SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-24520
IMSCO TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
DELAWARE 04-3021770
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
865 First Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 978-8454
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X].
State Issuer's revenues for its most recent fiscal year: $0.
As of December 31, l999: (a) 8,928,174 Common Shares, $.0001 par value, of
the registrant were outstanding; (b) approximately 8,722,260 Common Shares were
held by non-affiliates; and (c) the aggregate market value of the Common Shares
held by non-affiliates was $7,904,984 based on the closing bid price of $0.9063
per share on March 30, 2000. Shares of Common Stock held by each officer,
director and holder of 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed affiliates. The determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
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PART I
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
Section 21 E of the Securities Exchange Act of 1934, as amended, or subsequent
expansions or replacements of such sections, including information with respect
to the Company's plans and strategy for its business. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "estimates", "feels", "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause actual events or the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below under the caption "Factors That May Affect Future Results" included
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part II of this Annual Report on Form 10-KSB.
In this Annual Report, the terms "company","IMSCO", "we", "us" and "our"
refer to IMSCO Technologies, Inc., a Delaware corporation, and unless the
context otherwise requires, "common stock" refers to the common stock, $0.0001
par value per share of IMSCO.
ITEM 1. DESCRIPTION OF BUSINESS
General
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IMSCO is a development stage company. We have developed and are attempting
to license or sell our electrostatic separation technologies for incorporation
into commercial products by a third party. 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".
Because of our limited financial resources, we are attempting to license or
sell our DECAFFOMATIC and PLASMA PURE technology to a third party for completion
of development of a commercial product. In this regard, we have negotiated an
agreement with ElectroStatic Products, Inc., a New York corporation ("ESPI") for
the transfer of our electrostatic separation technology and related patent
rights (the "ESPI Agreement") for consideration in the amount of approximately
$578,000 which shall be paid by a combination of cash and assumption of certain
of our indebtedness and liabilities, and the delivery of releases to IMSCO from
the holders of our specified debts and liabilities. The ESPI Agreement is
subject to a number of conditions, including the delivery to the IMSCO of the
consideration. In the event that ESPI is unable to deliver the consideration by
April 28, 2000, the ESPI Agreement is null and void. Accordingly, there can be
no assurance that ESPI will perform under the agreement. If ESPI does not
perform, we will seek other licensees or purchasers of our technology.
On September 20, 1996, we entered into a media purchase agreement ("Media
Purchase Agreement") and agreed to sell an aggregate of 1,136,363 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, 1999 we possessed approximately $1,285,773 of prepaid media
credits, net of amounts allocated to warrants, in our inventory to use for
future public relations, marketing and advertising. Since we currently
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plan to license or sell 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 for
other products or services that the Company may have in the future.
We were originally formed in 1986 under the laws of the State of Nevada. In
1987 we changed our 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 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 TECHNOLOGY
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 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. 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 are
attempting to license or sell our technology to a third party who would complete
the development of a commerical brew basket decaffenation product. To this end,
we have entered into the ESPI Agreement, which is subject to a number of
conditions, for the transfer of certain of our technology and related patent
rights. If ESPI does not perform under the ESPI Agreement, we will seek other
licensees and purchasers of our separation technology.
STRATEGY
Separation Technology
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Our strategy for the separation technology is to focus on selling or
licensing our technology. We have entered into the ESPI Agreement, which is
subject to a number of conditions, for the transfer of certain of our technology
and related patent rights. If ESPI does not perform under the ESPI Agreement, we
will seek other licensees and purchasers of our separation technology.
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Potential Merger or Acquisition
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Given our limited financial and human resources and no operating revenues
for the last five years, the directors have determined that the Company should
seek potential operating businesses and business opportunities with the intent
to acquire or merge with such businesses. Because of the Company's current
financial status, in the event the Company does successfully acquire or merge
with an operating business opportunity, it is likely that the Company's present
shareholders will experience substantial dilution and there will be a probable
change in control of the Company.
Any target acquisition or merger candidate of the Company will become
subject to the same reporting requirements as the Company upon consummation of
any such business combination. Thus, in the event that the Company successfully
locates and completes an acquisition or merger with another operating business,
the resulting combined business must provide audited financial statements for at
least the two most recent fiscal years or, in the event that the combined
operating business has been in business less than two years, audited financial
statements will be required from the period of inception of the target
acquisition or merger candidate.
There can be no assurance, however, that the Company will have the ability
to acquire or merge with an operating business, business opportunity or property
that will be of material value to the Company. Management plans to investigate,
research and, if justified, potentially acquire or merge with one or more
businesses or business opportunities. Although the Company is actively
negotiating with several potential merger targets, the Company currently has no
commitment or arrangement, written or oral, to participate in any business
opportunity and management cannot predict the nature of any potential business
opportunity it may ultimately consider. Management will have broad discretion in
its search for and negotiations with any potential business or business
opportunity.
Sources of Business Opportunities
---------------------------------
The Company intends to use various sources in its search for potential
business opportunities including its officers and directors, consultants,
special advisors, securities broker-dealers, venture capitalists, members of the
financial community and others who may present management with unsolicited
proposals. Because of the Company's lack of capital, it may not be able to
retain a fee- based professional firm specializing in business acquisitions and
reorganizations. Rather, the Company will most likely have to rely on outside
sources, not otherwise associated with the Company, that will accept their
compensation only after the Company has finalized a successful acquisition or
merger. To date, the Company has not engaged nor any prospective consultants for
these purposes. The Company does not intend to restrict its search to any
specific entered into any definitive agreements nor understandings regarding
retention of any consultant to assist the Company in its search for business
opportunities, nor is management presently in a position to actively seek or
retain kind of industry or business. The Company may investigate and ultimately
acquire a venture that is in its preliminary or development stage, is already in
operation, or in various stages of its corporate existence and development.
Management cannot predict at this time the status or nature of any venture in
which the Company may participate. A potential venture might need additional
capital or merely desire to have its shares publicly traded. The most likely
scenario for a possible business arrangement would involve the acquisition of,
or merger with, an operating business that does not need additional capital, but
which merely desires to establish a public trading market for its shares.
Management believes that the Company could provide a potential public vehicle
for a private entity interested in becoming a publicly held corporation without
the time and expense typically associated with an initial public offering.
Evaluation
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Once the Company has identified a particular entity as a potential
acquisition or merger candidate, management will seek to determine whether
acquisition or merger is warranted or whether further investigation is
necessary. Such determination will generally be based on management's
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knowledge and experience, or with the assistance of outside advisors and
consultants evaluating the preliminary information available to them. Management
may elect to engage outside independent consultants to perform preliminary
analysis of potential business opportunities. However, because of the Company's
lack of capital it may not have the necessary funds for a complete and
exhaustive investigation of any particular opportunity. In evaluating such
potential business opportunities, the Company will consider, to the extent
relevant to the specific opportunity, several factors including potential
benefits to the Company and its shareholders; working capital, financial
requirements and availability of additional financing; history of operation, if
any; nature of present and expected competition; quality and experience of
management; need for further research, development or exploration; potential for
growth and expansion; potential for profits; and other factors deemed relevant
to the specific opportunity. Because the Company has not located or identified
any specific business opportunity as of the date hereof, there are certain
unidentified risks that cannot be adequately expressed prior to the
identification of a specific business opportunity. There can be no assurance
following consummation of any acquisition or merger that the business venture
will develop into a going concern or, if the business is already operating, that
it will continue to operate successfully. Many of the potential business
opportunities available to the Company may involve new and untested products,
processes or market strategies which may not ultimately prove successful.
Form of Potential Acquisition or Merger
---------------------------------------
Presently, the Company cannot predict the manner in which it might
participate in a prospective business opportunity. Each separate potential
opportunity will be reviewed and, upon the basis of that review, a suitable
legal structure or method of participation will be chosen. The particular manner
in which the Company participates in a specific business opportunity will depend
upon the nature of that opportunity, the respective needs and desires of the
Company and management of the opportunity, and the relative negotiating strength
of the parties involved. Actual participation in a business venture may take the
form of an asset purchase, stock purchase, reorganization, merger or
consolidation. The Company may act directly or indirectly through a subsidiary
corporation, or other form of organization, however, the Company does not intend
to participate in opportunities through the purchase of minority stock
positions.
