U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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Commission file number 0-24520
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IMSCO TECHNOLOGIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3021770
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8400 E. Crescent Parkway, Suite 600 Greenwood Village, Colorado 80111
--------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: 720-528-4043
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: September 30, 2000 -
12,428,174.
<PAGE>
IMSCO TECHNOLOGIES, INC.
INDEX
PART I
------
Item 1. - Financial Statements:
Independent Accountant's Report...................................... 3
Consolidated Balance Sheet - September 30, 2000 (Unaudited).......... 4
Consolidated Statement of Operations - For the Three and
Nine Months Ended September 30, 2000 and 1999 (Unaudited)............ 5-6
Consolidated Statement of Stockholders' (Deficit) - For
Nine Months Ended September 30, 2000 (Unaudited)..................... 7
Consolidated Statement of Cash Flows - For the Nine Months
Ended September 30, 2000 and 1999 (Unaudited)........................ 8-9
Notes to Consolidated Financial Statements (Unaudited)............... 10-11
Item 2. Management's Discussion and Analysis or Plan of Operation........ 12-14
PART II
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Item 6. Exhibits and Reports on Form 8-K................................. 15
2
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors of
Imsco Technologies, Inc.
Greenwood Village, Colorado
We have reviewed the accompanying consolidated balance sheet of Imsco
Technologies, Inc. and Subsidiaries as of September 30, 2000, and the related
consolidated statements of stockholders' (deficit) for the nine month period
then ended, and the consolidated statements of operations for the three and nine
month periods ended September 30, 2000 and the consolidated statements of cash
flows for the nine months ended September 30, 2000. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the consolidated financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have not reviewed the accompanying consolidated statements of
operations for the three and nine month periods ended September 30, 1999 or the
consolidated statement of cash flows for the nine months ended September 30,
1999 and give no assurance on them.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
November 1, 2000
3
<PAGE>
PART I. Financial Information
---------------------
Item 1. Financial Statements
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000
(UNAUDITED)
Assets:
Current Assets:
<S> <C>
Cash ...................................................................... $ 17,204
------------
Total Assets .............................................................. $ 17,204
============
Liabilities and Stockholders' (Deficit):
Current Liabilities:
Accounts Payable .......................................................... $ 27,075
Accounts Payable to Be Assumed ............................................ 96,491
Accrued Expenses .......................................................... 66,500
Due to Stockholders ....................................................... 10,050
------------
Total Current Liabilities ................................................. 200,116
------------
Commitments and Contingencies ................................................ --
------------
Stockholders' (Deficit):
Series A Preferred Stock - Authorized 1,000,000 Shares at $.0001 Par Value;
None Issued or Outstanding .............................................. --
Common Stock - Authorized 15,000,000 Shares at $.0001 Par Value;
12,428,174 Shares Issued and Outstanding at September 30, 2000 .......... 1,243
Additional Paid-in Capital - Common Stock ................................. 12,717,110
Deficit Accumulated During Developments Stage ............................. (11,530,357)
Accumulated Deficit - Discontinued Operations ............................. (620,908)
Less: Prepaid Advertising Credits ......................................... (750,000)
------------
Total Stockholders' (Deficit) ............................................. (182,912)
------------
Total Liabilities and Stockholders' (Deficit) ............................. $ 17,204
============
</TABLE>
The Accompanying Notes Are an Integral Part of These Consolidated Statements.
