U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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: 12,048,174.
<PAGE>
IMSCO TECHNOLOGIES, INC.
INDEX
PART I
------
ITEM 1. - FINANCIAL STATEMENTS:
Independent Accountant's
Report.................................................................3
Consolidated Balance Sheet - March 31, 2000 (Unaudited)........................4
Consolidated Statement of Operations - For the Three Months
Ended March 31, 2000 and March 31, 1999 (Unaudited)....................5
Consolidated Statement of Stockholders' Equity - For
Three Months Ended March 31, 2000 (Unaudited)........................6-7
Consolidated Statement of Cash Flows - For the Three Months
Ended March 31, 2000 and March 31, 1999 (Unaudited).................8-10
Notes to Consolidated Financial Statements (Unaudited) ....................11-12
Item 2. Management's Discussion and Analysis or Plan of Operation ........13-15
PART II
-------
Item 6. Exhibits and Reports on Form 8-K.....................................16
2
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors of
IMSCO Technologies, Inc.
New York, New York
We have reviewed the accompanying consolidated balance sheet,
consolidated statement of operations and consolidated statement of cash flows of
IMSCO Technologies, Inc. and subsidiaries as of March 31, 2000, and for the
three month period then ended. 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.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
May 11, 2000
3
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PART I
Financial Information
---------------------
ITEM 1. FINANCIAL STATEMENTS
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a Development Stage Company
CONSOLIDATED BALANCE SHEET
As of March 31, 2000
(Unaudited)
ASSETS:
CURRENT ASSETS .............................................. $ 0
------------
TOTAL ASSETS ................................................ $ 0
============
LIABILITIES AND STOCKHOLDERS' (DEFICIT):
CURRENT LIABILITIES
Accounts payable .................................. 82,896
Accounts Payable to be Assumed .................... 528,351
Accrued expenses .................................. 63,042
Due To Stockholders ............................... 10,050
------------
TOTAL CURRENT LIABILITIES ................................... 684,339
STOCKHOLDERS' (DEFICIT)
Series A Preferred Stock-Authorized
1,000,000 shares at $.0001 par value;
45,000 Convertible 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; 12,048,174
shares issued and outstanding at March
31, 2000 ...................................... 1,205
Additional Paid-in Capital-Common Stock ........... 12,450,148
Deficit Accumulated during
Developments Stage ................................ (11,361,288)
Accumulated Deficit-Discontinued
Operations .................................... (620,908)
Less: Prepaid advertising credits ................. (1,378,496)
------------
TOTAL STOCKHOLDERS' (DEFICIT) ............................... (684,339)
------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) ................................................... $ 0
============
The accompanying notes are an integral part of these consolidated statements.
4
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<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Cumulative Amounts
From July 9, 1992
Three Months Ended (Inception of the Current
March 31, Development Stage)
2000 1999 to March 31, 2000
------------ ------------ -----------------
<S> <C> <C> <C>
Research and Development Expense ........ $ 0 $ 8,759 $ 301,925
Salaries and Wages ...................... 0 109,377 933,005
Officer Salaries ........................ 0 30,807 1,102,500
Payroll Taxes ........................... 0 27,101 154,803
Outside Labor ........................... 0 0 191,136
Professional and Consulting Fees ........ 45,000 70,389 1,285,660
Professional and Consulting Fees-Non Cash 0 0 2,187,539
Rent .................................... 0 3,972 165,288
Rent- Related Party ..................... 0 750 5,500
Insurance ............................... 0 17,512 190,879
Travel and Business Meeting ............. 0 5,806 189,250
Auto Expense ............................ 0 4,048 66,217
Telephone and Utilities ................. 0 3,046 67,416
Office Expense .......................... 0 3,478 143,164
Equipment Rental ........................ 0 2,440 36,080
Corporate Fees .......................... 0 0 69,981
Advertising ............................. 0 12,000 330,703