Because of the Company's current financial status and its concomitant
limited assets and no operating revenue, it is likely that any potential merger
or acquisition with another operating business will require substantial dilution
of the Company's existing shareholders. There will probably be a change in
control of the Company, with the incoming owners of the targeted merger or
acquisition candidate taking over control of the Company. Management has not
established any guidelines as to the amount of control it will offer to
prospective business opportunity candidates, since this issue will depend to a
large degree on the economic strength and desirability of each candidate, and
correspondent ending relative bargaining power of the parties. However,
management will endeavor to negotiate the best possible terms for the benefit of
the Company's shareholders as the case arises.
Management does not have any plans to borrow funds to compensate any
persons, consultants, promoters, or affiliates in conjunction with its efforts
to find and acquire or merge with another business opportunity. Management does
not have any plans to borrow funds to pay compensation to any prospective
business opportunity, or shareholders, management, creditors, or other potential
parties to the acquisition or merger. In either case, it is unlikely that the
Company would be able to borrow significant funds for such purposes from any
conventional lending sources. In all probability, a public sale of the Company's
securities would also be unfeasible, and management does not contemplate any
form of new public offering at this time. In the event that the Company does
need to raise capital, it would most likely have to rely on the private sale of
its securities. However, no private sales are contemplated by the Company's
management at this time. If a private sale of the Company's securities is deemed
appropriate in the future, management will endeavor to acquire funds on the best
terms available to the Company. However, there can be no assurance that the
Company will be able to obtain funding when and if needed, or that such funding,
if available, can be obtained on terms
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reasonable or acceptable to the Company. Although not presently anticipated by
management, there is a remote possibility that the Company might sell its
securities to its management or affiliates.
Management does not contemplate that the Company would acquire or merge
with a business entity in which any affiliates of the Company have an interest.
Any such related party transaction, however remote, would be submitted for
approval by an independent quorum of the Board of Directors and the proposed
transaction would be submitted to the shareholders for prior ratification in an
appropriate manner.
It is presently anticipated by management that prior to consummating a
possible acquisition or merger, the Company will seek to have the transaction
ratified by shareholders in the appropriate manner. Most likely, this would
require a general or special shareholder's meeting called for such purpose,
wherein all shareholder's would be entitled to vote in person or by proxy. In
the notice of such a shareholder's meeting and proxy statement, the Company will
provide shareholders complete disclosure documentation concerning a potential
acquisition of merger candidate, including financial information about the
target and all material terms of the acquisition or merger transaction.
MARKETING
Our current marketing strategy is to license or sell our separation
technologies to other companies which have pre-existing industry presence in
their respective fields and the financial resources necessary to complete the
commercialization and marketing of these technologies and products. Although we
are currently negotiating with a purchaser for the technology, there can be no
assurance that we will be able to enter into additional agreement on terms
favorable to us if at all, or that current or future agreements will ultimately
be beneficial to us.
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 ("GROW"), 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, 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 approximately $1,285,773 of
media, net of amounts allocated to warrants, 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 use the Media in conjunction with
other products or services to be offered by the Company in the future.
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.
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MANUFACTURING
We currently do not own or operate manufacturing facilities for commercial
production of any 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.
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. Since we are seeking to license our
PLASMA PURE system to a third party, it would be the licensee's responsibility
to comply with all applicable FDA regulations.
PATENTS AND LICENSE RIGHTS
Our separation technology 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 technological
developments, or licensing agreements, 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 technology licensees and/or purchasers 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.
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PRODUCT LIABILITY
The development, manufacture and sale of products incorporating our
separation 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 curtail 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.
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.
ITEM 2. 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. We
believe that our property and equipment are in good operating condition and are
adequate for existing and immediately foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders in the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
There is currently a limited public trading market for our Common Stock.
There are currently eleven 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
1999. The quotations as reported reflect inter-dealer
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quotations without retail markup, markdown or commission and do not necessarily
represent actual transactions.
High Low
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January 1, 1999 - March 31, 1999 $1.156 $0.375
April 1, 1999 - June 30, 1999 0.500 0.200
July 1, 1999 - September 30, 1999 0.300 0.125
October 1, 1999 - December 31, 1999 0.220 0.070
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
(b) Holders of Common Stock
Approximate Number of Record Holders
Title of Class (as of December 31, l999)
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Common Stock, $.0001 par value 272
A number of shares are held of record in street name by brokerage and other
institutional firms for their customers.
(c) 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
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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 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 $10,181,714 at December
31, 1999 and have a total accumulated deficit of $10,802,622.
We had no revenues from continuing operations in years ending December 31,
1998, and December 31, 1999. 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
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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 our research and development programs. There can be no
assurance of when and whether we will generate any revenues or become profitable
on a sustained basis, if at all.
Our ability to achieve revenue will depend upon our ability to license or
sell our technology. 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, 1999 Compared to the Year Ended December 31, 1998
- -------------------------------------------------------------------------
Net losses decreased from $2,881,162 for the year ended December 31, 1998
to $1,380,235 for the year ending December 31, 1999, a 52% decrease. We had no
revenues or operating income for years ended December 31, 1999 and December 31,
1998 from continuing operations. For the year ended December 31, 1999, we had no
interest income.
Total general, administrative and development expenses were $841,333 for
1999 in comparison to $2,656,431 for 1998, a decrease of 68%. The decrease in
these costs from 1998 to 1999 was primarily due to a significant decrease in
administrative, 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 $(.17) for the year
ended December 31, 1999.
At December 31, l999, the Company had no assets. Total liabilities of
$1,474,522 and total stockholders' deficit of $(1,474,522).
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 general, administrative and development 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).
LIQUIDITY AND CAPITAL RESOURCES
We had negative working capital as of December 31, l999, of $1,474,522 in
comparison to a negative working capital position as of December 31, l998 of
$887,413. We had an accumulated deficit of $1,474,522 at the period ended
December 31, l999, in comparison to an accumulated deficit of $771,344 at
9
<PAGE>
the period ended December 31, l998. 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 its
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. At March 31, 2000, the approximately $143,355 outstanding
principal balance, plus accrued interest theron, of the 10% Senior Convertible
Notes was 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. At March 31,
2000, the entire $600,000, plus accrued interest thereon, of the Convertible
Debenture was converted into our Common Stock. 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, the
Company had approximately $1,285,773 of remaining prepaid media credits, net of
amounts allocated to warrants, available for execution of its public relations,
advertising and marketing campaign for its decaffeination technology. The
prepaid Media Credits were 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 do not currently possess a bank source of financing. Our negative
working capital (current assets less current liabilities) at December 31, 1999
was $1,474,522. Our management believes that unless we are able to sell the
approximately $1,285,773, net of amounts allocated to warrants, of Media
Credits, obtain additional capital financing or license or sell our products or
technology, none of which can be assured, we cannot be certain that our current
capital will be adequate to continue as a going concern. Should insufficient
funds from these potential sources be available, reducing our present rate of
expenditures further might materially adversely affect the ability of the
Company to complete our research and development on the commercial DECAFFOMATIC
product, to produce competitive products and services, and to market them
effectively. 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 the Media, to conserve liquidity by setting marketing and
other priorities and reducing expenditures, to obtain additional funds through
the placement of our securities.
We believe that we will be able to meet our de minimis operating expenses
for the next 3 months. Our future capital requirements, however, will depend on
numerous factors, including (i) our ability to sell our technology or establish
new licensing and marketing agreements, (ii) the costs involved in preparing,
filing, prosecuting, defending and enforcing intellectual property rights and
complying with regulatory requirements, and (iii) 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.
YEAR 2000 EFFECT ON COMPUTER SYSTEMS
We did not have any computer systems operational as of December 31, 1999.
10
<PAGE>
To date we have spent immaterial amounts to comply with accounting and
statutory requirements regarding the year 2000. We believe that we will spend
minimal additional amounts for year 2000 issues in the foreseeable future. These
assessments have not been independently verified.