4
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Amounts from
July 9, 1992
(Inception
of the Current
Three Months Ended Nine Months Ended Development Stage)
September 30, September 30, to September 30,
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9 2 0 0 0
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Research and Development
Expense ........................ $ -- $ -- $ -- $ 8,911 $ 301,925
Salaries and Wages ............... -- -- -- 117,691 933,005
Officer Salaries ................. -- -- -- 30,807 1,102,500
Payroll Taxes .................... -- -- -- 13,931 154,803
Outside Labor .................... -- -- -- -- 191,136
Write-Down of Prepaid
Advertising Credits ............ 628,496 -- 628,496 -- 628,496
Professional and Consulting Fees . 15,000 105,258 91,800 181,003 1,332,460
Professional and Consulting Fees -
Non-Cash ....................... 1,500 -- 5,250 -- 2,192,789
Rent ............................. -- -- -- 9,269 165,288
Rent- Related Party .............. -- -- -- 1,750 5,500
Insurance ........................ -- 4,400 -- 27,801 190,879
Travel and Business Meeting ...... -- -- -- 11,321 189,250
Auto Expense ..................... -- -- -- 5,448 66,217
Telephone and Utilities .......... -- -- -- 6,014 67,416
Office Expense ................... 626 190 3,670 4,355 146,834
Equipment Rental ................. -- -- -- 2,781 36,080
Corporate Fees ................... -- -- -- -- 69,981
Advertising ...................... -- -- -- 12,000 330,703
Depreciation and Amortization .... -- 24,953 -- 29,993 53,920
Litigation Settlement ............ -- -- -- -- 1,644,642
Franchise Tax .................... -- -- -- -- 1,987
------------ ------------ ------------ ------------ ------------
Total General, Administrative
and Development Expense ........ 645,622 134,801 729,216 463,075 9,805,811
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
Dividend and Interest Income ..... -- -- -- -- 11,633
Interest Expense ................. -- (16,900) (1,145,824) (252,770) (2,218,504)
Loss on Sale of Fixed Assets ..... -- -- -- -- (44,072)
------------ ------------ ------------ ------------ ------------
Other (Expenses) - Net ........... -- (16,900) (1,145,824) (252,770) (2,250,943)
------------ ------------ ------------ ------------ ------------
(Loss) Before Income Taxes ....... (645,622) (151,701) (1,875,040) (715,845) (12,056,754)
Benefit from Income Tax ............. 52,000 -- 179,000 -- 179,000
------------ ------------ ------------ ------------ ------------
(Loss) Before Extraordinary
Gain ........................... (593,622) (151,701) (1,696,040) (715,845) (11,877,754)
Extraordinary Gain - Net of
Income Taxes of $52,000 and
$179,000 for the Three and Nine
Months Ended September 30,
2000, Respectively ............... 98,945 -- 347,397 -- 347,397
------------ ------------ ------------ ------------ ------------
Net (Loss) ....................... $ (494,677) $ (151,701) $ (1,348,643) $ (715,845) $(11,530,357)
============ ============ ============ ============ ============
</TABLE>
The Accompanying Notes Are an Integral Part of These Consolidated Statements.
5
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
Basic (Loss) Per Share of Common
Stock:
<S> <C> <C> <C> <C>
(Loss) Before Extraordinary Gain $ -- $ (.02) $ (.10) $ (.09)
Extraordinary Gain ................ -- -- .03 --
-------------- ------------- -------------- -------------
Net (Loss) ........................ $ -- $ (.02) $ (.07) $ (.09)
============== ============= ============== =============
Basic Weighted Average Shares of
Common Stock Outstanding .......... 12,426,762 8,010,657 11,388,880 8,010,657
============== ============= ============== =============
Diluted Income (Loss) Per
Share of Common Stock:
(Loss) Before Extraordinary Gain $ -- $ (.02) $ (.10) $ (.09)
Extraordinary Gain ................ -- -- .02 --
-------------- ------------- -------------- -------------
Net (Loss) ........................ $ -- $ (.02) $ (.08) $ (.09)
============== ============= ============== =============
Basic and Diluted Weighted Average
Common Shares Outstanding ......... 12,426,762 8,010,657 11,388,880 8,010,657
============== ============= ============== =============
</TABLE>
The Accompanying Notes Are an Integral Part of These Consolidated Statements.