Depreciation and Amortization ........... 0 2,520 53,920
Litigation Settlement ................... 0 0 1,644,642
Franchise Tax ........................... 0 0 1,987
------------ ------------ ------------
TOTAL GENERAL, ADMINISTRATIVE
AND DEVELOPMENT EXPENSE ................. 45,000 302,005 9,121,595
----------------------------------- ------------
OTHER INCOME (EXPENSE)
Dividend and Interest Income ............ 0 0 11,633
Interest Expense ........................ (1,134,574) (218,970) (2,207,254)
Loss on sale of fixed assets ............ 0 0 (44,072)
------------ ------------ ------------
Other Income (Expenses)- Net ............ (1,134,574) (218,970) (2,239,693)
(LOSS) BEFORE INCOME TAXES .............. (1,179,574) (520,975) (11,361,288)
Provision for Income Tax ................ 0 0 0
------------ ------------ ------------
NET (LOSS) .............................. $ (1,179,574) $ (520,975) $(11,361,288)
================================================
Basic and Diluted (Loss) Per
Share of Common Stock ............ $ (.12) $ (.07)
Basic and Diluted Weighted Average
Shares of Common Stock Outstanding ..... 9,553,166 8,010,657
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATMENTS OF STOCKHOLDERS (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<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
December 31,
1999 45,000 $ 5 8,928,174 $ 893 $245,995 $10,480,703
Issuance of Shares
Upon Conversion
of Notes ......... -- 2,520,000 252 -- 1,433,968
Issuance of Shares
Upon Conversion
of Notes ......... -- 104,635 10 -- 84,745
Issuance of Shares
Upon Conversion
of Notes ......... -- 495,365 50 -- 450,732
Net [Loss]
----------- ----------- ----------- ----------- ----------- -----------
Balance -
March 31, 2000
(Unaudited).......... 45,000 $ 5 12,048,174 $ 1,205 $ 224,995 $12,450,148
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<CAPTION>
Deficit
Accumulated Accumulated Total
During Deficit Prepaid Stockholders
Development Discontinued Advertising Equity
Stage Operations Credits (Deficit)
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance December 31, 1999 $(10,181,714) $ (620,908) $ (1,378,496) $ (1,474,522)
Issuance of Shares
Upon Conversion
of Notes ............. -- -- -- 1,434,220
Issuance of Shares
Upon Conversion
of Notes ............. -- -- -- 84,755
Issuance of Shares
Upon Conversion
of Notes ............. -- -- -- 450,782
Net [Loss] .............. (1,179,574) -- -- (1,179,574)
------------ ----------- ------------ ------------
Balance -
March 31, 2000
(Unaudited) ............ $(11,361,288) $(620,908) $ (1,378,496) $ (684,339)
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<CAPTION>
Cumulative Amounts
From July 9, 1992
Three Months Ended (Inception of the Current
March 31, Development Stage)
2000 1999 to March 31, 2000
------------ ------------ -----------------
<S> <C> <C> <C>
Operating Activities:
Net (Loss) ........................................ $ (1,179,574) $ (520,975) $(11,361,288)
------------ ------------ ------------
Adjustments to Reconcile Net (Loss) to Net
Cash (Used for) Operating Activities:
Decrease (increase) in Due from
Officers ..................................... -- 2,930 -120
Contract Services Paid in Stock ................... -- 97,961 2,173,446
Depreciation ...................................... -- 2,520 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 ..................................... -- -- 897,659
Interest Expense Warrant Discount ................. 18,220 -- 39,220
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
(Increase) decrease in:
Other Current Assets .................... -- -- 20,200
Security Deposits ....................... -- -- 4,675
Accounts Receivable ..................... -- -- 2,998
Increase (Decrease) in:
Accounts Payable ........................ -- (81,981) 18,445
Accrued Payroll Taxes ................... (11,369) --
Accrued Expenses ........................ 45,000 (24,472) 1,601,434
Accrued Interest ........................ 19,672 130,022
Accrued Marketing Fees .................. -- (53,000) --
Accrued Salaries ........................ -- 23,677
Accounts Payable Subject to Transfer..... -- -- 528,351
------------ ------------ ------------
Total adjustments ................................. 1,179,574 103,515 7,802,132
------------ ------------ ------------
Net Cash Operating Activities
-Forward ..................................... $ 0 $ (417,460) $ (3,559,156)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