FACTORS THAT MAY AFFECT FUTURE RESULTS
--------------------------------------
Statements included in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" Section, in other sections of this Annual
Report on Form 10-KSB including, without limitation the "Description of
Business" Section in Part I, and in prior and future filings by us with the
Securities and Exchange Commission, in our press releases and in oral statements
made with the approval of an authorized executive which are not historical or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those presently anticipated or projected. We wish to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The following important
factors, among others, in some cases have affected and in the future could
affect our actual results and could cause our actual financial and operating
performance to differ materially from that expressed in any forward-looking
statement:
We are a Development Stage Company and Our Business is Difficult to Evaluate
- --------------------------------------------------------------------------------
Because our Operating History is Limited
- ----------------------------------------
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. It is difficult to evaluate our business and our prospects because
our revenue and income potential is unproven. 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. We cannot
assure you that our operations will result in us becoming or remaining
economically viable. Potential investors should be aware of the problems,
delays, expenses and difficulties encountered by any company in a developmental
stage, many of which may be beyond 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.
We Have Incurred Losses Since Inception and We May Not Be Able to Achieve
- --------------------------------------------------------------------------------
Profitability
- -------------
We have incurred net losses in each year since inception and for each of
the years ended December 31, 1997, December 31, 1998 and December 31, 1999. As
of December 31, 1999 we had an accumulated deficit of approximately
$10,800,000. These losses have resulted primarily from expenses associated
with our research and development activities and general administrative
expenses. Since inception we have funded our business primarily from the sale of
our stock and by borrowing funds. 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. The amount of
future expenses, corresponding further potential net losses and time required by
us to reach profitability, if ever, are uncertain. We cannot assure you that our
operations will generate significant revenue or will ever be profitable.
We Have Immediate Capital Requirements and Our Future Funding is Uncertain.
- ---------------------------------------------------------------------------
Our operations to date have consumed substantial amounts of cash. At
December 31, 1999, our current liabilities consisting primarily of accounts
payable, notes payable and accrued expenses were $1,474,522. At December 31,
1999 we had a negative working capital position of $1,474,522. Therefore, we
need to raise substantial additional funds through the licensing or sale of our
technologies or through additional equity or debt financings. We cannot assure
you that any such additional funding will be available to us. In the event 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
11
<PAGE>
research and development activities. Such lack of funds could seriously harm our
business, financial condition and results of operation. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Early Stage of Product Commercialization; Technological Uncertainties.
- ----------------------------------------------------------------------
We are in the development stage, and our separation technologies require
additional development for commercialization. The development of any products
will require significant further research, development, testing and regulatory
approvals and additional investment prior to commercialization. Consequently, we
are negotiating with prospective purchasers or licensees for our separation
technology.
We Will Be Substantially Dependent on Third Party Licensees or Technology
- --------------------------------------------------------------------------------
Purchasers
- ----------
We will be dependent for revenues upon the success of such third party
licensees or technology purchasers in performing their responsibilities. The
amount and timing of resources which may be devoted to the performance of their
contractual responsibilities by such parties are not within our control. We
cannot assure you that such parties will perform their obligations as expected,
pay any additional revenue or license fees beyond the stated minimums to us or
market any products, or that we will derive any revenue from such arrangements.
There can be no assurance that our interests will continue to coincide with
those parties. To the extent that we choose not to or are unable to enter into
such technology sales or licensing agreements, we would need substantially
additional capital to undertake the marketing or sale of our current and future
products.
Lack of Manufacturing and Sales and Marketing Experience.
- ---------------------------------------------------------
We have no experience in, and currently lack the resources and capability
to, manufacture any of our proposed products on a commercial basis. We
anticipate that we will be dependent to a significant extent on third party
manufacturers.
Our Market May Undergo Rapid Technological Change and Our Products May Become
- --------------------------------------------------------------------------------
Obsolete.
- ---------
We expect technological developments to continue at a rapid pace in the
electrostatic separation and biotechnology industries, and there can be no
assurance that technological developments will not cause our technology to be
rendered obsolete.
We Rely Heavily on Our Intellectual Property Rights Which Offer Only Limited
- --------------------------------------------------------------------------------
Protection Against Potential Infringers
- ---------------------------------------
Our success will be heavily dependent upon whether we can obtain patents,
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. Patents have been granted to us for both
method and devise in the technology for the separation of caffeine from a brewed
beverage. No other patents have, as yet, been issued but it is expected that
patents will be issued. We believe that patent protection of our technologies,
processes and products is very important to our future operations. The success
of our proposed products may significantly depend upon our ability to obtain
patent protection. When a patent is granted, the cost of enforcing our patent
rights in lawsuits, if necessary, may be significant and could interfere with
our operations.
Although we intend to file additional patent applications as we believe
appropriate with respect to any new products or technological developments, we
cannot assure you that any additional patents will be issued, or if issued, that
they will be of commercial benefit to us. Further, our ability to file such
additional patent applications may be reduced by our limited financial
resources. 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 proprietary technology, we cannot assure you that 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, we cannot assure you that any
products developed by us will not infringe patents held by third parties or
that, in such case, licenses from such third parties would be available on
commercially acceptable terms, if at all. Our ability to compete effectively
with other companies will depend, in part, on our ability to maintain the
proprietary nature of its technologies. We intend to license
12
<PAGE>
and market our products internationally, and the laws of some foreign countries
may not protect our proprietary rights to as great an extent as do the laws of
the United States. We cannot assure you that our competitors will not
independently develop comparable or superior technologies.
Limited Market for the Common Stock
- -----------------------------------
There has only been a limited public market for our Common Stock on the OTC
Bulletin Board. We cannot assure you that an active public market for the Common
Stock will develop or continue at any time in the future. At December 31, 1999
we had approximately 8,928,174 shares outstanding. Substantially all of these
shares are freely tradable without restriction or are eligible for resale under
Rule 144, subject to the limitations on sales by "affiliates" under Rule 144. As
long as there is a limited public market for our Common Stock, if our
stockholders sell or attempt to sell a significant number of shares in the
public market at any one time, it could be difficult to make the sale at then
current market prices, and the market price of our Common Stock could fall
materially.
Our Stock Will Likely Be Subject to Substantial Price and Volume Fluctuations
- --------------------------------------------------------------------------------
Due to a Number of Factors, Certain of Which Are Beyond Our Control
- -------------------------------------------------------------------
The market price and trading volume of our Common Stock, like that of the
common stock of many other technology companies, has been and is likely to be
highly volatile and fluctuate widely for reasons which may be unrelated to our
business prospects or results of operations, such as:
- the results of announcements of technological innovations or new
commercial products by our competitors;
- announcements relating to our technology sales, licenses or strategic
relationships;
- developments in our patent or other proprietary rights or our
competitors;
- fluctuations in our operating results;
- sales of large amounts of stock by shareholders;
- trading being conducted by limited, undercapitalized and less experienced
market makers.
- actions taken by our competitors, including new product introductions;
- our ability to control costs;
- our ability to obtain financing;
- general economic and market factors.
Any of these reasons could have a significant adverse effect on the market
price of our Common Stock. In addition, the stock market has experienced and
continues to experience extreme price and volume fluctuations which have
affected the market price of many technology and biotechnology companies.
The Reliability of Our Products is Uncertain.
- ---------------------------------------------
Most applications incorporating our technologies are being still developed
or have only begun to be introduced to potential licensees or technology
purchasers. As a result of the limited period of use and the controlled
environment in which most of our technologies have been tested to date, we
cannot assure you that they will meet their performance specifications under all
conditions or for all applications. Any significant reliability problems could
have a material adverse effect on our business.
We Face Intense Competition and If We Are Unable to Compete Successfully Our
- --------------------------------------------------------------------------------
Business Will Be Seriously Harmed.
- ----------------------------------
We 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
13
<PAGE>
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. We cannot assure you
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 Can Potentially Issue Additional Shares Without Shareholder Approval.