6
<PAGE>
<TABLE>
<CAPTION>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
Deficit
Series A Convertible Accumulated Accumulated Total
-------------------- ----------- ----------- -----
Preferred Stock Common Stock Paid-in Capital During Deficit Prepaid Stockholders'
--------------- ------------ --------------- ------ ------- ------- -------------
Number of Number of Preferred Common Development Discontinued Advertising Equity
--------- --------- --------- ------ ----------- ------------ ----------- ------
Shares Amount Shares Amount Stock Stock Stage Operations Credits (Deficit)
------ ------ ------ ------ ----- ----- ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
Issuance of
Shares Upon
Conversion
of Notes -- -- 2,520,000 252 -- 1,433,968 -- -- -- 1,434,220
Issuance of
Shares Upon
Conversion
of Notes -- -- 104,635 10 -- 84,745 -- -- -- 84,755
Issuance of
Shares Upon
Conversion
of Notes -- -- 495,365 50 -- 450,732 -- -- -- 450,782
Issuance of
Shares for
Services -- -- 25,000 2 -- 4,998 -- -- -- 5,000
Exercise of
Stock Options -- -- 100,000 10 -- 16,990 -- -- -- 17,000
Exercise of
Warrants -- -- 20,000 2 -- 16,248 -- -- -- 16,250
Conversion of
Preferred
Stock (45,000) (5) 225,000 23 (224,995) 224,977 -- -- -- --
Issuance of
Shares for
Services -- -- 10,000 1 -- 3,749 -- -- -- 3,750
Write-Down of
Prepaid
Advertising
Credits -- -- -- -- -- -- -- -- 628,496 628,496
Net (Loss) -- -- -- -- -- -- (1,348,643) -- -- (1,348,643)
-------- ------- ---------- ------ ------ ----------- ------------ ------------ --------- ----------
Balance -
September
30, 2000
(Unaudited) -- $ -- 12,428,174 $1,243 $ -- $12,717,110 $(11,530,357) $ (620,908) $(750,000) $ (182,912)
======== ======= ========== ====== ====== =========== ============ ============ ========= ==========
</TABLE>
The Accompanying Notes Are an Integral Part of These Consolidated Statements.
7
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Amounts
from
July 9, 1992
(Inception of
the Current
Development
Nine months ended Stage) to
September 30 September 30,
2 0 0 0 1 9 9 9 2 0 0 0
------- ------- -------
Operating Activities:
<S> <C> <C> <C>
Net (Loss) Before Extraordinary Gain $(1,696,040) $ (715,845) $(11,877,754)
----------- ------------ ------------
Adjustments to Reconcile Net (Loss) to Net Cash
(Used for) Operating Activities:
Extraordinary Gain - Sale of Technology .............. 347,397 -- 347,397
Decrease (Increase) in Due from Officers ............. -- 2,980 (120)
Contract Services Paid in Stock ...................... 8,750 101,961 2,182,196
Depreciation ......................................... -- 29,993 56,532
Interest Expense - Deferred Financing Cost ........... -- 82,577 299,085
Interest Paid with Common Stock ...................... 11,584 -- 328,613
Grant of Options and Warrants for Past Services ...... -- 45,000 897,659
Interest Expense Warrant Discount .................... 29,470 -- 50,470
Amortization of Prepaid Advertising Credits .......... -- -- 229,674
Amortization - Discount Note Payable ................. 3,056 -- 19,862
Interest Expense - Beneficial Conversion Feature ..... 1,101,714 -- 1,301,714
Loss on Disposal of Property and Equipment ........... -- -- 44,072
Stock Issued to Settle Litigation .................... -- -- 56,250
Note Issued to Settle Litigation ..................... -- -- 50,000
Write-Down of Prepaid Advertising Credits ............ 628,496 -- 628,496
(Increase) Decrease In:
Other Current Assets ............................... -- -- 20,200
Security Deposits .................................. -- 1,000 4,675
Accounts Receivable ................................ -- -- 2,998
Increase (Decrease) in:
Accounts Payable ................................... (55,821) (76,472) (37,376)
Accrued Payroll Taxes .............................. -- (11,369) --
Accrued Expenses ................................... 48,458 80,186 1,604,892
Accrued Interest ................................... -- 53,472 130,022
Accrued Marketing Fees ............................. -- (53,000) --
Accrued Salaries ................................... -- 33,180 --
Accounts Payable Subject to Transfer ............... (431,860) -- 96,491
----------- ----------- -----------
Total Adjustments .................................. 1,691,244 289,508 8,313,802
----------- ----------- -----------
Net Cash - Operating Activities - Forward .............. $ (4,796) $ (426,337) $(3,563,952)
</TABLE>
The Accompanying Notes Are an Integral Part of These Consolidated Statements.
