10KSB40

             DRAFT MAY 28, 1999--CONFIDENTIAL--NOT FOR DISTRIBUTION
             ------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998       Commission File Number 0-24520

                            IMSCO TECHNOLOGIES, INC.
           (Name of small business issuer as specified in its charter)



              DELAWARE                                          04-3021770
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                         Identification Number)

40 Bayfield Drive, North Andover, MA                               01845
(Address of principal executive offices)                        (Zip Code)


Issuer's telephone number, including area code: (978) 689-2080

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.0001 par value

    Check  whether the Issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Exchange  Act during the  preceding 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

YES  X    NO
    ---      ---

    Check  if  disclosure  of  delinquent  filers  in  response  to Item  405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X].

    State Issuer's revenues for its most recent fiscal year: $0.

    As of December 31, l998: (a) 7,681,278  Common Shares,  $.0001 par value, of
the registrant were outstanding;  (b) approximately 6,071,643 Common Shares were
held by non-affiliates;  and (c) the aggregate market value of the Common Shares
held by  non-affiliates  was $5,689,129  based on the closing bid price of $.937
per share on December  31, 1998.  Shares of Common  Stock held by each  officer,
director  and  holder of 5% or more of the  outstanding  Common  Stock have been
excluded in that such persons may be deemed  affiliates.  The  determination  of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
purposes.







                                     PART I

    This Annual Report on Form 10-KSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, or Section
21 E of  the  Securities  Exchange  Act  of  1934,  as  amended,  or  subsequent
expansions or replacements of such sections,  including information with respect
to the  Company's  plans and strategy for its business.  For this  purpose,  any
statements  contained  herein that are not statements of historical  fact may be
deemed to be  forward-looking  statements.  Without limiting the foregoing,  the
words "believes",  "anticipates",  "plans", "estimates",  "feels", "expects" and
similar expressions are intended to identify forward-looking  statements.  There
are a number  of  important  factors  that  could  cause  actual  events  or the
Company's  actual  results to differ  materially  from those  indicated  by such
forward-looking statements. These factors include, without limitation, those set
forth below under the caption "Factors That May Affect Future Results"  included
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations" in Part II of this Annual Report on Form 10-KSB.

    In this Annual Report,  the terms  "company","IMSCO",  "we",  "us" and "our"
refer to IMSCO  Technologies,  Inc.,  a  Delaware  corporation,  and  unless the
context otherwise requires,  "common stock" refers to the common stock,  $0.0001
par value per share of IMSCO.



ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

    IMSCO is a  development  stage  company.  We develop and are  attempting  to
commercialize, market and license electrostatic separation products based on its
proprietary  technologies.  Electrostatic  separation  takes  advantage  of  the
fundamental  electrical  properties of  attraction,  wherein  unlike or opposite
charges  attract  each other,  and  repulsion,  wherein like or the same charges
repel each other,  and uses charged  materials  to  selectively  separate  other
substances.  In the  last  five  years,  we have  developed  several  separation
technologies based on electrostatics  combined with mechanical separation.  This
technology was originally developed by us for the specific purpose of separating
viruses  and  viral  particles  from  human  plasma.  In 1993,  we  designed  an
electrostatic separation technology which removes on demand caffeine from brewed
liquids,  such as coffee  and tea.  We call our  decaffeination  technology  the
"DECAFFOMATIC" (herein  "DECAFFOMATIC" or the "Decaffeination  System"). We call
our plasma separation technology the "PLASMA PURE".

    Having  achieved  separation  of viral DNA and virus from  plasma  using the
PLASMA  PURE  in  research   and  testing   performed  by  the  Company  at  the
Massachusetts  General  Hospital and the Mayo Clinic,  we began  researching and
developing  other  uses for the  technology.  Based on our  internal  laboratory
testing  and  research  conducted  by us at outside  research  laboratories,  we
believe  that the  DECAFFOMATIC  is capable of removing  substantial  amounts of
caffeine  from  brewed  beverages  such as  coffee  and tea.  In 1993,  we filed
separate patent  applications with the U.S. Office of Patents and Trademarks for
the PLASMA PURE and DECAFFOMATIC separation technologies.  On August 22, l995 we
were granted a patent by the United States Patents and Trademarks Office, Patent
No.  5,443,709 for "Apparatus for Separating  Caffeine From a Liquid  Containing
the Same". On April 2, 1996 the Company was granted a patent by the PTO , Patent
No. 5503724, for "A Process for Decaffeinating Caffeine Containing Liquid".

    Previously  in  late  1996  and  early  1997,  IMSCO  anticipated  that  the
decaffeinator would be incorporated into a commercial coffee brewer suitable for
the institutional  user marketplace  utilizing the coffee brewer electronics for
power to the decaffeinator.  In late 1997 and in 1998, we believed that we could
design the  decaffeination  device to be self contained  within the brew basket,
which is removable from the brewer,  with its own independent power source.  Our
management  believes that this design is superior to the earlier  version,  more
universal and interchangeable with different  institutional coffee brewer models
and will be easier for the  consumer to use and,  hopefully,  lead to  increased
sales once the product is commercialized. Consequently, during 1997 and 1998, we
continued  to  develop  and  test  a  DECAFFOMATIC  device  contained  within  a
detachable coffee brew basket for the institutional



                                       1





commercial  marketplace  containing  the  IMSCO  decaffeination  technology.  We
believe that we have  substantiallly  completed our scientific  research for the
DECAFFOMATIC by demonstrating that our electrostatic  separation  technology can
remove caffeine from freshly brewed coffee and we hope to be able to develop and
incorporate our technology into our brew basket  decaffeination  product for the
commercial  institutional  coffee brewer  market in 1999.  Although no contracts
have been signed,  we intend to license the  DECAFFOMATIC  technology to another
unrelated  company for  manufacture,  marketing and  distribution. See "Business
- -Marketing."

    Our  objective  is to become a leader in the  development  of  electrostatic
separation market by capitalizing on our proprietary technology. Our strategy is
to initially focus on commercializing  and launching the DECAFFOMATIC  products.
Although  due to limited  financial  and human  resources we have been unable to
conduct any significant  research and development on our PLASMA PURE technology,
we intend to pursue  further  research  and the  development  of the PLASMA PURE
technologies if funding becomes available.  Although there can be no assurances,
we intend to implement our strategy by (i) establishing  manufacturing contracts
with third party manufactures for our products,  (ii) expanding our research and
development  activities  for  additional  uses  and  applications  applying  our
proprietary   separation   technologies,   and  (iii)   establishing   marketing
agreements,  licensing  agreements and  distribution  agreements with recognized
market leaders for marketing and distribution of our products once developed.

    In  December  1995,  IMSCO  established  another   subsidiary,   BioElectric
Separation  and  Testing,  Inc.  ("BEST"),  a Delaware  corporation,  to further
conduct  research  and  development  on the PLASMA PURE and all related  medical
applications  of our core  electrostatic  separation  technology.  We have  only
conducted  limited basic research with respect to the PLASMA PURE  electrostatic
separation technology and because of our limited financial resources we were not
able to conduct any  significant  research  and  development  on our PLASMA PURE
technology  in 1998.  If adequate  funding were  available,  we estimate that it
would  take a minimum of 18 months in order to conduct  the  necessary  clinical
trials and research to submit the PLASMA PURE for approval by the United  States
Food and Drug Administration  ("FDA"). The PLASMA PURE has not been submitted to
the FDA for approval  and, if submitted,  there is no assurance  that it will be
approved.  Given the limited  funds  available  to us and  consequent  delays in
conducting  the  necessary  research  and  testing,  the  PLASMA  PURE would not
possibly be submitted to the FDA, if at all,  until funding were  obtained.  See
"Business -- Research and Development."

    On September 20, 1996, we entered into a media  purchase  agreement  ("Media
Purchase  Agreement") and agreed to sell an aggregate of 1,136,364 shares of our
common stock, par value $.0001, to Proxhill Marketing, Ltd., a private media and
advertising company based in Colorado ("PML"),  for the sales price of $1.32 per
share and we  received  in  exchange  prepaid  media  credits  in the  amount of
$1,500,000  to be used at our  direction.  PML  also  received  127,262  Class D
Warrants  entitling it to acquire  Common Stock for the price of $1.32 per share
for a period  ending  July 31,  2001.  Because  the  marketing  and  advertising
campaign  for  our  commerical  brew  basket  decaffeinator  has  not  yet  been
implemented,  at December  31, 1998 we  possessed  approximately  $1,378,496  of
prepaid  media  credits in our  inventory  to use for future  public  relations,
marketing and  advertising.  Since we currently plan to license our DECAFFOMATIC
technology  for the  commercial  marketplace,  we may  attempt to sell our Media
Credits to a third party in order to raise additional working capital.

    We were originally  formed in 1986 under the laws of the State of Nevada. In
1987 we changed its corporate  domicile from Nevada to  Massachusetts  since the
corporate  operations  were  located in  Massachusetts,  which was  accomplished
through action by the  shareholders and the Board of Directors in 1987. Our name
at that time was IMSCO,  Inc.  In July 1996,  we  reincorporated  in Delaware as
IMSCO  Technologies,  Inc. In order to effectuate  this change,  we proposed the
implementation  of the following  plan.  In May 1996, we filed a Certificate  of
Incorporation  in Delaware  incorporating a new wholly-owned  subsidiary,  IMSCO
Technologies,  Inc.  The Board of  Directors of the Company at a meeting held in
May 1996 voted,  subject to the adoption by the stockholders,  to merge into its
wholly-owned subsidiary,  IMSCO Technologies,  Inc., a Delaware corporation.  On
July 9, 1996, the  stockholders of IMSCO,  Inc.,  voted to approve the change of
corporate domicile from Massachusetts to Delaware.  Therefore, on July 18, 1996,
there  remained  one  surviving  corporation  and the  name  of  this  surviving
corporation  became IMSCO  Technologies,  Inc. As of the  effective  date of the
merger, each stockholder of the company held



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one share of common stock,  par value $.0001 per share,  of IMSCO  Technologies,
Inc. for each one share of common  stock,  par value $.001 per share,  of IMSCO,
Inc. previously held by him.


PRODUCTS AND TECHNOLOGIES

    We are in the development  stage,  and have only recently begun to enter the
early stage of product  commercialization  with its DECAFFOMATIC  products.  The
development  of  any  products  will  require   significant   further  research,
development, testing and regulatory approvals and additional investment prior to
commercialization.  Substantially  all of our resources  have been,  and for the
foreseeable future will continue to be, dedicated to the discovery,  development
and commercialization of electrostatic  separation  technologies,  most of which
are still in the early stages of development and testing.  While we believe that
we have substantiallly completed our scientific research for the DECAFFOMATIC by
demonstrating that our electrostatic  separation  technology can remove caffeine
from freshly brewed coffee,  it has not been developed and  incorporated  into a
final commercial ready brew basket product.  Most of 1998 was devoted to further
development, design and testing of the decaffeination device as a self contained
device within a detachable  commercial brew basket market. There are a number of
challenges that we must successfully  address to complete any of our development
efforts.  With respect to PLASMA PURE, although the results of our initial basic
research  were  positive,  it may be  inconclusive  and may not be indicative of
results that will be obtained in human clinical trials if conducted by us. If we
are able to obtain necessary  funding and conduct clinical trials, as results of
particular  preclinical studies and clinical trials are received, we may abandon
projects  such as PLASMA  PURE,  which we might  otherwise  have  believed to be
promising  from  early  initial  testing.  We  are  presently  pursuing  product
opportunities  that  will  require  extensive   additional  capital  investment,
research,  development,  testing,  regulatory  clearance or  approvals  prior to
commercialization.  There can be no assurance that our development programs will
ever obtain necessary capital funding, will be successfully  completed,  or that
required  regulatory  clearance or approvals will be obtained on a timely basis,
if at all.

    In addition, the product development programs conducted by IMSCO are subject
to risks of failure  inherent in the development of product  candidates based on
new technologies. These risks include the possibility that the technologies used
by us will prove to be  ineffective  or any or all of our potential  products or
technologies needing FDA clearance will prove to be unsafe or toxic or otherwise
fail to receive necessary regulatory approvals;  that the product candidates, if
safe  and  effective,  will be  difficult  to  manufacture  on a large  scale or
uneconomical  to  market;  that the  proprietary  rights of third  parties  will
preclude  us  or  our  collaborators   from  marketing  products  utilizing  our
technologies; or that other parties will market superior or equivalent products.
Accordingly,  there  can be no  assurance  that  our  research  and  development
activities will result in any commercially  viable products.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations,"
"Business -- "Research and Development" and "-- Competition."


DECAFFOMATIC

TECHNOLOGY RESEARCH AND DEVELOPMENT

    In  1993,  using  our  electrostatic  separation  technology,  we  designed,
researched and developed a successfully  working  prototype of the  DECAFFOMATIC
device. Since that time, have continued research and development in an effort to
integrate our scientific decaffeination technology into a commercial ready model
for the  institutional  coffee maker  marketplace.  Previously  in late 1996 and
1997,  we  anticipated  that  the  decaffeinator  would be  incorporated  into a
commercial  coffee  brewer  suitable  for  the  institutional  user  marketplace
utilizing the coffee brewer electronics for power to the decaffeinator.  In late
1997 and in 1998, we determined that we could design the  decaffeination  device
to be self contained within the brew basket, which is removable from the brewer,
with its own independent power source. Our management  believes that this design
is superior to the earlier  version,  more  universal and  interchangeable  with
different institutional coffee brewer models and will be easier for the consumer
to  use  and,   hopefully,   lead  to  increased   sales  once  the  product  is
commercialized.  Consequently, during 1997 and 1998, we continued to develop and
test a DECAFFOMATIC  device contained within a detachable coffee brew basket for
the

                                       3





institutional   commercial   marketplace  containing  the  IMSCO  decaffeination
technology.  We believe that we have  substantiallly  completed  our  scientific
research for the DECAFFOMATIC by demonstrating that our electrostatic separation
technology can remove caffeine from freshly brewed coffee and we hope to be able
to develop and  incorporate  our  technology  into a brew basket  decaffeination
product for the  commercial  institutional  coffee  brewer  market in 1999.  The
Company is currently  conducting  research and development at Arthur D. Little &
Company  ("ADL") in  Cambridge,  Massachusetts  pursuant to an  agreement  which
commenced in October 1998 (the "ADL  Agreement").  Under the ADL Agreement,  ADL
will (i) conduct tests to determine  levels of caffeine in other major brands of
"deccafeinated"   coffee  beans  to  establish  a  baseline  against  which  our
DECAFFOMATIC device shall be evaluated, (ii) evaluate our prototype devices with
respect  to  rates  of  decaffeination,  and  flavor,  color  and  aroma  of the
decaffeinated  brew,  and (iii)  assist the Company in  developing  a commercial
device that will have the  appropriate  attributes to maximaize  decaffeination,
while  minimizing  the impact on flavor,  color and aroma.  We agreed to pay ADL
$110,000  for  the  contract  research  and  development  services.  If  we  are
successful  in  developing  a commercial  ready model,  we intend to license our
DECAFFOMATIC technology to another unrelated company for manufacture,  marketing
and  distribution;  however,  we have  not yet  negotiated  or  signed  any such
agreements. See "Business -Marketing."


MARKET

    Our separation  technology  has enabled us to build a prototype  stand-alone
decaffeinator  which  may be used  immediately  after  brewing  coffee to remove
caffeine from coffee. We anticipate that the commercial  customer-user will need
to only buy regular coffee or tea and decaffeinate the brewed beverage on demand
for those who want the decaffeinated  product.  We believe that this will result
in  considerable  cost  saving  for  the  consumer.  Although  there  can  be no
assurance, in the institutional marketplace,  we believe that such an integrated
decaffeinator  will produce more significant cost savings,  given the difference
in price of decaffeinated  ground coffee beans over regular ground coffee beans.
We aslo feel that this benefit is of primary  concern to senior citizens who are
on a fixed income and at the same time, are the largest  growing  segment of the
population.  We  anticipate  that this group is also the one that is most health
conscious  and  concerned  about  chemical  treatment  of coffee  in most  other
decaffeination processes. There is no chemical treatment in our process.

    Our  management  believes  that  removal of caffeine  from coffee and tea is
recognized as a desirable  goal for health and other  reasons.  Our research has
revealed that no technology  now exists for removal of caffeine from hot freshly
brewed liquids;  rather,  the current technology removes caffeine from the whole
coffee beans prior to brewing.

    The decaffeination  process of coffee and tea has been popular since the mid
1930's.  It was initially  started by General Foods and then adapted by Nestle's
and other  multi-national  companies.  The first  decaffeination  process  was a
chemical  method that used  Methylene  Chloride.  This method is still  employed
today, however, not as widely. We believe that the chemical extraction method by
soaking the whole beans in Methylene  Chloride is not  desirable  because of the
harsh chemicals,  the after-taste and health issues raised by their use. The use
of Methylene  Chloride to  decaffeinate  beans became  illegal in most  European
nations last year. As consumers became more health conscious in the 1980's,  the
use of  decaffeinated  products  increased.  A method more frequently used today
utilizes  repetitive  washes of the whole coffee beans with clean water known as
the "Swiss Water Treatment" method. Although this water treatment process is the
method of choice for most  coffee  roasters  today,  we believe  that it is more
costly  than our  electrostatic  process,  it may not remove  high levels of the
caffeine inside the whole beans and ultimately less convenient for the consumer.

    We intend to focus our decaffeination  technology  development and marketing
on our internal  decaffeinator  for use with the automatic drip coffee maker for
both  institutional  and home  consumer  products.  We are seeking to develop an
integrated   system  that  has  the  DECAFFOMATIC   separation  device  directly
incorporated into the coffee maker, such that the  decaffeination  occurs as the
consumer directs on demand as a normal step in the coffee maker brewing process.





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PLASMA PURE

TECHNOLOGY RESEARCH AND DEVELOPMENT

    We have designed,  prototyped  and done promising  initial basic research on
the PLASMA  PURE  electrostatic/mechanical  separation  device  for the  express
purpose of separating  virus and viral DNA particles  from human plasma.  Due to
our very limited financial resources, no significant resarch and development was
conducted on the PLASMA PURE technology over the last three years.  Based on our
initial  research ,  although  there can be no  assurance,  we believe  that the
PLASMA-PURE  has the  capacity  to  remove a  substantial  amount  of the  viral
population from a unit of contaminated  plasma without  adversely  affecting the
clotting factors.  We estimate that if we were able to obtain adequate financing
to complete our research and development on the PLASMA PURE technology, we would
take approximately 18 months of testing before making application to the FDA for
approval, which cannot be assured. Although significant amounts of research need
to be conducted,  we believe that PLASMA PURE, with its potential  capability of
removing viruses and viral particles, if eventually developed and approved,which
cannot be assured,  may significantly  reduce the risk normally  associated with
transfusion  of plasma or plasma  components.  Although  significant  additional
research needs to be conducted,  our management  believes that the use of PLASMA
PURE to filter fresh frozen plasma may not significantly  decrease yields of the
clotting  components.  We  believe  this  is  achieved  because  of  the  unique
electrostatic  internal  matrix  which  enables  the  plasma  and  its  clotting
components  to flow  freely  through the device,  but still  remove  significant
amounts of virus and viral particles,  which are targeted by the electrostatics.
The methods currently used to inactivate viruses in human plasma such as the use
of detergents or extreme heat all have the possible  adverse  effect of limiting
the yield of final desired procoagulant products.


MARKETS

    We believe  the PLASMA PURE system and its  electrostatic  technology  offer
various growth  possibilities for us, however,  each of these areas will require
significant further research and development,  the financing of such efforts and
FDA approval before they can be  commercialized,  if possible at all. Earlier we
also designed and were in the earliest  research and development stage for a new
product that is an extension of the PLASMA PURE separator  appropriately  called
PLASMA  PURE  PLUS.  We  intend  that it  would be used  only  for  bulk  plasma
fractionation  and therefore be larger than PLASMA PURE and priced  differently.
Another follow-up product that we would like to conduct research and development
on if adequate  financing were  available,  which we do not currently have, is a
modified white blood cell filter.  This device would utilize the same technology
as PLASMA-PURE,  and therefore we believe its  introduction  could be more rapid
than it has been for the  PLASMA  PURE  device.  Our  management  feels a second
version of the white blood cell filter could then be marketed to the  diagnostic
reagent market. However, given the numerous uncertainties and risk inherent with
medical  research  in general,  and blood  research  in  particular,  the needed
financing  involved to conduct such research which we do not possess,  there can
be no  assurance  that any of these  plasma  products  and devices  will ever be
finally developed,  or if completed that they will receive approval from the FDA
or the comparable regulatory authority of any foreign jurisdiction.  We have not
prepared  or made  application  to the  FDA or any  governmental  authority  for
approval of our PLASMA PURE device or related products.

    We believe that our core electrostatic separation technology lends itself to
other markets as well,  particularly  air filtration  for hospitals,  convention
centers and  airplanes.  Although  it needs  significant  amounts of  additional
research and testing and the  financial  resources  to conduct such  activities,
which we do not currently possess, we believe that our electrostatic  separation
technology may have  applications  to extra  corporeally  based  immunotherapies
which involve an improved system for drug  administration  and improved  systems
for removal and/or treatment of cells or other circulating  materials (including
byproducts of metabolism).

    Similar  to  DPI,  in  1996  we  established  a  new  Delaware   corporation
subsidiary,  BioElectric  Separating  & Testing,  Inc.  ("BEST")  to conduct the
continued research and development activities and pursue FDA



                                       5





application relating to the PLASMA PURE and related technologies. Due to lack of
funding, BEST has been inactive over the last three years.


MARKETING

    Our current  strategy is to license our products and  technologies  to other
companies which have  pre-existing  industry presence in their respective fields
and to enter into collaborative  arrangements with such companies to develop new
applications  for the technology  with the contract  partner's own products.  We
have limited experience in sales,  marketing and distribution.  To date, we have
one such agreement with NEWCO Enterprises, Inc.("NEWCO"), which is a manufactuer
and  distributor  of coffee  brewers  for the  industrial  market,  based in St.
Charles, Missouri . There can be no assurance that we will be able to enter into
additional  marketing  agreements  on terms  favorable  to us if at all, or that
current or future agreements will ultimately be beneficial to us.

THE NEWCO MANUFACTURING AND DISTRIBUTION AGREEMENT.

    On September  20,  1996,  we entered  into the NEWCO  Agreement  for certain
institutional manufacturing and marketing of the Decaffeination System. NEWCO is
a privately held corporation based in St. Charles,  Missouri,  and is one of the
larger manufacturers and distributors of institutional coffeemaking equipment in
North  America.  We agreed that NEWCO will have the exclusive  right to sell the
DECAFFOMATIC to the so-called  "Office Coffee Supply" ("OCS")  subsection of the
institutional   coffeemaker   market  and  will  be  the   manufacturer  of  the
DECAFFOMATIC for the institutional marketplace in North American for a period of
three years.  NEWCO further  agreed to sell or purchase from the Company for the
OCS market a minimum of 25,000  units of the product for the first year,  50,000
units for the second year and 100,000 units the third year. In consideration and
on account of the exclusive arrangement under the NEWCO Agreement,  NEWCO agreed
to pay the costs and expenses of all  materials  and services  which NEWCO shall
incur  in the  development  of the  DECAFFOMATIC  device  for the  institutional
coffeemaker  marketplace.  Under the NEWCO Agreement,  all of the technology and
final  commercial  model  designs  of  the  Decaffeination  System  will  be our
property.

    Under the NEWCO Agreement,  we will sell units of the Decaffeination  System
to NEWCO for a net price to us. NEWCO will take the Decaffeination System and in
turn  incorporate  it into its  coffeemakers  and re-sell it to a variety of end
users in the OCS  marketplace.  The terms of the  minimum  purchase by NEWCO are
mandatory and are not subject to, or conditioned  upon,  NEWCO's ability to sell
the units acquired. All servicing and customer calls will be performed by NEWCO.
We can  terminate  the  NEWCO  Agreement  if NEWCO  fails to make the  specified
minimum number of Decaffeination System purchases.

    We believe that our exclusive agreement with NEWCO in the areas covered will
allow us to  establish  a presence  in the  market  more  quickly  and on a more
cost-effective  basis than we could  achieve by building  our own  manufacturing
facility  or our own sales,  marketing  and  service  network in the  relatively
fragmented OCS market, that consists primarily of small office users.

    Our  electrostatic  separation  devices will be manufactured  from generally
available  materials,  and  we  do  not  anticipate  that  we  or  our  licensee
manufacturing  partners will be dependent upon any single  supplier.  We believe
that there are  numerous  third party  contract  manufacturers  similar to NEWCO
available around the world who can manufacture our  DECAFFOMATIC  products on an
OEM basis. We currently have insufficient resources to establish and conduct our
own commercial  manufacturing  activities with respect to our proposed products.
In the future,  if we decide to establish our own  manufacturing  facilities and
capabilities,  at least  for  certain  products,  we would  require  substantial
additional funds and personnel.

    Previously in 1996 and 1997, we and NEWCO anticipated that the decaffeinator
would be  incorporated  directly  into the coffee  brewer,  utilizing the coffee
brewer  electronics for power. In late 1997 and 1998, we estimated that we could
design the  decaffeination  device to be self contained  within the brew basket,
which is removable from the brewer,  with its own power source.  We believe that
this independent design is superior to the earlier version, more interchangeable
with different  coffee brewer models and will be easier for the consumer to use.
As of this date, the detail engineering for the production molds has been



                                       6





completed for the  institutional  coffeemaker-brew  basket that will be used for
large  institutions and we are conducting  research and development tests at ADL
in  Cambridge,  Massachusetts,  to  determine  the  optimum  application  of our
electrostatic  separation  technology  science in  pursuing a  commercial  ready
commercial brew basket.  Our development for the commercial ready brew basket is
on-going and not yet complete.  As a commercial  ready model is being developed,
we are  further  testing  that it has all the  desired  specifications,  such as
brewing and decaffeination speed, appropriate taste, color and aroma and ease of
customer removal of the separation device and safety design.

