U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-24520
IMSCO TECHNOLOGIES, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 04-3021770
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
40 Bayfield Drive, North
Andover, Massachusetts 01845
(Address of principal executive offices) (Zip Code)
(978) 689-2080
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,806,508.
<PAGE>
IMSCO TECHNOLOGIES, INC.
INDEX
PART I
------
Item 1. - Financial Statements:
Balance Sheets - September 30, 1999 ...........................................3
Statement of Operations - For the Nine Months Ended
September 30, 1999 and September 30, 1998..............................5
Statement of Operations For the Three months Ended
September 30, 1999 and 1998............................................6
Statement of Cash Flows - For the Nine Months Ended
September 30, 1999 and September 30, 1998..............................7
Statement of Stockholders' Equity - For the Year Ended
December 31, 1998 and the Nine Months Ended
September 30, 1999.....................................................9
Notes to Unaudited Financial Statements ......................................13
Item 2. Management's Discussion and Analysis or Plan
of Operation..........................................................17
PART II
-------
Item 6. Exhibits and Reports on Form 8-K.....................................20
2
<PAGE>
PART I
Financial Information
---------------------
Item 1. Financial Statements
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED BALANCE SHEET
As of September 30, 1999
ASSETS 1999
----
CURRENT ASSETS
Cash and cash equivalents ....................... $ 10
Prepaid Taxes ................................... 0
Prepaid Insurance ............................... 0
---------
TOTAL CURRENT ASSETS ...................................... 10
---------
FIXED ASSETS
Property and equipment .......................... 123,066
Leasehold improvements .......................... 5,845
Accumulated depreciation ........................ (128,911)
---------
NET FIXED ASSETS .......................................... 0
---------
DEPOSITS .................................................. 3,499
---------
Total Other Assets ........................................ 3,499
---------
TOTAL ASSETS .............................................. $ 3,509
=========
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
IMSCO TECHNOLOGIES, INC AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable ........................................ $ 193,355
Convertible Notes Payable ............................ 600,000
Accounts payable ..................................... 85,510
Accrued salaries ..................................... 186,370
Accrued expenses ..................................... 155,613
Accrued payroll taxes ................................ 36,637
Accrued Interest ..................................... 53,472
Due To Stockholders .................................. 32,780
-----------
TOTAL CURRENT LIABILITIES ................................... 1,343,737
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-authorized 1,000,000
shares at $.0001 par value; 45,000
shares issued and outstanding ...................... 5
Additional Paid-in capital-Series A
Convertible Preferred Stock ........................ 224,995
Common stock-authorized 15,000,000
shares at $.0001 par value; 7,786,508
shares issued and outstanding at
September 30,1999 .................................. 781
Additional paid-in capital ........................... 9,950,719
Deficit Accumulated:
Developments stage ................................... (9,517,324)
Discontinued Operations .............................. (620,908)
Prepaid advertising credits .......................... (1,378,496)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ........................ (1,340,228)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) ............................................ $ 3,509
===========
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND CUMULATIVE
AMOUNTS FROM JULY 2, 1992(inception of the Development Stage)
TO SEPTEMBER 30, 1999
<CAPTION>
Cumulative Amounts
From Current
1999 1998 Development Stage
---- ---- -----------------
<S> <C> <C> <C>
Development Expense .............. $ 8,911 $ 33,341 $ 301,925
Salaries and Wages ............... 117,691 328,116 933,005
Officer Salaries ................. 30,807 336,317 1,102,500
Payroll Taxes .................... 13,931 11,085 154,803
Outside Labor .................... 0 1,202,572 191,136
Professional Services ............ 181,003 326,181 1,089,023
Professional Services-Non Cash.... 0 0 2,074,969
Rent ............................. 9,269 17,082 165,288