- ------------------------------------------------------------------------
We are currently authorized to issue up to a total of 15,000,000 shares of
Common Stock, $.0001 par value, and 1,000,000 shares of preferred stock, $.0001
par value per share (the "Preferred Stock"). At December 31, 1999, there were
8,928,174 shares of Common Stock outstanding and 45,000 shares of Series A
convertible preferred stock outstanding.
Our Board of Directors is authorized, without stockholder approval, to
issue Preferred Stock in one or more series and to fix the voting powers and the
designations, preferences and relative, participating, optional or other rights
and restrictions thereof. Accordingly, we may further issue a series of
Preferred Stock in the future that will have preference over our Common Stock
with respect to the payment of dividends and proceeds from our liquidation,
dissolution or winding up or have voting or conversion rights which could
adversely affect the voting power and percentage ownership of the holders of the
Common Stock.
There Are a Substantial Number of Shares Eligible for Future Sale That May
- --------------------------------------------------------------------------------
Adversely Affect the Market Price for Our Common Stock.
- -------------------------------------------------------
Sales of substantial amounts of our Common Stock in the public market by
shareholders could adversely affect the market price of the Common Stock and
adversely affect our ability to raise capital at a time and on terms favorable
to us. Although there are approximately eleven securities broker-dealers that
are making a market in our common stock as of the date hereof, our shares are
thinly traded on a limited basis. Consequently, if substantial amounts of Common
Stock are sold into the public market by shareholders, the prevailing market
price will likely drop. As of December 31, 1999, we had 8,928,174 shares of
Common Stock outstanding. Substantially all of these shares are freely tradable
without restriction or are eligible for resale under Rule 144 under the
Securities Act, except for any shares held by an "affiliate" of the company (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 (or persons whose shares are
aggregated under the terms of Rule 144), including an affiliate of the company,
who has owned restricted shares of Common Stock beneficially 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 the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the sale, as reported by all national
securities exchanges on which the Common Stock is traded and/or the automated
quotation system of a registered securities association, or an approved
consolidated transaction reporting system. A person who has not been an
affiliate of the company for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market prices prevailing from time to time.
Our Stock is a Low Priced Securities Which Imposes Certain Requirements on
- --------------------------------------------------------------------------------
Broker-Dealers Effecting a Trade in Our Shares.
- -----------------------------------------------
If the price per share of our common stock is below $5.00, then unless we
satisfy certain net asset tests, our securities would become subject to certain
"penny stock" rules promulgated by the Commission. The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from
14
<PAGE>
the rules, to deliver a standardized risk disclosure document prepared by the
Commission that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. Based on our most recent
financial statement for the year ended December 31, 1999, our Common Stock is
subject to the "penny stock" rules. Consequently, owners of our common stock may
find it more difficult to sell their shares.
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 cash dividends on our Common Stock and do
not anticipate paying cash dividends in the foreseeable future. Therefore, you
will not experience a return on your investment in our Common Stock without
selling your shares since we currently intend to retain future earnings, if any,
to fund the development, operations and growth of our business.
The Exercise of Our Outstanding Warrants Could Have a Dilutive Effect
- ---------------------------------------------------------------------
As of December 31, 1999, there were outstanding options and warrants to
purchase approximately 3,079,645 shares of our common stock. 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. Moreover, the terms upon which we will be able to obtain
additional equity capital 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, in all likelihood, be able to obtain any
needed capital on terms more favorable than those provided in such warrants or
options.
You Should Not Rely on Forward-Looking Statements.
- --------------------------------------------------
You should not rely on forward-looking statements in this annual report,
or in any other documents filed by us with the Commission, or in any oral
statements of our officers, directors and authorized representatives or in press
releases made by us. This annual report contains forward-looking statements that
involve risks and uncertainities. We use words such as "anticipates",
"believes", "hopes", "plans", "expects", "future", "intends", "estimates"
"projects" and similar expressions to identify forward-looking statements. You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this report. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks described by us above and elsewhere in this report.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the fiscal years ending December 31,
1999, and 1998 are included herein and consist of:
Independent Auditor's Report F-1
Consolidated Balance Sheet F-2-F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders'
Equity (Deficit) F-5-F-7
Consolidated Statements of Cash Flows F-8-F-9
Notes to Consolidated Financial Statements F-10-F-22
15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's accountants are Moore Stephens, P.C. There have been no
disagreements with the accountants on any matter of accounting principles,
practices or financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth information concerning the executive
officers, directors and key employees of the Company:
(a) The current directors of the Company are set forth in the following table:
YEAR FIRST
ELECTED AS OFFICE WITH
NAME AGE DIRECTOR COMPANY
- ---- --- ---------- -----------
Timothy J. Keating 36 1999 Chairman & Chief Executive
Officer
Gary J. Graham 50 1997 Director & Secretary
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.
(b) The current executive officers of the Company are set forth in the
following table:
YEAR FIRST
ELECTED AS OFFICE WITH
NAME AGE DIRECTOR COMPANY
- ---- --- ---------- -----------
Timothy J. Keating 36 1999 Chief Executive Officer
Gary J. Graham 50 1997 Secretary
There are no other employment contracts with the executive officers. The Company
had an employment agreement with Alexander T. Hoffmann, its former Chief
Executive Officer who resigned in August 1999, and Sol L. Berg, its former
President, who was terminated in March 1999. Officers serve at the will of the
Board of Directors.
(c) There are no other significant employees of the Company:
(d) Family Relationships
There are no family relationships.
(e) Business Experience
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. He became Chief Executive
Officer in August 1999. Mr. Keating operates his own investment firm , Keating
Investments, LLC, based in San Francisco, California. Prior to forming his own
firm, he was a principal and portfolio manager in a private partnership
investing in microcap companies. Prior to that time, Mr. Keating founded and ran
the Euopean Equity Derivative Products Department for Nomura International plc,
in London, England. Prior thereto he was a proprietary arbitrage
16
<PAGE>
trader and head of European equity Trading Department at Bear Stearns
International Limited, London. Mr. Keating is a graduate of Harvard College.
Gary J. Graham (age 50)
--------------
Mr. Graham became a Director of the Company in October 1997 and became
Secretary in September 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 Credits 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 Meyers College.
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. IMSCO does not have a separate Nominating or
Compensation Committee.
ITEM 10. 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, 1999, 1998 and 1997, whose
total annual salary and bonus exceeded $100,000 in any of those fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Additional
Name of Individual Capacity Year Salary Compensation
- ------------------ -------- ---- ------ ------------
<S> <C> <C> <C> <C>
Timothy J. Keating Chief Executive 1999(1) $0 $0
Officer
Alexander Hoffmann Former Chief Executive 1999
Officer 1998 $150,000 $275,000(2)
1997 $ 25,962 $105,600
Sol L. Berg Former President 1999
1998 $125,000 $86,070(3)
1997 $115,625
</TABLE>
(1) Mr. Keating became an executive officer of the Company in August 1999. On
October 1, 1999, Mr. Keating was granted 700,000 5-year stock options with
an exercise price of $0.17 per share. The stock options expire on September
30, 2004. At the date of grant, the stock had a fair market value of $0.17
per share based on the prior 90-day average closing bid price.
(2) 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
17
<PAGE>
use the same $1.32 price per share that shares were sold to Hampton Tech
Partners II, LLC in October 1996.
(3) 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.
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 no fringe benefit or insurance programs for
its employees.
Employment Arrangements
- -----------------------
The Company currently has no employment agreements with any officers or
employees. It had two employment agreements in effect for two former executive
officers in 1999:
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 is $150,000 per year. The agreement also
provides that Mr. Hoffmann shall be provided with a car by the Company and be
reimbursed for automobile insurance. Mr. Hoffmann shall also be entitled to
medical insurance, vacation and other benefits provided to the Company's
employees generally. In the event that Mr. Hoffmann's employment with the
Company is terminated by the Company other than for cause, Mr. Hoffmann shall
receive one year's base salary. Mr Hoffmann resigned in August 1999 and waived
any severance payment from the Company.