    To create a potential  customer  awareness of our  DECAFFOMATIC  system,  we
intend to commence a public  relations  campaign as soon as we have  developed a
commerical ready product.  We will attempt to employ lower cost public relations
at trade shows, in trade  publications and at other  appropriate food or kitchen
appliance shows and events.

MEDIA PURCHASE AGREEMENT

    Under the Media Purchase Agreement, PML contractually agreed to provide $1.5
million of media for our public relations and advertising  campaign through Grow
Marketing Services ("GROW"),  an independent  marketing company. In exchange for
IMSCO  issuing  1,136,364  shares of our common stock,  representing  a price of
$1.32 per share,  we acquired $1.5 million of prepaid,  dedicated  media credits
receivable (the "Media  Credits") and certain media services.  PML also received
127,262 Class D Warrants  entitling it to acquire  Common Stock for the price of
$1.32 per share for a period ending July 31, 2001.

    The media advertising  services  provided by GROW include  conducting market
research  services for the purpose of  formulating  a media plan to optimize the
benefits  of the  media  advertising  campaign.  Then,  based  on a  media  plan
developed by us, GROW secures suitable advertising time on television, radio, or
cable  systems,  or  advertising  space  in  newspapers,   magazines,  or  other
publications of mass appeal.

    At the  closing of a media  purchase  transaction  PML has agreed to deliver
cash, media, media credit and/or other  media-related  assets to GROW as payment
for media extended to the Company.  PML then delivers to us a pre-paid  purchase
order  acknowledging our payment of the media cost from GROW under the terms set
forth in the Agreement.

    When we originally  intended to directly market our DECAFOMATIC  products in
North  America,  we planned to use the  remaining  $1,378,496  of prepaid  Media
Credits  to  finance  the  introduction  and  initial  product  advertising  and
marketing  support  for the  DECAFFOMATIC  products.  However,  since  we do not
presently intend to pursue the direct marketing of our decaffeination  products,
we are  attempting to sell the prepaid Media Credits to a third party as a means
of generating additional needed working capital.

    Given that we have  conducted  no  independent  market  research or consumer
focus  groups  activities,  there  can be no  assurance  that  the  DECAFFOMATIC
technology,  if developed into a commercial  ready product,  will be accepted by
the consumer public, that it will have any commercial level of acceptance by the
public or that if there is some level of commercial acceptance,  that it will be
sufficient  for us or a licensee of ours to continue  supporting a marketing and
advertising program or that such efforts will ever be profitable.

    We have only recently  commenced limited  marketing  activities to potential
licensees of our  decaffeination  products.  Achieving market acceptance for our
products  will require  substantial  marketing  efforts and the  expenditure  of
significant  funds.  There  can  be no  assurance  that  we  and  our  marketing
contractors and partners will be able to  commercialize  successfully or achieve
market acceptance of our products and  technologies.  There is no assurance that
we or our licensees will be able to create a successful  marketing  program,  or
that our  products  can be sold in a manner that will permit us to achieve  long
range  profitability.  Further,  there can be no assurance that our  competitors
will not develop  competing  technologies  that are less  expensive or otherwise
superior to our products.  The failure to market successfully our products would
have a material adverse effect on our business and financial conditions.

    We will be  dependent  for product  sales  revenues  upon the success of its
third party marketing partners in performing their responsibilities.  The amount
and  timing  of  resources  which may be  devoted  to the  performance  of their
contractual  responsibilities  by its  marketing  partners  are not  within  our
control.  There can be no assurance  that such  marketing  partners will perform
their obligations as expected, pay any

                                       7




additional  revenue or license  fees beyond the stated  minimums to us or market
any products under the marketing agreements,  or that we will derive any revenue
from  such  arrangements.  There can be no  assurance  that our  interests  will
coincide  with those of our marketing  partners or that the  marketing  partners
will not  develop  independently  or with third  parties  products  which  could
compete with our products,  or that  disagreements  over rights or technology or
other proprietary  interests will not occur. To the extent that we choose not to
or are unable to enter into future agreements, we would experience substantially
increased capital requirements to undertake the marketing or sale of our current
and future products. There can be no assurance that we will be able to market or
sell our  current  or  future  products  independently  in the  absence  of such
agreements.

RESEARCH AND DEVELOPMENT

    We conduct our research and development activities through its own staff and
facilities,  as well as cuurently  through a contractual  arrangement  with ADL.
However,  at  present  we have  only two  full-time  employees,  one of  whom is
devoted to research and  development,  and,  accordingly is dependent upon third
parties to conduct  significant  research and development,  laboratory  testing,
clinical studies,  and the procedures and processes  necessary to apply for and,
if possible,  obtain FDA and other  regulatory  approvals  and  manufacture  and
market a finished product.

    We believe that the use of outside research and laboratory facilities is the
most  efficient  method  to  have  certain  aspects  of our  technology  further
researched and developed by experienced scientific and technical personnel while
minimizing the capital  investment and company staffing such activities  require
from us.

    We have one  agreement  in effect with Arthur D. Little & Co. of  Cambridge,
Massachusetts,  for the use of its laboratory facilities and assistance of their
scientific and technical personnel.  We believe that our research facilities and
arrangements  necessary to continue our further  research and development of our
electrostatic  separation technologies are readily available.  From July 1992 to
December 31, l998, we incurred a development stage deficit of $8,801,479.  If we
are  able to  obtain  needed  additional  financing,  of which  there  can be no
assurance,   we  anticipate  incurring   significant  research  and  development
expenditures  in the  future as we  continue  our  efforts  to  develop  further
applications  and  uses  for our  separation  technologies  and as we  begin  to
research other technologies.


MANUFACTURING

    We currently do not own or operate  manufacturing  facilities for commercial
production of our  DECAFFOMATIC or any other products.  In addition,  we have no
intention of acquiring or developing  any  manufacturing  facilities,  nor do we
have any financial capability to acquire any such facilities. Instead, we intend
to rely on licensee and third party contract  manufacturers  to manufacture  our
products. There can be no assurance that such arrangements will be successful or
that any  licensee or contract  manufacturer  will be able to develop or provide
adequate manufacturing capabilities for commercial scale production. Although we
have no plans or  intentions  of doing so, in the event we decide to establish a
commercial scale manufacturing facility, we would require substantial additional
funds and  personnel and will be required to comply with  extensive  regulations
applicable to such  facility.  There can be no assurance that we will be able to
develop  adequate  commercial  manufacturing  capabilities  either on our own or
through third parties.


GOVERNMENT REGULATIONS

    The  production and marketing of some of our potential  products,  including
the PLASMA  PURE,  will be  subject to  regulation  for safety and  efficacy  by
numerous federal,  state and local agencies,  and comparable agencies in foreign
countries.  Our PLASMA PURE system will be considered a medical device. As such,
the FDA would require us to apply for and obtain either a premarket notification
clearance  under  Section  510(k),  or a PMA prior to sales and marketing of the
device in the United States.  The 510(k) premarket  notification may be obtained
if the  medical  device  manufacturer  can  establish  that the newly  developed
product is substantially  equivalent to another legally marketed device. The FDA
may also require clinical data or other evidence of safety and effectiveness. In
the United States, the FDA Act, govern or influence

                                       8





the testing,  manufacture,  safety, labeling, storage, record keeping, approval,
advertising and promotion of the Company's proposed products and technologies.

    Under the FDA Act, the FDA regulates the preclinical  and clinical  testing,
manufacturing labeling,  distribution,  sale and promotion of medical devices in
the United  States.  The FDA prohibits a device,  whether or not cleared under a
510(k)  premarket  notification or approved under a PMA, from being marketed for
unapproved clinical uses.

    Non-compliance  with applicable  requirements  can result in fines and other
judicially  imposed  sanctions  including the  initiation  of product  seizures,
injunction  actions,  mandatory  recalls  and  criminal  prosecutions  based  on
products,   promotional  practices,  or  manufacturing  practices  that  violate
statutory  requirements.  In  addition,   administrative  remedies  can  involve
voluntary  recalls or cessation of sale of products,  administrative  detention,
public  notice,  voluntary  changes in labeling,  manufacturing  or  promotional
practices.  The FDA also has the authority to withdraw  approval of  instruments
and devices in accordance with statutory procedures.

    We have only conducted very preliminary  initial basic testing on our PLASMA
PURE  technology  and have not  prepared or made  application  to the FDA or any
governmental  authority  for  approval  of the  PLASMA  PURE  device or  related
products. The FDA approval procedure involves completion of pre-clinical studies
and the submission of the results of these studies to the FDA in an application.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product.  Human clinical
trials are typically  conducted in three sequential  phases,  but the phases may
overlap.  Phase I trials  consist of testing  the  product in a small  number of
volunteers  primarily  for  safety.  In Phase II, in  addition  to  safety,  the
efficacy of the product is evaluated in a small  patient  population.  Phase III
trials typically involve additional multi-center testing for safety and clinical
efficacy in an expanded population of patients at geographically  dispersed test
sites.  A clinical  plan,  or  "protocol,"  accompanied  by the  approval of the
institutions  participating in the trials, must be submitted to the FDA prior to
commencement  of each  clinical  trial.  The  FDA may  order  the  temporary  or
permanent  discontinuation  of a clinical  trial at any time if  adverse  safety
effects are observed in volunteers or patients. In addition, the FDA may request
Phase IV trials after approval to resolve any lingering questions.

    The results of the  pre-clinical and clinical studies on new medical devices
are  then  submitted  to the FDA for  approval  to  commence  commercial  sales.
Following  extensive  review,  the FDA may  grant  marketing  approval,  require
additional testing or information or deny the application.  Continued compliance
with  all  FDA  requirements  and the  conditions  in an  approved  application,
including   product   specifications,   manufacturing   process,   labeling  and
promotional material and record keeping and reporting requirements, is necessary
for all products.  Failure to comply, or the occurrence of unanticipated adverse
effects  during  commercial  marketing,  could  lead to the  need  for  labeling
changes,  product recall,  seizure,  injunctions  against  distribution or other
FDA-initiated action, which could delay further marketing until the products are
brought into compliance.

    The  preparation  of required  applications  and  subsequent FDA and foreign
regulatory  approval  process  is  expensive,  lengthy  and  uncertain.  If  the
manufacturer  cannot  establish  equivalence or if the FDA  determines  that the
device  requires more extensive  review,  the FDA will require the submission of
PMA. The PMA must contain  nonclinical  and clinical  investigation  results,  a
description of the methods, facilities and controls used for manufacturing,  and
the proposed  labeling for the device. We must receive FDA approval for Phase I,
II,  and III trials to test the PLASMA  PURE  device.  FDA review of a PMA would
take at least  nine  months  to a year  following  submission  of Phase III test
results, and may take longer. If ever submitted,  no assurance can be given that
approval of the PLASMA PURE PMA would be granted.

    The  packaging  and labeling of all our proposed  PLASMA PURE  products,  if
developed, will be subject to FDA regulation. Because of the extensive costs and
time  involved,  we currently  intend to rely  primarily on licensees  and joint
venturers to obtain  regulatory  approvals and market our PLASMA PURE  products,
when developed.  No assurance can be given that we will reach agreement with any
proposed licensees for such products. Licensees will generally have the right to
terminate  funding  a product  at any time for any  reason  without  significant
penalty.  The resources and attention devoted by a licensee,  if obtained by us,
to a product are not in our  control,  and this can result in delays in clinical
testing, the

                                       9





preparation and prosecution of regulatory filings and commercialization efforts.
Even if we are  successful in finding  licensees for our products,  these delays
would cause the payment of any royalties to be delayed.

    Whether or not FDA  approval  has been  obtained,  approval  of a product by
comparable regulatory  authorities must be obtained in any foreign country prior
to the  commencement  of marketing of the product in that country.  The approval
procedure varies from country to country,  can involve additional  testing,  and
the time required may differ from that required for FDA approval.  Although some
procedures for unified filings exist for certain European countries,  in general
each country has its own  procedures  and  requirements,  many of which are time
consuming  and  expensive.   Thus,  substantial  delays  in  obtaining  required
approvals from both the FDA and foreign regulatory  authorities can result after
the relevant applications are filed. After such approvals are obtained,  further
delays may be encountered before the products become commercially available.

    No  assurance  can be given  that  any  required  FDA or other  governmental
approval will be granted,  or if granted,  will not be  withdrawn.  Governmental
regulation  may prevent or  substantially  delay the  marketing  of our proposed
products,  cause us to undertake  costly  procedures  and furnish a  competitive
advantage to the more substantially  capitalized companies with which we plan to
compete. In addition,  the extent of potentially adverse government  regulations
which might arise from future  administrative  action or  legislation  cannot be
predicted.


PATENTS AND LICENSE RIGHTS

    Our success depends in large part on our ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of  third  parties.  We  applied  for U.S.  patents  covering  our  DECAFFOMATIC
separation  technology  and its PLASMA PURE  separation  technology  in 1993. On
August 22, l995, we were issued a patent by the U.S. Commissioner of Patents and
Trademarks,  Patent Number 5,443,709, for its "Apparatus For Separating Caffeine
From A Liquid  Containing  the Same." On April 2, 1996 the Company was granted a
patent by the PTO , Patent  No.  5,503,724,  for "A Process  for  Decaffeinating
Caffeine Containing Liquid".

    We  believe  that  patent  protection  of our  technologies,  processes  and
products  are very  important  to our  future  operations.  The  success  of our
proposed  products may  significantly  depend upon our ability to obtain  patent
protection.  No  assurance  can be given that any  patents  will be issued or if
issued that they will have commercial  value to us. If a patent is granted,  the
cost  of  enforcing  our  patent  rights  in  lawsuits,  if  necessary,  may  be
significant and could materially interfere with our operations.

    Although we intend to file  additional  patent  applications  as  management
believes   appropriate  with  respect  to  any  new  products  or  technological
developments,  no  assurance  can be given that any  additional  patents will be
issued,  or if  issued,  that  they  will be of  commercial  benefit  to us.  In
addition,  to  anticipate  the  breadth  or degree of  protection  that any such
patents may afford is impossible. To the extent that we rely on unpatented trade
secrets and proprietary  technology,  no assurance can be given that others will
not  independently  develop  or  obtain  substantially  equivalent  or  superior
technology or otherwise gain access to our trade secrets, that any obligation of
confidentiality  will be honored or that we will be able to effectively  protect
our rights to proprietary  technology.  Further,  no assurance can be given that
any products  developed by us will not infringe patents held by third parties or
that,  in such case,  licenses  form such third  parties  would be  available on
commercially acceptable terms, if at all.


COMPETITION

    We compete  with  numerous  firms,  many of which are large,  multi-national
organizations  with  worldwide  distribution.  These  firms  have  substantially
greater  capital  resources,  research and  development  and  technical  staffs,
facilities and experience in obtaining regulatory  approvals,  as well as in the
manufacturing,  marketing and  distribution  of products,  than we do.  Academic
institutions,  hospitals,  governmental  agencies  and other  public and private
research   organizations  are  also  conducting   research  and  seeking  patent
protection and may develop  competing  products or  technologies on their own or
through joint ventures or other  arrangements.  In addition,  recently developed
technologies or technologies

                                       10





that may be  developed  in the future are or could be the basis for  competitive
products.  No assurance  can be given that our  competitors  will not succeed in
developing technologies and products that are more effective or less costly than
any that are being developed by us.

    We expect  products  approved for sale, if any, to compete  primarily on the
basis of product uniqueness,  efficacy,  safety,  reliability,  price and patent
position.  Our  competitive  position will also depend on our ability to attract
and  retain  qualified   scientific  and  other  personnel,   develop  effective
proprietary  products,  implement  production and marketing plans, obtain patent
protection and secure adequate capital resources to finance these activities.


PRODUCT LIABILITY

    The  development,  manufacture and sale of our products  involve an inherent
risk of product liability claims and associated adverse publicity.  We currently
do not  maintain  liability  insurance  and may need to acquire  such  insurance
coverage  prior  to the  commercial  introduction  of some of our  products.  No
assurance  can be  given  that  we will be  able  to  obtain  product  liability
insurance or, if obtainable, that it will be on financially reasonable terms. It
is  anticipated  that the  liability  insurance  for the types of products to be
marketed by us, if available,  will be very expensive.  If such insurance is not
obtained and maintained at sufficient  levels, or if any product liability claim
were brought  against us and were  sustained for a sufficient  amount,  it could
have a material adverse affect on our business and financial condition.


EMPLOYEES

    As of the date hereof,  we have two full time employees,  one in management,
one in research and development  and two-part time employees in  administration.
None of our employees is represented by a labor union. We consider our relations
with our current  employees  to be  satisfactory.  See  "Management"  and "Legal
Proceedings".


ENVIRONMENTAL QUALITY

    We believe that we are now in compliance  with all Federal,  State and local
laws relating to the protection of the environment.  We do not generate,  store,
transport or dispose of any hazardous waste,  and that management  believes that
none of our  products  is regarded  as a  hazardous  material by the  applicable
regulations for the protection of the environment.  We do not anticipate  making
any  capital   expenditures  in  the  current  or  succeeding  fiscal  year  for
environmental control efforts regarding our products.



ITEM 2.  DESCRIPTION OF PROPERTY

    Our principal  offices are  currently  located at 40 Bayfield  Drive,  North
Andover,  Massachusetts  and consists of  approximately  1,276  square feet.  We
entered into a new three year lease  effective  April 1, 1997 at the annual rate
of $15,890.  Our  administrative  and research and  development  facilities  are
currently  located therein.  Upon the end of the current lease in North Andover,
Massachusetts,  we expect to be able to either  negotiate  a new lease  with the
current  landlord or locate  suitable  premises  elsewhere for  comparable  fair
market rent to that now being paid.  We believe that our property and  equipment
are in good  operating  condition and are adequate for existing and  immediately
foreseeable needs.



ITEM 3.  LEGAL PROCEEDINGS

    We  received a Summons  and  Complaint  from BPV  Enterprises,  Inc.,  d/b/a
Universal  Sales  ("Universal  Sales") on March 5, 1998  brought in the  Supreme
Court of the State of New York, Suffolk County,  alleging breach of contract due
to our  termination  of Universal  Sales for cause and seeking  damages  under a
Placement Agreement dated September 1, 1996 entered into between Universal Sales
and IMSCO wherein  Universal Sales is seeking damages of $337,000 plus attorneys
fees and 75,000 shares of common

                                       11





stock and 75,000  warrants.  In a related second suit commenced in January 1999,
we received a Summons and Complaint from Universal Sales in the Supreme Court of
the  State  of New  York,  Suffolk  County,  alleging  breach  of  contract  for
termination  of  Universal  Sales for cause and  seeking  damages  under a Sales
Administartion  and  Servicing  Agreement  dated  September  1, 1996 (the "Sales
Agreement")  entered  in  between  Universal  Sales and  IMSCO.  Under the Sales
Agreement, which had a term of seven years, Universal Sales alleges that for its
sales  administration  and  back-office  servicing  duties,  it is entitled to a
commission  equal to 2.5% of our sales in execss of $5 million  per year,  and a
standard sales  commission equal to 2.5% per year of revenues from sales derived
from  customers  obtained  through  Universal  Sales;  efforts,  which amount of
potential lost  commissions  Universal  Sales  estimates to be $25 million.  Mr.
Alexander T. Hoffmann,  the Chairman and Chief  Executive  Officer of IMSCO,  is
named as an individual  defendant in the second suit,  and he is also a Director
and a 50%  shareholder  of  Universal  Sales.  The causes of action  against Mr.
Hoffmann,  individually,  are  based on  breaches  of his  roles  and  duties in
Universal Sales. In April 1997, IMSCO terminated all of its  relationships  with
Universal Sales for cause. We have only recently begun substantive discovery and
the  ultimate  outcome  of this  matter  cannot  yet be  determined.  We plan to
vigorously defend these lawsuits. No provision for any liability that may result
from these actions has been recognized in our consolidated financial statements.
In the opinion of our management,  resolution of this litigation is not expected
to have a material adverse effect on our financial position.  However, depending
on the amount and timing,  an  unfavorable  resolution  of these  matters  could
materially affect our future business and financial condition.



ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

    There were no matters  submitted  to a vote of the  security  holders in the
fourth quarter of 1998.



                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  (a) Market Information

    There is currently a limited  public  trading  market for our Common  Stock.
There are currently five  market-makers  for our Common Stock.  Our Common Stock
has traded on a limited basis on the OTC Bulletin  Board under the symbol "IMSO"
since November 15, 1994.  Our stock  registrar and transfer agent is Progressive
Transfer Company, Salt Lake City, Utah.

    The following  table sets forth the high and low closing  quotations for the
Common  Stock,  as reported by NASDAQ for each fiscal  quarterly  period  during
1998. The quotations as reported reflect inter-dealer  quotations without retail
markup,   markdown  or  commission  and  do  not  necessarily  represent  actual
transactions.

                                                          HIGH          LOW
                                                          ----         ----
January 1, 1998 - March 31, 1998                        $2.687       $1.375
April 1, 1998 - June 30, 1998                            2.062        1.312
July 1, 1998 - September 30, 1998                        1.656        0.906
October 1, 1998 - December 31, 1998                      1.468        0.625


  (b) Holders of Common Stock

                                            APPROXIMATE NUMBER OF RECORD HOLDERS
          TITLE OF CLASS                          (AS OF DECEMBER 31, L998)
          --------------                    ------------------------------------
  Common Stock, $.001 par value                              278

A number of shares are held of record by brokerage and other institutional firms
for their customers.





                                       12





  (c) Dividends

    We have never  declared or paid a cash dividend on its common stock,  and it
is anticipated  that we will retain any future  earnings for use in our business
and not pay cash dividends.  Declaration and payment of dividends are within the
discretion  of our Board of Directors,  which will review such  dividend  policy
from time to time.



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

GENERAL

    We are in the  development  stage and our  operations are subject to all the
problems,  expenses,  delays and other risks inherent in the  establishment of a
new business  enterprise,  as well as the problems  inherent in  developing  and
marketing  a new  product/service  and  in  establishing  a  name  and  business
reputation.  The likelihood of our success must also be considered in connection
with  the  rapidly  and  continually  changing  technology  and the  competitive
environment  in  which  we will  operate.  There  can be no  assurance  that our
operations  will  result  in our  becoming  or  remaining  economically  viable.
Potential investors in our common stock should be aware of the problems, delays,
expenses and difficulties  encountered by any company in a developmental  stage,
many of which may be beyond our control.  These include, but are not limited to,
unanticipated regulatory compliance,  marketing problems and intense competition
that may exceed current  estimates.  We have had no revenues from  operations to
date and,  because we are just beginning to enter the commercial  stage, we will
likely sustain operating losses for an indeterminate time period. Since entering
the  development  phase in July 1992, we have devoted  substantially  all of our
resources to the research and  development  of our products and  technology  and
general and  administrative  expenses.  Since entering the development  stage in
July 1992, we have  generated an  accumulated  deficit of $8,801,479 at December
31, 1998 and have a total accumulated deficit of $9,422,387.

    We had no revenues from  continuing  operations in years ending December 31,
1996,  December 31, 1997,  or December 31, 1998.  We have incurred net losses in
each year since our  inception  in 1986.  Given the  dormant  level of  business
activity from 1988 through 1991, we realized that we could not continue with our
earlier  luminator  technology  product,  we  discontinued  operations  and were
reactivated and entered into a new development stage in July 1992.

    Our  losses  incurred  since  inception  have  resulted   principally   from
expenditures under its research and development programs, and we expect to incur
significant  operating costs and possible losses therefrom over the next several
years due primarily to expanded  research and development  efforts in the PLASMA
PURE area and related medical products,  preclinical and clinical testing of its
product candidates and the performance of  commercialization  activities.  There
can be no assurance of when and whether we will generate significant revenues or
become profitable on a sustained basis, if at all.

    Our  ability to achieve  sales and  revenue  will depend upon our ability to
secure additional capital financing and licensees for our products,  if any, and
successfully  develop,  test and sell our  products.  Our  ability  to  generate
revenue and become profitable is dependent in large part on our  commercializing
our lead product, the DECAFFOMATIC,  expanding our manufacturing  contracts with
third party manufacturers,  entering into additional licensing, distribution and
marketing   agreements   and  the  ability  of  our  marketing   contractors  to
commercialize successfully products incorporating our technologies. There can be
no  assurance  that  our  operations  will  generate  revenue  or  will  ever be
profitable.  The following discussion and analysis should be read in conjunction
with the  Financial  Statements  and notes thereto  appearing  elsewhere in this
report.








                                       13







RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

    Net losses decreased from $3,631,105 for the year ended December 31, 1997 to
$2,881,162 for the year ending  December 31, 1998, a 20.6%  decrease.  We had no
revenues or operating  income for years ended December 31, 1997 and December 31,
1998 from continuing operations. For the year ended December 31, 1998, we had no
interest  income.  $5,541 in interest  was earned for the  comparable  period in
1997.

    Total  operating   expenses  were  $2,656,431  for  1998  in  comparison  to
$3,592,574 for 1997, a decrease of 26%. The decrease in these costs from 1997 to
1998 was primarily due to a significant decrease in litigation settlement costs,
as well as decreased  advertising  and research and  development  expenses.  All
research and  development  costs were expensed  currently in the year  incurred,
rather  than  capitalized.  This  resulted in a loss per share of $(.39) for the
year ended  December 31, 1998,  in  comparison to a loss per share of $(.57) for
the year ended December 31, 1997.

