
stock owned by each such person and such group. In all cases, the named person
individually or together with his spouse has sole voting power and sole
investment power over the securities.As of the December 31, l998, four persons
owned of record or were known by us to own beneficially more than five percent
(5%) of the common stock outstanding.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Hampton Tech Partners II, LLC
8400 East Prentice Avenue
Englewood, CO 80111 (1) 1,117,424 14.5%
Hampton Tech Partners, LLC
8400 East Prentice Avenue
Englewood, CO 80111 (2) 150,000 1.9%
Proxhill Marketing, Inc.(3) 1,312,362 17.1%
9250 E. Costilla Avenue
Englewood, CO 80112
Gary A. Graham (4) 1,399,635 18.2%
9250 E. Costilla Avenue
Englewood, CO 80112
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Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Sol L. Berg (5) 442,380(5) 5.8%
11 Royal Crest Drive
North Andover, MA 01845
Gloria Berg 177,869(6) 2.3%
11 Royal Crest Drive
North Andover, MA 01845
Mrs. Alexander T. Hoffmann 369,900 4.8%
1660 Old Country Road
Plainview, NY 11803
Scott Singer 5,000 *
366 North Broadway
Jericho, NY 11753
Alexander T. Hoffmann(7) 180,000 2.3%
c/o IMSCO
40 Bayfield Drive
North Andover, MA 01845
Timothy J. Keating(4) 25,000 *
220 Montgomery Street
San Francisco, CA 94104 -----------
Sands Brothers & Co., Ltd (8) *
90 Park Avenue
New York, NY 10016
All Officers and Directors 1,609,635 21.0%
as a group (4 persons)
- -----------------
(1) The members of Hampton Tech Partners II, LLC who indirectly and
beneficially own these shares of the Company are:
Steven Demby, Equitrust Mortgage Corporation, David McCall, Scott Robinson,
Kent Lovelace, Bennett Aisenberg, Gerald Gray, Tyler Runnels, Andrew
Telsey, Bravely Morton, Grant Street Joint Venture, Andrew Telsey, SEP/IRA,
David Sprang, James Curtis, Mark Rosenberg, Charles McKenney, Michael
Geller, Hampton Partners Investments, LLC, 181 Realty, Inc., Capital Market
Solutions, Inc. Clifford Greenbaum, Jolie Robinson, Henrik Oerbekker,
Russell Scott, Joseph Scott, Suzanne Robinson, Doug Hickok, Bob Sanderman,
Mark Bradford, Stanley Cohen, and Mark Lampirski.
(2) The natural persons who are the Hampton Tech Partners, LLC are:
Hampton Partners Investments, Inc., Kent Lovelace, David McCall, Scott
Robinson, Jack Robinson, Wexler & Burkhart, Del Morton, David Strang, and
Henrik Oerbekker.
(3) Does not include 127,272 shares issuable to Proxhill Marketing, Ltd., upon
exercise of the Class D Warrants for the exercise price of $1.32 per Share
or the 9,000 shares issuable upon conversion of the Series A convertible
preferred stock.
(4) Denotes a director of the Company.
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(5) Sol L. Berg is the former President of the Company. His shares do not
include either (i) 177,869 shares owned by his wife, Gloria Berg, or (ii)
166,110 shares owned directly by Sol L. Berg's three adult children, since
Mr. Berg has disclaimed any interest and may not be deemed to have voting
or investment power over these shares.
(6) The shares shown as owned by Gloria Berg do not include either (i) 442,380
shares owned by her husband, Sol L. Berg, or (ii) 166,110 shares owned
directly by Sol L. Berg's three adult children, since Mrs. Berg may not be
deemed to have shares voting or investment power over these shares.
(7) The shares shown as owned by Alexander T. Hoffman do not include 369,900
owned by his wife Rosemary Hoffmann, since Mr. Hoffmann has disclaimed any
interest and may not be deemed to have voting or investment power over
these shares or the 250,000 shares issuable upon exercise of common stock
warrants.
(8) Does not include 600,000 shares issuable upon exercise of common stock
warrants.
* Less than 1%
There are no arrangements known to the Company which may, at a subsequent
date, result in a further change in control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Except as described below, since January 1, l998, there have been no
transactions with any officer, director or five percent (5%) or more shareholder
in which the amount involved exceeded $60,000.
On September 20, 1996, the Company entered into the Media Purchase
Agreement with PML, wherein PML agreed to sell $1,500,000 of media to us in
consideration for our issuing 1,136,363 shares of common stock, representing a
price of $1.32 per share. In connection with the private placement of the shares
to HTP, HTP-II and PML, First Capital Investments, Inc., a broker-dealer which
is a member of the National Association of Securities Dealers, Inc. ("NASD"),
received 242,273 Class A Warrants entitling it to acquire common stock for the
price of $1.45 per Share exercisable over a period ending July 31, 2001. First
Capital Investments, Inc., also received a placement fee equal to 10% of the
$1.5 million received under the Stock Purchase Agreement, a non-accountable
expense allowance equal to 3% of the amount raised under the Stock Purchase
Agreement. As media is used under the Media Purchase Agreement, First Capital
Investments, Inc., shall also receive a placement fee of 10% of the amount of
media used. For advertising and marketing services rendered to us in 1996 and
1997, PML also received the 127,272 Class D Warrants, entitling it to acquire
common stock for the price of $1.32 per Share for a period ending July 31, 2001.
Mr. Gary A. Graham who was elected a Director of the Company in October 1997 and
secretary in October 1999 is also the President and a Director of PML and First
Capital Investments , Inc. In 1998, Gary Graham was issued 136,000 shares of
common stock for expense reimbursement and services rendered to us.
Additionally, PML received 48,727 shares of common stock for expense
reimbursement and services rendered to us. PML also invested $225,000 in us for
45,000 shares of our preferred stock which are convertible into 225,000 shares
of common stock, representing a conversion price of $1.00 per share of common
stock.
In 1997, Mr. Alexander T. Hoffmann, a former director and chief executive
officer, received 80,000 shares of common stock as compensation for services
rendered under his Employment Agreement. In 1998, Mr. Hoffmann was issued
100,000 shares of common stock of the Company for services rendered.
Additionally, Mr. Hoffmann was granted 250,000 stock options exercisable at
$1.50 per share for a period of three years.
-43-
<PAGE>
In 1998, Mr. Sol L. Berg, a former director and former president, was
issued 57,380 shares of common stock for services rendered and reimbursement of
expenses.
Except as above described, there have been no business relationships with
our directors or nominees for director since January 1, l998. At December 31,
l998, no officers or directors were indebted to us.
Stock Option Plan
- -----------------
In July 1996, we adopted a Non-Qualified Stock Option Plan (the ."Plan").
An aggregate of 1,500,000 shares of common stock are authorized for .issuance
under the Plan. The Plan provides that incentive and non-qualified .options may
be granted to our officers, directors, consultants and key employees for the
purpose of providing an incentive to those persons to work .for us. The Plan may
be administered by either the Board of Directors .or a committee of three
directors appointed by the Board ("Committee"). The Committee has wide latitude
in determining the recipients of options and numerous other terms and conditions
of the options. The Board or Committee determines, among other things, the
persons to whom stock .options are granted, the number of shares subject to each
option, the date or .dates upon which each option may be exercised and the
exercise price per share.
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's termination
of employment or consulting arrangement with us, except that under certain
circumstances an optionee may exercise an option within the three-month period
after such termination of employment. An optionee may not transfer any options
except that an option may be exercised by the personal representative of a
deceased optionee within the three-month period following the optionee's death.
Employees as well as other individuals, such as outside directors, who
provide necessary services to us, are eligible to participate in the Plan.
Non-employees and part-time employees may receive only non-qualified stock
options. The maximum number of shares of common stock for which options may be
granted under the Plan is 1,500,000 shares.
Each Director serves until the next annual meeting of shareholders, or
until his successor is elected and qualified. The term of each officer is at the
discretion of the Board of Directors. The by-laws provide that the Chairman of
the Board of Directors has a second vote in the event that a majority vote of
the Board of Directors is not obtained.
DESCRIPTION OF SECURITIES
General
- -------
We are authorized to issue an aggregate of 15,000,000 shares of common
stock and 1,000,000 shares of preferred stock. The preferred stock may be issued
in such series, and with such rights, designations and privileges as our Board
of Directorsmay, from time to time, authorize.
common stock
- ------------
Holders of the common stock are entitled to one vote per share and, subject
to the rights of the holders of the preferred stock (discussed below), to
receive dividends when and as declared by the board of directors and share
ratably in our assets legally available for distribution in the event of our
liquidation, dissolution or winding up.
-44-
<PAGE>
Holders of the common stock do not have subscription, redemption or
conversion rights, nor do they have any preemptive rights. In the event we were
to elect to sell additional shares of our common stock following this offering,
investors in this offering would have no right to purchase additional shares of
such stock and consequently, their percentage of equity interest would be
diluted.
The shares of common stock offered hereby will be, when issued and paid
for, fully paid and not liable for further call or assessment.
Holders of the voting stock do not have cumulative voting rights, which
means that the holders of more than half of the shares of voting stock can elect
all of our directors, if they choose to do so, and in such event the holders of
the remaining shares would not be able to elect any directors. The board is
empowered to fill any vacancies on the board created by the resignation of
directors.
Except as otherwise required by the Delaware Corporation Law, all
shareholder action (other than the election of directors, who are elected by a
plurality vote) is taken by vote of a majority of shares of voting stock present
at a meeting of shareholders at which a quorum (a majority of our issued and
outstanding shares of voting stock) is present in person or by proxy.
Preferred Stock
- ---------------
Pursuant to our Certificate of Incorporation, we are authorized to issue a
maximum of 1,000,000 shares of preferred stock in such series and with such
rights, designations and privileges (including voting rights and dividends) as
the board of directors may, from time to time, authorize. There are 45,000
shares of Series A Convertible Preferred Stock which are convertible into
225,000 shares of common stock outstanding at a conversion price of $1.00 per
share of common stock. We currently have no plans, arrangements, commitments or
intentions to issue any other preferred stock.