Rent- Related .................... 1,750 0 5,500
Insurance ........................ 27,801 60,049 191,044
Travel and Business Meeting ...... 11,321 56,039 189,250
Auto Expense ..................... 5,448 15,500 66,217
Telephone and Utilities .......... 6,014 7,651 67,416
Office Expense ................... 4,355 7,204 135,198
Equipment Rental ................. 2,781 6,677 36,080
Corporate Fees ................... 0 9,486 69,981
Advertising ...................... 12,000 20,000 330,703
Depreciation and Amortization..... 29,993 6,810 53,920
Litigation Settlement ............ 0 0 1,538,392
Franchise Tax .................... 0 456 1,987
----------- ----------- -----------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE .......... 463,075 2,444,566 8,698,337
---------------------------------------------
OTHER INCOME (EXPENSE)
Dividend and Interest Income ..... 0 0 11,633
Interest Expense ................. (252,770) (21,998) 786,548
Loss on sale of fixed assets ..... 0 0 (44,072)
----------- ----------- -----------
Other Income (Expenses)- Net ..... (252,770) (21,998) (818,987)
LOSS BEFORE INCOME TAXES ......... (715,845) (2,466,564) (9,517,324)
Provision for Income Tax ......... 0 0 0
----------- ----------- -----------
NET LOSS ......................... $ (715,845) $(2,466,564) $(9,517,324)
==============================================
LOSS PER SHARE $ (.09) $ (.32) (1.22)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---- ----
Development Expense ...................... $ 0 $ 341
Salaries and Wages ....................... 0 65,949
Officer Salaries ......................... 0 129,612
Payroll Taxes - .......................... 0 0
Outside Labor ............................ 0 9,479
Professional Services .................... 105,258 139,532
Rent ..................................... 0 7,223
Insurance ................................ 4,400 22,641
Travel and Business Meeting .............. 0 5,683
Auto Expense ............................. 0 8,307
Telephone and Utilities .................. 0 2,385
Office Expense ........................... 190 2,287
Equipment Rental ......................... 0 1,797
Corporate Fees ........................... 0 160
Advertising .............................. 0 0
Marketing Expense ........................ 0 0
Depreciation and Amortization ............ 24,953 2,270
Litigation Settlement .................... 0 0
Franchise Tax ............................ 0 0
--------- ---------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE .................. 134,801 397,666
OTHER INCOME (EXPENSE)
Dividend and Interest Income ............. 0 0
Interest Expense ......................... 16,900 21,998
Loss on sale of fixed assets ............. 0 0
--------- ---------
Other Income (Expense) - Net ............. 16,990 21,998
--------- ---------
LOSS BEFORE INCOME TAXES ................. (151,701) (419,664)
Provision for Income Tax ................. 0 0
--------- ---------
NET LOSS ................................. $(151,701) $(419,664)
LOSS PER SHARE $ (.02) $ (0.06)
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage)
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
<CAPTION>
Cumulative
Amounts from
July 9, 1992
to
1999 1998 June 30, 1999
---- ---- -------------
<S> <C> <C> <C>
Net Loss ................................ $ (715,845) $(2,466,564) $(9,517,324)
Issuance of Stock Purchase Warrants ..... 45,000 21,941 834,659
Decrease (increase) in Due from
Officers ............................. 2,980 3,500 2,860
Depreciation and Amortization ........... 29,993 6,810 56,532
Interest Expense-Financing Cost ......... 82,577 -- 299,085
Interest Paid with Common Stock ......... -- -- 300,253
Amortization of Prepaid Advertising ..... -- -- 229,674
Loss on Disposal of Property
And Equipment ........................ -- -- 44,072
Stock issued to retire debt/services .... 101,961 3,571,660 2,172,876
Increase (decrease) in:
Other Assets ................... -- -- 19,200
Security Deposits .............. 1,000 -- 2,176
Accounts Receivable ............ -- -- 2,998
Accounts Payable ............... (76,472) (31,053) 21,059
Accrued Payroll Taxes .......... (11,369) 115 36,637
Accrued Expenses ............... 80,186 (1,559,586) 1,643,050
Accrued Interest ............... 53,472 -- 53,472
Accrued Marketing .............. (53,000) -- --
Accrued Legal Fees ............. -- -- 50,955
Accrued Salaries ........................ 33,180 (138,375) 186,370
Prepaid Consulting ...................... -- (147,830) --
----------- ----------- -----------
Total adjustments ....................... 289,508 2,012,346 5,955,928
----------- ----------- -----------
Net Cash Provided by Operating Activities $ (426,337) $ (454,218) $(3,561,928)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a development stage enterprise