    At  December  31,  l998,  the Company had total  assets of  $140,061.  Total
liabilities of $911,405 and total stockholders' deficit of $(771,344).

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

    Net losses increased to $3,631,105 for the year ended December 31, 1997 from
$1,062,758  for the year ending  December 31, 1996, a 242%  increase.  We had no
revenues or operating  income for years ended December 31, 1996 and December 31,
1997 from continuing operations. For the year ended December 31, 1997, we earned
$5,541  in  interest  on its  interest  bearing  investment  account.  $3,022 in
interest was earned for the comparable period in 1996.

    Total operating  expenses were $3,592,574 for 1997 in comparison to $758,280
for 1996.  The  increase in these costs from 1996 to 1997 was  primarily  due to
increased  outside  consultants' and professional  fees,  litigation  settlement
costs,  higher costs under research  agreements with outside  institutions,  and
more  staffing  and  wages and  salaries  for  research  and  development  being
performed in 1997 than those incurred in 1996 as the Company  continues  further
product  research,  development  and  refinement on its  Decaffomatic  and other
separation  technologies.  All  research  and  development  costs were  expensed
currently in the year incurred, rather than capitalized. This resulted in a loss
per share of $(.33) for the year ended  December 31, 1996,  in  comparison  to a
loss per share of $(.57) for the year ended December 31, 1997.

    At December 31, l997, we had total assets of $58,940.  Total  liabilities of
$1,875,753 and total stockholders' deficit of $(1,816,813).



                         LIQUIDITY AND CAPITAL RESOURCES

    We had negative  working  capital as of December 31, l997,  of $1,860,973 in
comparison  to a negative  working  capital  position as of December 31, l998 of
$887,413.  We had an  accumulated  deficit of  $9,422,387  at the  period  ended
December 31, l998, in comparison to an accumulated  deficit of $6,541,225 at the
period  ended  December 31, l997.  The  increase in the  accumulated  deficit is
primarily  related to continuing  operating costs during the  development  phase
without any operating income.

    We have financed operations from entering the development phase in July 1992
(through December 31, 1998) primarily through the private placement of its stock
and, to a lesser extent,  through  borrowings  from notes payable.  For the year
ended December 31, l998, our cash requirements were satisfied primarily from the
cash reserves in its operating accounts,  a private placement of $225,000 shares
of our Series A  convertible  preferred  stock to one  purchaser and $390,000 of
total borrowings from private lenders evidenced by 10% Senior Convertible Notes.
The  outstanding  principal  balance  of the 10%  Senior  Convertible  Notes  is
approximately $100,000 at March 31, 1999, which amount is currently due in 1999,
unless  they are  earlier  converted  by their  holders  into our Common  Stock.
Additionally,  in February  1999, the Company  completed a $600,000  Convertible
Debenture private placement to one accredited investor,

                                       14





which  resulted in net  proceeds to the  Company of  $522,000  after  payment of
placement fees and expenses.  The $390,000 of 10% Senior  Convertible  Notes and
the $600,000  Convertible  Debentures all were sold as non-public  offerings and
all of the  purchasers  represented  that they were  "Accredited  Investors"  as
defined under SEC  Regulation  D.  Additionally,  the Company had  $1,378,496 of
remaining prepaid media credits available for execution of its public relations,
advertising  and  marketing  campaign  for its  decaffeination  technology.  The
prepaid Media  Credits were obtained by the Company on September 20, 1996,  when
it entered into the Media Purchase  Agreement with PML, which received 1,136,364
shares in  consideration  for  $1,500,000 in prepaid Media Credits to be used at
our  direction.  PML also  received  127,262  Class D Warrants  entitling  it to
acquire  Common Stock for the price of $1.32 per share for a period  ending July
31,  2001.  In  the  Media  Purchase  Agreement  the  purchaser  of  the  shares
represented  that it was an "Accredited  Investor" as that term is defined under
Regulation D promulgated  by the Commission  pursuant to the Securities  Act. We
currently  intend to sell the Media Credits to a third party to raise additional
working capital for our operations and repayment of our indebtedness.

    We do not currently possess a bank source of financing. Our negative working
capital  (current  assets less  current  liabilities)  at December  31, 1998 was
$887,413. Our management believes that unless we are able to sell the $1,378,496
of Media Credits,  obtain  additional  capital  financing or license or sell our
products or technology,  none of which can be assured, we cannot be certain that
our current  capital  will be adequate to continue as a going  concern.  We have
recently contracted operations by terminating the employment of three persons in
our North  Andover,  Massachusetts  office and shifting  more of the  day-to-day
research and  development  of our  decaffeination  product to ADL in  Cambridge,
Massachusetts.  Should  insufficient  funds  from  these  potential  sources  be
available,  reducing our present rate of expenditures  further might  materially
adversely  affect  the  ability of the  Company to  complete  our  research  and
development  on the  commercial  DECAFFOMATIC  product,  to produce  competitive
products and services,  and to market them effectively.  Our ability to continue
in business as a going concern depends upon our ability to generate revenues and
royalties from the sale or licensing of our technology and products, to sell the
Media Credits,  to conserve  liquidity by setting marketing and other priorities
and reducing  expenditures,  to obtain additional funds through the placement of
our securities.

    Our long term capital  expenditure  requirements  will depend upon  numerous
factors,  including the progress of our research and development  programs,  the
resources that we devote to the development of self-funded products, proprietary
manufacturing methods and advanced technologies, our ability to obtain licensing
arrangements,  and the  demand  for  our  products  if and  when  developed  and
approved.

    We believe that our existing  cash  together with proceeds from the possible
sale of some or all of the $1.37 million of Media Credits, will be sufficient to
meet its operating expenses and capital expenditures requirements for the next 3
months.  Our future  capital  requirements,  however,  will  depend on  numerous
factors,  including  (i) the progress of its  research  and product  development
programs,  (ii) the  effectiveness of product  commercialization  activities and
marketing  agreements,  including  the  development  and  progress  of sales and
marketing efforts and manufacturing  operations,  (iii) our ability to establish
new licensing and 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.



YEAR 2000 EFFECT ON COMPUTER SYSTEMS

    Many currently  installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result,  in less than one year,
computer  systems and/or  software used by many companies in a very wide variety
of applications will experience operating  difficulties unless they are modified
or upgraded to adequately process information involving, related to or dependent
upon the century  change.  Some  businesses may be financially  affected by such
computer problems.

    We believe  our  existing  product  development,  financial  and  accounting
systems are year 2000 compliant, meaning that they are capable of distinguishing
21st century dates from 20th century dates.

                                       15





    We are in the  process  of testing  our other  internal  systems,  including
embedded  control systems in our product  development  and  information  storage
equipment.  We currently  believe these systems are year 2000 compliant.  We are
making  inquiries of our suppliers to attempt to assess their  readiness for the
year 2000.  The failure of systems  maintained  by our  suppliers  and potential
licensees and customers could reduce our revenues, cause us to incur significant
expenses to remedy any problems, or otherwise seriously damage our business.

    To date we have spent  immaterial  amounts  to comply  with  accounting  and
statutory  requirements  regarding  the year 2000. We believe that we will spend
minimal additional amounts for year 2000 issues in the foreseeable future. These
assessments have not been independently verified.



                     FACTORS THAT MAY AFFECT FUTURE RESULTS

    Statements  included  in  this  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  Section,  in other sections of
this Annual Report on Form 10-KSB including, without limitation the "Description
of Business"  Section in Part I, and in prior and future  filings by us with the
Securities and Exchange Commission, in our press releases and in oral statements
made with the approval of an authorized  executive  which are not  historical or
current facts are "forward-looking  statements" made pursuant to the safe harbor
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995 and are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially  from those  presently  anticipated or projected.  We wish to
caution  readers  not  to  place  undue  reliance  on any  such  forward-looking
statements,  which  speak  only as of the date  made.  The  following  important
factors,  among  others,  in some cases have  affected  and in the future  could
affect our actual  results and could cause our actual  financial  and  operating
performance  to differ  materially  from that  expressed in any  forward-looking
statement:

WE ARE A  DEVELOPMENT  STAGE  COMPANY AND OUR  BUSINESS IS DIFFICULT TO EVALUATE
BECAUSE OUR OPERATING HISTORY IS LIMITED

    We are in the  development  stage and our  operations are subject to all the
problems,  expenses,  delays and other risks inherent in the  establishment of a
new business  enterprise,  as well as the problems  inherent in  developing  and
marketing  a new  product/service  and  in  establishing  a  name  and  business
reputation.  It is difficult to evaluate our business and our prospects  because
our revenue and income potential is unproven. The likelihood of our success must
also be  considered  in  connection  with the rapidly and  continually  changing
technology and the competitive  environment in which we will operate.  We cannot
assure  you  that  our  operations  will  result  in us  becoming  or  remaining
economically  viable.  Potential  investors  should  be aware  of the  problems,
delays, expenses and difficulties  encountered by any company in a developmental
stage,  many of which may be beyond  our  control.  These  include,  but are not
limited to, unanticipated regulatory compliance,  marketing problems and intense
competition  that may exceed  current  estimates.  We have had no revenues  from
operations to date and,  because we are just  beginning to enter the  commercial
stage, we will likely sustain operating losses for an indeterminate time period.
Our ability to generate  significant  revenue and become profitable is dependent
in  large  part on our  commercializing  our  lead  product,  the  DECAFFOMATIC,
expanding our manufacturing  contracts with third party manufacturers,  entering
into  additional  marketing  agreements  and the  ability of our  licensees  and
marketing contractors to commercialize  successfully products  incorporating our
technologies

WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY

    We have incurred net losses in each year since inception and for each of the
years ended  December 31, 1996,  December 31, 1997 and December 31, 1998.  As of
December 31, 1998 we had an  accumulated  deficit of  approximately  $9,422,387.
These losses have resulted primarily from expenses  associated with our research
and development activities and general administrative  expenses. Since inception
we have  funded  our  business  primarily  from  the  sale of our  stock  and by
borrowing  funds.  We expect  to  continue  to incur  significant  research  and
development,  marketing and general and administrative  expenses as a result, we
may  experience  further  losses and negative  cash flows.  The amount of future
expenses,  corresponding further potential net losses and time required by us to
reach profitability, if ever, are

                                       16





uncertain.  We cannot assure you that our operations  will generate  significant
revenue or will ever be profitable.



WE HAVE IMMEDIATE CAPITAL REQUIREMENTS AND OUR FUTURE FUNDING IS UNCERTAIN.

    Our  operations  to date have  consumed  substantial  amounts of cash. As we
continue the research  and  development  of our  electrostatic  technologies  in
various  areas,  we expect to continue  spending  substantial  amounts  over the
foreseeable  future.  At December 31, 1998, our current  liabilities  consisting
primarily of accounts payable, notes payable, accrued expenses, accrued salaries
were $911,405.  At December 31, 1998 we had a negative  working capital position
of $887,413.  Therefore,  we need to raise substantial  additional funds through
the sale of our $1.37  million of Media  Credits,  the  licensing or sale of our
products or technologies or through  additional  equity or debt  financings.  We
cannot assure you that any such  additional  funding will be available to us. In
the  event we have  insufficient  working  capital,  and are  unable  to  locate
additional capital on acceptable terms, we may be required to curtail operations
substantially  or entirely,  including our research and development  activities.
Such lack of funds could  seriously harm our business,  financial  condition and
results of operation.  See  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations."

EARLY STAGE OF PRODUCT COMMERCIALIZATION; TECHNOLOGICAL UNCERTAINTIES.

    We are in the development  stage,  and have only recently begun to enter the
early stage of product  commercialization  with its DECAFFOMATIC  products.  The
development  of  any  products  will  require   significant   further  research,
development, testing and regulatory approvals and additional investment prior to
commercialization.  Substantially  all of our resources  have been,  and for the
foreseeable future will continue to be, dedicated to the discovery,  development
and commercialization of electrostatic  separation  technologies,  most of which
are still in the early stages of development and testing.  While we believe that
we have demonstrated in our DECAFFOMATIC scientific technology that caffeine can
be removed  from  freshly  brewed  coffee  through the use of our  electrostatic
technology,  we must still  complete  the  development  and  integration  of our
technology into a commercial ready  coffeemaker,  which we hope to accomplish in
1999.  There are a number of  challenges  that we must  successfully  address to
complete  any of its  development  efforts  and meet  this  anticipated  product
introduction.  With respect to PLASMA PURE,  although the results of our initial
basic research was positive, it may be inconclusive and may not be indicative of
results that will be obtained in larger scale human clinical trials.  If we were
able to obtain financing necessary to conduct further research,  which cannot be
assured,  as results of particular  preclinical studies and clinical trials were
received  by us, we may abandon  projects  such as PLASMA  PURE,  which we might
otherwise  have believed to be  promising.  We are  presently  pursuing  product
opportunities  that  will  require  extensive   additional  capital  investment,
research,  development,  testing,  regulatory  clearance or  approvals  prior to
commercialization. Based on our currently limited financial resources, there can
be no  assurance  that our  development  programs  will have  necessary  capital
funding, will be successfully  completed,  or that required regulatory clearance
or approvals will be obtained on a timely basis, if at all.

    In addition, the product development programs conducted by us are subject to
risks of failure inherent in the development of product  candidates based on new
technologies.  These risks include the possibility that the technologies used by
us will prove to be  ineffective  or any or all of our products or  technologies
needing  FDA  clearance  will prove to be unsafe or toxic or  otherwise  fail to
receive necessary regulatory approvals; that the product candidates, if safe and
effective,  will be difficult to manufacture on a large scale or uneconomical to
market;  that the  proprietary  rights of third  parties will preclude us or any
collaborators from marketing products utilizing our technologies;  or that third
parties will market superior or equivalent  products.  We cannot assure you that
any  medical  products  researched  by us  will  be  successfully  developed  or
commercially accepted.  Accordingly, there can be no assurance that our research
and development  activities will result in any commercially viable products. See
"Business -- "Research and Development" and "-- Competition."





                                       17





WE WILL BE SUBSTANTIALLY DEPENDENT ON LICENSEES AND DISTRIBUTION AND MARKETING
PARTNERS

    We have limited experience in sales, marketing and distribution.  Therefore,
our  strategy  for  commercialization  of our products  includes  entering  into
agreements with other  companies to license,  distribute and market our products
incorporating our technology. To date, we have one such agreement with NEWCO. We
cannot  assure  you that we will be able to  enter  into  additional  licensing,
distribution  and marketing  agreements on terms  favorable to us, if at all, or
that current or future agreements will ultimately be beneficial to us.

    We will be dependent  for product  sales  revenues  upon the success of such
third party licensees,  distributors and marketing  partners in performing their
responsibilities. The amount and timing of resources which may be devoted to the
performance of their contractual  responsibilities by its marketing partners are
not within our control.  We cannot assure you that such marketing  partners will
perform their  obligations as expected,  pay any  additional  revenue or license
fees  beyond  the  stated  minimums  to us or  market  any  products  under  the
licensing,  distribution  or  marketing  agreements,  or that we will derive any
revenue from such arrangements.  Moreover, certain of the agreements provide for
termination  under  certain  circumstances.  There can be no assurance  that our
interests will continue to coincide with those of its marketing partners or that
the  marketing  partners  will not develop  independently  or with third parties
products  which could  compete with our  products,  or that  disagreements  over
rights or  technology  or other  proprietary  interests  will not occur.  To the
extent that we choose not to or are unable to enter into future  agreements,  we
would need  substantially  additional capital to undertake the marketing or sale
of our current and future products. We cannot assure you that we will be able to
market or sell its current or future  products  independently  in the absence of
such agreements. See "Business -- Marketing."

LACK OF MANUFACTURING AND SALES AND MARKETING EXPERIENCE.

    We have no experience  in, and currently  lack the resources and  capability
to,  manufacture any of our proposed products on a commercial basis.  Initially,
we anticipate that we will be dependent to a significant extent on licensees and
third party  contract  manufacturers  or other  entities  for  commercial  scale
manufacturing of its products.  Although we have no plans or intentions of doing
so, in the  event we  decide  to  establish  a  commercial  scale  manufacturing
facility,  we would require substantial  additional funds and personnel and will
be required to comply with extensive regulations applicable to such facility. We
cannot  assure  you  that  we  will  be  able  to  develop  adequate  commercial
manufacturing  capabilities  either  on our own or  through  third  parties.  In
addition,  we do  not  anticipate  establishing  our  own  sales  and  marketing
capabilities  in the  foreseeable  future.  We cannot assure you that we will be
able to develop  adequate  marketing  capabilities  either on our own or through
third parties. See "Business -- Manufacturing; -- Marketing."

OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR PRODUCTS MAY BECOME
OBSOLETE.

    We expect  technological  developments  to  continue  at a rapid pace in the
electrostatic  separation  and  biotechnology  industries,  and  there can be no
assurance that  technological  developments  will not cause our technology to be
rendered  obsolete.  To be  successful,  we must adapt to our  rapidly  changing
market  to  remain   competitive   with  others  involved  in  the  development,
manufacture and marketing of similar products and technologies.  We will have to
develop and introduce  enhancements to our existing products and new products on
a timely basis to keep pace with technological  developments,  evolving industry
standards  and  changing  customer  requirements.  As a result,  our position in
potential  existing  markets or potential future markets could be eroded rapidly
by product  advances.  The life cycles of our future  products are  difficult to
estimate.  We expect  that our  product  development  efforts  will  continue to
require  substantial  investments,  which we do not currently have. Any of these
events could have a material adverse effect on our business,  operating  results
and financial condition.

WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS WHICH OFFER ONLY LIMITED
PROTECTION AGAINST POTENTIAL INFRINGERS

    Our success will be heavily  dependent  upon whether we can obtain  patents,
maintain  trade  secret  protection  and  operate  without   infringing  on  the
proprietary  rights of third  parties.  Patents have been granted to us for both
method and devise in the technology for the separation of caffeine from a brewed

                                       18





beverage.  No other  patents  have,  as yet, been issued but it is expected that
patents will be issued.  We believe that patent  protection of our technologies,
processes and products is very important to our future  operations.  The success
of our  proposed  products may  significantly  depend upon our ability to obtain
patent  protection.  When a patent is granted,  the cost of enforcing our patent
rights in lawsuits,  if necessary,  may be significant  and could interfere with
our operations.

    Although  we intend to file  additional  patent  applications  as we believe
appropriate with respect to any new products or technological  developments,  we
cannot assure you that any additional patents will be issued, or if issued, that
they will be of  commercial  benefit to us.  Further,  our  ability to file such
additional  patent   applications  may  be  reduced  by  our  limited  financial
resources.  In addition,  to anticipate the breadth or degree of protection that
any such  patents  may  afford  is  impossible.  To the  extent  that we rely on
unpatented  proprietary  technology,  we cannot assure you that that others will
not  independently  develop  or  obtain  substantially  equivalent  or  superior
technology or otherwise gain access to our trade secrets, that any obligation of
confidentiality  will be honored or that we will be able to effectively  protect
our rights to  proprietary  technology.  Further,  we cannot assure you that any
products  developed  by us will not infringe  patents  held by third  parties or
that,  in such case,  licenses  from such third  parties  would be  available on
commercially  acceptable  terms,  if at all. Our ability to compete  effectively
with other  companies  will  depend,  in part,  on our ability to  maintain  the
proprietary  nature of its  technologies.  We intend to  license  and market our
products internationally, and the laws of some foreign countries may not protect
our  proprietary  rights  to as great  an  extent  as do the laws of the  United
States. We cannot assure you that our competitors will not independently develop
comparable  or  superior  technologies.  See  "Business  -- Patents  and License
Rights."

WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.

    Our future  depends upon the  continued  service of our key  technology  and
executive officers. In particular,  we consider Mr. Hoffmann and Mr. Crose to be
key  executives.  If we lost the  services of one or more of our key  employees,
including if one or more of our key  employees  decided to join a competitor  or
otherwise  compete  directly  or  indirectly  with  us,  this  could  materially
adversely affect our business. We have not applied for key man life insurance on
the lives of Mr.  Hoffmann  or Mr.  Crose and do not intend  to.  Because of the
nature of our business,  our future  success will likely depend in large part on
our ability to attract and retain technological qualified personnel. Competition
for such  personnel  is  intense,  including  competition  from  companies  with
substantially  greater resources than ours, and we may not succeed in attracting
or retaining  such  personnel.  We cannot  assure you that we will  successfully
recruit or retain personnel of the requisite expertise or in adequate numbers to
enable us to conduct our business as proposed.

ERRORS  IN  OUR   PRODUCTS  OR  THE  FAILURE  OF  OUR  PRODUCTS  TO  CONFORM  TO
SPECIFICATIONS  COULD  RESULT  IN OUR  CUSTOMERS  DEMANDING  REFUNDS  FROM US OR
ASSERTING CLAIMS FOR DAMAGES AGAINST US.

    We may be subject to demands for  refunds or claims for  damages  related to
errors or problems  associated with our products in the future.  We do not carry
product liability insurance,  and we anticipate that such insurance will be very
expensive  to  maintain,  if  obtainable  at all.  We will  attempt to  maintain
products  liability  coverage  to protect us against  such  liabilities,  but we
cannot  assure  you that  such  arrangements  can be made,  or if made,  will be
effective to insulate  our assets from such claims.  We will attempt to maintain
insurance against such contingencies, in scope and amount which we believe to be
adequate.  However,  we cannot assure you that such product liability  insurance
will be available, or if available,  that it will adequately insure against such
claim. If such insurance is not obtained and maintained at sufficient levels, or
if any product  liability claim were brought against us and were sustained for a
sufficient  amount,  it could have a material adverse affect on our business and
financial conditionpany.

LIMITED PRIOR MARKET FOR THE COMMON STOCK

    There has only been a limited  public market for our Common Stock on the OTC
Bulletin Board. We cannot assure you that an active public market for the Common
Stock will  develop or continue at any time in the future.  At December 31, 1998
we had approximately  7,681,278 shares  outstanding.  Substantially all of these
shares are freely tradable without  restriction or are eligible for resale under
Rule 144, subject to the

                                       19





limitations  on sales by  "affiliates"  under  Rule  144.  As long as there is a
limited public market for our Common Stock, if our stockholders  sell or attempt
to sell a significant  number of shares in the public market at any one time, it
could be  difficult  to make the sale at then  current  market  prices,  and the
market price of our Common Stock could fall materially.

OUR STOCK WILL LIKELY BE SUBJECT TO  SUBSTANTIAL  PRICE AND VOLUME  FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, CERTAIN OF WHICH ARE BEYOND OUR CONTROL

    The market price and trading  volume of our Common  Stock,  like that of the
common stock of many other  technology  companies,  has been and is likely to be
highly  volatile and fluctuate  widely for reasons which may be unrelated to our
business prospects or results of operations, such as:

    -   the  results  of  announcements  of  technological  innovations  or  new
        commercial products by us or our competitors;

    -   other  evidence  of the safety or  efficacy  of our or our  competitors'
        products;

    -   announcements relating to strategic relationships;

    -   government regulation;

    -   developments  in  our  patent  or  other   proprietary   rights  or  our
        competitors;

    -   fluctuations in our operating results;

    -   sales of large amounts of stock by shareholders;

    -   trading   being   conducted  by  limited,   undercapitalized   and  less
        experienced market makers.

    -   demand for our products and technology;

    -   actions taken by our competitors, including new product introductions;

    -   our ability to develop, introduce and market products on a timely basis;

    -   market readiness for our products;

    -   our success in  developing  indirect  sales  channels such as licensees,
        distributors and marketing partners;

    -   our ability to control costs;

    -   technological changes in our markets;

    -   our ability to obtain financing ;

    -   general economic and market factors.

    Any of these reasons could have a significant  adverse  effect on the market
price of our Common Stock.  In addition,  the stock market has  experienced  and
continues  to  experience  extreme  price and  volume  fluctuations  which  have
affected the market price of many technology and biotechnology companies.

WE NEED TO MANAGE OUR CHANGING BUSINESS.

    We are a  development  stage company and have  primarily  devoted all of our
activities  to  research  and  development.  As we  begin  to  emerge  from  the
development  phase to a  commercial  operations,  our  ability  to  successfully
develop and offer  products and  implement  our  strategy  requires an effective
planning and management process. In particular, if we are successful in entering
the commercial phase, we will need to hire additional key employees in licensing
and in technology  development.  There are a limited  number of persons with the
requisite  skills to serve in these  positions,  and it may become  increasingly
difficult  for us to hire  such  personnel.  Further,  we have  limited  capital
resources  to  attract  and  compensate  such   individuals.   We  believe  that
improvements  in  management  and  operational   controls,   and  financial  and
management  information  systems will be needed to manage future  emergence from
the development into

                                       20





the commercial  operating phase,  should it occur. The failure to implement such
changes could have a material adverse effect upon our business.



THE RELIABILITY OF OUR PRODUCTS IS UNCERTAIN.

    Most  applications  incorporating our technologies are being still developed
or have only begun to be introduced to potential licensees and distributors.  As
a result of the limited  period of use and the  controlled  environment in which
most of our  technologies  have been tested to date,  we cannot  assure you that
they will meet their performance  specifications under all conditions or for all
applications.  If any of our technologies fail to meet such expectations, we may
be required to enhance or improve that technology, and there can be no assurance
that we would be able to do so on a timely  basis,  if at all.  Any  significant
reliability problems could have a material adverse effect on our business.