Warrants and Options
- --------------------
As of September 30, 1999 there were warrants and stock options outstanding
to purchase an aggregate of approximately 1,795,000 shares of common stock at
exercise prices ranging from $.40 per share to $2.00 per share. The warrants and
options contain provisions for the adjustment of the exercise prices in certain
events, including sales of common stock at less than the exercise price, stock
dividends, stock splits, reorganizations, reclassifications or mergers. The
warrants and options expire on various dates between January 31, 2002 and
September 30, 2003. The holders of the 2003 Warrants and 2002 Warrants are
entitled to registration rights for the underlying common stock, which
underlying shares represent 1,400,000 shares and 120,000, respectively.
The 1,400,000 2003 Warrants entitle the registered holders thereof to
purchase one share of common stock at a price of $1.00 per share, subject to
adjustment in certain circumstances. The 2003 Warrants will expire at 5:00 p.m.,
New York City time, on September 30, 2003.
The 120,000 2002 Warrants entitle the registered holder thereof to purchase
one share of common stock at a price of $0.75 per share, subject to adjustment
in certain circumstances. The 2002 Warrants will expire at 5:00 p.m., New York
City time, on January 31, 2002.
The exercise price and number of shares of common stock issuable on
exercise of the warrants are subject to adjustments under certain circumstances,
including in the event of a stock dividend, recapitalization, reorganization,
merger or consolidation. However, the warrants are not subject to adjustment for
issuances of common stock at a price below their respective exercise prices. The
warrantholders do not have the rights or privileges of holders of common stock,
including, without limitation, the right to vote on any matter presented to
stockholders for approval.
-45-
<PAGE>
The 8% Convertible Debentures
- -----------------------------
The debentures are in the principal amount of $600,000, bearing interest at
8% per annum, with the principal balance and any accrued but unpaid interest due
on January 31, 2002. The entire unpaid balance of the debenture and accrued
interest thereon outstanding on the maturity date shall automatically convert
into common stock at the conversion price on the maturity date. The holder may
convert the debentures into common stock of the Company at a conversion price
per share equal to the lesser of (i) 75% of the average of the lowest price at
which a trade is executed on any three trading days during the twenty-two day
trading period ending on the trading day immediately prior to the date of
conversion, or (ii) $.50.
Interest is payable on the debenture quarter-annually, in arrears, on
February 1, May 1, August 1 and November 1 of each year. At our option, interest
may be paid in cash or in common stock at the conversion price of the principal
amount of the debenture. Upon an event of default, as such terms is defined in
the debenture, the entire principal amount and all accrued interest thereon
shall become immediately due and payable. The holder of the debenture is granted
demand registration rights under which we are obligated to file a registration
statement with the Securities and Exchange Commission registering the shares of
common stock that may be issued upon conversion of the debenture. In the event
that such registration statement is not effective by June 15, 1999, we are
obligated to pay an amount equal to 1.5% per month of the outstanding amount of
the debenture until the registration statement is declared effective.
The holder of the debenture and the warrant cannot convert the debenture if
as a result such holder would own more than 9.99% of the outstanding shares of
common stock, through conversion of the debentures, exercise of the warrants or
otherwise, except in the event of a tender offer or merger or acquisition of us.
Transfer Agent
- --------------
The Transfer Agent and Registrar for our common stock is Interwest
Transfer, which was formerly Progressive Transfer Company. We act as our own
transfer registrar for our warrants outstanding.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering and assuming conversion of the
$600,000 of 8% convertible debentures into common stock and the payment of
interest on the debentures, at our option, with shares of common stock, at an
assumed rate of $.12 per share, and the exercise of the 1,110,000 of warrants,
based on the shares outstanding on September 30, 1999, we will have
approximately 14,120,508 shares of common stock outstanding. Substantially all
of these shares, including the 6,334,000 shares being registered in this
Prospectus for issuance upon exercise of the warrants and conversion of the 8%
convertible debenture, will be freely tradable without restriction or further
registration under the Securities Act, except for any shares held by an
"affiliate" (as defined in the Securities Act and the rules and regulations
thereunder) which will be subject to the limitations of Rule 144.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate (or
persons whose shares are aggregated), who has beneficially owned the restricted
shares of common stock to be sold for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or, if
the common stock is quoted on an exchange or NASDAQ, the average weekly trading
volume during the four calendar weeks preceding the sale. A person who has not
been an affiliate for at least the three months immediately preceding the sale
and who has beneficially owned the shares of common stock to be sold for at
least two years is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.
No prediction can be made as to the effect, if any, that market sales of
restricted shares of common stock or the availability of such shares for sale
will have on the market prices prevailing from time to time.
-46-
<PAGE>
Nevertheless, the possibility that substantial amounts of common stock may
be sold in the public market would likely adversely affect prevailing market
prices for the common stock and could impair our ability to raise capital
through the sale of its equity securities in the future.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our By-laws provide for the indemnification of our directors and officers
for certain liabilities and costs incurred by them in connection with
performance of their duties. This indemnification may include indemnification
for liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
LEGAL MATTERS
The law firm of Cummings & Lockwood, Stamford, Connecticut, has acted as
counsel for the company in connection with the validity of the common stock
offered hereby. Mr. David Fleming, a member of Cummings & Lockwood, beneficially
owns approximately 115,000 shares of our common stock.
EXPERTS
The financial statements for each of the two years ended December 31, l997,
and l998 appearing in this Prospectus and Registration Statement have been so
included in reliance on the reports of Moore Stevens, P.C., independent
accountants, given on the authority of said firms as experts in auditing and
accounting.
ADDITIONAL INFORMATION
We have filed a Registration Statement with the Commission under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to us and this offering,
reference is made to the Registration Statement, including the exhibits and
schedules filed therewith, copies of which may be obtained at prescribed rates
from the Commission at its principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
75 Park Place, New York 10007, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400 Chicago, Illinois, 60604. Descriptions contained in this
Prospectus as to the contents of any agreement or other documents filed as an
exhibit to the Registration Statement are not necessarily complete and each such
description is qualified by reference to such agreement or document.
We intend to furnish to our stockholders annual reports containing
financial statements audited and reported upon by our independent public
accountants.
-47-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
IMSCO Technologies, Inc.
North Andover, Massachusetts
We have audited the accompanying consolidated balance sheet of IMSCO
Technologies, Inc. and Subsidiaries [a development stage company] as of December
31, 1998, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the years ended December 31, 1998 and 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of IMSCO Technologies, Inc. and Subsidiaries [a development stage
company] as of December 31, 1998, the results of their operations and their cash
flows for each of the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
8 to the consolidated financial statements, the Company has suffered recurring
losses since its inception primarily resulting from no revenues, has accumulated
deficits at December 31, 1998 of $9,422,387, has utilized $768,184 in cash for
operations for the year ended December 31, 1998, and is in default on certain
promissory notes. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 8. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
April 28, 1999, except as to Note 16D
for which the date is May 25, 1999 and
Note 16E for which the date is May 26, 1999
-48-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
Assets:
- -------
Current Assets:
Cash $ 22,992
Other Current Assets 1,000
--------
Total Current Assets 23,992
--------
Property and Equipment:
Property and Equipment 123,066
Leasehold Improvements 5,845
--------
Total - At Cost 128,911
Less: Accumulated Depreciation and Amortization (98,918)
--------
Property and Equipment - Net 29,993
--------
Other Assets:
Deposits 3,499
Deferred Financing Costs[15] 82,577
Total Other Assets 86,076
--------
Total Assets $140,061
========
See Notes to Consolidated Financial Statements.
-49-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
Liabilities and Stockholders' [Deficit]:
- ----------------------------------------
Current Liabilities:
- --------------------
Notes Payable[15][16D] $ 390,000
Accounts Payable 161,982
Accrued Salaries 153,190
Accrued Expenses 24,472
Accrued Payroll Taxes 48,006
Accrued Marketing Fees 53,000
Accrued Legal Fees 50,955
Due to Stockholders 29,800
------------
Total Current Liabilities 911,405
------------------------- ------------
Commitments and Contingencies [7] [12] --
- -------------------------------------- ------------
Stockholders' [Deficit]:
- ------------------------
Series A Preferred Stock - Authorized 1,000,0000 Shares
at $.0001 Par Value; 45,000 Convertible Shares, Issued and
Outstanding [5F] 5
Common Stock - Authorized 15,000,000 Shares at $.0001 Par Value;
7,681,278 Shares Issued and Outstanding 769
Additional Paid-in Capital - Series A Convertible Preferred Stock 224,995
Additional Paid-in Capital - Common Stock 9,803,770
Less: Prepaid Advertising Credits (1,378,496)
Deficit Accumulated During Development Stage (8,801,479)
Accumulated Deficit - Discontinued Operations (620,908)
------------
Total Stockholders' [Deficit] (771,344)
----------------------------- ------------
Total Liabilities and Stockholders' [Deficit] $ 140,061
--------------------------------------------- ============
</TABLE>
See Notes to Consolidated Financial Statements.