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND CUMULATIVE AMOUNTS FROM JULY 9, 1992
(inception of the current development stage) TO SEPTEMBER 30, 1999
<CAPTION>
Cumulative
July 9, 1992
to
1999 1998 September 30, 1999
---- ---- -------------
<S> <C> <C> <C>
Net Cash Provided by operating
activities-Forward ................ $ (426,337) $ (377,284) $(3,561,206)
----------- ----------- -----------
Cash flows from investing activities:
Prepaid research testing ...... -- -- (7,734)
Purchase of Fixed Assets ...... -- -- (118,212)
Sale of Fixed Assets .......... -- -- 21,000
----------- ----------- -----------
Net cash used in investing activities -- -- (104,946)
----------- ----------- -----------
Cash flows from financing activities:
Convertible Note Payable ...... 600,000 -- 600,000
Proceeds from Notes Payable ... -- 142,700 775,000
Proceeds form Preferred Stock . -- -- 225,000
Interim Loans from
Stockholders ................ -- -- 41,300
Payment on Loans from
Stockholders ............... -- -- (11,500)
Proceeds from issuance of
common stock ............... -- 379,400 2,247,304
Payment of Notes Payable ...... (196,645) -- (196,645)
----------- ----------- -----------
Net cash provided by financing
activities ........................ 403,355 522,100 3,680,459
----------- ----------- -----------
Net Increase (decrease) in cash
and cash equivalents .............. (22,982) 2,116 14,117
Cash and cash equivalents at beginning
of period ......................... 22,992 13,780 (14,107)
----------- ----------- -----------
Cash and cash equivalents at end of
period ............................ $ 10 $ 15,896 $ 10
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Paid-In Capital
-------------------- -------------------- -------------------
Number of Number of Preferred Common
Shares Amount Shares Amount Stock Stock
--------- ------ --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997 ................. -- -- 6,516,536 $ 652 -- $6,118,198
Exercise of Stock
Warrants ............. -- -- 66,000 7 -- 59,393
Issuance of Shares in
Settlement Litigation -- -- 399,081 39 -- 1,538,353
Issuance of Shares for
Service .............. -- -- 612,911 62 -- 903,838
Issuance of Stock
Warrants For 600,000
Shares of Common
Stock for Consulting
Services ............. -- -- -- -- -- 656,284
Granting of Stock Options
For 266,750 Shares of
Common Stock ......... -- -- -- -- -- 133,375
Private Placement Of
Common Stock ......... -- -- 70,000 7 -- 69,993
Exercise of Stock Options -- -- 16,750 2 -- 24,998
Issuance of Stock Warrant
for 390,000 Shares of
Common for Notes
Payable .............. -- -- 299,085 -- -- --
Private Placement Of
Series A Convertible
Preferred Stock ...... -- -- 45,000 5 -- 224,995
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBE 30, 1999
<CAPTION>
Deficit
Accumulated Accumulated Total
During Deficit Prepaid Stockholders
Development Discontinued Advertising Equity
Stage Operations Credits (Deficit)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1997 ...................... $(5,920,317) $ (620,908) $(1,394,438) $(1,816,813)
Exercise of Stock Warrants ... -- -- -- 59,400
Issuance of Shares in
Settlement Litigation ..... -- -- -- 1,538,392
Issuance of Shares for
Service -- -- -- 903,900
Issuance of Stock Warrants
For 600,000 Shares of
Common Stock for
Consulting Services ....... -- -- -- 656,284
Granting of Stock Options
For 266,750 Shares of
Common Stock .............. -- -- -- 133,375
Private Placement Of
Common Stock .............. -- -- -- 70,000
Exercise of Stock Options .... -- -- -- 25,000
Issuance of Stock Warrant
for 390,000 Shares of
Common for Notes
Payable ................... -- -- -- 299,085
Private Placement of Series
A Convertible Preferred
Stock ..................... -- -- -- 225,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
10
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Paid-In Capital
-------------------- -------------------- -------------------
Number of Number of Preferred Common
Shares Amount Shares Amount Stock Stock
--------- ------ --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Issuance of 270
Shares Issuable ...... -- -- -- -- -- --
Pursuant to
Financing
Penalty .............. -- -- -- -- -- 253
Advertising Credits
Used ................. -- -- -- -- -- --
Net Loss ................ -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance December
31, 1998 ............. 45,000 $ 5 7,681,278 $ 769 $ 245,995 $9,803,770
Issuance of Shares
for Cancelled
Liabilities .......... -- -- 80,000 8 -- 74,992
Issuance of Shares
for Cancelled
Liabilities .......... -- -- 25,230 2 -- 22,959
Issuance of
Warrants-Loan
extension ............ -- -- -- -- -- 21,000