SOME OF OUR POTENTIAL PRODUCTS ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATIONS

    The production  and marketing of some of our products,  including the PLASMA
PURE,  are subject to  regulation  for safety and efficacy by numerous  federal,
state and local agencies,  and comparable agencies in foreign countries.  In the
United  States,  the Federal  Food,  Drug and Cosmetic  Act,  the Public  Health
Service  Act,  the  Controlled  Substances  Act and other  federal  statutes and
regulations  govern or influence the testing,  manufacture,  safety,  labelling,
storage,  recordkeeping,  approval,  advertising  and promotion of the Company's
proposed products and technologies.  Non-compliance with applicable requirements
can  result  in fines and  other  judicially  imposed  sanctions  including  the
initiation  of product  seizures,  injunction  actions,  mandatory  recalls  and
criminal prosecutions based on products, promotional practices, or manufacturing
practices  that violate  statutory  requirements.  In  addition,  administrative
remedies  can  involve  voluntary  recalls  or  cessation  of sale of  products,
administrative   detention,   public  notice,  voluntary  changes  in  labeling,
manufacturing or promotional practices, as well as the refusal of the government
to  enter  into  supply  contracts  or to  approve  NDAs.  The FDA  also has the
authority to withdraw  approval of  instruments  and devices in accordance  with
statutory procedures.

    If we have the  financial  resources to pursue its  development,  our PLASMA
PURE system will be considered a medical device.  As such, the FDA would require
us to obtain either a premarket  notification  clearance under Section 510(k) of
the Federal,  Food, Drug, and Cosmetic Act ("510(k)"),  or an approved premarket
application  ("PMA")  prior to sales and  marketing  of the device in the United
States. The 510(k) premarket  notification may be obtained if the medical device
manufacturer  can establish that the newly  developed  product is  substantially
equivalent to another legally marketed device. The FDA may also require clinical
data or other evidence of safety and effectiveness.

    If the manufacturer  cannot  establish  equivalence or if the FDA determines
that the  device  requires  more  extensive  review,  the FDA will  require  the
submission of PMA. The PMA must contain  nonclinical and clinical  investigation
results,  a  description  of the  methods,  facilities  and  controls  used  for
manufacturing,  and the proposed  labeling  for the device.  We must receive FDA
approval  for trials to test the PLASMA PURE  device.  FDA review of a PMA would
take at least six months following submission of Phase III test results, and may
take longer. (See "Business -- Government Regulation" for details on the various
phases) It is currently  estimated by the Company that with adequate funding, it
would take  approximately  two years to receive FDA clearance.  We cannot assure
you that approval of the PLASMA PURE PMA would be granted.

    Whether or not FDA  approval  has been  obtained,  approval  of a product by
comparable regulatory  authorities must be obtained in any foreign country prior
to the  commencement  of marketing of the product in that country.  The approval
procedure varies from country to country,  can involve additional  testing,  and
the time required may differ from that required for FDA approval.  Although some
procedures for unified filings exist for certain European countries,  in general
each country has its own  procedures  and  requirements,  many of which are time
consuming  and  expensive.   Thus,  substantial  delays  in  obtaining  required
approvals from both the FDA and foreign regulatory  authorities can result after
the relevant applications are filed. After such approvals are obtained,  further
delays may be encountered before the products become commercially available.

                                       21





    We  have  not  prepared  or  filed  any  applications  with  the  FDA or any
governmental  authority  for  approval  of the PLASMA PURE device or any related
product.  No assurance can be given that any required FDA or other  governmental
approval will be granted,  or if granted,  will not be  withdrawn.  Governmental
regulation  may prevent or  substantially  delay the  marketing of the Company's
proposed  products,  cause us to  undertake  costly  procedures  and  furnish  a
competitive advantage to the more substantially capitalized companies with which
we plan to compete.  In addition,  the extent of potentially  adverse government
regulations which might arise from future  administrative  action or legislation
cannot be predicted.

WE FACE INTENSE  COMPETITION  AND IF WE ARE UNABLE TO COMPETE  SUCCESSFULLY  OUR
BUSINESS WILL BE SERIOUSLY HARMED.

    We compete  with  numerous  firms,  many of which are large,  multi-national
organizations  with  worldwide  distribution.  These  firms  have  substantially
greater  capital  resources,  research and  development  and  technical  staffs,
facilities and experience in obtaining regulatory  approvals,  as well as in the
manufacturing,  marketing and  distribution  of products,  than we do.  Academic
institutions,  hospitals,  governmental  agencies  and other  public and private
research   organizations  are  also  conducting   research  and  seeking  patent
protection and may develop  competing  products or  technologies on their own or
through joint ventures or other  arrangements.  In addition,  recently developed
technologies or technologies that may be developed in the future are or could be
the basis for  competitive  products.  We cannot assure you that our competitors
will not succeed in developing technologies and products that are more effective
or less costly than any that are being developed by us.

    We expect  products  approved for sale, if any, to compete  primarily on the
basis of product uniqueness,  efficacy,  safety,  reliability,  price and patent
position.  Our  competitive  position will also depend on its ability to attract
and  retain  qualified   scientific  and  other  personnel,   develop  effective
proprietary  products,  implement  production and marketing plans, obtain patent
protection and secure adequate capital resources. See "Business -- Competition."

THE ACCEPTANCE OF OUR PRODUCTS IN THE MARKET IS UNCERTAIN.

    Our success will depend,  in large part, on achieving market  acceptance for
our products. Such acceptance will require substantial marketing efforts and the
expenditure  of  significant  funds.  There can be no assurance  that we and our
licensees,  marketing  contractors  and partners  will be able to  commercialize
successfully  or achieve  market  acceptance  of our products and  technologies.
There is no assurance that we or our licensees and contract  marketing  partners
will be able to create a successful  marketing program, or that our products can
be sold in a manner  that will  permit us to achieve  long range  profitability.
Further,  there  can be no  assurance  that our  competitors  will  not  develop
competing  technologies  that are less  expensive or  otherwise  superior to our
products.  We cannot  assure  you that we will be able to  compete  successfully
against current or future competitors, or that competitive pressures faced by us
will not  materially  adversely  affect our  business,  financial  condition and
results of operations.

WE CAN POTENTIALLY ISSUE ADDITIONAL SHARES WITHOUT SHAREHOLDER APPROVAL.

    We are currently  authorized to issue up to a total of 15,000,000  shares of
Common Stock,  $.0001 par value, and 1,000,000 shares of preferred stock, $.0001
par value per share (the "Preferred  Stock").  At December 31, 1998,  there were
7,681,278  shares of Common  Stock  outstanding  and  45,000  shares of Series A
convertible preferred stock outstanding.

    Our Board of Directors is authorized, without stockholder approval, to issue
Preferred  Stock in one or more  series  and to fix the  voting  powers  and the
designations,  preferences and relative, participating, optional or other rights
and  restrictions  thereof.  Accordingly,  we may  further  issue  a  series  of
Preferred  Stock in the future that will have  preference  over our Common Stock
with respect to the payment of  dividends  and  proceeds  from our  liquidation,
dissolution  or winding  up or have  voting or  conversion  rights  which  could
adversely affect the voting power and percentage ownership of the holders of the
Common  Stock.





                                       22





THERE ARE A  SUBSTANTIAL  NUMBER OF SHARES  ELIGIBLE  FOR  FUTURE  SALE THAT MAY
ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK.

    Sales of  substantial  amounts of our Common  Stock in the public  market by
shareholders  could  adversely  affect the market  price of the Common Stock and
adversely  affect our ability to raise capital at a time and on terms  favorable
to us. Although there are approximately five securities  broker-dealers that are
making a market in our common stock as of the date hereof, our shares are thinly
traded on a limited basis. Consequently,  if substantial amounts of Common Stock
are sold into the public market by  shareholders,  the  prevailing  market price
will likely drop.  As of December 31, 1998,  we had  7,681,278  shares of Common
Stock outstanding. Substantially all of these shares are freely tradable without
restriction or are eligible for resale under Rule 144 under the Securities  Act,
except for any shares held by an  "affiliate"  of the company (as defined in the
Securities Act and the rules and regulations  thereunder)  which will be subject
to the limitations of Rule 144.

    In  general,  under  Rule  144  as  currently  in  effect,  subject  to  the
satisfaction of certain other conditions,  a person (or persons whose shares are
aggregated under the terms of Rule 144),  including an affiliate of the company,
who has owned  restricted  shares of Common Stock  beneficially for at least one
year, is entitled to sell,  within any  three-month  period,  a number of shares
that does not exceed the greater of 1% of the total number of outstanding shares
of the same class,  or the average  weekly  trading  volume of the Common  Stock
during the four calendar  weeks  preceding the sale, as reported by all national
securities  exchanges on which the Common Stock is traded  and/or the  automated
quotation  system  of  a  registered  securities  association,  or  an  approved
consolidated  transaction  reporting  system.  A  person  who  has  not  been an
affiliate of the company for at least the three months immediately preceding the
sale and who has  beneficially  owned  shares of  Common  Stock for at least two
years is  entitled  to sell such  shares  under Rule 144  without  regard to the
volume limitations  described above. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or the  availability  of shares for
sale will have on the market prices prevailing from time to time.

OUR STOCK IS A LOW PRICED SECURITIES WHICH IMPOSES CERTAIN REQUIREMENTS ON
BROKER-DEALERS EFFECTING A TRADE IN OUR SHARES.

    If the price per share of our common  stock is below  $5.00,  then unless we
satisfy certain net asset tests,  our securities would become subject to certain
"penny stock" rules promulgated by the Commission. The penny stock rules require
a  broker-dealer,  prior to a transaction in a penny stock not otherwise  exempt
from the rules, to deliver a standardized  risk disclosure  document prepared by
the Commission that provides  information  about penny stocks and the nature and
level of risks in the penny stock market.  The  broker-dealer  also must provide
the customer  with  current bid and offer  quotations  for the penny stock,  the
compensation  of the  broker-dealer  and its  salesperson in the transaction and
monthly account  statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a  transaction  in a penny  stock not  otherwise  exempt  from such  rules,  the
broker-dealer must make a special written  determination that the penny stock is
a suitable  investment  for the  purchaser and receive the  purchaser's  written
agreement to the transaction.  These disclosure requirements may have the effect
of reducing the level of trading  activity in the  secondary  market for a stock
that  becomes  subject  to the  penny  stock  rules.  Based on our  most  recent
financial  statement for the year ended  December 31, 1998,  our Common Stock is
subject to the "penny stock" rules. Consequently, owners of our common stock may
find it more difficult to sell their shares.

WE DO NOT  INTEND  TO PAY  DIVIDENDS  AND YOU MAY NOT  EXPERIENCE  A  RETURN  ON
INVESTMENT WITHOUT SELLING SHARES.

    We have never declared or paid cash dividends on our Common Stock and do not
anticipate paying cash dividends in the foreseeable future.  Therefore, you will
not experience a return on your  investment in our Common Stock without  selling
your shares since we currently intend to retain future earnings, if any, to fund
the development, operations and growth of our business.





                                       23





THE CONVERSION OF OUR 8% CONVERTIBLE DEBENTURES COULD HAVE A DILUTIVE EFFECT

    The conversion of our $600,000 of 8% convertible debentures outstanding at a
25%  discount  to the then  prevailing  market  price of our common  stock would
result in the issuance of  approximately  1,500,000  shares of common stock,  or
approximately 16.7% of the outstanding shares (at an assumed conversion price of
$.40 per share).  The conversion could have an immediate  negative effect on the
market  price of our  common  stock,  and will have a  dilutive  impact on other
shareholders.



THE EXERCISE OF OUR OUTSTANDING WARRANTS COULD HAVE A DILUTIVE EFFECT

    As of December  31,  1998,  there were  outstanding  options and warrants to
purchase  approximately  1,819,000  shares of our common stock.  The exercise of
warrants or options and the sale of the  underlying  shares of common  stock (or
even the potential of such exercise or sale) could have a negative effect on the
market  price of our  common  stock,  and will have a  dilutive  impact on other
shareholders.  Moreover,  the  terms  upon  which  we will  be  able  to  obtain
additional  equity  capital  may be  negatively  affected  since the  holders of
outstanding warrants and options can be expected to exercise them, to the extent
they are able, at a time when we would, in all likelihood, be able to obtain any
needed  capital on terms more  favorable than those provided in such warrants or
options.

YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.

     You should not rely on forward-looking statements in this annual report, or
in any  other  documents  filed  by us  with  the  Commission,  or in  any  oral
statements of our officers, directors and authorized representatives or in press
releases made by us. This annual report contains forward-looking statements that
involve  risks  and   uncertainities.   We  use  words  such  as  "anticipates",
"believes",  "hopes",  "plans",  "expects",  "future",  "intends",   "estimates"
"projects" and similar expressions to identify forward-looking  statements.  You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this report.  Our actual results could differ  materially
from those  anticipated  in these  forward-looking  statements for many reasons,
including the risks described by us above and elsewhere in this report.



ITEM 7.  FINANCIAL STATEMENTS

    The Company's financial  statements for the fiscal years ending December 31,
1998, and 1997 are included herein and consist of:

    Independent Auditor's Report                                         F-1
    Consolidated Balance Sheet                                       F-2-F-3
    Consolidated Statements of Operations                                F-4
    Consolidated Statements of Stockholders' Equity (Deficit)        F-5-F-7
    Consolidated Statements of Cash Flows                            F-8-F-9
    Notes to Consolidated Financial Statements                     F-10-F-22


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

    The  Company's  accountants  are  Moore  Stevens,  P.C.  There  have been no
disagreements  with the  accountants  on any  matter of  accounting  principles,
practices or financial statement disclosure.













                                       24





                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

    The  following  table  sets  forth  information   concerning  the  executive
officers, directors and key employees of the Company:

(a) The current directors of the Company are set forth in the following table:

                                      YEAR FIRST
                                      ELECTED AS      OFFICE WITH
NAME                         AGE       DIRECTOR         COMPANY
- -----                        ---      ----------      -----------
Alexander Hoffmann           57         1997          Chairman & Chief Executive
                                                      Officer
Gary A. Graham               50         1997          Director
Scott Singer                 45         1997          Director
Timothy J. Keating           35         1999          Director

    Each  Director  is elected  for a period of one year and  thereafter  serves
until his successor is duly elected by the stockholders.

    The Directors of the Company are not currently compensated as Directors, but
the Board of Directors may in the future  determine to pay  directors'  fees and
reimburse directors for expenses related to their activities.

(b) The current executive officers of the Company are set forth in the following
    table:

                                         YEAR
                                     FIRST ELECTED          OFFICE
NAME                          AGE     INTO OFFICE        WITH COMPANY
- -----                         ---    -------------      --------------
Alexander T. Hoffmann         57         1997           Chief Executive Officer
James R. Crose                65         1992           Vice President
Scott Singer                  45         1997           Secretary

Except for its  agreements  with Mr.  Hoffmann  and Mr. Crose there are no other
employment contracts with the executive officers.  The Company had an employment
agreement  with Sol L. Berg, its former  President,  who was terminated on March
10, 1999. Officers serve at the will of the Board of Directors.

(c) There are no other significant employees of the Company:

(d) Family Relationships

    There are no family relationships.

(e) Business Experience

    Alexander T. Hoffmann (age 57)
    ---------------------

    Mr.  Hoffmann was elected a Director and became Chairman and Chief Executive
Officer  of the  Company  in  October  1997.  From 1963 to 1975 he served in the
United States Army and the U.S. Army Reserves and retired with the rank of Major
in the Infantry.  From 1970 to 1976 he was the Vice President -Marketing & sales
of Lepel High Frequency  Laboratories,  where he was  instrumental in developing
and  marketing  "Under  the Cap  seals"  with 3M  Corporation  and worked on new
methods of producing semi-conductors.  From 1976 to 1986 he owned and operated a
beverage  manufacturers  representative  company  based in New York.  In 1981 he
organized and served as director and  president of a company which  acquired the
Yoo Hoo  Chocolate  Beverage  Company  from  Iroquois  Brands,  Inc. In 1984 Mr.
Hoffmann sold his interest in Yoo Hoo  Chocolate  Beverage  Company.  In 1986 he
started the Spritzer  Wine Company  which  developed  wine coolers and converted
soft drink bottling  plants to produce wine coolers for Seagrams,  Inc. In April
1996 he filed an uncontested  petition for bankrupty in the Eastern  District of
New



                                       25





York which was  discharged in 1998.  From 1985 to the present he has served as a
consultant  to  the  beverage   industry.   Mr.  Hoffmann attended  Long  Island
University.



    Gary A. Graham (age 50)
    --------------

    Mr.  Graham  became a Director  of the  Company in October  1997.  He is the
president  of  First  Capital  Financial  Services  Corporation,   which  is  an
investment advisor to the Company,  Proxhill Marketing,  Ltd., and First Capital
Investments,  Inc.,  a  registered  broker  dealer  and  member of the  National
Association  of Securities  Dealers,  Inc. In 1996,  First Capital  Investments,
Inc., served as a placement agent for the Company in connection with its private
placement  of $1.5  million of common  stock and its purchase of $1.5 million of
Prepaid Media Credits from Proxhill Marketing,  Ltd. Mr. Graham also serves as a
member of the Board of  Directors of Proxhill  Marketing,  Ltd.,  First  Capital
Financial Services Corporation and First Capital Investments, Inc. He received a
Bachelor of Science in Business administration from Dyke College.

    Timothy J. Keating (age 35)
    ------------------

    Mr.  Keating  became a Director of the  Company in March  1999,  when he was
elected to fill a vacancy on the Board of Directors.  Mr.  Keating  operates his
own  investment  firm ,  Keating  Investments,  Inc.,  based  in San  Francisco,
California.  Prior to forming  his own firm,  he was a principal  and  portfolio
manager in a private partnership investing in microcap companies.  Prior to that
time,  Mr.  Keating  founded  and ran the  Euopean  Equity  Derivative  Products
Department for Nomura  International plc, in London,  England.  Prior thereto he
was  a  proprietary  arbitrage  trader  and  head  of  European  equity  Trading
Department  at Bear Stearns  International  Limited,  London.  Mr.  Keating is a
graduate of Harvard College.

    James R. Crose (age 65)
    --------------

    Mr. Crose has been  Director of  Engineering  for the Company since 1992 and
Vice  President-Engineering  since 1996.  Mr. Crose earned a Bachelor of Science
degree in Mechanical  Engineering  from  Northeastern  University.  His areas of
expertise  include:   Fluidics,   Vacuum  Process  Control,   Heat  Transfer  in
Electronics and AutoCad 1-4. He has 3 patents assigned to him with several other
pending. He has held key engineering  positions with Raytheon,  Martin Marietta,
Corning Glass, Sanders Assoc. and Sweetheart Cup Corp.

    Scott Singer (age 45)
    ------------

    Mr.  Singer is a Certified  Public  Accountant  and serves as a Director and
Secretary  of the Company and has been in private  accounting  practice for over
ten years in the New York Metropolitan  area. He received a bachelor of Business
Administration from Adelphi University.

    Directors do not receive any compensation for services as directors.  During
fiscal year 1997, the Company's Board of Directors  performed the functions of a
compensation  committee  of the  Board in  reviewing  the  compensation  paid to
employees,  and  of  an  audit  committee  in  reviewing  financial  statements,
management  and internal  audits.  IMSCO does not have a separate  Nominating or
Compensation Committee.







                                       26





ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

    The following  table set forth the annual and long-term  compensation of the
chief  executive  officer  and other  executive  officers  for  services  in all
capacities  for the fiscal years ended December 31, 1996,  1997 and 1998,  whose
total annual salary and bonus exceeded $100,000 in any of those fiscal years.

                           SUMMARY COMPENSATION TABLE

                                                                     ADDITIONAL
NAME OF INDIVIDUAL         CAPACITY          YEAR      SALARY       COMPENSATION
- ------------------         --------          ----      ------       ------------
Alexander Hoffmann     Executive Officer     1998     $150,000      $275,000(1)
                                             1997     $ 25,962      $105,600

Sol. L. Berg           Former President      1998     $125,000      $ 86,070(2)
                                             1997     $115,625
                                             1996                   $100,000(2)

James A. Yurak         Former Director       1998
                                             1997                   $100,000(3)
                                             1996                   $100,000


Alan D. Waldman        Former Director       1998
                                             1997
                                             1996                   $132,000(4)



(1) Amounts  for 1998  represents  accrual of entire salary due under employment
    agreement and grant  of  250,000  options  to  acquire  the Company's common
    stock at $1.50 per share.  At the date of grant the stock had a fair  market
    value of $2.00 per share,  and  100,000  shares of common stock  issued  for
    past  services.  In  connection with the signing of his employment agreement
    in  October  1997, Mr. Hoffmann  was granted  80,000 shares  of unregistered
    common stock of the Company.  The value of shares shown use  the same  $1.32
    price per share  that  shares  were  sold to  Hampton  Tech Partners II, LLC
    in October 1996. He is also entitled to an annual salary of $150,000.

(2) Amounts for 1998  represents accrual  of entire  salary due under employment
    agreement and  issuance of 57,380  shares  of common stock  issued for  past
    services.  Consist of 150,000  shares of the  Company  received  by Mr. Berg
    pursuant to the general  exchange of the Company's  shares for shares of DPI
    conducted in May 1996.  In November of 1995,  Mr. Berg had received  250,000
    shares of DPI for assigning his patent to the decaffeination  technology and
    for other services rendered.  When all of the shares of DPI not owned by the
    Company were exchanged by the respective  DPI  shareholders  in May 1996 for
    Company shares on a 0.6 Company shares to DPI share basis,  Mr.Berg received
    the 150,000 shares of the Company.

(3) In  connection  with the  signing of his  amended  employment  agreement  in
    September 1996, Mr. Yurak was granted 75,000 shares of  unregistered  common
    stock of the Company.  He also received 75,000 shares of unregistered common
    stock of the Company in March 1997.  The value of shares  shown use the same
    $1.32 price per share that shares were sold to Hampton Tech Partners II, LLC
    in October 1996.

(4) For his services the Company agreed to issue Dr.  Waldman  100,000 shares of
    common  stock  in  October  1996  which  shares  did not  vest  and were not
    delivered  until January 1997.  The value of shares shown use the same $1.32
    price per share that shares were sold to Hampton  Tech  Partners  II, LLC in
    October 1996.





                                       27





    There are no  arrangements  known to the Company  which may at a  subsequent
date result in a change in control of the Company.

    The Company currently provides medical insurance to all its employees.

EMPLOYMENT ARRANGEMENTS

    Effective  as of October 1, 1997,  the Company  entered  into an  employment
agreement with Alexander T. Hoffmann providing for Mr. Hoffmann's  employment as
the Company's  Chief  Executive  Officer and Chairman for a three year term. Mr.
Hoffmann's  salary under this agreement is $150,000 per year. The agreement also
provides  that Mr.  Hoffmann  shall be provided with a car by the Company and be
reimbursed  for  automobile  insurance.  Mr.  Hoffmann shall also be entitled to
medical  insurance,  vacation  and  other  benefits  provided  to the  Company's
employees  generally.  In the  event  that Mr.  Hoffmann's  employment  with the
Company is terminated by the Company other than for cause,  Mr.  Hoffmann  shall
receive one year's base salary

    Effective  as of October 1, 1997,  the Company  entered  into an  employment
agreement with Sol L. Berg providing for Mr. Berg's  employment as the Company's
President  for a three year term.  Mr.  Berg's  salary  under this  agreement is
$125,000 per year.  The agreement  also provides that Mr. Berg shall be provided
with a car by the Company and be reimbursed for automobile  insurance.  Mr. Berg
shall  also be  entitled  to  medical  insurance,  vacation  and other  benefits
provided to the  Company's  employees  generally.  In the event that Mr.  Berg's
employment  with the Company is  terminated by the Company other than for cause,
Mr. Berg shall receive six months' base salary. Mr. Berg's Employment  Agreement
was terminated by the Company in March 1999.

    As of February 26, 1997,  DPI entered into a consulting  agreement  with Mr.
James G. Yurak to provide marketing and sales consulting  services and advice to
DPI through  December 31, 1999. Under Mr. Yurak's  agreement,  he is paid a base
retainer  of  $12,000  per year and will be paid a per diem fee of  $1,000  when
specific services are expressly requested by DPI. From February 23, 1996 through
February  26,  1997 Mr.  Yurak  served  as a  Director  of the  Company  and was
President and Chief  Executive  Officer of DPI. As total  compensation  for such
services Mr. Yurak was also granted 75,000 shares of the Company's  Common Stock
upon signing his  employment  agreement and 75,000 shares after one full year of
employment.

    Effective  as of October 1, 1997,  the Company  entered  into an  employment
agreement with James Crose providing for Mr.Crose's  employment as the Company's
Vice President of Engineering for a two year term. Mr. Crose's salary under this
agreement  is $85,000  per year.  Mr.  Crose  shall also be  entitled to medical
insurance,  vacation  and other  benefits  provided to the  Company's  employees
generally.

    Effective as of September 1, 1996, BPV  Enterprises,  Inc. d/b/a  "Universal
Sales" entered into a Sales  Administration and Servicing Agreement  ("Universal
Agreement")  with the Company for a seven year term,  providing a broad scope of
sales  administration  and  services to the  Company.  As  compensation  for its
services, Universal shall receive an amount equal to 2.5% of the Company's gross
revenues from operations in excess of $5 million per annum. Additionally,  under
the Universal Agreement, Universal shall be entitled to a sales commission equal
to 2.5% of the gross  revenues  resulting from all sales  generated  through the
efforts of Universal.  Universal  received $31,500 for services  rendered to the
Company in 1996. The Company  terminated the Universal Sales Agreement for cause
in April 1997.  Universal  Sales filed a Complaint  against the Company on April
12, 1998 alleging  breach of contract and seeking  75,000 shares of common stock
as damages. Mr. Alexander T. Hoffmann,  the Chairman and Chief Executive Officer
of the Company,  is also a director and a 50% shareholder of Universal Sales. In
1998, Mr. Hoffmann moved for a judicial dissolution of BPV Enterprises, Inc., in
New York State  Supreme  Court based on director and  shareholder  dead-lock and
irreconcilable   differences.   Universal  Sales  subsequently  filed  a  second
Complaint  against the Company  and  Alexander  T.  Hoffmann,  individually,  in
January 1999 alleging  wrongful  termination  and breach of contract and seeking
damages  in the amount of equal to 2.5% of the  Company's  gross  revenues  from
operations in excess of $5 million per annum and its potential lost commissions,
which Universal sales estimates to be $25 million in the aggregate, with respect
to the Company.  The second  Complaint  alleges  several claims  directed solely
against Mr.  Hoffmann in connection  with his role as a director and shareholder
of Universal Sales, including among others breach of



                                       28





fiduciary  duty.  The Company is  reviewing  its  position  and has not filed an
answer to the second Universal Sales lawsuit. See "Legal Proceedings".