<TABLE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
a Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<CAPTION>
Cumulative Amounts
From July 9, 1992
Three Months Ended (Inception of the Current
March 31, Development Stage)
2000 1999 to March 31, 2000
----------- ----------- -----------------
<S> <C> <C> <C>
Net Cash Operating Activities-Forwarded ....... $ 0 $ (417,460) $(3,559,156)
----------- -----------
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 ............. 0 545,000 545,000
Proceeds from Notes Payable .......... -- -- 775,000
Proceeds form Preferred Stock ........ -- -- 225,000
Bond Discount ........................ 55,000 55,000
Loans From Stockholders .............. 0 0 52,050
Payment on Loans from
Stockholders ...................... 0 0 (24,500)
Proceeds from Issuance of
Common Stock....................... -- -- 2,247,304
Payment of Notes Payable ............. 0 (196,645) (196,645)
----------- ----------- -----------
Net cash - Financing Activities ................ 0 403,355 3,678,209
----------- ----------- -----------
Net (decrease) in Cash ......................... 0 (14,105) (14,107)
Cash Beginning of Period ....................... 0 22,992 14,107
----------- ----------- -----------
Cash End of Period ............................. $ 0 $ 8,887 $ 0
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
(a Development Stage Company)
CONSOLIDATED STATMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C>
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.
10
<PAGE>
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(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 ended March 31,2000 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 - (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 three
months March 31,2000, and for the three months ended March 31, 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 March 31,2000 the Company had 1,250,000 options and 1,829,645
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
11
<PAGE>
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
[2] Stockholders' Equity
- -------------------------
For the three months ended March 31, 2000, 3,120,000 common shares with a market
value of $1,969,757 were issued for past due notes and interest of $849,823
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. 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.
[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 of $1,179,574 for the three months ended March 31,2000. 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.
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] Subsequent Event
- ---------------------
On May 12, 2000, the Company announced that its board of directors has
unanimously approved a non-binding letter of intent to merge with privately held
New Jersey-based Broadspider Networks Inc. Following due diligence, receipt of a
fairness opinion, execution of definitive agreements and shareholder and
regulatory approval of the proposed transaction, Broadspider's management and
board will assume significant majority control of the Company through a merger
structure whereby Broadspider will become a wholly-owned subsidiary of the
Company. IMSCO Technologies, Inc. will thereafter change its name to Broadspider
Networks, Inc.
Under the proposed transaction, after a 1-for-13 reverse stock split by the
Company which must be approved by the shareholders, Broadspider shareholders
will exchange all of their shares of common stock for 6,970,000 newly issued
shares of IMSCO common stock. Upon closing of the merger, existing IMSCO
Technologies, Inc. shareholders will own approximately 950,000 shares of the
combined entity, representing approximately 9% of a total of 10.7 million
shares, before exercise of outstanding options and warrants. The board of the
newly formed holding company will consist of one member designated by IMSCO
Technologies, Inc. and additional members designated by Broadspider.
12
<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 July1992, the Company has generated an
accumulated deficit of $11,361,288 at March 31, 2000 and has a total accumulated
deficit of $11,982,196.
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.
The Company had no revenue from continuing operation in the years ending through
December 31, 1999. 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 efforts in the PLASMA PURE area
and related medical products, and the development of its decaffeination
technology, which is called the DECAFFOMATIC.