-50-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative
----------
Amounts
-------
from
----
July 9, 1992
------------
[Inception of
-------------
the Current
-----------
Development
-----------
Years ended Stage] to
-----------------------------------
December 31, December 31,
-------------------------------------
1 9 9 8 1 9 9 7 1 9 9 8
-----------------------------------------
<S> <C> <C> <C>
General, Administrative and Development Expense:
- ------------------------------------------------
Research and Development Expense $ 29,900 $ 66,251 $ 293,014
Salaries and Wages 266,511 189,794 702,154
Officer Salaries 661,070 190,714 1,184,853
Payroll Taxes 55,846 29,756 140,872
Outside Labor 36,596 34,190 191,136
Professional and Consulting Fees 161,490 276,547 908,020
Professional and Consulting Fees - Non-Cash [5C][11] 1,126,158 735,249 2,074,969
Rent 17,804 58,217 156,019
Rent - Related Party 3,750 -- 3,750
Insurance 73,642 34,763 163,243
Travel and Business Meeting 59,390 51,997 177,929
Auto Expense 20,230 16,247 60,769
Telephone and Utilities 11,329 16,376 61,402
Office Expense 10,366 80,195 130,843
Equipment Rental 8,474 16,480 33,299
Corporate Fees 9,808 19,568 69,981
Advertising 92,942 223,961 318,703
Depreciation and Amortization 10,669 13,258 23,927
Litigation Settlement -- 1,538,392 1,538,392
Franchise Tax 456 619 1,987
-----------------------------------------
General, Administrative and Development
---------------------------------------
Expense 2,656,431 3,592,574 8,235,262
------- -----------------------------------------
Other Income [Expense]:
- -----------------------
Dividend and Interest Income -- 5,541 11,633
Interest Expense [15] (224,731) -- (533,778)
Loss on Sale of Fixed Assets -- (44,072) (44,072)
--------- -------- ---------
Other [Expense] - Net (224,731) (38,531) (566,217)
--------------------- --------- -------- ---------
[Loss] Before Income Taxes (2,881,162) (3,631,105) (8,801,479)
--------------------------
Provision for Income Tax -- -- --
- ------------------------ ------------------------------------------
Net [Loss] (2,881,162) $ (3,631,105) $ (8,801,479)
---------- ----------- ============= =============
[Loss] Per Share $ (.39) $ (0.57)
---------------- ============== ============
Weighted Average Shares Outstanding 7,370,026 6,318,281
----------------------------------- =========================
</TABLE>
See Notes to Consolidated Financial Statements.
-51-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]
<CAPTION>
Deficit
-------
Series A Convertible Paid-in Accumulated Accumulated Total
------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Capital During Deficit Prepaid Stockholders'
-----------------------------------------------------------------------------------------------------------
Number of Number of Preferred Paid-in Development Discontinued Advertising Equity
---------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Stock Capital Stage Operations Credit [Deficit]
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
- ----------
December 31, 1995 -- $ -- 2,995,425 $ 299 $ -- $1,796,700 $(1,226,454) $ (620,908) $ -- $(50,363)
- -----------------
Private Placement -- -- 10,000 1 -- 19,999 -- -- -- 20,000
Issuance of
Subsidiary Stock -- -- -- -- -- 10,000 -- -- -- 10,000
Issuance of
Shares -- -- 47,000 5 -- (5) -- -- -- --
Issuance of
Shares for
Consulting
Services -- -- 284,000 28 -- 213,534 -- -- -- 213,562
Issuance of
Shares in
Payment of
Loan -- -- 227,000 23 -- 299,977 -- -- -- 300,000
Issuance of
Shares for
Advertising
Credits -- -- 1,136,000 114 -- 1,499,886 -- -- (1,500,000) --
Issuance of
Shares for
Settlement
of Debt -- -- 775,000 77 -- 943,543 -- -- -- 943,620
Issuance of
Shares for
Subsidiary
Stock -- -- 468,000 47 -- (47) -- -- -- --
Private
Placement -- -- 150,000 15 -- 299,985 -- -- -- 300,000
Net [Loss] -- -- -- -- -- -- (1,062,758) -- -- (1,062,758)
---------------------------------------------------------------------------------------------------------
Balance at
----------
December 31, 1996 -- -- 6,092,425 609 -- 5,083,572 (2,289,212) (620,908) (1,500,000) 674,061
-----------------
Warrants Issued for
Cost of
Advertising
Credits -
Restatement -- -- -- -- -- 108,170 -- -- (108,170) --
---------------------------------------------------------------------------------------------------------
Adjusted Balance at
December 31, 1996 -
Forward -- $ -- 6,092,425 $ 609 $ -- $ 5,191,742 $ (2,289,212) $ (620,908) $(1,608,170) $674,061
=========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-52-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]
<CAPTION>
Deficit
-------
Series A Convertible Paid-in Accumulated Accumulated Total
------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Capital During Deficit Prepaid Stockholders'
-----------------------------------------------------------------------------------------------------------
Number of Number of Preferred Paid-in Development Discontinued Advertising Equity
---------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Stock Capital Stage Operations Credit [Deficit]
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjusted Balance at
- -------------------
December 31, 1996 -
- -------------------
Forwarded -- $ -- 6,092,425 $ 609 $ -- $5,191,742 $(2,289,212) $(620,908) $(1,608,170) $674,061
- ---------
Issuance of
Shares for
Consulting
Services -- -- 100,000 10 -- 274,990 -- -- -- 275,000
Issuance of
Shares on Consulting
Services -- -- 75,000 8 -- 196,867 -- -- -- 196,875
Private
Placement -- -- 23,000 2 -- 34,498 -- -- -- 34,500
Issuance of
Shares for
Professional
Services -- -- 18,500 2 -- 27,747 -- -- -- 27,749
Private
Placement -- -- 15,000 2 -- 33,748 -- -- -- 33,750
Issuance of
Shares for
Consulting
Services -- -- 130,000 13 -- 235,612 -- -- -- 235,625
Private
Placement -- -- 62,611 6 -- 122,994 -- -- -- 123,000
Advertising
Credits Used -- -- -- -- -- -- -- -- 213,732 213,732
Net [Loss] -- -- -- -- -- -- (3,631,105) -- -- (3,631,105)
----------------------------------------------------------------------------------------------------------
Balance at
----------
December 31, 1997 -
-------------------
Forward -- $ -- 6,516,536 652 -- 6,118,198 $(5,920,317) $(620,908) (1,394,438) (1,816,813)
------- ===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-53-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]
<CAPTION>
Deficit
-------
Series A Convertible Paid-in Accumulated Accumulated Total
------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Capital During Deficit Prepaid Stockholders'
-----------------------------------------------------------------------------------------------------------
Number of Number of Preferred Paid-in Development Discontinued Advertising Equity
---------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Stock Capital Stage Operations Credit [Deficit]
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
- ----------
December 31, 1997 -
- -------------------
Forwarded -- $ -- $6,516,536 $ 652 $ -- $6,118,198 $(5,920,317) $(620,908) $(1,394,438) $(1,816,813)
- ---------
Exercise of
Stock Warrants
[5A][11] -- -- 66,000 7 -- 59,393 -- -- -- 59,400
Issuance of
Shares in Settlement
of Litigation [5B] -- -- 399,081 39 -- 1,538,353 -- -- -- 1,538,392
Issuance of
Shares for
Services [5C] -- -- 612,911 62 -- 903,838 -- -- -- 903,900
Issuance of
Stock Warrants
for 600,000 Shares
of Common Stock
for Consulting
Services [11] -- -- -- -- -- 656,284 -- -- -- 656,284
Granting of Stock
Options for 266,750
Shares of Common
Stock to Employees [11] -- -- -- -- -- 133,375 -- -- -- 133,375
Private Placement of
Common Stock [5D] -- -- 70,000 7 -- 69,993 -- -- -- 70,000
Exercise of
Stock Options [5E][11] -- -- 16,750 2 -- 24,998 -- -- -- 25,000
Issuance of Stock
Warrants for
390,000 Shares of
Common Stock for Notes
Payable [15][11] -- -- -- -- -- 299,085 -- -- -- 299,085
Private Placement of
Series A Convertible
Preferred Stock [5F] 45,000 5 -- -- 224,995 -- -- -- -- 225,000
270 Shares Issuable
Pursuant to Financing
Penalty [5F] -- -- -- -- -- 253 -- -- -- 253
Advertising Credits
Used -- -- -- -- -- -- -- -- 15,942 15,942
Net [Loss] -- -- -- -- -- -- (2,881,162) -- -- (2,881,162)
---------------------------------------------------------------------------------------------------------
Balance at
----------
December 31, 1998 45,000 $ 5 $7,681,278 $769 $224,995 $9,803,770 $(8,801,479) $(620,908) (1,378,496) $(771,344)
----------------- ==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-54-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
----------
Amounts
-------
from
----
July 9, 1992
------------
[Inception of
-------------
the Current
-----------
Development
-----------
Years ended Stage] to
----------- ---------
December 31, December 31,
------------ ------------
1 9 9 8 1 9 9 7 1 9 9 8
-----------------------------------------
<S> <C> <C> <C>
Operating Activities:
- ---------------------
Net [Loss] $ (2,881,162) $ (3,631,105) $ (8,801,479)
------------- ------------ ------------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Decrease [Increase] in Due from Officers -- -- (120)
Depreciation and Amortization 10,668 13,258 26,539
Contract Services Paid with Common Stock [5C] 903,900 729,970 2,070,915
Interest Paid with Common Stock 253 -- 300,253
Interest Expense - Deferred Finance Costs [15] 216,508 -- 216,508
Grant of Stock Options and Warrants for
Past Services [11] 789,659 -- 789,659
Amortization of Prepaid Advertising Credits 15,942 213,732 229,674
Loss on Disposal of Property and Equipment -- 44,072 44,072
Changes in Assets and Liabilities:
[Increase] Decrease in:
Other Current Assets -- (1,000) (1,000)
Miscellaneous Receivables -- 200,000 --
Other Assets -- 100 20,200
Security Deposits -- 18,149 1,176
Accounts Receivable -- -- 2,998
Increase [Decrease] in:
Accounts Payable (3,973) 137,078 97,531
Accrued Expenses (59,748) 1,584,156 1,562,864
Accrued Salaries 104,504 48,686 153,190
Accrued Payroll Taxes 31,310 6,146 48,006
Accrued Marketing Fees 53,000 -- 53,000
Accrued Legal Fees 50,955 -- 50,955
--------------------------------------
Total Adjustments 2,112,978 2,994,347 5,666,420
-----------------------------------------
Net Cash - Operating Activities - Forward (768,184) (636,758) (3,135,059)
----------------------------------------- -------- -------- ----------
Investing Activities:
- ---------------------
Purchase of Fixed Assets -- (39,674) (118,212)
Prepaid Research Testing -- -- (7,734)
Proceeds from Sale of Fixed Assets -- 21,000 21,000
----------------------------------
Net Cash - Investing Activities - Forward $ - $ (18,674) $ (104,946)
-----------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-55-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
----------
Amounts
-------
from
----
July 9, 1992
------------
[Inception of
-------------
the Current
-----------
Development
-----------
Years ended Stage] to
----------- ---------
December 31, December 31,
------------ ------------
1 9 9 8 1 9 9 7 1 9 9 8
-----------------------------------------
<S> <C> <C> <C>
Net Cash - Operating Activities - Forwarded $ (768,184) $ (636,758) $ (3,135,059)
------------------------------------------- ------------- ------------ ------------
Net Cash - Investing Activities - Forwarded -- (18,674) (104,946)
------------------------------------------- ------------------ --------
Financing Activities:
- ---------------------
Cash Overdraft (18,804) 18,804 --
Proceeds from Notes Payable 390,000 -- 775,000
Proceeds from Issuance of Common Stock
[5A][5D][5E] 154,400 196,528 2,247,304
Proceeds from Preferred Stock Subscriptions [5F] 225,000 -- 225,000
Loans from Stockholders 38,300 3,000 41,300
Payment on Loans from Stockholders (11,500) -- (11,500)
------- ------------------
Net Cash - Financing Activities 777,396 218,332 3,277,104
---------------------------------------
Net Increase [Decrease] in Cash 9,212 (437,100) 37,099
-------------------------------
Cash - Beginning of Periods 13,780 450,880 (327)
- --------------------------- --------------------------------------
Cash - End of Periods $ 22,992 $ 13,780 $ 36,772
--------------------- =============================================
Supplemental Disclosures of Cash Flow Information:
- --------------------------------------------------
Cash paid during the periods for:
Interest $ -- $ -- $ 9,047
Income Taxes $ -- $ -- $ --
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
- ---------------------------------------------------------------------
During 1998, the Company entered into a financing transaction by settling an
accrued expense of $1,538,392 with the issuance of 399,081 shares of common
stock [See Note 5B].