    Except as described above,  there are presently no pension or other plans or
arrangements pursuant to which remuneration is proposed to be paid in the future
to any of the  officers  or  directors  of the  Company  other than as set forth
above.  At the present time,  the directors do not receive  compensation  of any
form.  The Company does not provide  life,  health or medical  plans to officers
that are not available to all employees.  Except as provided above,  the Company
has  no  other  employment  contracts  with  any  executive  officers  or  other
employees.



ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following  table  identifies  each person known to the Company to be the
beneficial owner of more than five percent of the Company's  Common Stock,  each
director  of the  Company  and all  directors  and  officers of the Company as a
group,  and sets  forth  the  number of shares  of the  Company's  Common  Stock
beneficially  owned by each such person and such group and the percentage of the
shares of the Company's  outstanding  Common Stock owned by each such person and
such group.  In all cases,  the named person  individually  or together with his
spouse has sole voting power and sole investment power over the securities.

    (a) As of the December 31, l998,  four persons owned of record or were known
by the Company to own  beneficially  more than five  percent  (5%) of the Common
Stock outstanding.

    (b) The  following  table  sets  forth  certain  information  regarding  the
beneficial  ownership  (determined  in accordance  with  Securities and Exchange
Commission  Rule 13d-3  Securities  Exchange Act of 1934) of common stock of the
Company as of December 31, 1998, by: (i) each person who is known by the Company
to own beneficially more than 5% of the outstanding shares of common stock; (ii)
each of the  Company's  directors;  and (iii) all officers and  directors of the
Company as a group:



NAME AND ADDRESS OF                   AMOUNT AND NATURE OF
BENEFICIAL OWNER                      BENEFICIAL OWNERSHIP    PERCENT OF CLASS
- -------------------                   --------------------    ----------------
Hampton Tech Partners II, LLC
8400 East Prentice Avenue
Englewood, CO 80111 (1)                    1,117,424               14.5%

Hampton Tech Partners, LLC
8400 East Prentice Avenue
Englewood, CO 80111 (2)                      150,000                1.9%

Proxhill Marketing, Inc.(3)                1,312,362               17.1%
9250 E. Costilla Avenue
Englewood, CO 80112

Gary A. Graham (4)                         1,399,635               18.2%
9250 E. Costilla Avenue
Englewood, CO 80112

Sol L. Berg (5)                              442,380(5)             5.8%
11 Royal Crest Drive
North Andover, MA  01845

Gloria Berg                                  177,869(6)             2.3%
11 Royal Crest Drive
North Andover, MA 01845




                                       29



NAME AND ADDRESS OF                   AMOUNT AND NATURE OF
BENEFICIAL OWNER                      BENEFICIAL OWNERSHIP    PERCENT OF CLASS
- -------------------                   --------------------    ----------------



Mrs. Alexander T. Hoffmann                   369,900                4.8%
1660 Old Country Road
Plainview, NY  11803

                              Scott Singer 5,000 *
366 North Broadway
Jericho, NY  11753

Alexander T. Hoffmann (4)(7)                 180,000                2.3%
c/o IMSCO
40 Bayfield Drive
North Andover, MA 01845

Timothy J. Keating(4)                         25,000                 *
220 Montgomery Street
San Francisco, CA 94104                       ------

Sands Brothers & Co., Ltd (8)                                        *
90 Park Avenue
New York, NY  10016

All Officers and Directors                 1,609,635               21.0%
as a group (4 persons)
- ------------

(1) The members of Hampton Tech Partners II, LLC who indirectly and beneficially
    own these shares of the Company are:

    Steven Demby, Equitrust Mortgage Corporation,  David McCall, Scott Robinson,
    Kent Lovelace, Bennett Aisenberg, Gerald Gray, Tyler Runnels, Andrew Telsey,
    Bravely Morton, Grant Street Joint Venture,  Andrew Telsey,  SEP/IRA,  David
    Sprang,  James Curtis,  Mark Rosenberg,  Charles  McKenney,  Michael Geller,
    Hampton  Partners  Investments,   LLC,  181  Realty,  Inc.,  Capital  Market
    Solutions,  Inc.  Clifford  Greenbaum,  Jolie  Robinson,  Henrik  Oerbekker,
    Russell Scott, Joseph Scott,  Suzanne Robinson,  Doug Hickok, Bob Sanderman,
    Mark Bradford, Stanley Cohen, and Mark Lampirski.

(2) The natural persons who are the Hampton Tech Partners, LLC are:

    Hampton  Partners  Investments,  Inc.,  Kent Lovelace,  David McCall,  Scott
    Robinson,  Jack Robinson,  Wexler & Burkhart,  Del Morton, David Strang, and
    Henrik Oerbekker.

(3) Does not include 127,272 Shares issuable to Proxhill  Marketing,  Ltd., upon
    exercise of the Class D Warrants for the  exercise  price of $1.32 per Share
    or the 9,000 shares  issuable  upon  conversion  of the Series A convertible
    preferred stock.

(4) Denotes a director of the Company.

(5) Sol L.  Berg is the  former  President  of the  Company.  His  shares do not
    include  either (i) 177,869  shares owned by his wife,  Gloria Berg, or (ii)
    166,110 shares owned directly by Sol L. Berg's three adult  children,  since
    Mr. Berg has disclaimed any interest and may not be deemed to have voting or
    investment power over these shares.

(6) The shares  shown as owned by Gloria Berg do not include  either (i) 442,380
    shares  owned by her  husband,  Sol L. Berg,  or (ii)  166,110  shares owned
    directly by Sol L. Berg's three adult  children,  since Mrs. Berg may not be
    deemed to have shares voting or investment power over these shares.

(7) The shares shown as owned by  Alexander  T. Hoffmann do not include  369,900
    owned by his wife Rosemary  Hoffmann,  since Mr. Hoffmann has disclaimed any
    interest and may not be deemed to have



                                       30





    voting or investment power over these shares or the 250,000 shares  issuable
    upon exercise of common stock warrants.

(8) Does not include  600,000  shares  issuable  upon  exercise of common  stock
    warrants.

*   Less than 1%

    There are no  arrangements  known to the Company  which may, at a subsequent
date, result in a further change in control of the Company.



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

    (a) Except as described  below,  since  January 1, l998,  there have been no
transactions   with  any  officer,   director  or  five  percent  (5%)  or  more
shareholders of the Company in which the amount involved exceeded $60,000.

    On September 20, 1996, the Company entered into the Media Purchase Agreement
with PML,  wherein PML agreed to sell $1,500,000 of media credits to the Company
in  consideration  for the Company  issuing  1,136,363  shares of Common  Stock,
representing  a price  of $1.32  per  share.  In  connection  with  the  private
placement of the Shares to HTP, HTP-II and PML, First Capital Investments, Inc.,
a  broker-dealer  which is a member of the National  Association  of  Securities
Dealers,  Inc.  ("NASD"),  received the 242,273 Class A Warrants entitling it to
acquire Common Stock for the price of $1.45 per Share  exercisable over a period
ending July 31, 2001. First Capital Investments, Inc., also received a placement
fee  equal  to 10%  of the  $1.5  million  received  under  the  Stock  Purchase
Agreement, a non-accountable  expense allowance equal to 3% of the amount raised
under the  Stock  Purchase  Agreement.  As Media  Credits  are used by the Media
Purchase  Agreement,  First  Capital  Investments,  Inc.,  shall also  receive a
placement  fee of 10% of the amount of Media Credit used.  For  advertising  and
marketing  services  rendered to the Company in 1996 and 1997, PML also received
the 127,272 Class D Warrants, entitling it to acquire Common Stock for the price
of $1.32 per Share for a period ending July 31, 2001. Mr. Gary A. Graham who was
elected a Director of the Company in October  1997 is also the  President  and a
Director of PML and First Capital  Investments  , Inc. In 1998,  Gary Graham was
issued  136,000  shares of Common Stock for expense  reimbursement  and services
rendered to the  Company.  Additionally,  PML received  48,727  shares of Common
Stock for expense  reimbursement and services rendered to the Company.  PML also
invested  $225,000 in the Company for 45,000  shares of  preferred  stock of the
Company which are convertible into 9,000 shares of common stock,  representing a
conversion price of $1.00 per share of common stock.

    In 1997, Mr. Alexander T. Hoffmann,  a Director and Chief Executive  Officer
of the  Company,  received  80,000  shares of Common Stock as  compensation  for
services  rendered under his  Employment  Agreement.  In 1998, Mr.  Hoffmann was
issued  100,000  shares of common  stock of the Company for  services  rendered.
Additionally,  Mr.  Hoffmann was granted  250,000 stock options  exercisable  at
$1.50 per share for a period of three years. See "Legal Proceedings."

    In 1998,  Mr. Sol L. Berg,  a former  director  and former  president of the
Company,  was issued  57,380  shares of Common Stock for  services  rendered and
reimbursement of expenses.

    (b) Except as above  described,  there have been no  business  relationships
with directors or nominees for director of the Company since January 1, l998.

    (c) At December 31,  l998,  no officers or  directors  were  indebted to the
Company.



ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

    (a) List of Exhibits.

    The Exhibits listed below are either filed or are deemed to be filed as part
of this Report.

    2.0  --  Agreement and Plan of  Reorganization  dated August 11, 1986 (filed
             as Exhibit C-1 to Form 8-K, File Number 2-98084-D and  incorporated
             herein by reference).

                                       31





    3.0  --  Articles of Incorporation and By-Laws (filed as Exhibits 4 and 5 to
             the  Company's  Registration  Statement on  Form S-18,  File Number
             2- 98084-D and incorporated herein by reference).

    3.1  --  Amended and Restated Certificate of Incorporation (filed as Exhibit
             3.1 to  the Company's  Registration  Statement on  Form SB-2,  File
             Number 333-19707 and incorporated herein by reference.)

    3.2  --  Bylaws  of  the  Company  (filed  as Exhibit  3.2 to the  Company's
             Registration  Statement  on Form SB-2,  File Number  333-19707  and
             incorporated herein by reference.)

    4.1  --  Form  of  Common  Stock  Certificate  (filed  as Exhibit 4.1 to the
             Company's   Registration   Statement  on  Form  SB-2,  File  Number
             333-19707 and incorporated herein by reference.)

    4.2  --  Form of Class A Common Stock Purchase Warrant (filed as Exhibit 4.2
             to the Company's Registration  Statement on  Form SB-2, File Number
             333-19707 and incorporated herein by reference.)

    4.3  --  Form of Class B Common Stock Purchase Warrant (filed as Exhibit 4.3
             to the  Company's Registration Statement on Form SB-2,  File Number
             333-19707 and incorporated herein by reference.)

    4.4  --  Form of Class C Common Stock Purchase Warrant (filed as Exhibit 4.4
             to the Company's Registration Statement  on Form SB-2,  File Number
             333-19707 and incorporated herein by reference.)

    4.5  --  Form of Class D  Common Stock  Purchase Warrant (filed  as  Exhibit
             4.51 to the  Company's  Registration  Statement on Form SB-2,  File
             Number 333-19707 and incorporated herein by reference.)

   (6)(A)--  Note  and   Security  Agreement  dated   October  3,  1986  between
             Company  and Naper  Bank,  N.A.  (filed as Exhibit  10(A) to Annual
             Report on Form 10-K, File Number 2-98084-D and incorporated  herein
             by reference).

   (6)(B)--  Agreement   dated   October  22,  1986  between  Company   and  LKB
             Diagnostics,  Inc.  regarding  exclusive  right  and  authority  to
             market,  sell and distribute certain LKB products (filed as Exhibit
             10(B) to Annual  Report on Form 10-K,  File  Number  2-98084-D  and
             incorporated herein by reference).

   (6)(C)--  Outside  Director's  Stock Option Plan dated May 21, 1987 (filed as
             Exhibit  (10)(c)  to  Annual  Report on  Form  10-K,  File   Number
             2-98084-D and incorporated herein by reference).

   (6)(D)--  Placement  Letter   dated   April    11,    1994    between    D.H.
             Vermogensverwaltungs-und   Beteiligungsgesellschaft  mbH  and   the
             Company.(1)

   (6)(E)--  Promissory  Note dated April 12, 1994 made  by the  Company to  the
             order  of   D.H.Vermogensverwaltungs-und   Beteiligungsgesellschaft
             mbH.(1)

   (6)(F)--  Common  Stock Purchase  Warrant dated  April 12, 1994 issued by the
             Company to  D.H. Vermogensverwaltungs-und  Beteiligungsgesellschaft
             mbH.(1)

   (6)(G)--  Amendment Dated August 29, 1994 to Placement Letter dated April 11,
             11,     1994     between     D.H.     Vermogensverwaltungs-     und
             Beteiligungsgesellschaft mbH. and the Company.(1)

   (6)(H)--  Consulting  Agreement dated  July 1, 1992  between IMSCO, Inc.  and
             Waldman Biomedical, Inc., and Addendum thereto Dated  July 1, 1994.
             (1)

   (6)(I)--  Escrowed  Common  Stock  Agreement  made  as of  September 30, l995
             between Decaf Products, Inc. and James G. Yurak.(2)





                                       32





   (6)(J)--  Employment Agreement effective as of January 1, 1996 between  Decaf
             Products, Inc. and James G. Yurak.(2)

   (6)(K)--  License  Agreement dated February 23, 1996 between  IMSCO, Inc. and
             Decaf Products.(2)

    10.1.--  Stock Purchase  Agreement  between  the  Company  and Hampton  Tech
             Partners II, LLC dated  September 20, 1996 (Filed on Form 8-K dated
             October 1, 1996 -- Commission No. 0-24520).

    10.2.--  Media   Purchase  Agreement   between  the  Company  and   Proxhill
             Marketing, Ltd., dated  September 20, 1996 (Filed on Form 8-K dated
             October 1, 1996 -- Commission No. 0-24520).

    10.3.--  Manufacturing  and  Distribution Agreement  between the Company and
             NEWCO  Enterprises, Inc.,  dated  September 20, 1996 (Filed on Form
             8-K dated October 1, 1996 -- Commission No. 0-24520).

    10.4.--  Marketing  Agreement between the Company and Huhes Edwards & Price,
             Inc., dated  September 20, 1996 (Filed on Form 8-K dated October 1,
             1996 -- Commission No. 0- 24520).

    10.5.--  Consulting  Agreement between the Company and Edmund Abramson dated
             August 13, 1996.(3)

    10.6.--  Consulting Agreement between the Company and WRA Consulting,  Inc.,
             dated August 13, 1996.(3)

    10.7.--  Agreement between  the  Company  and  Universal  Sales  dated as of
             September 1, 1996.(3)

    10.8.--  Employment Agreement dated as of October 1, 1997 between  Alexander
             T. Hoffmann and the Company.(4)

  10.9(5)--  Form of 8% Convertible Debenture issued to Amro International, Ltd.

 10.10(5)--  Note  and  Warrant  Purchase   Agreement  dated  February  9,  1999
             between the Company and AMRO International, Ltd.

 10.11(6)--  Registration Rights  Agreement  dated  February 9, 1999 between the
             Company and AMRO International, Ltd.

 10.12(6)--  Warrant  dated  February  9, 1999 issued  by the  Company  to  AMRO
             International, Ltd.

 10.13(6)--  Agreement  between  the Company  and  Sands  Brothers &  Co.,  Ltd.
             dated July 31, 1998

(b) Reports on Form 8-K.

    The Company filed three reports on Form 8-K for the year ending December 31,
l998.

FOOTNOTES

(1) Filed as Exhibits to the  Company's  Form 10-KSB dated July 14,  1994,  File
Number 0-24520, and incorporated herein by reference.

(2) Filed as Exhibits to the Company's  Form 10-KSB for the year ended  December
31, 1995, File Number 0-24520, and incorporated by reference herein.

(3) Filed as Exhibits to the Company's  Form 10-KSB for the year ended  December
31, 1996, File Number 0-24520, and incorporated by reference herein.

(4) Filed as  Exhibits  to   the  Company's  Form  10-KSB  for  the  year  ended
December 31, 1997, File Number 0-24520, and incorporated by reference herein.

(5) Filed as Exhibits to the Company's  Form 8-K dated  February 19, 1999,  File
Number 0-25420, and incorporated by reference herein.

(6) Filed herewith.

                                       33




                                   SIGNATURES

    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             IMSCO TECHNOLOGIES, INC.

                                             By: /s/ Alexander T. Hoffmann
                                                -----------------------------
                                                Alexander T. Hoffmann,
                                                Chief Executive Officer

                                             Date: May 31, 1999


    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


/s/ Alexander T. Hoffmann
- ----------------------------------------
Alexander T. Hoffmann, Chairman
and Chief Executive Officer
Date: May 31, 1999


/s/ Scott Singer
- ----------------------------------------
Scott Singer, Director and  Secretary
(Chief Financial and Accounting Officer)
Date: May 31, 1999


/s/ Gary A. Graham
- ----------------------------------------
Gary A. Graham, Director
Date: May 31, 1999


- ----------------------------------------
Timothy J. Keating, Director
Date: May   , 1999
         ---

EX-99.15

INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders of
  IMSCO Technologies, Inc.
  North Andover, Massachusetts



         We have audited the  accompanying  consolidated  balance sheet of IMSCO
Technologies, Inc. and Subsidiaries [a development stage company] as of December
31, 1998, and the related consolidated  statements of operations,  stockholders'
deficit,  and cash flows for each of the years ended December 31, 1998 and 1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IMSCO  Technologies,  Inc. and Subsidiaries [a development  stage company] as of
December 31, 1998, the results of their operations and their cash flows for each
of the years ended  December 31, 1998 and 1997,  in  conformity  with  generally
accepted accounting principles.

         The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
8 to the consolidated  financial statements,  the Company has suffered recurring
losses since its inception primarily resulting from no revenues, has accumulated
deficits at December 31, 1998 of $9,422,387,  has utilized  $768,184 in cash for
operations  for the year ended  December 31, 1998,  and is in default on certain
promissory  notes.  These conditions raise substantial doubt about the Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 8. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.








                                     MOORE STEPHENS, P.C.
                                     Certified Public Accountants.

Cranford, New Jersey


April 28, 1999, except as to Note 16D
for which the date is May 25, 1999 and
Note 16E for which the date is May 26, 1999




IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.





Assets:
Current Assets:
                                                                              
  Cash                                                                           $     22,992
  Other Current Assets                                                                  1,000
                                                                                        -----

  Total Current Assets                                                                 23,992

Property and Equipment:
  Property and Equipment                                                              123,066
  Leasehold Improvements                                                                5,845

  Total - At Cost                                                                     128,911
  Less: Accumulated Depreciation and Amortization                                     (98,918)
                                                                                       ------
  Property and Equipment - Net                                                         29,993
                                                                                       ------
Other Assets:

  Deposits                                                                              3,499
  Deferred Financing Costs[15]                                                         82,577

  Total Other Assets                                                                   86,076
                                                                                       ------
  Total Assets                                                                       $140,061
                                                                                     ========


See Notes to Consolidated Financial Statements.





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.






Liabilities and Stockholders' [Deficit]:
Current Liabilities:
                                                                                  
  Notes Payable[15][16D]                                                             $390,000
  Accounts Payable                                                                    161,982
  Accrued Salaries                                                                    153,190
  Accrued Expenses                                                                     24,472
  Accrued Payroll Taxes                                                                48,006
  Accrued Marketing Fees                                                               53,000
  Accrued Legal Fees                                                                   50,955
  Due to Stockholders                                                                  29,800
                                                                                       ------

  Total Current Liabilities                                                           911,405
                                                                                      -------
Commitments and Contingencies [7] [12]                                                     --
                                                                                       ------

Stockholders' [Deficit]:
  Series A Preferred Stock - Authorized 1,000,0000 Shares
    at $.0001 Par Value; 45,000 Convertible Shares, Issued and
    Outstanding [5F]                                                                        5

  Common Stock - Authorized 15,000,000 Shares at $.0001 Par Value;
    7,681,278 Shares Issued and Outstanding                                               769

  Additional Paid-in Capital - Series A Convertible Preferred Stock                   224,995

  Additional Paid-in Capital - Common Stock                                         9,803,770

  Less:  Prepaid Advertising Credits                                               (1,378,496)

  Deficit Accumulated During Development Stage                                     (8,801,479)

  Accumulated Deficit - Discontinued Operations                                      (620,908)
                                                                                     --------

  Total Stockholders' [Deficit]                                                      (771,344)
                                                                                      -------
  Total Liabilities and Stockholders' [Deficit]                                  $    140,061
                                                                                 ============




See Notes to Consolidated Financial Statements.





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]




CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                         Cumulative
                                                                                           Amounts
                                                                                            from
                                                                                        July 9, 1992
                                                                                       [Inception of
                                                                                         the Current
                                                                                         Development
                                                                Years ended               Stage] to
                                                               December 31,             December 31,
                                                           1 9 9 8         1 9 9 7         1 9 9 8
                                                           ---------------------------------------

General, Administrative and Development Expense:
                                                                              
  Research and Development Expense                    $      29,900    $     66,251    $    293,014
  Salaries and Wages                                        266,511         189,794         702,154
  Officer Salaries                                          661,070         190,714       1,184,853
  Payroll Taxes                                              55,846          29,756         140,872
  Outside Labor                                              36,596          34,190         191,136
  Professional and Consulting Fees                          161,490         276,547         908,020
  Professional and Consulting Fees - Non-Cash [5C][11]    1,126,158         735,249       2,074,969
  Rent                                                       17,804          58,217         156,019
  Rent - Related Party                                        3,750              --           3,750
  Insurance                                                  73,642          34,763         163,243
  Travel and Business Meeting                                59,390          51,997         177,929
  Auto Expense                                               20,230          16,247          60,769
  Telephone and Utilities                                    11,329          16,376          61,402
  Office Expense                                             10,366          80,195         130,843
  Equipment Rental                                            8,474          16,480          33,299
  Corporate Fees                                              9,808          19,568          69,981
  Advertising                                                92,942         223,961         318,703
  Depreciation and Amortization                              10,669          13,258          23,927
  Litigation Settlement                                          --       1,538,392       1,538,392
  Franchise Tax                                                 456             619           1,987
                                                          -----------------------------------------

  General, Administrative and Development
    Expense                                               2,656,431       3,592,574       8,235,262
                                                          -----------------------------------------

Other Income [Expense]:
  Dividend and Interest Income                                   --           5,541          11,633
  Interest Expense [15]                                    (224,731)             --        (533,778)
  Loss on Sale of Fixed Assets                                   --         (44,072)        (44,072)
                                                              -----          ------          ------

  Other [Expense] - Net                                    (224,731)        (38,531)       (566,217)
                                                           --------         -------        --------

  [Loss] Before Income Taxes                             (2,881,162)     (3,631,105)     (8,801,479)

Provision for Income Tax                                         --              --              --
                                                         ------------------------------------------

  Net [Loss]                                             (2,881,162)   $ (3,631,105)   $ (8,801,479)
                                                         ----------    ============    ============

  [Loss] Per Share                                    $        (.39)   $      (0.57)
                                                      ==============    ===========

  Weighted Average Shares Outstanding                     7,370,026       6,318,281
                                                          =========================



See Notes to Consolidated Financial Statements.





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]



                                                                                   Deficit
                         Series A Convertible                Paid-in             Accumulated  Accumulated                 Total
                         Preferred Stock     Common Stock    Capital               During       Deficit      Prepaid   Stockholders'
                       Number of         Number of          Preferred   Paid-in  Development  Discontinued  Advertising   Equity
                       Shares    Amount   Shares    Amount    Stock     Capital     Stage      Operations      Credit   [Deficit]
                      --------------------------------------------------------------------------------------------------------------
Balance at
                                                                                          
December 31, 1995        --    $   --   2,995,425  $   299  $   --    $1,796,700 $(1,226,454)  $ (620,908)   $   --     $(50,363)
Private Placement        --        --      10,000        1      --        19,999          --          --         --       20,000

Issuance of
Subsidiary Stock         --        --         --        --      --        10,000          --          --         --       10,000

Issuance of
Shares                   --        --      47,000        5      --            (5)         --          --         --           --

Issuance of
Shares for
Consulting
Services                 --        --     284,000       28      --       213,534          --          --         --      213,562

Issuance of
Shares in
Payment of
Loan                     --        --     227,000       23      --       299,977          --          --         --      300,000

Issuance of
Shares for
Advertising
Credits                  --        --   1,136,000      114      --     1,499,886          --          --    (1,500,000)       --

Issuance of
Shares for
Settlement
of Debt                  --        --     775,000       77      --       943,543          --          --         --      943,620

Issuance of
Shares for
Subsidiary
Stock                    --        --     468,000       47      --           (47)         --          --         --           --

Private
Placement                --        --     150,000       15      --       299,985          --          --         --      300,000

Net [Loss]                         --          --       --      --            --          --   (1,062,758)       --           --
                         -------------------------------------------------------------------------------------------------------
(1,062,758)

  Balance at
  December 31, 1996      --        --   6,092,425      609      --     5,083,572   (2,289,212)   (620,908)  (1,500,000)  674,061

Warrants Issued for
  Cost of
  Advertising
  Credits -
  Restatement            --        --         --       --       --       108,170          --          --      (108,170)
                         ---------------------------------------------------------------------------------------------------------

  Adjusted Balance at
   December 31, 1996 -
   Forward               -- $      --  6,092,425  $   609  $    --   $ 5,191,742 $ (2,289,212) $ (620,908) $(1,608,170    $ 674,061
                         ==========================================================================================================


See Notes to Consolidated Financial Statements.




IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]



                                                                                   Deficit
                         Series A Convertible                Paid-in             Accumulated  Accumulated                 Total
                         Preferred Stock     Common Stock    Capital               During       Deficit      Prepaid   Stockholders'
                       Number of         Number of          Preferred   Paid-in  Development  Discontinued  Advertising   Equity
                       Shares    Amount   Shares    Amount    Stock     Capital     Stage      Operations      Credit   [Deficit]
                      --------------------------------------------------------------------------------------------------------------

Adjusted Balance at
December 31, 1996 -
                                                                                             
Forwarded                --     $  --   6,092,425    $ 609    $ --    $5,191,742  $(2,289,212)  $(620,908)   $(1,608,170)  $674,061

Issuance of
Shares for
Consulting
Services                 --        --     100,000       10      --       274,990          --          --         --           --

Issuance of
Shares on Consulting
Services                 --        --      75,000        8      --       196,867          --          --         --           --

Private
Placement                --        --      23,000        2      --        34,498          --          --         --           --

Issuance of
Shares for
Professional
Services                 --        --      18,500        2      --        27,747          --          --         --           --

Private
Placement                --        --      15,000        2      --        33,748          --          --     (1,500,000)      --

Issuance of
Shares for
Consulting
Services                 --        --     130,000       13      --       235,612          --          --         --           --

Private
Placement                --        --      62,611        6      --       122,994          --          --         --           --

Advertising
Credits Used             --        --          --       --      --            --          --          --         --           --

Net [Loss]                         --          --       --      --            --   (3,631,105)   (1,062,758)     --           --
                         -------------------------------------------------------------------------------------------------------

  Balance at
  December 31, 1997 -
  Forward                --     $  --   6,516,536      652      --     6,118,198  $(5,920,317)    $(620,908) (1,394,438) (1,816,813)
                         ===========================================================================================================

See Notes to Consolidated Financial Statements.






IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]





                                                                                   Deficit
                         Series A Convertible                Paid-in             Accumulated  Accumulated                 Total
                         Preferred Stock     Common Stock    Capital               During       Deficit      Prepaid   Stockholders'
                       Number of         Number of          Preferred   Paid-in  Development  Discontinued  Advertising   Equity
                       Shares    Amount   Shares    Amount    Stock     Capital     Stage      Operations      Credit   [Deficit]
                      --------------------------------------------------------------------------------------------------------------

Balance at
December 31, 1997 -
                                                                                             
Forwarded                --     $  --   6,516,536    $ 652    $ --   $6,118,198  $(5,920,317)  $(620,908)  $(1,394,438) $(1,816,813)

Exercise of
Stock Warrants
[5A][11]                 --        --      66,000        7      --       59,393          --          --         --           59,400

Issuance of
Shares in Settlement
of Litigation [5B]       --        --     399,081       39      --    1,538,353          --          --         --        1,538,392

Issuance of
Shares for
Services [5C]            --        --     612,911       62      --      903,838          --          --         --          903,900

Issuance of
Stock Warrants
for 600,000 Shares
of Common Stock
for Consulting
Services [11]            --        --          --       --      --      656,284          --          --         --          656,284

Granting of Stock
Options for 266,750
Shares of Common
Stock to Employees [11]  --        --          --       --      --      133,375          --          --         --          133,375

Private Placement of
Common Stock [5D]        --        --      70,000        7      --       69,993          --          --         --           70,000

Exercise of
Stock Options [5E][11]   --        --      16,750        2      --       24,998          --          --         --           25,000

Issuance of Stock
Warrants for
390,000 Shares of
Common Stock for Notes
Payable [15][11]         --        --          --       --      --      299,085          --          --         --          299,085

Private Placement of
Series A Convertible
Preferred Stock [5F]     --        --          --       --      --           --          --          --         --          225,000

270 Shares Issuable
Pursuant to Financing
Penalty [5F]             --        --          --       --      --          253          --          --         --              253

Advertising Credits
Used                     --        --          --       --      --           --          --          --         --           15,942

Net [Loss]               --        --          --       --      --           --   (2,881,162)        --         --      (2,881,162)
                         ---------------------------------------------------------------------------------------------------------

  Balance at
  December 31, 1997 -
  Forward                --     $   5  $7,681,278     $769  $224,995  $9,803,770  $(8,801,479)   $(620,908) (1,378,496) $(771,344)
                         =========================================================================================================


See Notes to Consolidated Financial Statements.







IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                         Cumulative
                                                                                           Amounts
                                                                                            from
                                                                                        July 9, 1992
                                                                                       [Inception of
                                                                                         the Current
                                                                                         Development
                                                                Years ended               Stage] to
                                                               December 31,             December 31,
                                                           1 9 9 8         1 9 9 7         1 9 9 8
                                                           ---------------------------------------

Operating Activities:
                                                                              
  Net [Loss]                                          $  (2,881,162)   $ (3,631,105)   $ (8,801,479)
                                                      -------------    ------------    ------------
  Adjustments to Reconcile Net [Loss] to Net Cash
    [Used for] Operating Activities:
    Decrease [Increase] in Due from Officers                     --              --            (120)
    Depreciation and Amortization                            10,668          13,258          26,539
    Contract Services Paid with Common Stock [5C]           903,900         729,970       2,070,915
    Interest Paid with Common Stock                             253              --         300,253
    Interest Expense - Deferred Finance Costs [15]          216,508              --         216,508
    Grant of Stock Options and Warrants for
      Past Services [11]                                    789,659              --         789,659
    Amortization of Prepaid Advertising Credits              15,942         213,732         229,674
    Loss on Disposal of Property and Equipment                   --          44,072          44,072

  Changes in Assets and Liabilities:
    [Increase] Decrease in:
      Other Current Assets                                       --          (1,000)         (1,000)
      Miscellaneous Receivables                                  --         200,000              --
      Other Assets                                               --             100          20,200
      Security Deposits                                          --          18,149           1,176
      Accounts Receivable                                        --              --           2,998

    Increase [Decrease] in:
      Accounts Payable                                       (3,973)        137,078          97,531
      Accrued Expenses                                      (59,748)      1,584,156       1,562,864
      Accrued Salaries                                      104,504          48,686         153,190
      Accrued Payroll Taxes                                  31,310           6,146          48,006
      Accrued Marketing Fees                                 53,000              --          53,000
      Accrued Legal Fees                                     50,955              --          50,955
                                                             --------------------------------------

    Total Adjustments                                     2,112,978       2,994,347       5,666,420
                                                          -----------------------------------------

  Net Cash - Operating Activities - Forward                (768,184)       (636,758)     (3,135,059)
                                                           --------        --------      ----------

Investing Activities:
  Purchase of Fixed Assets                                       --         (39,674)       (118,212)
  Prepaid Research Testing                                       --              --          (7,734)
  Proceeds from Sale of Fixed Assets                             --          21,000          21,000
                                                                 ----------------------------------

  Net Cash - Investing Activities - Forward           $           -    $    (18,674)   $   (104,946)



See Notes to Consolidated Financial Statements.





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]


CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                         Cumulative
                                                                                           Amounts
                                                                                            from
                                                                                        July 9, 1992
                                                                                       [Inception of
                                                                                         the Current
                                                                                         Development
                                                                Years ended               Stage] to
                                                               December 31,             December 31,
                                                           1 9 9 8         1 9 9 7         1 9 9 8
                                                           ---------------------------------------

                                                                              
  Net Cash - Operating Activities - Forwarded         $    (768,184)   $   (636,758)   $ (3,135,059)
                                                      -------------    ------------    ------------

  Net Cash - Investing Activities - Forwarded                    --         (18,674)       (104,946)
                                                                 ------------------        --------

Financing Activities:
  Cash Overdraft                                            (18,804)         18,804              --
  Proceeds from Notes Payable                               390,000              --         775,000
  Proceeds from Issuance of Common Stock
    [5A][5D][5E]                                            154,400         196,528       2,247,304
  Proceeds from Preferred Stock Subscriptions [5F]          225,000              --         225,000
  Loans from Stockholders                                    38,300           3,000          41,300
  Payment on Loans from Stockholders                        (11,500)             --         (11,500)
                                                            -------              ------------------

  Net Cash - Financing Activities                           777,396         218,332       3,277,104
                                                            ---------------------------------------

  Net Increase [Decrease] in Cash                             9,212        (437,100)         37,099
Cash - Beginning of Periods                                  13,780         450,880            (327)
                                                             --------------------------------------
  Cash - End of Periods                               $      22,992    $     13,780    $     36,772
                                                      =============================================

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the periods for:
    Interest                                          $          --    $         --    $      9,047
    Income Taxes                                      $          --    $         --    $         --

Supplemental Schedule of Non-Cash Investing and Financing Activities:
  During 1998, the Company  entered into a financing  transaction by settling an
accrued  expense of  $1,538,392  with the  issuance of 399,081  shares of common
stock [See Note 5B].

  During 1998, the Company entered into financing transactions by granting stock
warrants in connection with total  financing costs of $299,085.  The unamortized
balance of deferred  financing  costs at December  31, 1998  amounted to $82,577
[See Note 15].




See Notes to Consolidated Financial Statements.








IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



[1] Summary of Significant Accounting Policies

ORGANIZATION - In July 1996, IMSCO, Inc. was reincorporated in Delaware as IMSCO
Technologies,  Inc. The Company filed a Certificate of Incorporation in Delaware
incorporating a new wholly-owned subsidiary, IMSCO Technologies,  Inc. The Board
of Directors of the Company at a meeting held in May 1996 voted,  subject to the
adoption by the stockholders,  to merge into its wholly-owned subsidiary,  IMSCO
Technologies, Inc., a Delaware corporation. On July 9, 1996, the stockholders of
IMSCO,   Inc.,   voted  to  approve  the  change  of  corporate   domicile  from
Massachusetts  to  Delaware.  Therefore,  on July 18, 1996,  there  remained one
surviving   corporation  and  the  name  surviving   corporation   became  IMSCO
Technologies,  Inc. As of the effective date of the merger,  each stockholder of
the Company held one share of common stock, par value $.0001 per share, of IMSCO
Technologies,  Inc.  for each one share of  common  stock,  par value  $.001 per
share, of IMSCO, Inc. previously held by him.

Imsco  Technologies,  Inc., a Delaware  corporation,  is currently a development
stage enterprise  which has developed a core technology that achieves  molecular
separation with innovative  applications of electrostatics.  Until July 7, 1992,
the  Company  was  engaged  in  the  sale  of an  automated  luminometer  and an
accompanying  reagent  system that  measures raw  material  for  microbiological
contamination.  The Company discontinued operations and liquidated the remaining
inventory  of  reagents  on April  16,  1993.  Due to a lack of  demand  for the
technology  developed,  the  Company  changed its focus and began  applying  its
engineering and medical talents to the  development of a separation  system.  No
revenue  has  been  received  from  current  products  to date.  The  technology
developed has two prototypes.  Tests of the Company's decaffeination  technology
have successfully removed caffeine from coffee. In addition, The Plasma Pure has
been tested and can remove viruses from plasma.

The  Company's  subsidiaries,  Decaf  Products,  Inc.  ["DPI"]  and  BioElectric
Separation and Testing,  Inc. ["BEST"] [the  subsidiaries]  were formed in 1995.
DPI was  formed  to market a unique  proprietary  technologies  to  decaffeinate
coffee.  BEST was  founded  to create  systems  to  improve  human  therapy,  by
developing new diagnostics and improved methods for production and use of drugs,
biologics, and extracorporeal devices. As of December 31, 1998, the subsidiaries
had  minimal  activity,  did not  own any  assets  and  are not  liable  for any
liabilities.

PRINCIPLES OF CONSOLIDATION - The consolidated  financial statements include the
accounts of the Company and its  subsidiaries  Decaf Products,  Inc. ["DPI"] and
BioElectric Separation and Testing, Inc. ["BEST"]. All significant inter-company
accounts and transactions have been eliminated in consolidation.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.  Significant
additions  or  improvements  extending  asset  lives  are  capitalized;   normal
maintenance and repair costs are expensed as incurred.  Depreciation is provided
on the  straight-line  method  over the  estimated  useful  lives of the  assets
ranging from three to five years.

CASH EQUIVALENTS - The Company  considers all highly liquid  investments with an
original maturity of less than three months to be cash equivalents.  At December
31, 1998, the Company had no cash equivalents.

INCOME  TAXES - The  Company  accounts  for  income  taxes  under  Statement  of
Financial  Accounting Standards ["SFAS"] No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the asset and liability method is used to determine deferred
tax assets and liabilities based on differences  between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2



[1] Summary of Significant Accounting Policies [Continued]

EARNINGS [LOSS] PER SHARE - The Financial  Accounting  Standards Board ["FASB"],
has issued  Statement  of  Financial  Accounting  Standards  ["SFAS"]  No.  128,
"Earning Per Share",  which is effective  for  financial  statements  issued for
periods ending after December 15, 1997. Accordingly,  earnings per share data in
the  financial  statements  for the year  ended  December  31,  1997,  have been
calculated in accordance with SFAS No. 128.

SFAS No. 128 supercedes Accounting Principles Board Opinion No. 15, "Earning Per
Share," and replaces its primary earnings per share with a new basic earning per
share representing the amount of earnings for the period available to each share
of common  stock  outstanding  during the  reporting  period.  SFAS No. 128 also
requires a dual presentation of basic and diluted earnings per share on the face
of  the  statement  of  operations  for  all  companies  with  complex   capital
structures.  Diluted  earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding  during the reporting
period,  while giving effect to all dilutive  potential  common shares that were
outstanding during the period,  such as common shares that could result from the
potential exercise or conversion of securities into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise or contingent  issuance of securities  that would have an  antidulutive
effect on earnings  per share [i.e.,  increasing  earnings per share or reducing
loss per share].  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be obtained  upon the  exercise of options and  warrants in computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants.

USE OF ESTIMATES - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

STOCK OPTIONS AND SIMILAR  EQUITY  INSTRUMENTS - On January 1, 1996, the Company
adopted  the  disclosure  requirements  of  Statement  of  Financial  Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for stock
options  and  similar  equity  instruments  [collectively  "Options"]  issued to
employees  and  directors,  however,  the  Company  will  continue  to apply the
intrinsic  value based  method of  accounting  for options  issued to  employees
prescribed by Accounting  Principles  Board ["APB"] Opinion No. 25,  "Accounting
for Stock  Issued to  Employees"  rather  than the fair  value  based  method of
accounting prescribed by SFAS No. 123. SFAS No. 123 also applies to transactions
in which an entity issues its equity  instruments  to acquire goods and services
from  non-employees.  Those transactions must be accounted for based on the fair
value of the consideration  received or the fair value of the equity instruments
issued, whichever is more reliably measurable.

RECLASSIFICATIONS  - Certain  amounts in the prior year  consolidated  financial
statements have been reclassified to conform to the current year's presentation.







IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3



[2] Income Taxes

Income  taxes have been  recorded  under SFAS No.  109,  "Accounting  for Income
Taxes."  Deferred income taxes reflect the net tax effects of (i) operating loss
carryforwards,  and (ii) temporary  differences  between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income  tax  purposes.  The tax  effects of  significant  items  comprising  the
Company's net deferred tax asset as of December 31, 1998 is as follows:

Deferred Tax Asset:
  Net Operating Loss Carryforward                              $   3,768,000
  Valuation Allowance for Deferred Tax Asset                       3,768,000
                                                                   ---------

  Net Deferred Tax Asset                                       $          --
  -------------------------------------------------------------=============

The  valuation  allowance of  $3,768,000  at December 31,  1998,  represents  an
increase of $1,152,000 over the preceding year.

The Company has approximately  $9,421,000 of net operating losses as of December
31, 1998 which may reduce taxable  income and income taxes in future years.  The
utilization  of these  losses to  reduce  future  income  taxes  will  depend on
generating  sufficient taxable income prior to their expiration through the year
2013. In addition,  the Internal Revenue Code of 1986 includes  provisions which
may limit the net operating loss  carryforwards  available for uses in any given
year if certain events occur including significant changes in stock ownership.

The Company has net operating loss  carryforwards  of  approximately  $9,421,000
which expire as follows:

            Years ended
           December 31,                       Amount

               2001                        $        4,000
               2002                               181,000
               2003                               233,000
               2004                                88,000
               2005                                71,000
               2009                               863,000
               2010                               406,000
               2011                             1,063,000
               2012                             3,631,000
               2013                             2,881,000
                                                ---------

               Total                       $    9,421,000
               -----                       ==============

A  reconciliation  of the  federal  statutory  income tax rate to the  Company's
effective  income  tax rate  for the  years  ended  December  31,  1998 and 1997
follows:

                                                     1 9 9 8          1 9 9 7
                                                     ------------------------

Federal Statutory Income Tax Rate                        (34)%           (34)%
Change in Valuation Allowance                             34              34
                                                          ------------------

  Effective Income Tax Rate                               --              --
  -------------------------                               ==================





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4



[3] Related Party Transactions

In August 1996, Hampton Tech Partners, LLC acquired $300,000 in promissory notes
from the Company and 150,000 shares of Common Stock for the total  consideration
of  $300,000.  On  September  20,  1996,  the  Company  entered  into a Purchase
Agreement  with Hampton Tech Partners II, LLC wherein  Hampton Tech Partners II,
LLC acquired  761,000 shares of Common Stock for $1,004,520 in cash or $1.32 per
share.   Private  placement  expenses  of  $77,400  were  incurred  during  this
transaction,  reducing  net cash  proceeds  to  $927,120.  Hampton  Partners  II
received  227,273  shares in  repayment of the  $300,000  promissory  notes with
Hampton Tech Partners,  LLC and 129, 151 shares in payment of private  placement
fees.  Mr. Scott  Robinson,  a former  director of the  Company,  is a member of
Hampton Tech Partners and Hampton Tech Partners II, LLC. Mr. Robinson's brother,
Mr. Jeffrey Robinson is the sole  shareholder of Hampton  Partners  Investments,
Inc., the Managing Member of Hampton Tech Partners and Hampton Tech Partners II,
LLC.

On September 20, 1996,  the Company  entered into the Media  Purchase  Agreement
with Proxhill  Marketing Ltd.,  wherein  Proxhill  Marketing Ltd. agreed to sell
$1,500,000  of media  credits to the  Company in  consideration  for the Company
issuing  1,136,364  shares of Common  Stock,  representing  a price of $1.32 per
share. The total cost of such transaction was $1,608,170  including the value of
the 127,262  warrants issued by the Company to Proxhill  Marketing Ltd [See Note
13]. In  connection  with the private  placement  of the Shares of Hampton  Tech
Partners II, LLC,  Hampton Tech  Partners and  Proxhill  Marketing  Ltd.,  First
Capital  Investments,  Inc. a  broker-dealer  which is a member of the  National
Association  of Securities  Dealers,  Inc.  ["NASD"],  received  242,272 Class A
Warrants  entitling it to acquire  Common Stock for the price of $1.45 per share
exercisable  over a period ending July 31, 2001. For  advertising  and marketing
services rendered to the Company in 1996 and 1997,  Proxhill marketing Ltd. Also
received 127,262 Class D Warrants,  entitling it to acquire Common Stock for the
price of $1.32 per share for a period  ending July 31, 2001.  As of December 31,
1996, the registration  statement for the Class A Warrant Common Stock and Class
D Warrant Common Stock had not been declared effective.

In 1996, Mr. Sol L. Berg, a former Director and former President of the Company,
received  150,000  shares of Common Stock in exchange for shares of common stock
in Decaf Products, Inc. ["DPI"] based on a conversion of .60 IMSCO Technologies,
Inc. shares for 1.00 Decaf products, Inc. shares. In 1996, Mr. James G. Yurak, a
former  Director and former  President of the DPI  subsidiary,  received  75,000
shares of Common Stock in exchange for shares of common stock in Decaf Products,
Inc.  ["DPI"] based on a conversion of .60 IMSCO  Technologies,  Inc.  share for
1.00 Decaf  Products,  Inc. share.  Mr. Yurak received  another 75,000 shares of
Common Stock in February 1997 upon the one year  Anniversary  of his  employment
agreement with DPI. In 1996, Dr. Alan Waldman entered into an understanding that
he shall  receive  100,000  shares  of Common  Stock  representing  payment  for
services due him under his consulting  agreement through December 31,1996,  with
the shares  vesting  and being  issued on January  1,  1997.  In 1996,  David E.
Fleming,  then a member of Epstein,  Becker & Green,  P.C., which was counsel to
the Company, was granted 90,000 shares of the Company's Common Stock in exchange
for shares of Common Stock in Decaf Products, Inc. ["DPI"] based on a conversion
of .60 IMSCO  Technologies,  Inc. shares for 1.00  DecafProducts,  Inc.  shares,
which shares will vest on January 1, 1997. In 1996,  Mr. Vernon  Oberholtzer,  a
former  Director of the Company who resigned in February  1997,  received  stock
options to acquire 10,000 shares for a price of $1.32, exercisable over a period
ending December 31, 1999. In 1996, Universal Sales, Inc. ["Universal"],  a sales
and  marketing  company of which Mr.  Victor  Bauer,  a former  director  of the
Company,  is President and a 50% shareholder,  received cash compensation in the
amount  of  $31,500  for  services  rendered  to  the  Company,   including  the
recruitment of the services of Mr. Abramson for the Company.







IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5


[3] Related Party Transactions [Continued]

The balance of $29,800 Due to  Stockholders  relates to short-term  loans to the
Company in 1998.  The loans are  non-interesting  bearing and are due on demand.
During 1998, the Company  received  $38,300 in loans from the  stockholders  and
repaid $11,500 of loans.

During 1998,  the Company  commenced  leasing  office space on a  month-to-month
basis  from one of the  stockholders  of the  Company.  During  the  year  ended
December 31, 1998, the Company incurred $3,750 of rent expense under this lease.

[4] Research and Development Costs

During the years ended December 31, 1998 and 1997, the Company  charged  $29,900
and $66,251, respectively to research and development expense.

[5] Equity Transactions

Equity transactions during the year ended December 31, 1998 are as follows:

[A] Common  stock  issued  pursuant  to the  exercise of stock  warrants  was as
follows:


   Date            Number of Shares     Par Value     Paid-in Capital    Total

January 8                66,000        $       7        $   59,393    $   59,400
                         =======================================================

[B] Common stock issued in settlement of litigation was as follows:

   Date            Number of Shares     Par Value     Paid-in Capital    Total

January 13              150,000        $      15        $  591,674    $  591,689
March 30                249,081               24           946,679       946,703
                       ---------------------------------------------------------

  Totals                399,081        $      39        $1,538,353   $ 1,538,392
  ------               =========================================================


The  Company  will issue  another  39,239  shares of common  stock to one of the
plaintiffs in this settlement  upon  resolution of plaintiff's  tax lien.  There
will be no effect on total equity upon  resolution of this matter.  In addition,
the  settlement  also called for the issuance of warrants for 400,000  shares of
the Company's common stock [See Note 12].

[C] Common stock issued for services was as follows:


   Date        Number of Shares     Par Value     Paid-in Capital    Total

February 25            125,000        $      13        $  203,111   $   203,124
March 31                48,727                5            66,995        67,000
May 7                  339,184               34           508,742       508,776
August 6               100,000               10           124,990       125,000
                       --------------------------------------------------------

  Totals               612,911        $      62        $  903,838   $   903,900
  ------               ========================================================


[D] Common stock issued in private placement was as follows:

   Date        Number of Shares     Par Value     Paid-in Capital    Total

May 26              70,000        $       7        $   69,993    $   70,000
                    =======================================================





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6



[5] Equity Transactions [Continued]

[E] Common stock issued pursuant to the exercise of stock options as follows:

   Date        Number of Shares      Par Value     Paid-in Capital    Total

May 28               16,750        $       2        $   24,998    $   25,000
                     =======================================================

[F] Series A convertible preferred stock issued in private placement as follows:

   Date        Number of Shares      Par Value     Paid-in Capital    Total

August 25            45,000        $       5        $  224,995    $  225,000
                     =======================================================

The Series A convertible  preferred  stock is  convertible  at the option of the
holder  into one share of the  Company's  common  stock for every five shares of
convertible preferred stock commencing three months after the date subscribed. A
registration  statement  was to be filed and declared  effective by November 30,
1998, registering the common shares available for conversion, or incur a penalty
at the rate of 3% per month for the common shares to be registered.  At December
31, 1998,  the  registration  statement was not declared  effective.  Therefore,
paid-in  capital  includes  $253 for the  obligation  to issue 270 shares of the
Company's common stock as of December 31, 1998. The  registration  statement has
not become effective as of April 28, 1999 [See Note 16E].

[6] Fair Value of Financial Instruments

In  assessing  the fair value of financial  instruments,  the Company has used a
variety of methods  and  assumptions,  which were based on  estimates  of market
conditions  and risks  existing  at that time.  For all  financial  instruments,
including  cash, due to  stockholders  and debt maturing within one year, it was
estimated that the carrying amount  approximated  fair value for these financial
instruments because of their short maturities.