Statements included in this "Management's Discussion and Analysis or Plan of
Operation" Section, and in other sections of the Report and in prior and future
filings by the Company with the Securities and Exchange Commission, in the
Company's prior and future press releases and in historical or current facts are
"forward-looking statements" made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. There are numerous risk factors that in
some cases have affected and in the future could affect the Company's actual
results and could cause the Company's actual financial and operating performance
to differ materially from that expressed in any forward-looking statement. The
following discussion and the analysis should be read in conjunction with the
Financial Statements and notes to Financial Statements which appear elsewhere in
this report.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31,2000;
COMPARED WITH MARCH 31,1999
Net losses increased from $520,975 for the three months ended March 31, 1999 to
$1,179,574 for the three months ended March 31, 2000. The Company had no revenue
or operating income for the three-month period ended March 31,1999 and March 31,
2000 from continuing operations. The general administrative
13
<PAGE>
and development expenses were $1,164,934 for the three months ended March 31,
2000, in comparison to $302,005 for the three months ended March 31, 1999. 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 March 31, 2000 the Company had no assets and total liabilities of $684,339
and total stockholders' deficit of $(684,339).
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit position as of March 31, 2000 of
$684,339. The Company had an accumulated deficit of $11,982,196 at March 31,
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.
For the three months ended March 31, 2000, 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 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 sell or license its technology and individual patent
rights; and
(c) should insufficient funds be available from the foregoing sources,
reducing the Company's present rate of expenditures, which might
materially adversely affect the ability of the Company to produce
competitive products and services and to market them effectively.
The Company's future capital requirements will depend on numerous factors,
including (i) the progress of its research and product development programs,
including clinical studies, (ii) the effectiveness of product commercialization
activities and marketing agreements, including the development and progress of
sales and marketing efforts and manufacturing operations, (iii) the ability of
the Company to maintain existing marketing agreements and establish and maintain
new marketing agreements, (iv) the costs involved in preparing, filing,
prosecuting, defending and enforcing intellectual property rights and complying
with regulatory requirements, and (v) the effect of competing technological and
market developments. However, if operating expenses are higher than expected or
if cash flow from operations is lower than anticipated, there can be no
assurance that the Company will have sufficient capital resources to be able to
continue as a going concern.
Unless the Company is able to generate revenues or obtain additional financing
in the future, the continuing losses incurred by the Company in its development
phase raise substantial doubt about the Company's ability to continue as a going
concern. Therefore, the Company's ability to continue in business as a going
concern depends upon its ability to sell products, to generate licensing fees
and royalties from the sale of its technology and products, to conserve
liquidity by setting marketing and other priorities and reducing
14
<PAGE>
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. 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.
On May 12, 2000, the Company announced that its board of directors has
unanimously approved a non-binding letter of intent to merge with privately held
New Jersey-based Broadspider Networks Inc. Following due diligence, receipt of a
fairness opinion, execution of definitive agreements and shareholder and
regulatory approval of the proposed transaction, Broadspider's management and
board will assume significant majority control of the Company through a merger
structure whereby Broadspider will become a wholly-owned subsidiary of the
Company. IMSCO Technologies, Inc. will thereafter change its name to Broadspider
Networks, Inc.
Under the proposed transaction, after a 1-for-13 reverse stock split by the
Company which must be approved by the shareholders, Broadspider shareholders
will exchange all of their shares of common stock for 6,970,000 newly issued
shares of IMSCO common stock. Upon closing of the merger, existing IMSCO
Technologies, Inc. shareholders will own approximately 950,000 shares of the
combined entity, representing approximately 9% of a total of 10.7 million
shares, before exercise of outstanding options and warrants. The board of the
newly formed holding company will consist of one member designated by IMSCO
Technologies, Inc. and additional members designated by Broadspider.
15
<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 no report on Form 8-K during the quarterly period
ended March 31, 2000.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Imsco Technologies, Inc.
By: /s/ Timothy J. Keating
----------------------------------
May 19,2000 Timothy J. Keating
Chief Executive Officer
17
<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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 684,339
<BONDS> 0
0
5
<COMMON> 1,205
<OTHER-SE> (685,549)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (45,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,134,574)
<INCOME-PRETAX> (1,179,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,179,574)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,179,574
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