During 1998, the Company entered into financing transactions by granting stock
warrants in connection with total financing costs of $299,085. The unamortized
balance of deferred financing costs at December 31, 1998 amounted to $82,577
[See Note 15].
See Notes to Consolidated Financial Statements.
-56-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - In July 1996, IMSCO, Inc. was reincorporated in Delaware as IMSCO
Technologies, Inc. The Company filed a Certificate of Incorporation in Delaware
incorporating a new wholly-owned subsidiary, IMSCO Technologies, Inc. The Board
of Directors of the Company at a meeting held in May 1996 voted, subject to the
adoption by the stockholders, to merge into its wholly-owned subsidiary, IMSCO
Technologies, Inc., a Delaware corporation. On July 9, 1996, the stockholders of
IMSCO, Inc., voted to approve the change of corporate domicile from
Massachusetts to Delaware. Therefore, on July 18, 1996, there remained one
surviving corporation and the name surviving corporation became IMSCO
Technologies, Inc. As of the effective date of the merger, each stockholder of
the Company held one share of common stock, par value $.0001 per share, of IMSCO
Technologies, Inc. for each one share of common stock, par value $.001 per
share, of IMSCO, Inc.
previously held by him.
Imsco Technologies, Inc., a Delaware corporation, is currently a development
stage enterprise which has developed a core technology that achieves molecular
separation with innovative applications of electrostatics. Until July 7, 1992,
the Company was engaged in the sale of an automated luminometer and an
accompanying reagent system that measures raw material for microbiological
contamination. The Company discontinued operations and liquidated the remaining
inventory of reagents on April 16, 1993. Due to a lack of demand for the
technology developed, the Company changed its focus and began applying its
engineering and medical talents to the development of a separation system. No
revenue has been received from current products to date. The technology
developed has two prototypes. Tests of the Company's decaffeination technology
have successfully removed caffeine from coffee. In addition, The Plasma Pure has
been tested and can remove viruses from plasma.
The Company's subsidiaries, Decaf Products, Inc. ["DPI"] and BioElectric
Separation and Testing, Inc. ["BEST"] [the subsidiaries] were formed in 1995.
DPI was formed to market a unique proprietary technologies to decaffeinate
coffee. BEST was founded to create systems to improve human therapy, by
developing new diagnostics and improved methods for production and use of drugs,
biologics, and extracorporeal devices. As of December 31, 1998, the subsidiaries
had minimal activity, did not own any assets and are not liable for any
liabilities.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries Decaf Products, Inc. ["DPI"] and
BioElectric Separation and Testing, Inc. ["BEST"]. All significant inter-company
accounts and transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Significant
additions or improvements extending asset lives are capitalized; normal
maintenance and repair costs are expensed as incurred. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets
ranging from three to five years.
CASH EQUIVALENTS - The Company considers all highly liquid investments with an
original maturity of less than three months to be cash equivalents. At December
31, 1998, the Company had no cash equivalents.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards ["SFAS"] No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the asset and liability method is used to determine deferred
tax assets and liabilities based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
-57-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
EARNINGS [LOSS] PER SHARE - 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.
SFAS No. 128 supercedes Accounting Principles Board Opinion No. 15, "Earning 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 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.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
RECLASSIFICATIONS - Certain amounts in the prior year consolidated financial
statements have been reclassified to conform to the current year's presentation.
-58-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[2] INCOME TAXES
Income taxes have been recorded under SFAS No. 109, "Accounting for Income
Taxes." Deferred income taxes reflect the net tax effects of (i) operating loss
carryforwards, and (ii) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. The tax effects of significant items comprising the
Company's net deferred tax asset as of December 31, 1998 is as follows:
Deferred Tax Asset:
Net Operating Loss Carryforward $ 3,768,000
Valuation Allowance for Deferred Tax Asset 3,768,000
---------
Net Deferred Tax Asset $ --
-------------------------------------------------------------=============
The valuation allowance of $3,768,000 at December 31, 1998, represents an
increase of $1,152,000 over the preceding year.
The Company has approximately $9,421,000 of net operating losses as of December
31, 1998 which may reduce taxable income and income taxes in future years. The
utilization of these losses to reduce future income taxes will depend on
generating sufficient taxable income prior to their expiration through the year
2013. In addition, the Internal Revenue Code of 1986 includes provisions which
may limit the net operating loss carryforwards available for uses in any given
year if certain events occur including significant changes in stock ownership.
The Company has net operating loss carryforwards of approximately $9,421,000
which expire as follows:
Years ended
-----------
December 31, Amount
------------------------------------------------------
2001 $ 4,000
2002 181,000
2003 233,000
2004 88,000
2005 71,000
2009 863,000
2010 406,000
2011 1,063,000
2012 3,631,000
2013 2,881,000
---------
TOTAL $9,421,000
-----------------------------------------==========
A reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate for the years ended December 31, 1998 and 1997
follows:
1 9 9 8 1 9 9 7
------------------------
Federal Statutory Income Tax Rate (34)% (34)%
Change in Valuation Allowance 34 34
------------------
Effective Income Tax Rate -- --
------------------------------------------------------==================
-59-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[3] RELATED PARTY TRANSACTIONS
In August 1996, Hampton Tech Partners, LLC acquired $300,000 in promissory notes
from the Company and 150,000 shares of common stock for the total consideration
of $300,000. On September 20, 1996, the Company entered into a Purchase
Agreement with Hampton Tech Partners II, LLC wherein Hampton Tech Partners II,
LLC acquired 761,000 shares of common stock for $1,004,520 in cash or $1.32 per
share. Private placement expenses of $77,400 were incurred during this
transaction, reducing net cash proceeds to $927,120. Hampton Partners II
received 227,273 shares in repayment of the $300,000 promissory notes with
Hampton Tech Partners, LLC and 129, 151 shares in payment of private placement
fees. Mr. Scott Robinson, a former director of the Company, is a member of
Hampton Tech Partners and Hampton Tech Partners II, LLC. Mr. Robinson's brother,
Mr. Jeffrey Robinson is the sole shareholder of Hampton Partners Investments,
Inc., the Managing Member of Hampton Tech Partners and Hampton Tech Partners II,
LLC.
On September 20, 1996, the Company entered into the Media Purchase Agreement
with Proxhill Marketing Ltd., wherein Proxhill Marketing Ltd. agreed to sell
$1,500,000 of media credits to the Company in consideration for the Company
issuing 1,136,364 shares of common stock, representing a price of $1.32 per
share. The total cost of such transaction was $1,608,170 including the value of
the 127,262 warrants issued by the Company to Proxhill Marketing Ltd [See Note
13]. In connection with the private placement of the shares of Hampton Tech
Partners II, LLC, Hampton Tech Partners and Proxhill Marketing Ltd., First
Capital Investments, Inc. a broker-dealer which is a member of the National
Association of Securities Dealers, Inc. ["NASD"], received 242,272 Class A
Warrants entitling it to acquire common stock for the price of $1.45 per share
exercisable over a period ending July 31, 2001. For advertising and marketing
services rendered to the Company in 1996 and 1997, Proxhill marketing Ltd. Also
received 127,262 Class D Warrants, entitling it to acquire common stock for the
price of $1.32 per share for a period ending July 31, 2001. As of December 31,
1996, the registration statement for the Class A Warrant common stock and Class
D Warrant common stock had not been declared effective.
In 1996, Mr. Sol L. Berg, a former Director and former President of the Company,
received 150,000 shares of common stock in exchange for shares of common stock
in Decaf Products, Inc. ["DPI"] based on a conversion of .60 IMSCO Technologies,
Inc. shares for 1.00 Decaf products, Inc. shares. In 1996, Mr. James G. Yurak, a
former Director and former President of the DPI subsidiary, received 75,000
shares of common stock in exchange for shares of common stock in Decaf Products,
Inc. ["DPI"] based on a conversion of .60 IMSCO Technologies, Inc. share for
1.00 Decaf Products, Inc. share. Mr. Yurak received another 75,000 shares of
common stock in February 1997 upon the one year Anniversary of his employment
agreement with DPI. In 1996, Dr. Alan Waldman entered into an understanding that
he shall receive 100,000 shares of common stock representing payment for
services due him under his consulting agreement through December 31,1996, with
the shares vesting and being issued on January 1, 1997. In 1996, David E.