8
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Amounts
from
July 9, 1992
(Inception of
the Current
Development
Nine months ended Stage) to
September 30 September 30,
2 0 0 0 1 9 9 9 2 0 0 0
------- ------- -------
<S> <C> <C> <C>
Net Cash - Operating Activities - Forwarded ............ $ (4,796) $ (426,337) $(3,563,952)
----------- ----------- -----------
Investing Activities:
Prepaid Research Testing ............................... -- -- (7,734)
Purchase of Fixed Assets ............................... -- -- (118,212)
Proceeds From Sale of Fixed Assets ..................... -- -- 21,000
----------- ----------- -----------
Net Cash - Investing Activities ........................ -- -- (104,946)
----------- ----------- -----------
Financing Activities:
Convertible Note Payable ............................... -- 545,000 545,000
Proceeds from Notes Payable ............................ -- -- 775,000
Proceeds form Preferred Stock .......................... -- -- 225,000
Bond Discount .......................................... -- 55,000 55,000
Loans From Stockholders ................................ -- -- (24,500)
Payment on Loans from Stockholders ..................... -- -- 52,050
Proceeds from Exercise of Options and Warrants ......... 22,000 -- 22,000
Proceeds from Issuance of Common Stock ................. -- -- 2,247,304
Payment of Notes Payable ............................... -- (196,645) (196,645)
----------- ----------- -----------
Net Cash - Financing Activities ........................ 22,000 403,355 3,700,209
----------- ----------- -----------
Net Increase (Decrease) in Cash ........................ 17,204 (22,982) 31,311
Cash - Beginning of Periods ............................... -- 22,992 (14,107)
----------- ----------- -----------
Cash - End of Periods .................................. $ 17,204 $ 10 $ 17,204
=========== =========== ===========
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 the quarter ending March 31, 2000, the Company issued 3,120,000 shares
of Common Stock upon conversion of past due notes of $708,217, past due interest
of $130,022 and current interest of $11,584.
During the quarter ending June 30, 2000, the Company issued 25,000 shares for
services rendered.
During the quarter ending September 30, 2000, the Company issued 10,000
shares for services rendered.
The Accompanying Notes Are an Integral Part of These Consolidated Statements.
9
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and 1999 is Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results for the three months and nine months ended September 30,2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries Decaf Products, Inc. ("DPI") and
BioElectric Separation and Testing, Inc. ("BEST"). All significant inter-company
accounts and transactions have been eliminated in consolidation.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share of common stock reflects
the weighted average number of shares outstanding for each period. The Financial
Accounting Standards Board ("FAS has issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which is effective for
financial statements issued for periods ending after December 15, 1997.
Accordingly, (loss) per share data in the financial statements for the nine
months September 30, 2000, and for the nine months ended September 30, 1999,
have been calculated in accordance with SFAS No. 128.
SFAS No. 128 supercedes Accounting Principles Board Opinion No. 15, "Earnings
Per Share," and replaces its primary earnings per share with a new basic
earnings per share representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies with complex capital
structures. Diluted earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding during the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidulutive
effect on earnings per share (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
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 September 30,2000, the Company had 1,150,000 options and 1,809,645
warrants issued and outstanding to purchase common stock that could potentially
dilute basic earnings per share in the future.
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.
10
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and 1999 is Unaudited)
(2) STOCKHOLDERS' EQUITY
For the nine months ended September 30, 2000, 3,145,000 common shares with a
market value of $1,974,757 were issued for past due notes, accrued expenses and
interest of $854,823 resulting in a charge to operations of $1,119,934.