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 is
$125,000 per year. The agreement also provides 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. Mr. Berg's Employment Agreement
was terminated by the Company in March 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. The Company does not provide life, health or medical plans to officers
that are not available to all employees. Except as provided above, the Company
has no other employment contracts with any executive officers or other
employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table identifies each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, each
director of the Company and all directors and officers of the Company as a
group, and sets forth the number of shares of the Company's Common Stock
18
<PAGE>
beneficially owned by each such person and such group and the percentage of
the shares of the Company's 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.
(a) As of the December 31, l999, one person owned of record or were known
by the Company to own beneficially more than five percent (5%) of the Common
Stock outstanding.
(b) The following table sets forth certain information regarding the
beneficial ownership (determined in accordance with Securities and Exchange
Commission Rule 13d-3 Securities Exchange Act of 1934) of common stock of the
Company as of December 31, 1999, by: (i) each person who is known by the Company
to own beneficially more than 5% of the outstanding shares of common stock; (ii)
each of the Company's directors; and (iii) all officers and directors of the
Company as a group:
19
<PAGE>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Limpos, S.A. 1,000,000 11.2%
Proxhill Marketing, Inc. (1) 399,635 4.5%
5460 S. Quebec St., #220
Englewood, CO 80111
Gary J. Graham (2) 399,635 4.5%
5460 S. Quebec St., #220
Englewood, CO 80111
Timothy J. Keating(2) 25,000 *
220 Montgomery Street
San Francisco, CA 94104
Sands Brothers & Co., Ltd (3) --(3) *
90 Park Avenue
New York, NY 10016
AMRO International, SA(4) --(5)
c/o Ultra Finance
Grossmunesterplatz
Zurich CH 8022
Switzerland
All Officers and Directors 424,635 4.8%
as a group (2 persons)
- ------------
(1) 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 225,000 shares issuable upon conversion of the Series A convertible
preferred stock. All of Proxhill Marketing, Ltd.'s common stock is owned by
Julie A. Graham, the wife of Gary J. Graham, a Director and Secretary of
the Company.
(2) Denotes a director of the Company.
(3) Does not include 600,000 shares issuable upon exercise of common stock
warrants.
(4) AMRO is beneficially owned and controlled by Mark Perkins, an individual
residing in Monte Carlo, Monaco.
(5) Does not include 2,520,000 shares issuable upon exercise of the
Convertivble Debenture dated February 9, 1999, which was exercised into
2,520,000 shares of the Comppany's common stock in March 2000.
* 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.
20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
(a) Except as described below, since January 1, l998, there have been no
transactions with any officer, director or five percent (5%) or more
shareholders of the Company 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 credits to
the Company in consideration for the Company 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 the 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 Credits are used by under Media
Purchase Agreement, First Capital Investments, Inc., shall also receive a
placement fee of 10% of the amount of Media Credit used. For advertising and
marketing services rendered to the Company 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 J. Graham who was
elected a Director of the Company in October 1997 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 the Company. Additionally, PML received 48,727 shares of Common
Stock for expense reimbursement and services rendered to the Company. PML also
invested $225,000 in the Company for 45,000 shares of preferred stock of the
Company which are convertible into 225,000 shares of common stock, representing
a conversion price of $1.00 per share of common stock.
In 1998, Mr. Alexander T. Hoffmann, a former Director and former Chief
Executive Officer of the Company, 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.
In 1998, Mr. Sol L. Berg, a former director and former president of the
Company, was issued 57,380 shares of Common Stock for services rendered and
reimbursement of expenses.
On October 1, 1999, Timothy A. Keating, the Company's current Chairman and
Chief Executive Officer was granted 700,000 5-year stock options with an
exercise price of $.17 per share, which was based on the prior 90-day average
closing bid price of the Company's common stock.
(b) Except as above described, there have been no business relationships
with directors or nominees for director of the Company since January 1, l998.
(c) At December 31, l999, no officers or directors were indebted to the
Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of 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.)
21
<PAGE>
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 Class A 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.)
(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).
22
<PAGE>
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(5)-- Form of 8% Convertible Debenture issued to Amro International,
Ltd.
10.10(5)-- Note and Warrant Purchase Agreement dated February 9, 1999
between the Company and AMRO International, Ltd.
10.11(6)-- Registration Rights Agreement dated February 9, 1999 between the
Company and AMRO International, Ltd.
10.12(6)-- Warrant dated February 9, 1999 issued by the Company to AMRO
International, Ltd.
10.13(6)-- Agreement between the Company and Sands Brothers & Co., Ltd.
dated July 31, 1998
(b) Reports on Form 8-K.
The Company filed three reports on Form 8-K for the year ending December
31, l998.
Footnotes
- ---------
(1) Filed as Exhibits to the Company's Form 10-KSB 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 Exhibit 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 herewith.
23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders of
IMSCO Technologies, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of IMSCO
Technologies, Inc. and Subsidiaries [a development stage company] as of December
31, 1999, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the years ended December 31, 1999 and 1998.
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, 1999, the results of their operations and their cash
flows for each of the years ended December 31, 1999 and 1998, 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
9 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, 1999 of $10,802,622 has utilized $424,097 in cash for
operations for the year ended December 31, 1999, 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 9. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The statement of stockholders' deficit prior to January 1, 1997 and
the cumulative amounts from inception to that date were not audited by us and,
accordingly, we do not express an opinion on them. Those statements were audited
by other auditors.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
April 12, 2000
F-1
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
- --------------------------------------------------------------------------------
<TABLE>
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999.
- --------------------------------------------------------------------------------
<S> <C>
Assets:
- -------
Current Assets ..................................................... $ --
------------
Total Assets .................................................... $ --
============
Liabilities and Stockholders' [Deficit]:
- ----------------------------------------
Current Liabilities:
Notes Payable ................................................... $ 143,355
Convertible Notes Payable ....................................... 561,806
Accounts Payable ................................................ 82,896
Accrued Expenses ................................................ 18,042
Accrued Interest ................................................ 130,022
Accounts Payable to be Assumed .................................. 528,351
Due to Stockholders ............................................. 10,050
------------
Total Current Liabilities ....................................... 1,474,522
------------
Commitments and Contingencies ...................................... --
------------
Stockholders' [Deficit]:
- ------------------------
Series A Preferred Stock - Authorized 1,000,0000 Shares
at $.0001 Par Value; 45,000 Convertible Shares, Issued and
Outstanding ................................................... 5
Common Stock - Authorized 15,000,000 Shares at $.0001 Par Value;
8,928,174 Shares Issued and Outstanding ....................... 893
Additional Paid-in Capital - Series A Convertible Preferred Stock 224,995
Additional Paid-in Capital - Common Stock ....................... 10,480,703
Less: Prepaid Advertising Credits .............................. (1,378,496)
Deficit Accumulated During Development Stage .................... (10,181,714)
Accumulated Deficit - Discontinued Operations ................... (620,908)
------------
Total Stockholders' [Deficit] ................................... (1,474,522)
------------
Total Liabilities and Stockholders' [Deficit] ................... $ --
============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<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 9 1 9 9 8 1 9 9 9
------------ ------------ ------------
<S> <C> <C> <C>
General, Administrative and Development Expense:
- ------------------------------------------------
Research and Development Expense ............ $ 8,911 $ 29,900 $ 301,925
Salaries and Wages .......................... 117,691 266,511 933,005
Officer Salaries ............................ 30,807 661,070 1,102,500
Payroll Taxes ............................... 13,931 55,846 154,803
Outside Labor ............................... -- 36,596 191,136
Professional and Consulting Fees ............ 332,640 161,490 1,240,660
Professional and Consulting Fees - Non-Cash . 112,570 1,126,158 2,187,539
Rent ........................................ 9,269 17,804 165,288
Rent - Related Party ........................ 1,750 3,750 5,500
Insurance ................................... 27,636 73,642 190,879
Travel and Business Meeting ................. 11,321 59,390 189,250
Auto Expense ................................ 5,448 20,230 66,217
Telephone and Utilities ..................... 6,014 11,329 67,416
Office Expense .............................. 12,321 10,366 143,164
Equipment Rental ............................ 2,781 8,474 36,080
Corporate Fees .............................. -- 9,808 69,981
Advertising ................................. 12,000 92,942 330,703
Depreciation and Amortization ............... 29,993 10,669 53,920
Litigation Settlement ....................... 106,250 -- 1,644,642
Franchise Tax ............................... -- 456 1,987
------------ ------------ ------------
General, Administrative and Development
Expense ................................... 841,333 2,656,431 9,076,595
------------ ------------ ------------
Other Income [Expense]:
- -----------------------
Dividend and Interest Income ................ -- -- 11,633
Interest Expense ............................ (538,902) (224,731) (1,072,680)
Loss on Sale of Fixed Assets ................ -- -- (44,072)
------------ ------------ ------------
Other [Expense] - Net ....................... (538,902) (224,731) (1,105,119)
------------ ------------ ------------
[Loss] Before Income Taxes .................. (1,380,235) (2,881,162) (10,181,714)
Provision for Income Tax ....................... -- -- --
------------ ------------ ------------
Net [Loss] .................................. $ (1,380,235) (2,881,162) $(10,181,714)
============ ------------ ============
Basic and Diluted [Loss] Per Share of Common
Stock $ (.17) $ (.39)
=============== ===========
Basic and Diluted Weighted Average Shares
of Common Stock Outstanding 7,969,986 7,370,026
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<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.