Issuance of Warrants
- New Debt ........... -- -- -- -- -- 24,000
Issuance of Shares
For Services ......... -- -- 20,000 2 -- 3,998
---------- ---------- ---------- ---------- ---------- ----------
Net Loss Balance
September 30,
1999.................. 45,000 $ 5 7,806,508 $ 781 $ 245,995 $9,950,719
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
11
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
Deficit
Accumulated Accumulated Total
During Deficit Prepaid Stockholders
Development Discontinued Advertising Equity
Stage Operations Credits (Deficit)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Issuance of Shares
Pursuant To Financing
Penalty ................ -- -- -- 253
Advertising Credits Used -- -- 15,942 15,942
Net Loss .................. (2,881,162) -- -- (2,881,162)
----------- ----------- ----------- -----------
Balance
December 31, 1998 ......... $(8,801,479) $ (620,908) $(1,378,496) $ (771,344)
Issuance of Shares For
Cancelled Liabilities .. -- -- -- 75,000
Issuance of Shares For
Cancelled Liabilities .. -- -- -- 22,961
Issuance of Warrants-Loan
Extension .............. -- -- -- 21,000
Issuance of Warrants-New
Debt ................... -- -- -- 24,000
Issuance of Shares For
Services ............... -- -- -- 4,000
Net Loss Sept. 30, 1999 ... (715,845) -- -- (715,845)
----------- ----------- ----------- -----------
Balance September 30,
1999 ................... $(9,517,324) $ (620,908) $(1,378,496) $(1,340,228)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
[1] Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results for the nine months ended September 30, 1999 and for the three months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the fiscal year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1998.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries Decaf Products, Inc. ["DPI"] and
BioElectric Separation and Testing, Inc. ["BEST"]. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Earnings [Loss] Per Share - Earnings per share of common stock reflects the
weighted average number of shares outstanding for each period. The Financial
Accounting Standards Board ["FAS has issued Statement of Financial Accounting
Standards ["SFAS"] No. 128, "earnings per share", which is effective for
financial statements issued for periods ending after December 15, 1997.
Accordingly, earnings per share data in the financial statements for the nine
months ended September 30, 1999, for the three months ended September 30, 1999,
and for the year ended December 31, 1998, have been calculated in accordance
with SFAS No. 128.
SFAS No. 128 supercedes Accounting Principles Board Opinion No. 15, "earnings
per share," and replaces its primary earnings per share with a new basic
earnings per share representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies with complex capital
structures. Diluted earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding during the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidulutive
effect on earnings per share [i.e., increasing earnings per share or reducing
loss per share]. The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
Stock Options and Similar Equity Instruments - On January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123,
13
<PAGE>
"Accounting for Stock-Based Compensation," for stock options and similar equity
instruments [collectively "Options"] issued to employees and directors, however,
the Company will continue to apply the intrinsic value based method of
accounting for options issued to employees prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees" rather
than the fair value based method of accounting prescribed by SFAS No. 123. SFAS
No.123 also applies to transactions in which an entity issues its equity
instruments to acquire goods and services from non-employees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable.
[2] Stockholders' Equity
For the nine months ended September 30, 1999, 125,230 common shares with a
market value of $101,961 were issued for current and past due invoices of
$106,230 for advertising and marketing services rendered to the Company.
[3] Convertible Notes Payable
On February 9, 1999, the Company completed a private offering of $600,000 of 8%
convertible debentures due January 21, 2002 and 120,000 warrants to purchase the
Company's common stock at $1.50 per share until January 31, 2002. Interest is
payable quarterly in cash or common stock at the option of the Company. The
debentures are convertible in $5,000 multiples into shares of the Company's
common stock at a conversion price for each share of common stock equal to 75%
of the market price at the conversion date, but no more than $1.00 per share.