Fleming, then a member of Epstein, Becker & Green, P.C., which was counsel to
the Company, was granted 90,000 shares of the Company's common stock in exchange
for shares of common stock in Decaf Products, Inc. ["DPI"] based on a conversion
of .60 IMSCO Technologies, Inc. shares for 1.00 DecafProducts, Inc. shares,
which shares will vest on January 1, 1997. In 1996, Mr. Vernon Oberholtzer, a
former Director of the Company who resigned in February 1997, received stock
options to acquire 10,000 shares for a price of $1.32, exercisable over a period
ending December 31, 1999. In 1996, Universal Sales, Inc. ["Universal"], a sales
and marketing company of which Mr. Victor Bauer, a former director of the
Company, is President and a 50% shareholder, received cash compensation in the
amount of $31,500 for services rendered to the Company, including the
recruitment of the services of Mr. Abramson for the Company.
-60-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[3] RELATED PARTY TRANSACTIONS [CONTINUED]
The balance of $29,800 Due to Stockholders relates to short-term loans to the
Company in 1998. The loans are non-interesting bearing and are due on demand.
During 1998, the Company received $38,300 in loans from the stockholders and
repaid $11,500 of loans.
During 1998, the Company commenced leasing office space on a month-to-month
basis from one of the stockholders of the Company. During the year ended
December 31, 1998, the Company incurred $3,750 of rent expense under this lease.
[4] RESEARCH AND DEVELOPMENT COSTS
During the years ended December 31, 1998 and 1997, the Company charged $29,900
and $66,251, respectively to research and development expense.
[5] EQUITY TRANSACTIONS
Equity transactions during the year ended December 31, 1998 are as follows:
[A] Common stock issued pursuant to the exercise of stock warrants was as
follows:
Date Number of Shares Par Value Paid-in Capital Total
---------------------------------------------------------------------------
January 8 66,000 $ 7 $ 59,393 $ 59,400
=======================================================
[B] Common stock issued in settlement of litigation was as follows:
Date Number of Shares Par Value Paid-in Capital Total
---------------------------------------------------------------------------
January 13 150,000 $ 15 $ 591,674 $ 591,689
March 30 249,081 24 946,679 946,703
---------------------------------------------------------
Totals 399,081 $ 39 $1,538,353 $ 1,538,392
------ =========================================================
The Company will issue another 39,239 shares of common stock to one of the
plaintiffs in this settlement upon resolution of plaintiff's tax lien. There
will be no effect on total equity upon resolution of this matter. In addition,
the settlement also called for the issuance of warrants for 400,000 shares of
the Company's common stock [See Note 12].
[C] Common stock issued for services was as follows:
Date Number of Shares Par Value Paid-in Capital Total
-----------------------------------------------------------------------
February 25 125,000 $ 13 $ 203,111 $ 203,124
March 31 48,727 5 66,995 67,000
May 7 339,184 34 508,742 508,776
August 6 100,000 10 124,990 125,000
--------------------------------------------------------
Totals 612,911 $ 62 $ 903,838 $ 903,900
------ ========================================================
-61-
<PAGE>
[D] Common stock issued in private placement was as follows:
Date Number of Shares Par Value Paid-in Capital Total
-----------------------------------------------------------------------
May 26 70,000 $ 7 $ 69,993 $ 70,000
=======================================================
-62-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[5] EQUITY TRANSACTIONS [CONTINUED]
[E] Common stock issued pursuant to the exercise of stock options as follows:
Date Number of Shares Par Value Paid-in Capital Total
------------------------------------------------------------------------
May 28 16,750 $ 2 $ 24,998 $ 25,000
=======================================================
[F] Series A convertible preferred stock issued in private placement as follows:
Date Number of Shares Par Value Paid-in Capital Total
------------------------------------------------------------------------
August 25 45,000 $ 5 $ 224,995 $ 225,000
=======================================================
The Series A convertible preferred stock is convertible at the option of the
holder into one share of the Company's common stock for every five shares of
convertible preferred stock commencing three months after the date subscribed. A
registration statement was to be filed and declared effective by November 30,
1998, registering the common shares available for conversion, or incur a penalty
at the rate of 3% per month for the common shares to be registered. At December
31, 1998, the registration statement was not declared effective. Therefore,
paid-in capital includes $253 for the obligation to issue 270 shares of the
Company's common stock as of December 31, 1998. The registration statement has
not become effective as of April 28, 1999 [See Note 16E].
[6] FAIR VALUE OF FINANCIAL INSTRUMENTS
In assessing the fair value of financial instruments, the Company has used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For all financial instruments,
including cash, due to stockholders and debt maturing within one year, it was
estimated that the carrying amount approximated fair value for these financial
instruments because of their short maturities.
[7] COMMITMENTS
LEASES - The Company leases office space under an operating lease which expires
in March of 2000. In addition to the minimum rentals, the Company is liable for
contingent rentals based on its proportionate share of operating expenses, as
defined.
In September 1996, the Company established an office at 950 Third Avenue, New
York, New York, consisting of approximately 2,500 square feet of space, with the
intention of conducting its sales, marketing and finance related activities. The
Company has decided that it will be more efficient and cost effective to run all
of its activities from the North Andover office for the near future. The lease
at 950 Third Avenue, New York, was for a term of five years at an annual base
rental of $32 per square foot. The 950 Third Avenue lease was terminated on July
10, 1997. The Company forfeited its security deposit and paid other fees due to
the termination of the lease. Rental expense for the New York lease was $24,367
for the year ended December 31, 1997.
-63-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[7] COMMITMENTS [CONTINUED]
LEASES [CONTINUED] - Minimum annual rentals under non-cancelable operating
leases having a term of more than one year are as follows:
Year ending
- -----------
December 31,
- ------------
1999 $ 15,890
2000 3,973
-----
Total $ 19,863
------------------------------------===========
Total rental expense was $17,804 and $40,257 for the years ended December 31,
1998 and 1997, respectively.
PREPAID ADVERTISING CREDITS - Under a media Purchase Agreement with Proxhill
Marketing Ltd., it contractually agreed to finance $1.5 million of media for the
Company's public relations and advertising campaign through Grow Marketing
Services ["GROW"], an independent marketing company. In exchange for the Company
issuing 1,136,363 shares of its common stock, representing a price of $1.32 per
share, the Company acquired the $1.5 million of prepaid, dedicated media credits
[the "Media Credits"] and certain media services. The media Purchase Agreement
expires at the end of sixty [60] months or upon the depletion of the prepaid
media credits.
SALES AGREEMENT - On September 20, 1996, the Company entered into an agreement
with NEWCO a privately held corporation based in St. Charles, Missouri for
certain institutional manufacturing and marketing of the Decaffeination System.
The Company agreed that NEWCO will have the exclusive right to sell the
DECAFFOMATIC to so-called "Office Coffee Supply" ["OCS"] subsection of the
institutional coffee-maker market and will be the manufacturer of the
DECAFFOMATIC for the institutional marketplace in North American for a period of
three years. Under the NEWCO Agreement, NEWCO has also agreed to pay the costs
of making final working models, and the cost of creating moulds and related
parts for the DECAFFOMATIC device for the institutional coffee-maker
marketplace. All of the technology and final commercial model designs of the
Decaffeination System will be the property of the Company.
EMPLOYMENT AGREEMENTS - In October 1997, the company entered into employment
agreement with three officers of the Company. Such agreements provide for total
annual compensation of $385,000. Two of the agreements expire in 1999, the third
expires in the year 2000. The agreement with one of the officers in 1998
provides for the granting of 250,000 warrants as amended to purchase the
Company's stock at $1.50 per share from $2.00 per share. Compensation expense of
$125,000 was recorded for this amendment to the warrants. The options expire May
30, 2003.
[8] 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.
-64-
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[8] GOING CONCERN [CONTINUED]
As shown in the accompanying financial statements, the Company incurred a net
loss of $2,881,162 primarily resulting from no revenues and utilized $768,184 in
cash for operations during the year ended December 31, 1998. The significant
operating losses as well as the uncertain sources of financing, create an
uncertainty about the Company's ability to continue as a going concern. During
1999, the Company has reduced their monthly expenditures from approximately
$65,000 to approximately $22,000. 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 debt and equity financing [See Note 16B].
Additionally, the Company is negotiating to sell the prepaid advertising credits
on an as needed basis at a discount of approximately 50%. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
The continuation of the Company as a going concern is dependent upon the success
of these plans.
There can be no assurances 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.
[9] DEVELOPMENT STAGE ENTERPRISE
On July 7, 1992, the Company discontinued 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. The Company is considered 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 $8,801,226 for the period July 7, 1992
through December 31, 1998.
[10] ADVERTISING
The Company expenses advertising costs as incurred. For the years ended December
31, 1998 and 1997, advertising expense was $92,942 and $223,961, respectively.
[11] STOCK BASED COMPENSATION
On May 21, 1996, the Board of Directors adopted the Employee Incentive Stock
Option Program [the "Option Program"], which provides for the issuance of up to
the lesser of 24% of the issued and outstanding common stock or 1,500,000 shares
of common stock through the grant of incentive and non-qualified stock options.
Stock options will be issued by action of the Board of Directors or its
Compensation Committee [the "Administrator"] to key employees of the Company as
a long-term incentive. Key employees will be designated by the Administrator in
its sole discretion. Stock Options under the Option Program will provide for an
exercise price per share determined by the Administrator [but not less than the
par value of $.0001], subject to tax requirements in connection with incentive
stock options. No payment will be required from participants in connection with
grants. The options will be exercisable as specified by the Administrator at the
time of grant, although the tax benefits of incentive stock
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options described below will be unavailable if the option is exercised less than
one year after grant. Options will be exercisable for a period determined by the
Administrator but not in excess of 10 years after grant.
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IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
[11] STOCK BASED COMPENSATION [CONTINUED]
The following table summarizes the activity in common shares subject to options.