F-4
<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.
F-5
<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
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.
F-6
<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 Credits [Deficit]
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December
- ------------------
31, 1998 -
- ----------
Forwarded 45,000 $5 7,681,278 $769 $224,995 $ 9,803,770 $ (8,801,479) $(620,908) $(1,378,496) $ (771,344)
- ---------
Issuance of
Warrants -
Consultant -- - -- -- -- 52,000 -- -- -- 52,000
Issuance of Shares
for Cancelled
Liabilities -- - 80,000 8 -- 74,992 -- -- -- 75,000
Issuance of Shares
for Cancelled
Liabilities -- - 25,230 2 -- 22,959 -- -- -- 22,961
Issuance of Warrant
- Loan Extension -- - -- -- -- 21,000 -- -- -- 21,000
Issuance of Warrants
for Notes Payable -- - -- -- -- 55,000 -- -- -- 55,000
Issuance of
Director Warrants -- - -- -- -- 56,000 -- -- -- 56,000
Issuance of Shares
for Services -- - 20,000 2 -- 3,398 -- -- -- 3,400
Issuance of Shares
upon Conversion
of Notes -- - 416,666 42 -- 49,958 -- -- -- 50,000
Issuance of Shares
for Services -- - 15,000 1 -- 1,169 -- -- -- 1,170
Issuance of Shares
for Litigation
Settlement -- - 550,000 55 -- 106,195 -- -- -- 106,250
Issuance of Shares
Upon Conversion
of Shareholder Note .. -- - 140,000 14 -- 17,486 -- -- -- 17,500
27,000 Shares
Issuable Pursuant to
Financing Penalty -- - -- -- -- 16,776 -- -- -- 16,776
Rights to Receive
Additional
Shares Under
Beneficial
Conversion Feature -- - -- -- -- 200,000 -- -- -- 200,000
Net [Loss] -- - -- -- -- -- (1,380,235) -- -- (1,380,235)
------ -- --------- ---- -------- ----------- ------------ --------- ----------- -----------
Balance -
December 31, 1999 45,000 $5 8,928,174 $893 $224,995 $10,480,703 $(10,181,714) $(620,908) $(1,378,496) $(1,474,522)
====== == ========= ==== ======== =========== ============ ========= =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<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 9 1 9 9 8 1 9 9 9
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net [Loss] ....................................... $ (1,380,235) $ (2,881,162) $(10,181,714)
------------ ------------ ------------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Decrease [Increase] in Due from Officers ....... -- -- (120)
Depreciation ................................... 29,993 10,668 56,532
Contract Services Paid with Common Stock ....... 102,531 903,900 2,173,446
Interest Paid with Common Stock ................ 16,776 253 317,029
Interest Expense - Deferred Finance Costs ...... 82,577 216,508 299,085
Grant of Stock Options and Warrants for
Past Services ................................ 108,000 789,659 897,659
Amortization of Prepaid Advertising Credits .... -- 15,942 229,674
Loss on Disposal of Property and Equipment ..... -- -- 44,072
Amortization - Discount Note Payable ........... 16,806 -- 16,806
Interest Expense - Beneficial Conversion Feature 200,000 -- 200,000
Interest Expense - Warrant Discount ............ 21,000 -- 21,000
Stock Issued to Settle Litigation .............. 56,250 -- 56,250
Note Issued to Settle Litigation ............... 50,000 -- 50,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Other Current Assets ......................... 1,000 -- 20,200
Miscellaneous Receivables ........................... -- -- --
Other Assets ................................. -- -- --
Security Deposits ............................ 3,499 -- 4,675
Accounts Receivable .......................... -- -- 2,998
Increase [Decrease] in:
Accounts Payable ............................. (79,086) (3,973) 18,445
Accrued Expenses ............................. (6,430) (59,748) 1,556,434
Accrued Salaries ............................. (153,190) 104,504 --
Accrued Payroll Taxes ........................ (48,006) 31,310 --
Accrued Marketing Fees ....................... (53,000) 53,000 --
Accrued Legal Fees ........................... (50,955) 50,955 --
Accounts Payable Subject to Transfer ......... 528,351 -- 528,351
Accrued Interest Expense ..................... 130,022 -- 130,022
------------ ------------ ------------
Total Adjustments .............................. 956,138 2,112,978 6,622,558
------------ ------------ ------------
Net Cash - Operating Activities - Forward ........ $ (424,097) $ (768,184) $ 3,559,156
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<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 9 1 9 9 8 1 9 9 9
----------- ----------- -----------
<S> <C> <C> <C>
Net Cash - Operating Activities - Forwarded.. $ (424,097) $ (768,184) $(3,559,156)
----------- ----------- -----------
Investing Activities:
- ---------------------
Purchase of Fixed Assets ...................... -- -- (7,734)
Prepaid Research Testing ...................... -- -- (118,212)
Proceeds from Sale of Fixed Assets ............ -- -- 21,000
----------- ----------- -----------
Net Cash - Investing Activities ............... -- -- (104,946)
----------- ----------- -----------
Financing Activities:
- ---------------------
Convertible Notes Payable ..................... 545,000 -- 545,000
Cash Overdraft ................................ -- (18,804) --
Proceeds from Notes Payable ................... -- 390,000 775,000
Proceeds from Issuance of Common Stock ........ -- 154,400 2,247,304
Proceeds from Preferred Stock Subscriptions ... -- 225,000 225,000
Loans from Stockholders ....................... 10,750 38,300 52,050
Payment on Loans from Stockholders ............ (13,000) (11,500) (24,500)
Bond Discount ................................. 55,000 -- 55,000
Payment of Notes Payable ...................... (196,645) -- (196,645)
----------- ----------- -----------
Net Cash - Financing Activities ............... 401,105 777,396 3,678,209
----------- ----------- -----------
Net [Decrease] Increase in Cash ............... (22,992) 9,212 14,107
Cash - Beginning of Periods ...................... 22,992 13,780 22,665
----------- ----------- -----------
Cash - End of Periods ......................... $ -- $ 22,992 $ 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 1999, the Company entered into a financing transaction by settling
an accrued expense of $63,000 and a current expense of $12,000 with the issuance
of 80,000 shares of common stock.
During 1999, the Company issued a note payable for $600,000 with a
beneficial conversion feature of $200,000 and granted stock warrants with a
value of $55,000.
During 1999, $117,500 of notes payable were converted into 806,66 shares of
common stock.
Also in 1999, the Company issued 900,000 options and 455,000 warrants to
purchase Company common stock which resulted in a charge to operations and
additional paid-in capital.
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] 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.
In February 2000, the Company entered into an agreement with a corporation
controlled by a former officer and director to sell the Company's patents and
technology in exchange for approximately $578,000 consisting of cash and the
assumption of substantially all of the Company's accounts payables.