The 25% fair market value adjustment at the date of issue will be an additional
cost to the Company in the year exercised.
[4] Defaults on Convertible Promissory Notes
Two of the senior secured convertible promissory notes payable due January
31,1999 were extended until May 25, 1999 and in consideration of the extension
the exercise price of the warrants was decreased to $.40 per share. This
resulted in a financing cost of $21,000 and was recorded in the quarter ending
March 31, 1999. The Company did not pay these notes on May 25, 1999. The Company
has not received any notice of default, however, all five of the senior secured
convertible promissory notes are deemed to be in default in the total amount of
$118,355 plus interest because of the failure to receive and extension or pay
timely.
[5] Legal Proceedings
In June 1997, an action was commenced against the Company by Edmund Abramson and
by WRA Consulting, Inc. in the Eleventh Judicial Circuit of Dade County,
Florida. Abramson alleged breach of contract, claims damages of $1,400,000, plus
attorneys fee. WRA alleged breach of contract, failure of the Company to deliver
150,000 registered shares of common stock and 150,000 warrants to purchase
common stock to WRA Consulting, Inc. and claims damages in the amount of
$800,000, plus attorneys fees. In January 1998, the action was settled by the
Company agreeing to issue a total of 438,410 shares of common stock and 400,000
warrants to purchase common stock at $1.32 and $2.00 respectively.
On March 5, 1998, an action was commenced against the Company by BPV
Enterprises, Inc. doing business as Universal sales in the Supreme Court of the
State of New York, County of Suffolk. The plaintiff alleges breach of contract,
claiming damages of $337,000 plus attorney's
14
<PAGE>
fees. In addition, plaintiff also claims that the Company owes it 75,000 shares
of common stock and 75,000 warrants to purchase common stock for recruitment
services that it performed for the Company during 1996. The Company cannot
predict the outcome of this matter although it believes it has meritorious
defenses and will vigorously defend the action. However, if such action is
unsuccessful, it may have a material adverse impact on the results of operations
and financial condition of the Company. Alexander T. Hoffman, chairman of the
Company, is a 50% shareholder of BPV Enterprises.
On December 24, 1998, a second action was commenced against the Company and the
Chairman and Chief Executive Officer of the Company by BPV Enterprises, Inc.
doing business as Universal sales, and Victor Bauer in the Superior Court of the
State of New York, County of Suffolk. The plaintiff alleges breach of contract
under a sales and service administration agreement claiming a commission equal
to 2.5% of the Company's sales in excess of $5,000,000 per year and a standard
sales commission equal to 2.5% per year of revenue derived from customers
obtained by the plaintiff. The plaintiff also alleges the amount of potential
lost commissions to be $25,000,000. Additional causes of action, against the
Chairman and Chief Executive Officer of the Company include breaches of his
roles and duties for the plaintiff and unjust enrichment. The Company's counsel
cannot predict the outcome of this matter although it believes it has
meritorious defenses and will vigorously defend the action. However, if such
defenses are unsuccessful, it may have a material adverse impact on the results
of operations and financial condition of the Company.