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
-----------------------------
Weighted Weighted
-------------------------------
Average Average
------------------------------
Exercise Exercise
-------------------------------
Shares Price Shares Price
-----------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding - Beginning of Years 110,000 $ 1.45 110,000 $ 1.45
Granted or Sold During the Years 266,750 $ 1.50 -- $ --
Canceled During the Years -- $ -- -- $ --
Expired During the Years -- $ -- -- $ --
Exercised During the Years (16,750) $ 1.50 -- $ --
------- --------
Outstanding - End of Years 360,000 $ 1.48 110,000 $ 1.45
========== ========
Exercisable - End of Years 360,000 $ 1.48 110,000 $ 1.45
========== ========
</TABLE>
The following table summarizes stock options information as of December 31,
1998:
Options Outstanding
-------------------
Weighted-
---------
Average Weighted-
--------------------
Remaining Average
--------------------
Number Contractual Exercise
-------------------------------
Exercise Price Outstanding Life Price
- -------------- --------------------------------
$.90 10,000 1.0 $ .90
$1.50 350,000 5.3 $ 1.50
----------------------------------
Totals 360,000 5.2 $ 1.48
------ ==================================
The exercise prices of the options outstanding at December 31, 1998, range
between $.90 and $1.50 with a weighted average contractual life of 5.2 years.
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The following table summarizes the activity in common shares subject to
warrants:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
-----------------------------
Weighted Weighted
-------------------------------
Average Average
------------------------------
Exercise Exercise
-------------------------------
Shares Price Shares Price
-----------------------------------------
<S> <C> <C> <C> <C>
Outstanding - Beginning of Years 785,645 $ 1.59 485,534 $ 1.28
Granted or Sold During the Years 990,000 $ 1.30 300,111 $ 2.08
Canceled During the Years (250,000) $ 2.00 -- $ --
Expired During the Years -- $ -- -- $ --
Exercised During the Years (66,000) $ .90 -- $ --
------- --------
Outstanding - End of Years 1,459,645 $ 1.35 785,645 $ 1.59
============ ========
Exercisable - End of Years 1,459,645 $ 1.35 785,645 $ 1.59
============ ========
</TABLE>
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IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
[11] STOCK BASED COMPENSATION [CONTINUED]
The following table summarizes stock warrants information as of December 31,
1998:
Weighted-
---------
Average Weighted-
--------------------
Remaining Average
--------------------
Number Contractual Exercise
-------------------------------
Exercise Prices Outstanding Life Price
- ----------------------------------------------------------------------
$.90 - $1.00 440,000 3.8 $ .99
$1.32 to $1.50 969,534 3.7 $ 1.46
$2.50 50,111 4.0 $ 2.50
------------------------------------
Totals 1,459,645 3.7 $ 1.35
------------------------------------====================================
The Company applies Accounting Principles Board Opinion No. 25 ["APB No. 25"],
Accounting for Stock Issued to Employees, and related interpretations, for stock
options issued to employees in accounting for its stock options plans. For the
year ended December 31, 1998, stock compensation of $133,375 was recognized for
stock-based employee amounts.
The exercise prices of the warrants outstanding at December 31, 1998 range
between $.90 and $2.50 with a weighted average contractual life of 3.7 years.
Had compensation cost been determined on the basis of fair value pursuant to
FASB Statement No. 123, net loss and loss per share would have been recorded as
follows:
December 31,
------------
1 9 9 8 1 9 9 7
---------------------
Net Loss as Reported $ (2,881,162) $(3,631,105)
============= ===========
Pro Forma Net Loss $ (2,881,162) $(3,916,105)
============= ===========
Net Loss Per Share as Reported $ (0.39) $ (0.57)
============= ===========
Pro Forma Net Loss Per Share $ (0.39) $ (0.62)
============= ============
The weighted average grant date fair value of options and warrants granted in
1998 and 1997 was $1.34 and $1.14, respectively.
The fair value of each option and warrant granted is estimated on the grant date
using an option pricing model which takes into account, as of the grant date,
the exercise price and the expected life of the option or warrant, the current
price of the underlying stock and its expected volatility, expected dividends on
the stock and the risk-free interest rate for the expected term of the option or
warrant. The following is the average of the data used for the following items:
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1 9 9 8 1 9 9 7
-----------------------
Expected Life [Years] 5 5
Risk-Free Interest Rate 5 % 6 %
Expected Dividends -- --
Expected Volatility 76 % 74 %
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IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
[12] LITIGATION
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 438,320 shares of common stock and 400,000
warrants to purchase common stock at $1.32 and $2.00. $1,538,392 was included in
accrued expenses at December 31, 1997 [See Note 5B].
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 the Enterprise 75,000 shares of the Company's
common stock and 75,000 warrants to purchase the Company's common stock for
recruitment services that were performed for the Company during 1996. The
Company's counsel cannot predict the outcome of this matter although it believes
it has meritorious defenses and will vigorously defend the action. Therefore, no
accrual has been made at December 31, 1998. However, if such defenses are
unsuccessful, it may have a material adverse impact on the results of operations
and financial condition of the Company. The chairman of the Company, is a 50%
shareholder of the Plaintiff [See Note 3].
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 Supreme 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 revenues 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. Therefore, no
accrual has been made at December 31, 1998. However, if such defenses are
unsuccessful, it may have a material adverse impact on the results of operations
and financial condition of the Company.
[13] RESTATEMENT
The Company's statement of stockholders' deficit has been restated to record the
effect of the additional cost of media credits obtained from Proxhill Marketing,
Ltd. in 1996 [See Note 3]. Such amount was $108,170, and represents the cost of
warrants issued to Proxhill Marketing Ltd. The effect of such restatement of the
1996 financials was to increase prepaid advertising credits and additional
paid-in capital. Such restatement had no affect on the statement of operations.
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IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
[14] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and how it its designated, for
example, gain or losses related to changes in the fair value of a derivative not
designated as a hedging instrument is recognized in earnings in the period of
the change, while certain types of hedges may be initially reported as a
component of other comprehensive income [outside earnings] until the
consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
[15] NOTES PAYABLE
Notes payable at December 31, 1998 consisted of the following:
Senior secured promissory notes payable,
due January 31, 1999, including interest
at 10%, collateralized by all of the assets
of the Company. $ 100,000
Senior secured convertible promissory notes
payable due January 31, 1999 including
interest at 10%, collateralized by all of the
asset of the Company. 290,000
-----------
Total $ 390,000
===========
The holders of the senior secured promissory notes payable of $100,000 received
warrants to purchase 100,000 shares of the Company's common stock at $1.00 per
share. The Company recorded paid-in capital and deferred finance costs of
$80,505 to be amortized over four months. During the year ended December 31,
1998, $60,379 was amortized as interest expense. The warrants expire in
September 2003. The notes were paid in 1999.
The senior secured convertible promissory notes payable of $290,000 are
convertible into shares of the Company's common stock at any time prior to the
due date of the notes. The notes may be converted into shares of the Company's
common stock at the rate equal to the lessor of (a) $1.00 per share of common
stock, or (b) eighty percent at the average closing "bid" price of the Company's
publicly traded common stock for the five trading days immediately preceding the
conversion. Additionally, the notes included warrants to purchase 290,000 shares
of the Company's common stock at $1.00 per share. The Company recorded paid-in
capital and deferred finance costs of $218,580 to be amortized over three and a
half months. During the year ended December 31, 1998, $156,129 was amortized as
interest expense. The warrants expire in October 2003 [See Note 16D].
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<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
[16] SUBSEQUENT EVENT
[A] ISSUANCE OF COMMON STOCK - On January 15, 1999, the Board of Directors of
the Company authorized the issuance of 80,000 shares of the Company's common
stock to satisfy accrued expenses at December 31, 1998 of $63,000 and for
services to be performed January through April 1999 in the amount of $12,000.
[B] FINANCING - On February 9, 1999, the Company completed a private offering of
$600,000 of 8% convertible debentures due January 31, 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 date of issue will be an
additional cost to the Company in the year exercised.
[C] TERMINATION OF OFFICER - On March 22, 1999, the Company terminated the
employment contract of the president of the Company, for cause, as he violated
the terms of his employment agreement which was to expire in October 1999.
[D] 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 will result in a financing cost
in 1999 of $21,000. The Company did not pay these notes on May 25, 1999. The
Company has not received any notices 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 failure to receive extension or pay
timely.
[E] WAIVER OF PENALTY - On May 26, 1999, the holder of the Series A Convertible
Preferred Stock agreed that the penalty for the related registration rights
shall apply and accrue up and until April 30, 1999, however, thereafter the
penalty for failure to achieve the required registration shall cease.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERs. IMSCO Technologies,
Inc. (the "Company") is incorporated in Delaware. Under Section 145 of the
General Corporation Law of the State of Delaware, a Delaware corporation has the
power, under specified circumstances, to indemnify its directors, officers,
employees and agents in connection with actions, suits or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees or agents,
against expenses incurred in any action, suit or proceeding. Article Tenth of
the Certificate of Incorporation and Article III of the Bylaws of the Company
provide for indemnification of directors and officers to the fullest extent
permitted by the General Corporation Law of the State of Delaware. Reference is
made to the Certificate of Incorporation of the Company, filed as Exhibit 3.1
hereto.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 (relating to liability for unauthorized acquisitions or redemptions
of, or dividends on, capital stock) of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Article Ninth of the Company's Certificate of
Incorporation contains such a provision.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Commission and to NASDAQ.
Filing Fee--Securities and Exchange Commission $ 2,500.00
Fees and Expenses of Accountants 2,500.00
Fees and Expenses of Counsel 25,000.00
Printing and Engraving Expenses 2,000.00
Blue Sky Fees and Expenses 2,000.00
Transfer Agent fees 500.00
Miscellaneous Expenses 500.00
-------------
Total $ 35,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In 1998, the Company sold 225,000 shares of common stock to one accredited
investor for the aggregate consideration of $225,000 representing an average
price of $1.00 per shares. In 1998, the Company borrowed a total of $390,000
from private lenders secured by our 10% Senior Convertible Notes to ten
accredited investors. There is approximately $100,000 of principal amount
outstanding under the 10% Senior Convertible Notes, which amount is due in 1999,
unless they are earlier converted by their holders into our common stock.