(3) LEGAL PROCEEDINGS
A complaint and summons was filed against the Company by Kutchin & Rufo, PC in
Suffolk county Superior Court in Massachusetts seeking recovery of approximately
$11,800 plus damages for legal services rendered during the period April 1, 1997
through December 31, 1999. The Company satisfied the liability in full in May
2000.
(4) GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
As shown in the accompanying financial statements, the Company incurred a net
loss before extraordinary gain of $1,696,040 for the nine months ended September
30, 2000. The Company also reported a gain from the sale of patents and
technology to a former officer and director of $526,397, net of income taxes of
$179,000. The significant operating loss as well as the uncertain sources of
financing, creates an uncertainty about the Company's ability to continue as a
going concern. Management of the Company has developed a business plan to merge
with a private company. The Company will also seek financing through a public
offering. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
The continuation of the Company as a going concern is dependent upon the success
of these plans.
There can be no assurance that management's plans to reduce operating losses and
obtain additional financing to fund operations will be successful. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
(5) COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with SonicPort.Com, Inc.("SonicPort")
to sell its Media Credits for 694,400 restricted shares of SonicPort common
stock having an estimated fair value of $750,000. SonicPort will pay for the
Media Credits on a dollar for dollar basis as the Media is used. If SonicPort
has not used all of the Media Credits by July 1, 2001 Imsco shall be entitled to
all the remaining shares. Therefore, the Company has written down its Media
Credits to fair value. Consummation of the transaction is dependent upon future
events.
11
<PAGE>
(6) EXTRAORDINARY GAIN
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 $50,000 and the assumption of substantially all of
the Company's accounts payable. As of September 30, 2000, the former officer and
director had paid the Company $50,000 and discharged or assumed $476,397 of
liabilities. The Company recorded a pre-tax gain of $526,397 for the nine months
ending September 30, 2000.
. . . . . . . . .
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
During the past twelve months, we have completed a series of major steps to
completely restructure Imsco. The restructuring was necessary because the
implementation of our decaffeination business had failed miserably. Our goals at
this time are two-fold: first, we want to describe the specific actions that we
have taken to clean up the Company; and second, we want to share with you our
strategy and the specific courses of action that we are pursuing to salvage and
enhance value for shareholders.
The first step we took was to completely close down our failing decaffeination
technology business. This was accomplished by negotiating a separation agreement
with former management whereby all remaining employees and management
voluntarily resigned from the Company. We also closed the Company's two offices
in Massachusetts and New York. Simultaneous with these actions, we reduced the
Board of Directors from four people to two. Currently, the Company has no paid
employees, no leases, and no monthly obligations.
The second step in our plan was to eliminate or reduce the Company's
liabilities, which at the time exceeded $550,000. We accomplished this by
executing an Assignment and Assumption Agreement (the "Agreement") with
ElectroStatic Products, Inc. ("ESPI"), a new company under the control of our
former Chief Executive Offer. In consideration for an assignment of Imsco's
patents to ESPI, ESPI agreed: (1) to assume all of Imsco's existing payables;
(2) to pay Imsco $50,000 in cash; and (3) to grant Imsco a 5% royalty on future
sales resulting from Imsco's patented technologies. As of September 30, 2000,
ESPI had paid the Company $50,000 and discharged or assumed $476,397 of
liabilities. The Company recorded a pre-tax gain of $526,397 in the nine months
ending September 30, 2000 and a pre-tax gain of $63,179 for the quarter.
The third step was to simplify and strengthen the Company's capital structure.
In September 1999, Imsco had 7.8 million shares of Common Stock and 45,000
shares of Preferred stock, convertible into 225,000 shares of Common Stock,
outstanding. In addition, we were in default on $390,000 of Senior Convertible
Promissory Notes as well as $600,000 of Convertible Debentures. Both of these
liabilities were structured as "toxic convertibles" or "death spirals", which is
the name given to debts that are convertible into a theoretically unlimited
number of shares of Common Stock, potentially causing a massive dilution of
existing shareholders equity. In total, we issued 3,120,000 shares of new Common
Stock to retire these debts and to eliminate any senior claims on the Company's
remaining assets.