[7] Commitments

Leases - The Company leases office space under an operating  lease which expires
in March of 2000. In addition to the minimum rentals,  the Company is liable for
contingent rentals based on its proportionate  share of operating  expenses,  as
defined.

In September  1996, the Company  established an office at 950 Third Avenue,  New
York, New York, consisting of approximately 2,500 square feet of space, with the
intention of conducting its sales, marketing and finance related activities. The
Company has decided that it will be more efficient and cost effective to run all
of its activities  from the North Andover office for the near future.  The lease
at 950 Third  Avenue,  New York,  was for a term of five years at an annual base
rental of $32 per square foot. The 950 Third Avenue lease was terminated on July
10, 1997. The Company  forfeited its security deposit and paid other fees due to
the termination of the lease.  Rental expense for the New York lease was $24,367
for the year ended December 31, 1997.







IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7




[7] Commitments [Continued]

Leases  [Continued]  - Minimum  annual  rentals under  non-cancelable  operating
leases having a term of more than one year are as follows:

Year ending
December 31,
    1999                                $    15,890
    2000                                      3,973
                                              -----

    Total                               $    19,863
    -----                               ===========

Total  rental  expense was $17,804 and $40,257 for the years ended  December 31,
1998 and 1997, respectively.

PREPAID  ADVERTISING  CREDITS - Under a media  Purchase  Agreement with Proxhill
Marketing Ltd., it contractually agreed to finance $1.5 million of media for the
Company's  public  relations and  advertising  campaign  through Grow  Marketing
Services ["GROW"], an independent marketing company. In exchange for the Company
issuing 1,136,363 shares of its common stock,  representing a price of $1.32 per
share, the Company acquired the $1.5 million of prepaid, dedicated media credits
[the "Media Credits"] and certain media services.  The media Purchase  Agreement
expires at the end of sixty [60]  months or upon the  depletion  of the  prepaid
media credits.

SALES  AGREEMENT - On September 20, 1996, the Company  entered into an agreement
with NEWCO a privately  held  corporation  based in St.  Charles,  Missouri  for
certain institutional  manufacturing and marketing of the Decaffeination System.
The  Company  agreed  that  NEWCO  will  have  the  exclusive  right to sell the
DECAFFOMATIC  to so-called  "Office  Coffee  Supply"  ["OCS"]  subsection of the
institutional   coffee-maker   market  and  will  be  the  manufacturer  of  the
DECAFFOMATIC for the institutional marketplace in North American for a period of
three years.  Under the NEWCO Agreement,  NEWCO has also agreed to pay the costs
of making  final  working  models,  and the cost of creating  moulds and related
parts  for  the   DECAFFOMATIC   device  for  the   institutional   coffee-maker
marketplace.  All of the  technology and final  commercial  model designs of the
Decaffeination System will be the property of the Company.

EMPLOYMENT  AGREEMENTS - In October 1997,  the company  entered into  employment
agreement with three officers of the Company.  Such agreements provide for total
annual compensation of $385,000. Two of the agreements expire in 1999, the third
expires  in the  year  2000.  The  agreement  with one of the  officers  in 1998
provides  for the  granting  of 250,000  warrants  as amended  to  purchase  the
Company's stock at $1.50 per share from $2.00 per share. Compensation expense of
$125,000 was recorded for this amendment to the warrants. The options expire May
30, 2003.

[8] Going Concern

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles, which contemplates continuation of the
Company  as a  going  concern  and  realization  of  assets  and  settlement  of
liabilities and commitments in the normal course of business.







IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8


[8] Going Concern [Continued]

As shown in the accompanying  financial  statements,  the Company incurred a net
loss of $2,881,162 primarily resulting from no revenues and utilized $768,184 in
cash for operations  during the year ended  December 31, 1998.  The  significant
operating  losses  as well as the  uncertain  sources  of  financing,  create an
uncertainty about the Company's  ability to continue as a going concern.  During
1999,  the Company has reduced their  monthly  expenditures  from  approximately
$65,000 to  approximately  $22,000.  Management  of the Company has  developed a
business plan to finance the Company  through  licensing of its  technology  and
individual  patent  rights and sell its products to  manufacturers.  The Company
will also seek  financing  through  debt and  equity  financing  [See Note 16B].
Additionally, the Company is negotiating to sell the prepaid advertising credits
on an as  needed  basis  at a  discount  of  approximately  50%.  The  financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.

The continuation of the Company as a going concern is dependent upon the success
of these plans.

There can be no assurances that  management's  plans to reduce  operating losses
and obtain  additional  financing to fund  operations  will be  successful.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of  recorded  assets,  or the  amounts  and
classification  of liabilities  that might be necessary in the event the Company
cannot continue in existence.

[9] Development Stage Enterprise

On July 7, 1992, the Company discontinued  operations relating to the sale of an
automated  luminometer.  On July 22, 1992, the company and The General  Hospital
Corporation,  doing  business  as  Massachusetts  General  Hospital,  entered  a
research agreement for $45,100, to perform the research and evaluation using the
Company's  electro-static  filter. The Company is considered a development stage
enterprise  and it has  been  devoting  substantially  all  of  its  efforts  to
developing,  engineering and obtaining patents for new technologies  relating to
separation  technologies  for the  medical and  consumer  product  sectors.  The
Company applied for United States Patents covering its decaffeination and Plasma
Pure  separation  technologies  in 1993.  With a  prototype,  marketing  of this
product began in December,  1993. Although no income has been received,  letters
of interest  and royalty  agreement  negotiations  have  begun.  The  cumulative
deficit during the  development  stage is $8,801,226 for the period July 7, 1992
through December 31, 1998.

[10] Advertising

The Company expenses advertising costs as incurred. For the years ended December
31, 1998 and 1997, advertising expense was $92,942 and $223,961, respectively.

[11] Stock Based Compensation

On May 21, 1996,  the Board of Directors  adopted the Employee  Incentive  Stock
Option Program [the "Option Program"],  which provides for the issuance of up to
the lesser of 24% of the issued and outstanding Common Stock or 1,500,000 shares
of Common Stock through the grant of incentive and non-qualified  stock options.
Stock  options  will be  issued  by  action  of the  Board of  Directors  or its
Compensation  Committee [the "Administrator"] to key employees of the Company as
a long-term incentive.  Key employees will be designated by the Administrator in
its sole discretion.  Stock Options under the Option Program will provide for an
exercise price per share determined by the Administrator  [but not less than the
par value of $.0001],  subject to tax  requirements in connection with incentive
stock options.  No payment will be required from participants in connection with
grants.  The options will be execisable as specified by the Administrator at the
time of grant,  although the tax benefits of incentive  stock options  described
below will be  unavailable  if the option is exercised  less than one year after
grant.  Options will be exercisable for a period determined by the Administrator
but not in excess of 10 years after grant.



IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9


[11] Stock Based Compensation [Continued]

The following table summarizes the activity in common shares subject to options.



                                                        1 9 9 8               1 9 9 7
                                                        -----------------------------
                                                             Weighted               Weighted
                                                              Average                Average
                                                             Exercise               Exercise
                                                  Shares       Price     Shares       Price

                                                                               
Outstanding - Beginning of Years                  110,000   $       1.45          110,000 $   1.45
Granted or Sold During the Years                  266,750   $       1.50          --      $   --
Canceled During the Years                              --   $      --          -- $      --
Expired During the Years                               --   $      --          -- $      --
Exercised During the Years                        (16,750)  $       1.50          --      $   --
                                                  -------                         --------

  Outstanding - End of Years                      360,000   $       1.48          110,000 $   1.45
                                                  ==========                      ========

  Exercisable - End of Years                      360,000   $       1.48          110,000 $   1.45
                                                  ==========                      ========



The following  table  summarizes  stock options  information  as of December 31,
1998:

                                               Options Outstanding
                                                   Weighted-
                                                    Average    Weighted-
                                                   Remaining    Average
                                        Number    Contractual  Exercise
Exercise Price                        Outstanding    Life        Price

$.90                                     10,000           1.0 $        .90
$1.50                                   350,000           5.3 $       1.50
                                        ----------------------------------

  Totals                                360,000           5.2 $       1.48
  ------                                ==================================

The exercise  prices of the options  outstanding  at December  31,  1998,  range
between $.90 and $1.50 with a weighted average contractual life of 5.2 years.

The  following  table  summarizes  the  activity  in common  shares  subject  to
warrants:



                                                        1 9 9 8               1 9 9 7
                                                        -----------------------------
                                                             Weighted               Weighted
                                                              Average                Average
                                                             Exercise               Exercise
                                                  Shares       Price     Shares       Price

                                                                          
Outstanding - Beginning of Years                  785,645   $   1.59          485,534 $   1.28
Granted or Sold During the Years                  990,000   $   1.30          300,111 $   2.08
Canceled During the Years                        (250,000)  $   2.00          --      $   --
Expired During the Years                               --   $  --             --      $   --
Exercised During the Years                        (66,000)  $    .90          --      $   --
                                                  -------                     --------

  Outstanding - End of Years                    1,459,645   $   1.35          785,645 $   1.59
                                                ============                  ========

  Exercisable - End of Years                    1,459,645   $   1.35          785,645 $   1.59
                                                ============                  ========




IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10



[11] Stock Based Compensation [Continued]

The following  table  summarizes  stock warrants  information as of December 31,
1998:

                                                   Weighted-
                                                    Average    Weighted-
                                                   Remaining    Average
                                        Number    Contractual  Exercise
Exercise Prices                       Outstanding    Life        Price

$.90 - $1.00                            440,000           3.8 $        .99
$1.32 to $1.50                          969,534           3.7 $       1.46
$2.50                                    50,111           4.0 $       2.50
                                      ------------------------------------

  Totals                              1,459,645           3.7 $       1.35
  ------                              ====================================

The Company applies  Accounting  Principles Board Opinion No. 25 ["APB No. 25"],
Accounting for Stock Issued to Employees, and related interpretations, for stock
options issued to employees in accounting  for its stock options plans.  For the
year ended December 31, 1998, stock  compensation of $133,375 was recognized for
stock-based employee amounts.

The  exercise  prices of the  warrants  outstanding  at December  31, 1998 range
between $.90 and $2.50 with a weighted average contractual life of 3.7 years.

Had  compensation  cost been  determined on the basis of fair value  pursuant to
FASB  Statement No. 123, net loss and loss per share would have been recorded as
follows:

                                                       December 31,
                                                   1 9 9 8       1 9 9 7

Net Loss as Reported                           $  (2,881,162)  $(3,631,105)
                                               =============   ===========

Pro Forma Net Loss                             $  (2,881,162)  $(3,916,105)
                                               =============   ===========

Net Loss Per Share as Reported                 $       (0.39)   $    (0.57)
                                               =============   ===========

Pro Forma Net Loss Per Share                   $       (0.39)   $    (0.62)
                                               =============   ============

The weighted  average  grant date fair value of options and warrants  granted in
1998 and 1997 was $1.34 and $1.14, respectively.

The fair value of each option and warrant granted is estimated on the grant date
using an option  pricing model which takes into  account,  as of the grant date,
the exercise  price and the expected life of the option or warrant,  the current
price of the underlying stock and its expected volatility, expected dividends on
the stock and the risk-free interest rate for the expected term of the option or
warrant. The following is the average of the data used for the following items:

                                                       1 9 9 8         1 9 9 7
                                                       -----------------------

Expected Life [Years]                                      5              5
Risk-Free Interest Rate                                    5  %           6  %
Expected Dividends                                        --             --
Expected Volatility                                       76  %          74  %





IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11



[12] Litigation

In June 1997, an action was commenced against the Company by Edmund Abramson and
by WRA  Consulting,  Inc.  in the  Eleventh  Judicial  Circuit  of Dade  County,
Florida. Abramson alleged breach of contract, claims damages of $1,400,000, plus
attorneys fee. WRA alleged breach of contract, failure of the Company to deliver
150,000  registered  shares of common  stock and  150,000  warrants  to purchase
common  stock to WRA  Consulting,  Inc.  and  claims  damages  in the  amount of
$800,000,  plus  attorneys  fees. In January 1998, the action was settled by the
Company  agreeing to issue a total of 438,320 shares of common stock and 400,000
warrants to purchase common stock at $1.32 and $2.00. $1,538,392 was included in
accrued expenses at December 31, 1997 [See Note 5B].

On  March  5,  1998,  an  action  was  commenced  against  the  Company  by  BPV
Enterprises,  Inc. doing business as Universal sales in the Supreme Court of the
State of New York, County of Suffolk.  The plaintiff alleges breach of contract,
claiming damages of $337,000 plus attorney's  fees. In addition,  plaintiff also
claims that the  Company  owes the  Enterprise  75,000  shares of the  Company's
common  stock and 75,000  warrants to purchase  the  Company's  common stock for
recruitment  services  that were  performed  for the Company  during  1996.  The
Company's counsel cannot predict the outcome of this matter although it believes
it has meritorious defenses and will vigorously defend the action. Therefore, no
accrual  has been made at December  31,  1998.  However,  if such  defenses  are
unsuccessful, it may have a material adverse impact on the results of operations
and financial  condition of the Company.  The chairman of the Company,  is a 50%
shareholder of the Plaintiff [See Note 3].

On December 24, 1998, a second action was commenced  against the Company and the
Chairman and Chief  Executive  Officer of the Company by BPV  Enterprises,  Inc.
doing business as Universal  Sales, and Victor Bauer in the Supreme Court of the
State of New York,  County of Suffolk.  The plaintiff alleges breach of contract
under a sales and service  administration  agreement claiming a commission equal
to 2.5% of the Company's  sales in excess of $5,000,000 per year, and a standard
sales  commission  equal to 2.5% per year of  revenues  derived  from  customers
obtained by the  plaintiff.  The plaintiff  also alleges the amount of potential
lost  commissions to be $25,000,000.  Additional  causes of action,  against the
Chairman  and Chief  Executive  Officer of the Company  include  breaches of his
roles and duties for the plaintiff and unjust enrichment.  The Company's counsel
cannot  predict  the  outcome  of  this  matter  although  it  believes  it  has
meritorious  defenses  and will  vigorously  defend the  action.  Therefore,  no
accrual  has been made at December  31,  1998.  However,  if such  defenses  are
unsuccessful, it may have a material adverse impact on the results of operations
and financial condition of the Company.

[13] Restatement

The Company's statement of stockholders' deficit has been restated to record the
effect of the additional cost of media credits obtained from Proxhill Marketing,
Ltd. in 1996 [See Note 3]. Such amount was $108,170,  and represents the cost of
warrants issued to Proxhill Marketing Ltd. The effect of such restatement of the
1996  financials  was to increase  prepaid  advertising  credits and  additional
paid-in capital. Such restatement had no affect on the statement of operations.







IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12



[14]  New Authoritative Accounting Pronouncements

The  Financial  Accounting  Standard  Board  ["FASB"]  has issued  Statement  of
Financial  Accounting  Standards  ["SFAS"] No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the  derivative  and how it its  designated,  for
example, gain or losses related to changes in the fair value of a derivative not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.

SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

[15] Notes Payable

Notes payable at December 31, 1998 consisted of the following:

Senior secured promissory notes payable,
  due January 31, 1999, including interest
  at 10%, collateralized by all of the assets
  of the Company.                                            $   100,000

Senior secured convertible promissory notes
  payable due January 31, 1999 including
  interest at 10%, collateralized by all of the
  asset of the Company.                                          290,000

  Total                                                      $   390,000
                                                             ===========

The holders of the senior secured  promissory notes payable of $100,000 received
warrants to purchase  100,000 shares of the Company's  common stock at $1.00 per
share.  The Company  recorded  paid-in  capital and  deferred  finance  costs of
$80,505 to be  amortized  over four months.  During the year ended  December 31,
1998,  $60,379  was  amortized  as  interest  expense.  The  warrants  expire in
September 2003. The notes were paid in 1999.

The  senior  secured  convertible  promissory  notes  payable  of  $290,000  are
convertible  into shares of the Company's  common stock at any time prior to the
due date of the notes.  The notes may be converted  into shares of the Company's
common  stock at the rate  equal to the  lessor of (a) $1.00 per share of common
stock, or (b) eighty percent at the average closing "bid" price of the Company's
publicly traded common stock for the five trading days immediately preceding the
conversion. Additionally, the notes included warrants to purchase 290,000 shares
of the Company's  common stock at $1.00 per share.  The Company recorded paid-in
capital and deferred  finance costs of $218,580 to be amortized over three and a
half months.  During the year ended December 31, 1998, $156,129 was amortized as
interest expense. The warrants expire in October 2003 [See Note 16D].








IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE COMPANY]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13



[16] Subsequent Event

[A] Issuance of Common  Stock - On January 15,  1999,  the Board of Directors of
the Company  authorized  the issuance of 80,000 shares of the  Company's  common
stock to satisfy  accrued  expenses  at  December  31,  1998 of $63,000  and for
services to be performed January through April 1999 in the amount of $12,000.

[B] Financing - On February 9, 1999, the Company completed a private offering of
$600,000 of 8% convertible  debentures due January 31, 2002 and 120,000 warrants
to purchase  the  Company's  common  stock at $1.50 per share until  January 31,
2002. Interest is payable quarterly in cash or common stock at the option of the
Company.  The debentures are convertible in $5,000  multiples into shares of the
Company's  common  stock at a  conversion  price for each share of common  stock
equal to 75% of the market price at the conversion  date, but no more than $1.00
per share.  The 25% fair  market  value  adjustment  at date of issue will be an
additional cost to the Company in the year exercised.

[C]  Termination  of Officer - On March 22,  1999,  the Company  terminated  the
employment  contract of the president of the Company,  for cause, as he violated
the terms of his employment agreement which was to expire in October 1999.

[D]  Defaults  on  Convertible  Promissory  Notes  - Two of the  senior  secured
convertible  promissory  notes payable due January 31, 1999 were extended  until
May 25, 1999 and in  consideration  of the extension  the exercise  price of the
warrants was decreased to $.40 per share.  This will result in a financing  cost
in 1999 of $21,000.  The Company  did not pay these notes on May 25,  1999.  The
Company has not received any notices of default, however, all five of the senior
secured  convertible  promissory  notes are deemed to be in default in the total
amount of $118,355 plus interest because of failure to receive  extension or pay
timely.

[E] Waiver of Penalty - On May 26, 1999,  the holder of the Series A Convertible
Preferred  Stock  agreed that the penalty  for the related  registration  rights
shall  apply and accrue up and until April 30,  1999,  however,  thereafter  the
penalty for failure to achieve the required registration shall cease.

EX-10.11

                                                                       EXHIBIT C

                          REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT,  dated as of the 3rd day of February,  1999,
between AMRO International,  S.A. ("Holders"),  and IMSCO TECHNOLOGIES,  INC., a
corporation   incorporated  under  the  laws  of  the  State  of  Delaware  (the
"Company").

         WHEREAS,  simultaneously  with  the  execution  and  delivery  of  this
Agreement,  the  Holders  are  purchasing  from  the  Company,   pursuant  to  a
Convertible  Debenture and Warrant Purchase Agreement dated the date hereof (the
"Purchase  Agreement"),  $600,000 principal amount of Convertible Debentures and
Warrants to purchase up to 120,000  shares of the Company's  Common Stock (terms
not defined  herein  shall have the  meanings  ascribed to them in the  Purchase
Agreement); and

         WHEREAS,  the Company desires to grant to the Holders the  registration
rights set forth herein with respect to the shares of Common Stock issuable upon
conversion of the  Convertible  Debentures  and shares of Common Stock  issuable
upon  exercise  of the  Warrants  (hereinafter  referred  to as the  "Stock"  or
"Securities" of the Company).

         NOW, THEREFORE, the parties hereto mutually agree as follows:

         Section 1. REGISTRABLE SECURITIES. As used herein the term "Registrable
Security"  means the Securities  until (i) the  Registration  Statement has been
declared  effective by the Commission,  and all Securities have been disposed of
pursuant to the Registration Statement, (ii) all Securities have been sold under
circumstances  under which all of the applicable  conditions of Rule 144 (or any
similar  provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Securities  have been  otherwise  transferred to holders who may trade
such Securities  without  restriction  under the Securities Act, and the Company
has  delivered  a new  certificate  or  other  evidence  of  ownership  for such
Securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company,  all Securities may be sold without any time,  volume
or manner limitations  pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. The term  "Registrable  Securities"  means any
and/or all of the  securities  falling  within  the  foregoing  definition  of a
"Registrable   Security."   In  the   event  of  any   merger,   reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock,  such adjustment  shall be deemed to be made in the definition
of "Registrable  Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement.

         Section  2.  RESTRICTIONS  ON  TRANSFER.  The Holder  acknowledges  and
understands that prior to the registration of the Securities as provided herein,
the Securities are  "restricted  securities" as defined in Rule 144  promulgated
under the Act. The Holder  understands  that no  disposition  or transfer of the
Securities  may be made by Holder in the absence of (i) an opinion of counsel to
the  Holder  that  such  transfer  may be made  without  registration  under the
Securities Act or (ii) such registration.

         With a view to making  available to the Holder the benefits of Rule 144
under  the  Securities  Act or any  other  similar  rule  or  regulation  of the
Commission  that may at any time  permit  the Holder to sell  securities  of the
Company to the public without registration ("Rule 144"), the Company agrees to:




                                       1



              (a) comply with the  provisions  of paragraph  (c)(1) of Rule 144;
and

              (b) file with the  Commission  in a timely  manner all reports and
other  documents  required to be filed by the Company  pursuant to Section 13 or
15(d) under the  Exchange  Act;  and, if at any time it is not  required to file
such reports but in the past had been required to or did file such  reports,  it
will,  upon the request of any  Holder,  make  available  other  information  as
required  by,  and so long as  necessary  to permit  sales of,  its  Registrable
Securities pursuant to Rule 144.

         Section 3. REGISTRATION RIGHTS WITH RESPECT TO THE SECURITIES.

              (a) The  Company  agrees  that it will  prepare  and file with the
Securities and Exchange Commission ("Commission"), within thirty (30) days after
the Closing Date, a  registration  statement (on Form S-3, or other  appropriate
registration  statement  if it is  not  eligible  to use  Form  S-3)  under  the
Securities  Act  (the  "Registration  Statement"),  at the sole  expense  of the
Company  (except as provided in Section 3(c) hereof),  in respect of all holders
of  Securities,  so as to permit a public  offering and resale of the Securities
under the Act.

         The  Company  shall  use its best  efforts  to cause  the  Registration
Statement to become effective by June 15, 1999, or, if earlier,  within five (5)
days of SEC clearance to request  acceleration of  effectiveness.  The number of
shares  designated in the Registration  Statement to be registered shall include
all the  Warrant  Shares and 200% of the number of shares of Common  Stock which
would be issued upon conversion of the Convertible  Debentures assuming a Market
Price of $1.00 per share of Common Stock, and shall include appropriate language
regarding  reliance  upon Rule 416 to the extent  permitted  by the  Commission.
Unless otherwise agreed to in writing by the holders, the Registration statement
shall include only (i) the  Registrable  Securities,  and (ii) any or all of the
securities  specifically  listed on Exhibit 1 annexed  hereto.  The Company will
notify Holder of the  effectiveness  of the  Registration  Statement  within one
Trading  Day of such event.  The Company  agrees that it will not enter into any
sale of its securities for cash at a discount to Market Price, as defined in the
Purchase  Agreement  until the 120 days  after the  Registration  Statement  has
become  effective,  without  the  Holder's  prior  written  consent,  except (x)
pursuant to any (i) presently existing employee benefit plan which plan has been
approved by the Company's  stockholders,  (ii) compensatory plan for a full-time
employee or key  consultant,  or (iii)  strategic  partnership or other business
transaction, the principal purpose of which is not simply to raise money; or (y)
if the  Market  Price of the  Common  Stock is less than  $1.00 for 30 out of 45
consecutive  Trading  Days,  and the Holder does not agree in writing to provide
financing  to the  Company on terms  offered by a bona fide third  party  within
three (3) Business  Days of notice from the Company  setting  forth the terms of
such proposed financing

              (b) The  Company  will  maintain  the  Registration  Statement  or
post-effective  amendment filed under this Section 3 hereof  effective under the
Securities  Act until the  earlier of (i) the date that none of the  Convertible
Debentures,  the  Warrants  or  the  Securities  are or may  become  issued  and
outstanding, (ii) the date that all of the Securities have been sold pursuant to
the  Registration  Statement,  (iii) the date the  holders  thereof  receive  an
opinion of counsel to the Company,  which counsel shall be reasonably acceptable
to the Holder,  that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all



                                       2





Securities have been otherwise  transferred to holders who may trade such shares
without  restriction  under the Securities  Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive  legend,  or (v) all Securities may be sold without any time, volume
or manner  limitations  pursuant to Rule 144(k) or any similar provision then in
effect under the Securities Act in the opinion of counsel to the Company,  which
counsel  shall be  reasonably  acceptable  to the  Holders  (the  "Effectiveness
Period").  If necessary,  the Company shall amend the Registration  Statement or
file a  subsequent  new  Registration  Statement to register  additional  shares
necessary  to  have  shares  available  for  issuance  upon  Conversion  of  the
Debenture.