[6] Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
As shown in the accompanying financial statements, the Company incurred a net
Loss of $715,845 for the nine months ended September 30, 1999. 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 finance the Company
through licensing of its technology and individual patent rights and sell its
products to manufacturers. The Company will also seek financing through a public
offering. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
There can be no assurance that management's plans to reduce operating losses and
obtain additional financing to fund operations will be successful. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
[7] Development Stage Enterprise
On July 7, 1992, the Company discontinued regular operations relating to the
sale of an automated luminometer. On July 22, 1992, the company and The General
Hospital Corporation, doing business as Massachusetts General Hospital, entered
a research agreement for $45,100, to perform the research and evaluation using
the Company's electro-static filter. As defined by the Financial Accounting
Standards board Statement No. 7, the Company is now a development
15
<PAGE>
stage enterprise and it has been devoting substantially all of its efforts to
developing, engineering and obtaining patents for new technologies relating to
separation technologies for the medical and consumer product sectors. The
Company applied for United States Patents covering its decaffeination and Plasma
Pure separation technologies in 1993. With a prototype, marketing of this
product began in December, 1993. Although no income has been received, letters
of interest and royalty agreement negotiations have begun. The cumulative
deficit during the development stage is $9,517,324 for the period July 7, 1992
through September 30, 1999.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
- -------
The Company is in the development stage and its operations are subject to all
the problems, expenses, delays, and other risks inherent in the establishment of
a new business enterprise, as well as the problems inherent in the developing
and marketing a new product/ service and in establishing a name and business
reputation. The likelihood of the success of the Company must also be considered
in connection with the rapidly and continually changing technology and the
competitive environment in which the Company will operate. There can be no
assurance that the Company's operations will result in its becoming or remaining
economically viable. Potential investors should be aware of the problems,
delays, expenses and difficulties encountered by any company in a development
stage, many of which may be beyond the Company's control. These include, but are
not limited to, unanticipated regulatory compliance, marketing problems and
intense competition that may exceed current estimates. The Company has had no
revenues from operations to date and, because it is just beginning to enter the
commercial stage, it will likely sustain operating losses for an indeterminate
time period. Since entering the development phase in July 1992, the Company has
devoted substantially all of its resources to the research and development of
its products and the technology and general and administrative expenses. Since
entering the development stage in July 1992, the Company has generated an
accumulated deficit of $9,517,234 at September 30, 1999 and has a total
accumulated deficit of $10,138,232.
The Company had no revenue from continuing operation in the years ending through
December 31, 1998. The Company has incurred net losses in each year since its
inception in 1986. Given the dormant level of business activity from 1988
through 1991, the Company realized that it could not continue with its luminator
technology product, discontinued operation and was reactivated and entered into
a new development stage in July 1992.
The Company's losses incurred since the inception have resulted principally from
expenditures under its research and development programs, and the Company
expects to incur significant operating costs and possible losses therefrom over
the next several years due primarily to expanded research and development
efforts in the PLASMA PURE area and related medical products, preclinical and
clinical testing of its product candidates and the performance of the
commercialization activities. There can be no assurance of when and whether the
Company will generate revenues or become profitable on a sustained basis, if at
all. Although the Company believes it has substantially completed the research
and development of its decaffeination technology, which is called the
DECAFFOMATIC and is anticipating sales thereof to commence in 1999, the
Company's results of operations may vary significantly for quarter to quarter
due to timing of payments and other factors. The timing of the Company's
revenues, if any, may not match the timing of associated product development of
other expenses.
The Company's ability to achieve sales and increase its level of revenue depend
upon its ability to secure additional financing and future licenses, if any, and
successfully develop, test and sell the Company's products. The Company's
ability to generate significant revenue and become profitable is dependent in
large part on its commercializing the Company's leading product the
DECAFFOMATIC, expanding in manufacturing contracts with third party
manufacturers, entering into additional marketing agreements and the ability of
its marketing contractors to successfully commercialize products incorporating
the Company's technologies. There can be no assurance that the operations of the
Company will generate significant revenue or will ever be profitable.
17
<PAGE>
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 SIX MONTHS ENDED SEPTEMBER 30,1999;
COMPARED WITH SEPTEMBER 30,1998
Net losses decreased from $2,466,564 for the nine months ended September 30,
1998 to $715,845 for the nine months ended September 30, 1999. The Company had
no revenue or operating income for the nine-month period ended September 30,
1998 and September 30, 1999 from continuing operations. The general
administrative and development expenses were $463,075 for the nine months ended
September 30, 1999, in comparison to $2,444,566 for the nine months ended
September 30, 1998. The decrease in these costs from 1999 to 1998 was in most
expense categories, including salaries and wages of $211,000, officers salaries
of $306,000, travel and business meetings of $45,000, professional services of
$145,000, outside labor of $1,202,000 and advertising of $8,000. All research
and development costs were expensed currently in the year incurred, rather than
capitalized.
At September 30, 1999 the Company had total assets of $3,509 and total
liabilities of $1,343,737 and total stockholders' deficit of $(1,340,228).