Finally, Imsco was a defendant in two lawsuits brought by a former consultant
and a director of the Company. While we believed the cases had no merit
whatsoever, we faced two unpleasant realities. First, the Company had no cash to
continue to litigate the matters. And second, we had few, if any, strategic
options available to us with the cloud of lawsuits hanging over our heads.
Ultimately, we chose a pragmatic solution and settled these suits by issuing the
plaintiffs 550,000 shares of new Common Stock.
As of September 30, we had 12,428,174 shares of Common Stock issued and
outstanding. In addition, there are a total of 2,839,645 options and warrants
outstanding with a weighted exercise price of $1.04 per share. Of this total,
300,000 options/warrants expire in 2000 and another 469,534 expire in 2001.
Although it has come at the cost of a substantial dilution to our current
shareholders' equity, we have successfully stopped the monthly hemorrhaging of
red ink, simplified the capital structure, and
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cleared up all litigation. As of September 30, ESPI had secured satisfactory
releases of just over 73% of the accounts payable and paid $50,000 to Imsco.
Moreover, we are reasonably confident that ESPI can successfully settle with the
vast majority of the remaining creditors, thus finally making Imsco a debt free
Company. In short, after being very deeply in the hole, we are effectively back
to zero.
Our strategy for salvaging and perhaps enhancing some value for Imsco
shareholders rests solely on the prospect of merging with an exciting private
company. A private company is motivated to enter into such a merger because it
desires an immediate access to the capital markets that it would otherwise not
have.
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We are speaking and meeting with several private companies with the expectation
of entering into a definitive merger agreement by the late third quarter or
early fourth quarter of this year. Once such an agreement is reached, we will
mail you a proxy asking you to vote on the merger proposal. In total, it takes
anywhere between two and four months from the time a proxy is submitted to the
SEC to the time when a merger can be consummated. If we are lucky enough to meet
the timetable listed above, we would anticipate a merger being completed in the
late first quarter or early second quarter of 2001. However, there can be no
assurances that any of these events will occur on this schedule, if at all. Such
a merger would result in Imsco shareholders owning only a small percentage of
the merger partner.
Statements included in this "Management's Discussion and Analysis or Plan of
Operation" Section, and in other sections of the Report and in prior and future
filings by the Company with the Securities and Exchange Commission, in the
Company's prior and future press releases and in historical or current facts are
"forward-looking statements" made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. There are numerous risk factors that in
some cases have affected and in the future could affect the Company's actual
results and could cause the Company's actual financial and operating performance
to differ materially from that expressed in any forward-looking statement. The
following discussion and the analysis should be read in conjunction with the
Financial Statements and notes to Financial Statements which appear elsewhere in
this report.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000; COMPARED WITH
SEPTEMBER 30, 1999
Net losses before extraordinary items increased from $715,845 for the nine
months ended September 30, 1999 to $1,875,040 for the nine months ended
September 30, 2000. The Company had no revenue or operating income for the nine
month periods ended September 30, 1999 and 2000 from continuing operations. The
general administrative and development expenses were $729,216 for the nine
months ended September 30, 2000, in comparison to $463,075 for the nine months
ended September 30, 1999. The increase is from the write-down of prepaid
advertising costs of $628,496 which offset the decrease in expenses from the
elimination of all payroll, employee related expenses and from the savings
realized from closing two offices. Interest expenses increased from $252,770 in
1999 to $1,145,824 in 2000. The increase in these costs from 1999 to 2000 was
the result of a charge of $1,101,714 for the reduction in the conversion price
of $600,000 Convertible Notes from 75% of market price on the day of conversion
to $.25 per share, and a reduction in the conversion price of $143,355 of
Convertible Notes from 80% of the average bid price to $.29 per share. A charge
of $18,220 was the result of a reduction in the exercise price of 120,000
warrants to $.0001 per share.