Additionally, in February 1999, the Company completed a $600,000 8% Convertible
Debenture private placement to one accredited investor. The $390,000 of 10%
Senior Convertible Notes and the $600,000 Convertible Debentures all were sold
as non-public offerings. All of the purchasers in the 1998 and 1999 private
placements represented to the Company that they were "accredited investors" as
such term is defined in Regulation D promulgated by the Commission pursuant to
the Securities Act. To the Company's knowledge, none of these investors, nor any
of their affiliates, were, at the time of their investment in the Company, nor
currently are, affiliated or associated with FCI, or any other
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<PAGE>
broker-dealer The Company issued all such securities in reliance upon the
exemption from the registration requirements of the Securities Act contained in
Section 4(2) thereof.
On September 20, 1996, the Company sold to Hampton Tech Partners II, LLC
("HTP-II"), 1,136,363 shares of common stock for $1.32 per share, which was paid
in cash by October 18, 1996. Also, on September 20, 1996, the Company sold an
aggregate of 1,136,363 shares of common stock to Proxhill Marketing Limited
("PML"), pursuant to a Media Purchase Agreement in exchange for prepaid media
credits having an aggregate value of $1.5 million. Both the $1.5 million cash
equity placement of the 1,136,363 shares of common stock to HTP-II and the $1.5
million media credit purchase and exchange of 1,136,363 shares of common stock
to PML. Both placements were arranged by First Capital Investments, Inc., a
broker-dealer which is a member of the National Association of Securities
Dealers, Inc., ("FCI") received a commission in the amount of 10% of the amount
received by the Company from the sale of the common stock. Additionally, FCI,
received a warrant to acquire an amount of shares equal to 10% of the total
amount of common stock placed by them on behalf of the Company, exercisable for
the price of $1.45 per share over a period of five years. In August 1996, the
Company sold 150,000 shares of common stock at a price of $0.01 per share and a
$300,000 in promissory note to Hampton Tech Partners, LLC ("HTP"). In April
1996, the Company sold 10,000 shares of common stock to one "accredited
investor" in a private placement for the aggregate consideration of $20,000. All
four of the purchasers in 1996 represented to the Company that they were
"accredited investors" as such term is defined in Regulation D promulgated by
the Commission pursuant to the Securities Act. To the Company's knowledge, none
of these investors, nor any of their affiliates, were, at the time of their
investment in the Company, nor currently are, affiliated or associated with FCI,
or any other broker-dealer. The Company issued all such securities in reliance
upon the exemption from the registration requirements of the Securities Act
contained in Section 4(2) thereof.
ITEM 27. EXHIBITS.
The Exhibits listed below are either filed or are deemed to be filed as part
of this Report.
2.0 -- Agreement and Plan of Reorganization dated August 11, 1986 (filed
as Exhibit C-1 to Form 8-K, File Number 2-98084-D and incorporated
herein by reference).
3.0 -- Articles of Incorporation and By-Laws (filed as Exhibits 4 and 5
to the Company's Registration Statement on Form S-18, File Number
2- 98084-D and incorporated herein by reference).
3.1 -- Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Company's Registration Statement on Form SB-2,
File Number 333-19707 and incorporated herein by reference.)
3.2 -- Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form SB-2, File Number 333-19707 and
incorporated herein by reference.)
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form SB-2, File Number
333-19707 and incorporated herein by reference.)
4.2 -- Form of 2003 Common Stock Purchase Warrant (filed as Exhibit 4.2
to the Company's Registration Statement on Form SB-2, File Number
333-19707 and incorporated herein by reference.)
4.3 -- Form of Class B Common Stock Purchase Warrant (filed as Exhibit
4.3 to the Company's Registration Statement on Form SB-2, File
Number 333-19707 and incorporated herein by reference.)
4.4 -- Form of Class C Common Stock Purchase Warrant (filed as Exhibit
4.4 to the Company's Registration Statement on Form SB-2, File
Number 333-19707 and incorporated herein by reference.)
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<PAGE>
4.5 -- Form of Class D Common Stock Purchase Warrant (filed as Exhibit
4.51 to the Company's Registration Statement on Form SB-2, File
Number 333-19707 and incorporated herein by reference.)
5** -- Opinion of Cummings & Lockwood
(6)(A)-- Note and Security Agreement dated October 3, 1986 between
Company and Naper Bank, N.A. (filed as Exhibit 10(A) to Annual
Report on Form 10-K, File Number 2-98084-D and incorporated herein
by reference).
(6)(B)-- Agreement dated October 22, 1986 between Company and LKB
Diagnostics, Inc. regarding exclusive right and authority to
market, sell and distribute certain LKB products (filed as Exhibit
10(B) to Annual Report on Form 10-K, File Number 2-98084-D and
incorporated herein by reference).
(6)(C)-- Outside Director's Stock Option Plan dated May 21, 1987 (filed
as Exhibit (10)(c) to Annual Report on Form 10-K, File Number
2-98084-D and incorporated herein by reference).
(6)(D)-- Placement Letter dated April 11, 1994 between D.H.
Vermogensverwaltungs-und Beteiligungsgesellschaft mbH and the
Company.(1)
(6)(E)-- Promissory Note dated April 12, 1994 made by the Company to the
order of D.H.Vermogensverwaltungs-und Beteiligungsgesellschaft
mbH.(1)
(6)(F)-- Common Stock Purchase Warrant dated April 12, 1994 issued by the
Company to D.H. Vermogensverwaltungs-und Beteiligungsgesellschaft
mbH.(1)
(6)(G)-- Amendment Dated August 29, 1994 to Placement Letter dated April
11, 1994 between D.H. Vermogensverwaltungs- und
Beteiligungsgesellschaft mbH. and the Company.(1)
(6)(H)-- Consulting Agreement dated July 1, 1992 between IMSCO, Inc. and
Waldman Biomedical, Inc., and Addendum thereto Dated July 1,
1994.(1)
(6)(I)-- Escrowed Common Stock Agreement made as of September 30, l995
between Decaf Products, Inc. and James G. Yurak.(2)
(6)(J)-- Employment Agreement effective as of January 1, 1996 between Decaf
Products, Inc. and James G. Yurak.(2)
(6)(K)-- License Agreement dated February 23, 1996 between IMSCO, Inc. and
Decaf Products.(2)
10.1. -- Stock Purchase Agreement between the Company and Hampton Tech
Partners II, LLC dated September 20, 1996 (Filed on Form 8-K dated
October 1, 1996 -- Commission No. 0-24520).
10.2. -- Media Purchase Agreement between the Company and Proxhill
Marketing, Ltd., dated September 20, 1996 (Filed on Form 8-K dated
October 1, 1996 -- Commission No. 0-24520).
10.3. -- Manufacturing and Distribution Agreement between the Company and
NEWCO Enterprises, Inc., dated September 20, 1996 (Filed on Form
8-K dated October 1, 1996 -- Commission No. 0-24520).
10.4. -- Marketing Agreement between the Company and Huhes Edwards & Price,
Inc., dated September 20, 1996 (Filed on Form 8-K dated October 1,
1996 -- Commission No. 0- 24520).
10.5. -- Consulting Agreement between the Company and Edmund Abramson dated
August 13, 1996.(3)
10.6. -- Consulting Agreement between the Company and WRA Consulting, Inc.,
dated August 13, 1996.(3)
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<PAGE>
10.7 -- Agreement between the Company and Universal Sales dated as of
September 1, 1996.(3)
10.8 -- Employment Agreement dated as of October 1, 1997 between Alexander
T. Hoffmann and the Company.(4)
10.9 -- Form of 8% Convertible Debenture issued to Amro International,
Ltd.(5)
10.10-- Note and Warrant Purchase Agreement dated February 9, 1999 between
the Company and AMRO International, Ltd.(5)
10.11-- Registration Rights Agreement dated February 9, 1999 between the
Company and AMRO International, Ltd.(6)
11.12-- Warrant dated February 9, 1999 issued by the Company to AMRO
International, Ltd.(6)
11.13-- Selling Agreement between Sands Brothers & Co., Ltd and the Company
dated July 31, 1998 (6)
23.1**-- Consent of Cummings & Lockwood (Included in Exhibit 5).
** To be filed by Amendment.
Footnotes
- ---------
(1) Filed as Exhibits to the Company's Form 10-SB dated July 14, 1994, File
Number 0-24520, and incorporated herein by reference.
(2) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1995, File Number 0-24520, and incorporated by reference herein.
(3) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1996, File Number 0-24520, and incorporated by reference herein.
(4) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1997, File Number 0-24520, and incorporated by reference herein.
(5) Filed as Exhibits to the Company's Form 8-K dated February 19, 1999, File
Number 0-25420, and incorporated by reference herein.
(6) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1998, File Number 0-25420, and incorporated by reference herein.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
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(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of an offering.
(d) The undersigned small business issuer hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-2 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 31st day of January, 2000.
IMSCO Technologies, Inc.
By: /s/ TIMOTHY J. KEATING
--------------------------------
Timothy J. Keating
Chairman & Chief Executive Officer
-78-
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ TIMOTHY KEATING
- ----------------------------- Chairman, Director January 31, 2000
Timothy Keating Principal Executive Officer
and Principal Accounting
Officer
/s/ GARY GRAHAM
- ----------------------------- Director & Secretary January 31, 2000
Gary Graham
-79-
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Number Exhibits Numbered Pages
- ------ -------- --------------
The Exhibits listed below are either filed or are deemed to be filed as part
of this Report.
2.0 -- Agreement and Plan of Reorganization dated August 11, 1986 (filed
as Exhibit C-1 to Form 8-K, File Number 2-98084-D and incorporated
herein by reference).
3.0 -- Articles of Incorporation and By-Laws (filed as Exhibits 4 and 5
to the Company's Registration Statement on Form S-18, File Number
2- 98084-D and incorporated herein by reference).
3.1 -- Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Company's Registration Statement on Form SB-2,
File Number 333-19707 and incorporated herein by reference.)
3.2 -- Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form SB-2, File Number 333-19707 and
incorporated herein by reference.)
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form SB-2, File Number
333-19707 and incorporated herein by reference.)