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, 1999, the subsidiaries
had minimal activity, did not own any assets and are not liable for any
liabilities.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 1999, 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.
F-10
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[2] 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 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. At December 31, 1999, the Company had 1,250,000 options and 1,829,645
warrants to purchase common stock that could potentially dilute basic earnings
per share in the future.
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.
F-11
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[3] 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, 1999 is as follows:
Deferred Tax Asset:
Net Operating Loss Carryforward $ 4,320,000
Valuation Allowance for Deferred Tax Asset 4,320,000
---------------
Net Deferred Tax Asset $ --
---------------------- ===============
The valuation allowance of $4,320,000 at December 31, 1999, represents an
increase of $552,000 over the preceding year.
The Company has approximately $10,801,000 of net operating losses as of December
31, 1999 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
2019. 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 $10,801,000
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
2018 2,881,000
2019 1,380,000
-----------
Total $10,801,000
----- ===========
A reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate for the years ended December 31, 1999 and 1998
follows:
1 9 9 9 1 9 9 8
------- -------
Federal Statutory Income Tax Rate (34)% (34)%
Change in Valuation Allowance 34 34
------------ ------------
Effective Income Tax Rate -- --
------------------------- ============ ============
F-12
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[4] RELATED PARTY TRANSACTIONS
The balance of $10,050 Due to Stockholders relates to short-term loans to the
Company in 1999. The loans are non-interesting bearing and are due on demand.
The Company leased office space on a month-to-month basis from one of the
stockholders of the Company. The Company incurred $1,750 and $3,750 of rent
expense under this lease for the years ended December 31, 1999 and 1998,
respectively. The lease terminated in 1999.
[5] NOTES PAYABLE
The Company is currently in default on all notes payable for failure to pay
interest when due, failure to redeem the notes at maturity and violation of the
note covenants.
The senior secured convertible promissory notes payable of $143,355 matured
January 31, 1999 including interest at 10% and are convertible into shares of
the Company's common stock. Management has extended the conversion feature
related to this debt. 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 when issued, included warrants to purchase
390,000 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, 1999, $62,451
was amortized as interest expense. The warrants expire in October 2003.
On February 9, 1999, the Company completed a private offering of $600,000 of 8%
convertible debentures due January 31, 2002 and 120,000 detachable 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 of $200,000 at the date of
issuance was recorded as additional interest expense.
The debenture was recorded at $545,000, net of $55,000 for the fair market value
of 120,000 warrants. The value allocated to the warrants was recorded as a note
discount and are amortized over three years. The expense for 1999 was $16,806
and was added to the carrying value of the debenture. The Company has failed to
file a registration statement as required by the terms of the private placement
and has recorded penalty interest expense of $58,500.
F-13
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[6] EQUITY TRANSACTIONS
Equity transactions during the year ended December 31, 1999 are as follows:
[A] Common stock issued pursuant to settlement of litigation.
Price Number Paid-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
December 2 $ .19 550,000 $ 55 $106,195 $106,250
======= ======== ======== ========
[B] Common stock issued upon conversion of notes was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
September 1 $ .12 416,666 $ 42 $ 49,958 $ 50,000
December 30 $ .13 140,000 14 17,486 17,500
------- -------- -------- --------
Totals 556,666 $ 56 $ 67,444 $ 67,500
======= ======== ======== ========
[C] Common stock issued for services was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
January 15 $ .94 80,000 $ 8 $ 74,992 $ 75,000
January 29 $ .91 25,230 2 22,959 22,961
September 9 $ .17 20,000 2 3,398 3,400
December 22 $ .08 15,000 1 1,169 1,170
------- -------- -------- --------
Totals 140,230 $ 13 $102,518 $102,531
======= ======== ======== ========
The Series A, $.0001 par value, convertible preferred stock is convertible at
the option of the holder into five shares of the Company's common stock for
every share of convertible preferred stock commencing three months after the
date subscribed. The Series A convertible preferred stock pays no dividend and
is not redeemable. 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. The registration statement was not declared effective.
Therefore, paid-in capital includes $16,776 for the obligation to issue 27,000
shares of the Company's common stock as of December 31, 1999. 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 would cease.
Equity transactions during the year ended December 31, 1998 are as follows:
[D] Common stock issued pursuant to the exercise of stock warrants was as
follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
January 8 $ .90 66,000 $ 7 $59,393 $59,400
======= ======= ======= =======
F-14
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[6] EQUITY TRANSACTIONS [Continued]
[E] Common stock issued in settlement of litigation was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
January 13, $ 3.94 150,000 $ 15 $ 591,674 $ 591,689
March 30 $ 3.80 249,081 24 946,679 946,703
-------- ------- ---------- ----------
Totals 399,081 $ 39 $1,538,353 $1,538,392
======== ======= ========== ==========
[F] Common stock issued for services was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
February 25 $ 1.62 125,000 $ 13 $203,111 $203,124
March 31 $ 1.38 48,727 5 66,995 67,000
May 7 $ 1.50 339,184 34 508,742 508,776
August 1 $ 1.25 100,000 10 124,990 125,000
-------- -------- -------- --------
Totals 612,911 $ 62 $903,838 $903,900
======== ======== ======== ========
[G] Common stock issued in private placement was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
May 26 $ 1.00 70,000 $ 7 $69,993 $70,000
======= ======= ======= =======
[H] Common stock issued pursuant to the exercise of stock options as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
May 28 $ 1.49 16,750 $ 2 $24,998 $25,000
======= ======= ======= =======
[I] Series A convertible preferred stock issued in private placement as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
August 25 $ 5.00 45,000 $ 5 $224,995 $225,000
======== ======== ======== ========
At December 31, 1998, the registration statement was not declared effective.
Therefore, paid-in capital includes $253 of the obligation to issue 270 shares
of the Company's common stock as of December 31, 1998.
Equity transactions during the year ended December 31, 1997 are as follows:
[J] Common stock issued for services was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
January 2 $ 2.75 100,000 $ 10 $274,990 $275,000
April 21 $ 2.63 75,000 8 196,867 196,875
August 11 $ 1.50 18,500 2 27,747 27,749
-------- ------- -------- --------
Totals 193,500 $ 20 $499,604 $499,624
======== ======= ======== ========
F-15
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[6] EQUITY TRANSACTIONS [Continued]
[K] Common stock issued in private placement was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
July 14 $ 1.50 23,000 $ 2 $ 34,498 $ 34,500
October 11 $ 2.25 15,000 2 33,748 33,750
October 16 $ 1.81 130,000 13 235,612 235,625
December 2 $ 2.25 11,111 1 24,999 25,000
December 11 $ 2.25 16,000 2 35,998 36,000
December 15 $ 2.25 4,000 -- 4,000 4,000
December 22 $ 2.25 4,000 -- 4,000 4,000
December 22 $ 1.60 27,500 3 43,997 44,000
------- ------- -------- --------
Totals 230,611 $ 23 $416,852 $416,875
======= ======= ======== ========
Equity transactions during the year ended December 31, 1996 are as follows:
[L] Common stock issued pursuant to the acquisition of advertising credits was
as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
December 6 $ 1.32 1,136,000 $ 114 $1,499,886 $1,500,000
December 6 $ -- -- -- 108,170 108,170
--------- -------- ---------- ----------
Totals 1,136,000 $ 114 $1,608,056 $1,608,170
========= ======== ========== ==========
[M] Common stock issued in settlement of debt was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
December 31 $ 1.22 775,000 $ 77 $ 943,543 $ 943,620
December 31 $ 1.32 227,000 23 299,977 300,000
--------- ------- ---------- ----------
Totals 1,002,000 $ 100 $1,243,520 $1,243,620
========= ======= ========== ==========
[N] Common stock issued for services was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
September 9 $ .75 284,000 $ 28 $213,534 $213,562
======= ====== ======== ========
[O] Common stock issued in private placement was as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
June 7 $ 1.00 5,000 $ 1 $ 4,999 $ 5,000
December 17 $ 1.00 5,000 -- 5,000 5,000
December 31 $ 2.00 150,000 15 299,985 300,000
------- -------- -------- --------
Totals 160,000 $ 16 $300,984 $310,000
======= ======= ======== ========
F-16
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------
[6] EQUITY TRANSACTIONS [Continued]
[P] Common stock issued pursuant to the exercise of stock options as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
October 10 $ .0001 47,000 $ 5 $ (5) $ --
====== ====== ===== =======
[Q] Common stock issued for acquisition as follows:
Price Number Pain-in
Date Per Share of Shares Par Value Capital Total
---- ---------- --------- --------- ------- -------
October 9 $ .0001 468,000 $ 47 $ (47) $ --
October 9 $ -- -- -- 10,000 10,000
------- ------ ------- --------
Totals 468,000 $ 47 $ 9,953 $ 10,000
======= ====== ======= ========
[7] 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.