At September 30, 2000, the Company had $17,204 of cash and total liabilities of
$200,116 and total stockholders' deficit of $(182,912).
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2000; COMPARED WITH
SEPTEMBER 30, 1999
The net loss before extraordinary items and income tax benefit increased to
$645,622 for the quarter
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ending September 30, 2000 from $151,701 for the prior year because a $88,758
decrease in professional and consulting fees, elimination of $16,900 of interest
expense and reductions in most other expenses were offset by the write-down of
$628,496 of prepaid advertising credits. The Company recorded a gain from the
sale of patents and technologies of $150,945 net of an income tax provision of
$52,000 in the quarter ending September 30, 2000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit position as of September 30, 2000 of
approximately $183,000 as compared to a working capital deficit position of
approximately $1,475,000 as of December 31, 1999. The working capital deficit
position was reduced during the three month period ending September 30, 2000
when the Company received $10,000 and had $53,179 of liabilities assumed by a
former officer and director as partial consideration from the sale of patents
and technologies.
For the three months ended March 31, 2000, the working capital deficit position
was reduced when the Company satisfied all past due notes and interest in the
amount of $849,823 by issuing 3,120,000 shares of common stock with a market
value of $1,969,757.
The Company had negative net worth or a stockholders' deficit of approximately
$183,000 as of September 30, 2000 as compared to a negative net worth or
stockholders' deficit of approximately $1,475,000 as of December 31, 1999. The
stockholders' deficit was reduced by the gain from the sale of patent and
technologies of $526,397 and from the exchange of common stock for $849,823 of
past due notes and interest. The Company had an accumulated deficit of
$12,151,265 at September 30, 2000, in comparison to an accumulated deficit of
$10,802,622 as of December 31, 1999. The increase in the accumulated deficit is
primarily related to continuing operating costs without any operating income.
The Company does not currently possess a bank source of financing and has not
had any revenues. The Company cannot be certain that it's existing sources of
cash will be adequate to meet its liquidity requirements. Therefore, the Company
is considering the following options to meet its liquidity requirements:
(a) attempting to raise additional funds through the sale of equity securities
to persons or entities who are not presently stockholders of the Company;
(b) should insufficient funds be available from the foregoing sources, reducing
the Company's present rate of expenditures, which might materially
adversely affect the ability of the Company to produce competitive products
and services and to market them effectively.
The Company's plan of operation for the next 12 months is to continue to seek
the acquisition of assets, properties or businesses that may benefit the Company
and its stockholders. Management anticipates that to achieve any such
acquisition, the Company will issue shares of its common stock as the sole
consideration for such acquisition.
During the next 12 months, in addition to its efforts to reduce outstanding
accounts payable, the Company's foreseeable cash requirements will relate to (i)
maintaining the Company in good corporate standing in the State of Delaware,
(ii) costs incurred to remain a reporting company in compliance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (iii) the
payment of expenses associated with reviewing, investigating and legally
documenting any potential business venture. To maintain its status as a
reporting company under the Exchange Act, the Company will need to incur the
costs of an annual audit of the Company's financial statements, and the filing
of Forms 10-KSB, 10-QSB and any other periodic reports as required by the
Exchange Act. It is a certainty that additional funds will be required to meet
even the minimal obligations envisioned herein. Such funds may be advanced by
management or stockholders in return for the issuance of common shares of the
Company or as loans to the Company, although there is no commitment to make such
loans or advances from these parties. No assurance can be given that the Company
will be able to raise these funds.
Unless the Company is able to generate revenues or obtain additional financing
in the future, the continuing losses incurred by the Company raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
ability to obtain funds through an offering of its equity or debt securities is
limited by its lack of revenue. In any event, there is no assurance that any
expenditure reductions, financings or other measures that the Company may be
able to effect will enable it to meet its working capital requirements.
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PART II
Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. 27 - Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed no report on Form 8-K during the quarterly period ended
September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMSCO Technologies, Inc.
November 10, 2000 By: /s/ Timothy J. Keating
-------------------------
Timothy J. Keating
Chief Executive Officer
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