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30,1999;
COMPARED WITH SEPTEMBER 30,1998
Net losses decreased from $419,664 for the three months ended September 30, 1998
to $151,701 for the three months ended September 30, 1999. The Company had no
revenue or operating income for the three-month period ended September 30, 1998
and September 30, 1999 from continuing operations. The general administrative
and development expenses were $134,801 for the three months ended September 30,
1999, in comparison to $397,666 for the three months ended September 30, 1998.
The decrease in these costs from 1999 to 1998 was in most expense categories,
including salaries and wages of $66,000, officer's salaries of $130,000, outside
labor of $9,000 and professional services of $35,000. All research and
development costs were expensed currently in the year incurred, rather than
capitalized.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit position as of September 30, 1999 of
$1,343,727. The Company had an accumulated deficit of $10,138,232 at September
30, 1999, in comparison
18
<PAGE>
to an accumulated deficit of $9,422,387 as of December 31, 1998. The increase in
the accumulated deficit is primarily related to continuing operating costs
without any operating income.
For the nine months ended September 30, 1999, the Company's cash requirements
were satisfied from the private placement of $600,000 of 8% convertible
debentures and from issuing 125,230 shares with a current value of $101,961 in
payment of $106,300 of accounts payable.
The Company does not currently possess a bank source of financing and has not
had any revenues. The Company cannot be certain that it's existing sources of
cash will be adequate to meet its liquidity requirements. Therefore, the Company
is considering the following options to meet its liquidity requirements:
(a) attempting to raise additional funds through the sale of equity
securities to persons or entities who are not presently
stockholders of the Company;
(b) attempting to obtain a bank line of credit; and
(c) should insufficient funds be available from the foregoing sources,
reducing the Company's present rate of expenditures, which might
materially adversely affect the ability of the Company to produce
competitive products and services and to market them effectively.
The Company's future capital requirements will depend on numerous factors,
including (i) the effectiveness of product commercialization activities and
marketing agreements, including the development and progress of the Company's
efforts to license its technology to a third party for further commercial
development, manufacturing and marketing, (ii) the ability of the Company to
establish and maintain licensing agreements, (iii) the costs involved in
preparing, filing, prosecuting, defending and enforcing intellectual property
rights and complying with regulatory requirements, and (iv) the effect of
competing technological and market developments. However, if operating expenses
are higher than expected or if cash flow from operations is lower than
anticipated, there can be no assurance that the Company will have sufficient
capital resources to be able to continue as a going concern.
Unless the Company is able to generate revenues or obtain additional financing
in the future, the continuing losses incurred by the Company in its development
phase raise substantial doubt about the Company's ability to continue as a going
concern. Therefore, the Company's ability to continue in business as a going
concern depends upon its ability to sell products, to generate licensing fees
and royalties from the sale of its technology and products, to conserve
liquidity by setting marketing and other priorities and reducing expenditures,
to obtain bank financing and to obtain additional funds through offering of its
securities. The Company's ability to obtain bank financing will require
significantly improved operating results over the Company's results for its past
twelve months, the likelihood of which the Company presently cannot assure.
Similarly, the Company's ability to obtain funds through an offering of its debt
securities is limited by its lack of revenue. If the Company is unsuccessful in
entering into licensing agreements or raising additional working capital, it may
be forced to curtail operations. 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.
19
<PAGE>
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 one report on Form 8-K during the quarterly period
ended September 30, 1999 to report the removal of its president and the
appointment of a director.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Imsco Technologies, Inc.
December 30, 1999 By: /s/ Timothy J. Keating
-----------------------------
Timothy J. Keating
Chief Executive Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial data extracted from
the consolidated balance sheet and the consolidated
statements of operations and is qualified in its entirely by
reference to such statements.
</LEGEND>
<CIK> 0000924396
<NAME> IMSCO TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10
<PP&E> 128,911
<DEPRECIATION> (128,911)
<TOTAL-ASSETS> 3,509
<CURRENT-LIABILITIES> 1,343,737
<BONDS> 0
0
0
<COMMON> 781
<OTHER-SE> (1,340,228)
<TOTAL-LIABILITY-AND-EQUITY> 3,509
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 463,075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252,770
<INCOME-PRETAX> (715,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (715,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 715,845
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