4.2 -- Form of 2003 Common Stock Purchase Warrant (filed as Exhibit 4.2
to the Company's Registration Statement on Form SB-2, File Number
333-19707 and incorporated herein by reference.)
4.3 -- Form of Class B Common Stock Purchase Warrant (filed as Exhibit
4.3 to the Company's Registration Statement on Form SB-2, File
Number 333-19707 and incorporated herein by reference.)
4.4 -- Form of Class C Common Stock Purchase Warrant (filed as Exhibit
4.4 to the Company's Registration Statement on Form SB-2, File
Number 333-19707 and incorporated herein by reference.)
4.5 -- Form of Class D Common Stock Purchase Warrant (filed as Exhibit
4.51 to the Company's Registration Statement on Form SB-2, File
Number 333-19707 and incorporated herein by reference.)
5** -- Opinion of Cummings & Lockwood
(6)(A)-- Note and Security Agreement dated October 3, 1986 between
Company and Naper Bank, N.A. (filed as Exhibit 10(A) to Annual
Report on Form 10-K, File Number 2-98084-D and incorporated herein
by reference).
(6)(B)-- Agreement dated October 22, 1986 between Company and LKB
Diagnostics, Inc. regarding exclusive right and authority to
market, sell and distribute certain LKB products (filed as Exhibit
10(B) to Annual Report on Form 10-K, File Number 2-98084-D and
incorporated herein by reference).
(6)(C)-- Outside Director's Stock Option Plan dated May 21, 1987 (filed
as Exhibit (10)(c) to Annual Report on Form 10-K, File Number
2-98084-D and incorporated herein by reference).
(6)(D)-- Placement Letter dated April 11, 1994 between D.H.
Vermogensverwaltungs-und Beteiligungsgesellschaft mbH and the
Company.(1)
<PAGE>
(6)(E)-- Promissory Note dated April 12, 1994 made by the Company to the
order of D.H.Vermogensverwaltungs-und Beteiligungsgesellschaft
mbH.(1)
(6)(F)-- Common Stock Purchase Warrant dated April 12, 1994 issued by the
Company to D.H. Vermogensverwaltungs-und Beteiligungsgesellschaft
mbH.(1)
(6)(G)-- Amendment Dated August 29, 1994 to Placement Letter dated April
11, 1994 between D.H. Vermogensverwaltungs- und
Beteiligungsgesellschaft mbH. and the Company.(1)
(6)(H)-- Consulting Agreement dated July 1, 1992 between IMSCO, Inc. and
Waldman Biomedical, Inc., and Addendum thereto Dated July 1,
1994.(1)
(6)(I)-- Escrowed Common Stock Agreement made as of September 30, l995
between Decaf Products, Inc. and James G. Yurak.(2)
(6)(J)-- Employment Agreement effective as of January 1, 1996 between Decaf
Products, Inc. and James G. Yurak.(2)
(6)(K)-- License Agreement dated February 23, 1996 between IMSCO, Inc. and
Decaf Products.(2)
10.1. -- Stock Purchase Agreement between the Company and Hampton Tech
Partners II, LLC dated September 20, 1996 (Filed on Form 8-K dated
October 1, 1996 -- Commission No. 0-24520).
10.2. -- Media Purchase Agreement between the Company and Proxhill
Marketing, Ltd., dated September 20, 1996 (Filed on Form 8-K dated
October 1, 1996 -- Commission No. 0-24520).
10.3. -- Manufacturing and Distribution Agreement between the Company and
NEWCO Enterprises, Inc., dated September 20, 1996 (Filed on Form
8-K dated October 1, 1996 -- Commission No. 0-24520).
10.4. -- Marketing Agreement between the Company and Huhes Edwards & Price,
Inc., dated September 20, 1996 (Filed on Form 8-K dated October 1,
1996 -- Commission No. 0- 24520).
10.5. -- Consulting Agreement between the Company and Edmund Abramson dated
August 13, 1996.(3)
10.6. -- Consulting Agreement between the Company and WRA Consulting, Inc.,
dated August 13, 1996.(3)
10.7 -- Agreement between the Company and Universal Sales dated as of
September 1, 1996.(3)
10.8 -- Employment Agreement dated as of October 1, 1997 between Alexander
T. Hoffmann and the Company.(4)
10.9 -- Form of 8% Convertible Debenture issued to Amro International,
Ltd.(5)
10.10-- Note and Warrant Purchase Agreement dated February 9, 1999 between
the Company and AMRO International, Ltd.(5)
10.11-- Registration Rights Agreement dated February 9, 1999 between the
Company and AMRO International, Ltd.(6)
11.12-- Warrant dated February 9, 1999 issued by the Company to AMRO
International, Ltd.(6)
11.13-- Selling Agreement between Sands Brothers & Co., Ltd and the Company
dated July 31, 1998 (6)
23.1**-- Consent of Cummings & Lockwood (Included in Exhibit 5).
<PAGE>
** To be filed by amendment.
Footnotes
(1) Filed as Exhibits to the Company's Form 10-SB dated July 14, 1994, File
Number 0-24520, and incorporated herein by reference.
(2) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1995, File Number 0-24520, and incorporated by reference herein.
(3) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1996, File Number 0-24520, and incorporated by reference herein.
(4) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1997, File Number 0-24520, and incorporated by reference herein.
(5) Filed as Exhibits to the Company's Form 8-K dated February 19, 1999, File
Number 0-25420, and incorporated by reference herein.
(6) Filed as Exhibits to the Company's Form 10-KSB for the year ended December
31, 1998. File Number 0-25420, and incorporated by reference herein.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IMSCO Technologies, Inc.
North Andover, Massachusetts
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 28, 1999 except as to Note 16D
for which the date is May 25, 1999 and Note 16E for which the date is May 26,
1999, relating to the financial statements of IMSCO Technologies, Inc., as of
December 31, 1997 and December 31, 1998 , which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/S/ MOORE STEPHENS, P.C.
---------------------------------
Moore Stephens, P.C.
Craford, New Jersey
January , 2000
February 2, 2000
Via UPS Overnight
- -----------------
Mr. Jeffrey Riedler
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Avenue N.W.
Mail Stop 3-9
Washington, D.C. 20549
Re: IMSCO Technologies, Inc.
Form SB-2 filed June 22, 1999
File No. 333-81335
-----------------------------
Dear Mr. Riedler:
Reference is made to your letter dated November 26, 1999 containing the
staff's comments to Amendment No. 2 to the above-captioned Registration
Statement. For your convenience, the responses listed below are numbered
according to the staff's comments. A copy of your November 26, 1999 letter is
enclosed herewith for your convenience.
Comment 1
- ---------
A printed copy of the registration statement is enclosed.
Comment 2
- ---------
The registration statement now indicates that the maximum number of
shares the debenture could convert into is 5,224,000 shares, since under the
debenture and warrant purchase agreement the maximum amount of shares that the
debenture may convert into is the remaining authorized but unissued or reserves
shares of the Registrant under its Certificate of Incorporation.
Comment 3
- ---------
The Registrant owns certain media for television and radio slots and
print advertisements from the inventory of Grow Marketing, Inc., a subsidiary of
Barter Trust, which was originally acquired pursuant to the Media Purchase
Agreement dated September 20, 1996. Until designated
<PAGE>
Mr. Jeffrey Riedler -2- February 2, 2000
by the Registrant under a media plan, the specific advertisement or time slot is
undesignated. Because of its intent to license its technology instead of
directly marketing its own products, the Registrant is contemplating either
using the media itself in conjunction with the cooperative advertising campaign
of one of our licensees, or deploying the media in connection with the media
plan of a third party in a commercial transaction where in essence the
Registrant is acting as a media seller. The Registrant will not sell the "media
credits", but will obtain the advertising campaign of another party (e.g., from
a licensee) and will deploy the media plan and campaign through Grow Marketing,
Inc., for consideration from the third party where in effect the Registrant is
acting as a media seller. If the media is sold, the Registrant has concluded
that the purchase and sale of media are commercial contract rights and are not
"securities" within the definition of such term contained in Section 2(a)(1) of
the Securities Act of 1933, as amended. As such, the Registrant believes that
the federal securities laws do not apply to the resale of the media. However, to
anticipate the possibility of the federal securities laws applying, the
Registrant intends to sell the media to no more than one or two corporations who
will use the media and the Registrant will require to represent that they are
accredited investors as defined by Section 501 of Regulation D. Accordingly,
should the sale of the federal securities laws apply, the Registrant believes
that its sale of the media will be exempt from registration as a non-public
offering under Section 4(2) of the Securities Act of 1933, as amended.
Comment 4
- ---------
The forepart of the prospectus and other sections have been revised in
accordance with your comment to remove legalese and replace with simple everyday
language.
Comment 5
- ---------
The forepart of the prospectus has been revised with the active voice
pursuant to your comment.
Comment 6
- ---------
The prospectus has been revised to revised to break down long compound
sentences into two or more shorter sentences and to make lists contained in a
sentence, where possible, into bullet points in a table format. Also, the
prospectus no longer uses roman numerals.
Cover Page
Comment 7
- ---------
The first paragraph has been revised in accordance with the staff's
comments.
<PAGE>
Mr. Jeffrey Riedler -3- February 2, 2000
Comment 8
- ---------
In response to the staff's comment, we have eliminated defined terms
where possible.
Risk Factors
- ------------
Comment 9
- ---------
In response to the staff's comment, we have taken out such phrases as
"could harm our business", etc., and listed possible specific outcome.
Comment 10
- ----------
We have clarified that it is certain future agreements that likely will
provide for termination under circumstances and list some general possible
termination events.
Government Regulation
- ---------------------
Comment 11
- ----------
In response to the staff's comment, the paragraphs have been revised to
delete repeated sentences.
Selling Securityholders
- -----------------------
Comment 12
- ----------
The section has been revised to minimize the use of footnotes in
accordance with the staff's comments.
Please do not hesitate to contact me at the direct line listed above
with any questions regarding this filing.
Very truly yours,
/s/ DAVID E. FLEMING
David E. Fleming