[8] COMMITMENTS
LEASES - The Company leased office space under an operating lease which was due
to expire in March of 2000. The lease was assigned to a corporation controlled
by a former shareholder as of October 1, 1999.
Total rental expense was $11,019 and $17,804 for the years ended December 31,
1999 and 1998, 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 approximately 1,136,000 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 Company is
required to pay a 10% placement fee as the Media Credits are used. The media
Purchase Agreement expires at the end of sixty [60] months or upon the depletion
of the prepaid media credits.
EMPLOYMENT AGREEMENTS - The Company had two employment agreements in effect with
two former executive officers in 1999. Both agreements were terminated by
December 31, 1999.
F-17
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------
[9] 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.
The Company ceased development efforts and terminated all employees March 1999
because it was unable to secure debt or equity financing. The Company incurred a
net loss of $1,380,235 primarily resulting from no revenues and utilized
$424,097 in cash for operations during the year ended December 31, 1999.
Management of the Company has developed a business plan to exchange the
Company's common stock for substantially all of its note obligations and to
finance the Company through the sale of its technology and individual patent
rights and is seeking the acquisition of a business that would want to merge
with a nonoperating public company. 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.
[10] ADVERTISING
The Company expenses advertising costs as incurred. For the years ended December
31, 1999 and 1998, advertising expense was $12,000 and $92,942, 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 execisable as specified by the Administrator at the
time of grant, although the tax benefits of incentive stock options described
below will be unavailable if the 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. As of December 31, 1999, 1,250,000
options were outstanding of which 950,000 options were outstanding to employees
and former employees.
F-18
<PAGE>
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 the activity in common shares subject to options.
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
---------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding - Beginning of Years ...... 360,000 $ 1.48 110,000 $ 1.45
Granted or Sold During the Years ...... 900,000 $ .72 266,750 $ 1.50
Canceled During the Years ............. -- $ -- --
Expired During the Years .............. (10,000) $ .90 -- $ --
Exercised During the Years ............ -- $ -- (16,750) $ 1.50
--------- --------
Outstanding - End of Years ......... 1,250,000 $ .94 360,000 $ 1.48
========= ========
Exercisable - End of Years ......... 1,250,000 $ .94 360,000 $ 1.48
========= ========
</TABLE>
The following table summarizes stock options information as of December 31,
1999:
Options Outstanding
-------------------------------------------
Weighted-
---------
Weighted- Average
--------- -------
Average Remaining
------- ---------
Number Exercise Contractual
------ -------- -----------
Exercise Price Outstanding Price Life
- -------------- ----------- ----- ----
$.17 700,000 $ .17 4.7
$1.32 to $1.50 350,000 1.50 4.0
$2.63 200,000 2.63 2.8
-----------
Totals 1,250,000 $ .94 3.9
------ ===========
The exercise prices of the options outstanding at December 31, 1999, range
between $.17 and $2.63 with a weighted average contractual life of 4 years.
The following table summarizes the activity in common shares subject to
warrants:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
---------------------- ---------------------
Weighted Weighted
-------- --------
Average Average
------- -------
Exercise Exercise
-------- --------
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding - Beginning of Years ...... 1,459,645 $ 1.35 785,645 $ 1.59
Granted or Sold During the Years ...... 455,000 $ 1.45 990,000 $ 1.30
Canceled During the Years ............. (35,000) $ 1.00 (250,000) $ 2.00
Expired During the Years .............. (50,000) $ .90 -- $ --
Exercised During the Years ............ -- $ -- (66,000) $ .90
--------- ---------
Outstanding - End of Years ......... 1,829,645 $ 1.40 1,459,645 $ 1.35
========= =========
Exercisable - End of Years ......... 1,829,645 $ 1.40 1,459,645 $ 1.35
========= =========
</TABLE>
F-19
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- --------------------------------------------------------------------------------
[11] STOCK BASED COMPENSATION [CONTINUED]
The following table summarizes stock warrants information as of December 31,
1999:
Weighted-
---------
Average Weighted-
------- ---------
Remaining Average
--------- -------
Number Contractual Exercise
------ ----------- --------
Exercise Prices Outstanding Life Price
- --------------- ----------- ---- -----
$.40 35,000 3.2 $ .40
$1.00 355,000 3.2 $ 1.00
$1.32 to $1.50 1,289,534 2.3 $ 1.47
$2.00 100,000 1.0 $ 2.00
$2.50 50,111 3.0 $ 2.50
----------
Totals 1,829,645 2.6 $ 1.40
------ ==========
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, 1999, stock compensation of $56,000 was recognized for
stock-based employee amounts.
The exercise prices of the warrants outstanding at December 31, 1999 range
between $.40 and $2.50 with a weighted average contractual life of 2.6 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 9 1 9 9 8
------- -------
Net Loss as Reported $ (1,380,235) $ (2,881,162)
=============== ==============
Pro Forma Net Loss $ (1,475,235) $ (3,014,537)
=============== ==============
Net Loss Per Share as Reported $ (.17) $ (0.39)
=============== ==============
Pro Forma Net Loss Per Share $ (.19) $ (0.39)
=============== ==============
The weighted average grant date fair value of options and warrants granted in
1999 and 1998 was $.96 and $1.37, 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:
1 9 9 9 1 9 9 8
------- -------
Expected Life [Years] 5 5
Risk-Free Interest Rate 6% 5%
Expected Dividends -- --
Expected Volatility 115% 76%
F-20
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
- --------------------------------------------------------------------------------
[12] LITIGATION
On December 2, 1999, the Company entered into a settlement agreement and mutual
release with BPV Enterprises, Inc. and Victor Bauer relating to prior actions
and claims against the Company. In full settlement, the Company issued 300,000
shares of the Company's common stock and a $50,000 promissory note which was
subsequently converted into 250,000 shares of the Company's common stock.
[13] RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.
[14] SUBSEQUENT EVENTS
In addition to the sale and assumption of liabilities as disclosed in Note 1 to
these financial statements, the Company had the following transactions in March
2000:
In March 2000, a complaint and summons was filed against the Company by Kutchin
& Rufo, PC in Suffolk County Superior Court in Massachusetts. The plaintiff is
seeking recovery of approximately $11,800 plus damages for legal services
rendered during the period April 1, 1997 through December 31, 1999. The Company
acknowledges that it owes Kutchin & Rufo, PC $9,893.
In March 2000, the Company issued 2,400,000 shares of its common stock upon the
conversion of the $600,000 notes payable. Also, the exercise price of the
warrants issued to the holder of the notes were reduced to $.0001. The
conversion of the note and price reduction of the warrants will result in a
charge to operations in 2000 of approximately $835,000.
In March 2000, the Company converted a note payable with an outstanding balance
of $25,000 into 104,635 shares of Company common stock. This conversion will
result in a charge to operations of approximately $60,000 in 2000.
. . . . . . . . . .
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMSCO TECHNOLOGIES, INC.
By: /s/ Timothy A. Keating
-----------------------------
Timothy A. Keating,
Chief Executive Officer
Date: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Timothy A. Keating
- ------------------------------------
Timothy A. Keating, Chairman
and Chief Executive Officer
Date: April 14, 2000
/s/ Gary J. Graham
- ------------------------------------
Gary J. Graham, Director & Secretary
Date: April 14, 2000