              (c) All fees,  disbursements and out-of-pocket  expenses and costs
incurred by the Company in  connection  with the  preparation  and filing of the
Registration  Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Holder shall bear the cost of
underwriting  and/or  brokerage  discounts,   fees  and  commissions,   if  any,
applicable to the Securities  being  registered and the fees and expenses of its
counsel.  The Holder and its  counsel  shall be  provided  with and shall have a
reasonable  period,  of at least three (3) Trading  Days, to review the proposed
Registration  Statement  or any  amendment  thereto,  prior to  filing  with the
Commission, and the Company shall provide each Holder with copies of any comment
letters received from the Commission with respect thereto within two (2) Trading
Days of receipt thereof.  The Company will not file any statement or information
reasonably  objected  to by  Holder  or its  counsel.  The  Company  shall  make
reasonably   available   for   inspection  by  each  Holder,   any   underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney,  accountant  or  other  agent  retained  by such  Holder  or any  such
underwriter  all  relevant  financial  and other  records,  pertinent  corporate
documents  and  properties  of the Company and its  subsidiaries,  and cause the
Company's officers, directors and employees to supply all information reasonably
requested by such Holder or any such underwriter,  attorney, accountant or agent
in connection with the Registration Statement, in each case, as is customary for
similar  due  diligence  examinations;  PROVIDED,  HOWEVER,  that  all  records,
information and documents that are designated in writing by the Company, in good
faith,  as  confidential,  proprietary  or  containing  any material  non-public
information  shall be kept confidential by such Holder and any such underwriter,
attorney,  accountant  or  agent  (pursuant  to an  appropriate  confidentiality
agreement in the case of any such Holder or agent),  unless such  disclosure  is
made pursuant to judicial process in a court proceeding  (after first giving the
Company an opportunity  promptly to seek a protective  order or otherwise  limit
the scope of the  information  sought to be disclosed) or is required by law, or
such records,  information or documents become available to the public generally
or through a third  party not in  violation  of an  accompanying  obligation  of
confidentiality;  and PROVIDED  FURTHER that, if the  foregoing  inspection  and
information  gathering  would  otherwise  disrupt the  Company's  conduct of its
business, such inspection and information gathering shall, to the maximum extent
possible, be coordinated on behalf of the Holders and the other parties entitled
thereto  by one firm of counsel  designed  by and on behalf of the  majority  in
interest of Holders and other  parties.  The  Company  shall  qualify any of the
securities  for sale in such states as such  Holder  reasonably  designates  and
shall  furnish  indemnification  in the  manner  provided  in  Section 6 hereof.
However,  the  Company  shall not be required to qualify in any state which will
require  an escrow or other  restriction  relating  to the  Company  and/or  the
sellers,  or which will  require  the  Company to qualify to do business in such
state or require the Company to file  therein any general  consent to service of
process.  The Company at its expense  will supply the Holders with copies of the
Registration Statement and



                                       3





the prospectus  included therein and other related  documents in such quantities
as may be reasonably requested by the Holders.

              (d) The Company shall not be required by this Section 3 to include
a Holder's Securities in any Registration  Statement which is to be filed if, in
the opinion of counsel for both the Holder and the Company (or,  should they not
agree, in the opinion of another  counsel  experienced in securities law matters
acceptable  to counsel for the Holder and the Company) the proposed  offering or
other  transfer  as to which  such  registration  is  requested  is exempt  from
applicable  federal and state securities laws and would result in all purchasers
or transferees  obtaining securities which are not "restricted  securities",  as
defined in Rule 144 under the Securities Act.

              (e) In the event that (i) the  Registration  Statement to be filed
by the Company  pursuant to Section 3(a) above is not filed with the  Commission
by April 15, 1999 ("Required Filing Date"),  (ii) the Registration  Statement is
not declared  effective by the  Commission by the earlier of (a) five days after
the SEC has  indicated  that it is prepared to accept a request for  accelerated
effectiveness,  or (b) June 15, 1999, subject to the suspensions described below
("Required  Effective  Date"),  or  (iii)  the  Registration  Statement  is  not
maintained  as effective by the Company for the period set forth in Section 3(b)
above (each a  "Registration  Default")  then the  Company  will pay Holder (pro
rated on a daily  basis),  as  liquidated  damages for such failure and not as a
penalty the amount described  below.  Except during a Financial Update Period or
during a Suspension  Period as such terms are defined below, if the Registration
Statement  covering the Registrable  Securities is not filed in proper form with
the SEC no later than the Required Filing Date, the Company will make payment to
the Holder in such amounts and at such times as shall be determined  pursuant to
this Section. If the Registration  Statement covering the Registrable Securities
is not  effective by the relevant  Required  Effective  Date or if the Holder is
restricted from making sales of Registrable  Securities  covered by a previously
effective  Registration Statement at any time after the Effective Date (the date
such restriction  commences,  a "Restricted  Sale Date"),  then the Company will
make  payments  to the  Holder  in such  amounts  and at such  times as shall be
determined pursuant to this Section .

         The amount  (the  "Periodic  Amount")  to be paid by the Company to the
Holder shall be determined as of each  Computation  Date (as defined  below) and
such amount shall be equal to (A) the  Periodic  Amount  Percentage  (as defined
below) of the purchase price paid by the Holder (the  "Purchase  Price") for all
Debentures  purchased  pursuant to the  Securities  Purchase  Agreement  for the
period  from  the  date  following  the  Required  Filing  Date or the  Required
Effective Date, as the case may be, to the first relevant  Computation Date, and
(B) the Periodic  Amount  Percentage of the Purchase  Price to each  Computation
Date thereafter. The "Periodic Amount Percentage" means one and one-half percent
(1.5%). After the Effective Date, the Purchase Price shall be deemed to refer to
the sum of (A) the principal  amount of all Debentures not yet converted and (B)
the Held Shares Value (as defined  below).  The "Held Shares Value"  means,  for
shares  acquired  by the Holder  upon a  conversion  within the thirty (30) days
preceding  the  Restricted  Sale  Date,  but not yet  sold  by the  Holder,  the
principal  amount  of the  Debentures  converted  into such  Conversion  Shares;
provided,  however,  that if the Holder effected more than one conversion during
such  thirty  (30) day  period and sold less than all of such  shares,  the sold
shares shall be deemed to be derived first from the  conversions in the sequence
of such conversions  (that is, for example,  until the number of shares from the
first of such  conversions have been sold, all shares shall be deemed to be from
the first conversion; thereafter, from the



                                       4





second conversion until all such shares are sold).  Notwithstanding  anything to
the contrary  contained  herein, a failure to maintain the  effectiveness of the
Registration  Statement  or the  ability  of a  Holder  to use the  Registration
Statement to effect  resales of  Securities  during the period after 45 days and
within 90 days from the end of the Company's  fiscal year resulting  solely from
the need to update the Company's financial  statements contained or incorporated
by  reference  in the  Registration  Statement,  or the  earlier  filing  of the
Company's  annual  reports on Form  10-KSB for the  preceding  fiscal  year (the
"Financial Update Period") shall not constitute a Registration Default and shall
not trigger the accrual of liquidated damages hereunder.

         Each  Periodic  Amount  will be payable by the Company in cash or other
immediately  available  funds to the Holder on the day after the Required Filing
Date or the Required  Effective Date, as the case may be, and each thirtieth day
thereafter, without requiring demand therefor by the Holder.

         "Computation  Date"  means  (i) the date  which is the  earlier  of (A)
thirty (30) days after the Required Filing Date, any relevant Required Effective
Date or a  Restricted  Sale Date,  as the case may be, or (B) the date after the
Required  Filing Date,  such Required  Effective Date or Restricted Sale Date on
which the Registration  Statement is filed ,  respectively,  as the case may be,
and (ii)  each date  which is the  earlier  of (A)  thirty  (30) days  after the
Registration Statement is filed or is declared effective or has its restrictions
removed, as the case may be.

         If the  Company  does not remit the  damages to the Holder as set forth
above, the Company will pay the Holder reasonable costs of collection, including
attorneys fees, in addition to the liquidated  damages.  The registration of the
Securities  pursuant to this provision  shall not affect or limit Holder's other
rights or remedies as set forth in this Agreement.

              (f) No provision  contained herein shall preclude the Company from
selling  securities  pursuant  to any  Registration  Statement  in  which  it is
required to include Securities pursuant to this Section 3.

              (g) Notwithstanding the foregoing,  if at any time or from time to
time after the date of effectiveness of the Registration Statement,  the Company
notifies the Holders in writing of the existence of a Potential  Material Event,
as  defined  below,  the  Holders  shall  not  offer  or  sell  any  Registrable
Securities,  or engage in any other  transaction  involving  or  relating to the
Registrable Securities,  from the time of the giving of notice with respect to a
Potential  Material  Event until such Holder  receives  written  notice from the
Company that such  Potential  Material  Event  either has been  disclosed to the
public or no longer constitutes a Potential Material Event;  provided,  however,
that the  Company may not so suspend  the right to such  holders of  Registrable
Securities for more than two twenty (20) day periods in the aggregate during any
12 month  period  ("Suspension  Period")  with at least a ten (10)  business day
interval between such periods,  during the periods the Registration Statement is
required to be in effect;

              (h) "Potential Material Event" means any of the following: (i) the
possession by the Company of material  information  not ripe for disclosure in a
registration statement,  which shall be evidenced by determination in good faith
by the Board of Directors of the Company that disclosure of such  information in
the  registration  statement would be detrimental to the business and affairs of
the Company;  or (ii) any material  engagement  or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely



                                       5





affected by  disclosure  in a  registration  statement at such time and that the
registration  statement would be materially  misleading  absent the inclusion of
such information.

         Section 4.  COOPERATION  WITH COMPANY.  Each Holder will cooperate with
the Company in all respects in connection with this Agreement,  including timely
supplying  all  information  reasonably  requested  by the Company  (which shall
include all information  regarding the Holder and proposed manner of sale of the
Registrable  Securities required to be disclosed in the Registration  Statement)
and executing and  returning  all documents  reasonably  requested in connection
with the registration  and sale of the Registrable  Securities and entering into
and performing its obligations under any underwriting agreement, if the offering
is an  underwritten  offering,  in usual and customary  form,  with the managing
underwriter  or  underwriters  of such  underwritten  offering.  Nothing in this
Agreement  shall obligate the Holder to consent to be named as an underwriter in
the  Registration  Statement.  The  obligation  of the Company to  register  the
Registrable   Securities  shall  be  absolute  and  unconditional  as  to  those
Securities which the Commission will permit to be registered  without naming the
Holder as an underwriter,  notwithstanding that such Registrable  Securities may
be limited to only those  Conversion  Shares  issuable  upon  conversion  of the
Convertible Debentures.

         Section 5.  REGISTRATION  PROCEDURES.  If and  whenever  the Company is
required by any of the provisions of this  Agreement to effect the  registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible,  subject to
the Holders' assistance and cooperation as reasonably required:

              (a)(i)  prepare and file with the Commission  such  amendments and
supplements to the Registration  Statement and the prospectus used in connection
therewith as may be necessary to keep such registration  statement effective and
to  comply  with the  provisions  of the Act with  respect  to the sale or other
disposition of all securities  covered by such registration  statement  whenever
the Holder of such  Registrable  Securities  shall  desire to sell or  otherwise
dispose of the same (including prospectus  supplements with respect to the sales
of securities  from time to time in  connection  with a  registration  statement
pursuant to Rule 415 promulgated  under the Act) and (ii) take all lawful action
such that each of (A) the Registration  Statement and any amendment thereto does
not, when it becomes  effective,  contain an untrue statement of a material fact
or omit to state a material fact  required to be stated  therein or necessary to
make the statements therein,  not misleading and (B) the Prospectus forming part
of the Registration Statement, and any amendment or supplement thereto, does not
at any time during the  Registration  Period  include an untrue  statement  of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

              (b)(i) prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft copies thereof
to the Holders and reflect in such  documents  all such  comments as the Holders
(and their counsel)  reasonably may propose respecting the Selling  Shareholders
and Plan of  Distribution  sections  (or  equivalents)  and (ii) furnish to each
Holder such numbers of copies of a prospectus including a preliminary prospectus
or any amendment or supplement to any prospectus,  as applicable,  in conformity
with the requirements of the Act, and such other  documents,  as such Holder may
reasonably  request in order to facilitate the public sale or other  disposition
of the securities owned by such Holder;






                                       6




              (c) register and qualify the Registrable Securities covered by the
Registration  Statement  under  such other  securities  or blue sky laws of such
jurisdictions  as  the  Holders  shall   reasonably   request  (subject  to  the
limitations set forth in Section 3(d) above),  and do any and all other acts and
things which may be  necessary or advisable to enable each Holder to  consummate
the public sale or other  disposition  in such  jurisdiction  of the  securities
owned by such Holder,  except that the Company shall not for any such purpose be
required to qualify to do business as a foreign  corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to service
of process;

              (d)  list  such  Registrable  Securities  on  the  American  Stock
Exchange,  other national securities exchange, the NASDAQ National Market or the
NASDAQ  Small-Cap  Market,  if the Common Stock of the Company is then listed on
such exchanges,  if the listing of such Registrable Securities is then permitted
under the rules of such exchange or NASDAQ;

              (e) notify each Holder of  Registrable  Securities  covered by the
Registration  Statement,  at any time when a prospectus relating thereto covered
by the Registration  Statement is required to be delivered under the Act, of the
happening  of any  event of  which it has  knowledge  as a result  of which  the
prospectus included in the Registration  Statement,  as then in effect, includes
an  untrue  statement  of a  material  fact or omits to  state a  material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading  in the light of the  circumstances  then  existing,  and the Company
shall  prepare and file a curative  amendment  under  Section 5(a) as quickly as
commercially possible;

              (f) as promptly as practicable after becoming aware of such event,
notify each Holder who holds Registrable Securities being sold (or, in the event
of an underwritten  offering,  the managing underwriters) of the issuance by the
Commission  of any stop order or other  suspension of the  effectiveness  of the
Registration  Statement at the earliest possible time and take all lawful action
to effect  the  withdrawal,  recession  or  removal  of such stop order or other
suspension;

              (g)  cooperate  with the Holders who hold  Registrable  Securities
being offered to facilitate the timely  preparation and delivery of certificates
for the  Registrable  Securities  to be  offered  pursuant  to the  Registration
Statement and enable such  certificates for the Registrable  Securities to be in
such denominations or amounts, as the case may be, as the Holders reasonably may
request and  registered  in such names as the Holders may request;  and,  within
three Trading Days after a Registration  Statement  which  includes  Registrable
Securities  is declared  effective  by the  Commission,  deliver and cause legal
counsel  selected  by the  Company  to  deliver  to the  transfer  agent for the
Registrable  Securities (with copies to the Holders whose Registrable Securities
are included in such Registration  Statement) an appropriate instruction and, to
the extent necessary, an opinion of such counsel;

              (h) take all such other  lawful  actions  reasonably  necessary to
expedite and  facilitate  the  disposition  by the Holders of their  Registrable
Securities  in accordance  with the intended  methods  therefor  provided in the
prospectus which are customary for issuers to perform under the circumstances;

              (i) in the event of an underwritten offering,  promptly include or
incorporate  in a  Prospectus  supplement  or  post-effective  amendment  to the
Registration



                                       7





Statement such  information as the managers  reasonably agree should be included
therein  and to which  the  Company  does  not  reasonably  object  and make all
required filings of such Prospectus  supplement or  post-effective  amendment as
soon as  practicable  after it is  notified  of the  matters to be  included  or
incorporated in such Prospectus supplement or post-effective amendment; and

              (j) maintain a transfer agent and registrar for its Common Stock.

         Section 6. INDEMNIFICATION.

              (a) The Company  agrees to indemnify and hold harmless each Holder
and each  person,  if any, who  controls  such Holder  within the meaning of the
Securities Act ("Distributing  Holder") against any losses,  claims,  damages or
liabilities,  joint or several (which shall, for all purposes of this Agreement,
include,   but  not  be  limited  to,  all  reasonable   costs  of  defense  and
investigation  and all reasonable  attorneys'  fees), to which the  Distributing
Holder may become  subject,  under the Securities  Act or otherwise,  insofar as
such losses,  claims,  damages or  liabilities  (or actions in respect  thereof)
arise out of or are based upon any untrue  statement or alleged untrue statement
of any material fact  contained in the  Registration  Statement,  or any related
preliminary prospectus,  final prospectus or amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements therein not misleading;  provided, however, that the Company will not
be liable in any such case to the extent  that any such loss,  claim,  damage or
liability  arises out of or is based upon an untrue  statement or alleged untrue
statement or omission or alleged  omission made in the  Registration  Statement,
preliminary  prospectus,  final prospectus or amendment or supplement thereto in
reliance  upon, and in conformity  with,  written  information  furnished to the
Company by the  Distributing  Holder,  specifically  for use in the  preparation
thereof.  This Section  6(a) shall not inure to the benefit of any  Distributing
Holder  with  respect  to any  person  asserting  such  loss,  claim,  damage or
liability who purchased the Registrable Securities which are the subject thereof
if the  Distributing  Holder  failed  to  send  or  give  (in  violation  of the
Securities Act or the rules and  regulations  promulgated  thereunder) a copy of
the  prospectus  contained in such  Registration  Statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities,  where the  Distributing  Holder  was  obligated  to do so under the
Securities  Act  or the  rules  and  regulations  promulgated  thereunder.  This
indemnity  agreement will be in addition to any liability  which the Company may
otherwise have.

              (b) Each  Distributing  Holder  agrees that it will  indemnify and
hold harmless the Company, and each officer,  director of the Company or person,
if any,  who  controls  the Company  within the meaning of the  Securities  Act,
against  any  losses,  claims,  damages or  liabilities  (which  shall,  for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and  investigation  and all reasonable  attorneys' fees) to which the
Company or any such officer,  director or controlling  person may become subject
under the Securities Act or otherwise,  insofar as such losses,  claims, damages
or  liabilities  (or actions in respect  thereof) arise out of or are based upon
any untrue  statement or alleged untrue statement of any material fact contained
in the Registration  Statement,  or any related  preliminary  prospectus,  final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged  omission to state  therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement  or  omission  or  alleged  omission  was  made  in  the  Registration
Statement, preliminary prospectus, final prospectus or amendment



                                       8





or  supplement  thereto  in  reliance  upon,  and in  conformity  with,  written
information  furnished to the Company by such Distributing Holder,  specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Holder may otherwise have.

              (c)  Promptly  after  receipt by an  indemnified  party under this
Section 6 of notice of the commencement of any action,  such  indemnified  party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the  omission  so to notify  the  indemnifying  party will not  relieve  the
indemnifying party from any liability which it may have to any indemnified party
except to the extent of actual prejudice demonstrated by the indemnifying party.
In case any such  action  is  brought  against  any  indemnified  party,  and it
notifies the indemnifying  party of the commencement  thereof,  the indemnifying
party will be entitled to  participate  in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof,  subject to the  provisions  herein  stated and after  notice  from the
indemnifying  party to such  indemnified  party of its election so to assume the
defense thereof,  the indemnifying  party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such  indemnified  party in  connection  with the defense  thereof other than
reasonable  costs of  investigation,  unless the  indemnifying  party  shall not
pursue the action to its final conclusion.  The indemnified party shall have the
right to employ  separate  counsel in any such action and to  participate in the
defense  thereof,  but the fees and expenses of such counsel shall not be at the
expense of the  indemnifying  party if the  indemnifying  party has  assumed the
defense of the action with counsel  reasonably  satisfactory  to the indemnified
party;  provided that if the indemnified party is the Distributing  Holder,  the
fees and  expenses of such counsel  shall be at the expense of the  indemnifying
party if (i) the employment of such counsel has been specifically  authorized in
writing by the indemnifying  party, or (ii) the named parties to any such action
(including any impleaded  parties) include both the Distributing  Holder and the
indemnifying  party and the Distributing  Holder shall have been advised by such
counsel  that  there  may  be  one  or  more  legal  defenses  available  to the
indemnifying  party  different from or in conflict with any legal defenses which
may be  available  to the  Distributing  Holder (in which case the  indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing  Holder,  it being understood,  however,  that the indemnifying
party  shall,   in  connection   with  any  one  such  action  or  separate  but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which  firm shall be  designated  in writing  by the  Distributing  Holder).  No
settlement of any action against an indemnified  party shall be made without the
prior  written  consent of the  indemnified  party,  which  consent shall not be
unreasonably withheld.

         Section 7.  CONTRIBUTION.  In order to provide  for just and  equitable
contribution  under the Securities Act in any case in which (i) the  indemnified
party  makes a claim for  indemnification  pursuant  to  Section 6 hereof but is
judicially  determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for  indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified  party,  then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject



                                       9





(which shall,  for all purposes of this Agreement,  include,  but not be limited
to,  all  reasonable  costs of  defense  and  investigation  and all  reasonable
attorneys'  fees), in either such case (after  contribution  from others) on the
basis of relative fault as well as any other relevant equitable  considerations.
The relative  fault shall be  determined  by reference  to, among other  things,
whether  the  untrue or  alleged  untrue  statement  of a  material  fact or the
omission or alleged  omission to state a material  fact  relates to  information
supplied by the Company on the one hand or the applicable Distributing Holder on
the  other  hand,  and  the  parties'  relative  intent,  knowledge,  access  to
information  and  opportunity  to correct or prevent such statement or omission.
The  Company  and the  Distributing  Holder  agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of  allocation  which does not take account of
the equitable  considerations  referred to in this Section 7. The amount paid or
payable by an indemnified  party as a result of the losses,  claims,  damages or
liabilities (or actions in respect thereof)  referred to above in this Section 7
shall be deemed to include any legal or other  expenses  reasonably  incurred by
such  indemnified  party in connection with  investigating or defending any such
action or claim.  No person guilty of fraudulent  misrepresentation  (within the
meaning  of  Section  11(f)  of  the  Securities   Act)  shall  be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.

Notwithstanding any other provision of this Section 7, in no event shall any (i)
Holder be required to undertake liability to any person under this Section 7 for
any  amounts in excess of the dollar  amount of the  proceeds  to be received by
such  Holder  from  the  sale of such  Holder's  Registrable  Securities  (after
deducting any fees,  discounts and commissions  applicable  thereto) pursuant to
any  Registration  Statement under which such  Registrable  Securities are to be
registered  under  the  Securities  Act and  (ii)  underwriter  be  required  to
undertake  liability  to any person  hereunder  for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the  Registrable  Securities  underwritten by it and distributed
pursuant to the Registration Statement.

         Section  8.  NOTICES.  All  notices,   demands,   requests,   consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein,  shall be (i) personally served,
(ii) deposited in the mail,  registered or certified,  return receipt requested,
postage  prepaid,  (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other  address as such party shall have  specified
most recently by written notice. Any notice or other  communication  required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or  delivery  by  facsimile,   with  accurate  confirmation   generated  by  the
transmitting  facsimile  machine,  at the address or number designated below (if
delivered on a Trading Day during normal  business hours where such notice is to
be received),  or the first  Trading Day  following  such delivery (if delivered
other than on a Trading Day during normal business hours where such notice is to
be received) or (b) on the second  Trading Day  following the date of mailing by
reputable  courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing,  whichever shall first occur.  The addresses for
such communications shall be:

        If to the Company:                  IMSCO TECHNOLOGIES, INC.
                                            40 Bayfield Drive
                                            NorthAndover, MA 01845
                                            Attention:  Chief Executive Officer





                                       10




                                            Telephone: (978) 689-2080
                                            Fax:  (978) 689-2585

        with a copy to:
        (shall not constitute notice)       Epstein Becker & Green, P.C.
                                            250 Park Avenue
                                            New York, NY 10177
                                            Attention: David E. Fleming, Esq.
                                            Telephone:  (212) 351-4500
                                            Fax:  (212) 661-0989

        If to the Holder:                   AMRO International, S.A.
                                            c/o Ultra Finance
                                            Grossmunster Platz 26
                                            Zurich CH 8022
                                            Switzerland
                                            Telephone:  011-
                                            Facsimile:   011-411-262-5515


        with a copy to:                     Sam Krieger, Esq.
        (shall not constitute notice)       Krieger & Prager
                                            319 Fifth Avenue
                                            New York, New York 10016
                                            Telephone: (212) 689-3322
                                            Fax: (212) 213-2077


Either party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.

         Section 9. ASSIGNMENT. This Agreement is binding upon and inures to the
benefit  of the  parties  hereto  and their  respective  heirs,  successors  and
permitted  assigns.  The rights  granted the Holders under this Agreement may be
assigned to any purchaser of substantially all of the Registrable Securities (or
the rights  thereto)  from a Holder,  as  otherwise  permitted  by the  Purchase
Agreement.  In  the  event  of a  transfer  of the  rights  granted  under  this
Agreement,  the Holder  agrees that the Company may require that the  transferee
comply  with  reasonable  conditions  as  determined  in the  discretion  of the
Company.

         Section 10.  ADDITIONAL  COVENANTS OF THE COMPANY.  The Company  agrees
that at such time as it meets all the requirements for the use of Securities Act
Registration  Statement  on Form S-3 it shall file all reports  and  information
required to be filed by it with the  Commission  in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.

         Section 11.  COUNTERPARTS/FACSIMILE.  This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more



                                       11





counterparts  have been signed by each party  hereto and  delivered to the other
party. In lieu of the original, a facsimile transmission or copy of the original
shall be as effective and enforceable as the original.

         Section 12.  REMEDIES.  The  remedies  provided in this  Agreement  are
cumulative  and not  exclusive  of any  remedies  provided  by law. If any term,
provision,  covenant  or  restriction  of this  Agreement  is held by a court of
competent  jurisdiction  to be  invalid,  illegal,  void or  unenforceable,  the
remainder of the terms, provisions,  covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected,  impaired
or invalidated,  and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that  contemplated by such term,  provision,  covenant or restriction.  It is
hereby  stipulated  and  declared to be the  intention  of the parties that they
would have executed the remaining terms, provisions,  covenants and restrictions
without including any of such that may be hereafter  declared invalid,  illegal,
void or unenforceable.

         Section 13.  CONFLICTING  AGREEMENTS.  The Company shall not enter into
any  agreement  with respect to its  securities  that is  inconsistent  with the
rights  granted to the holders of  Registrable  Securities in this  Agreement or
otherwise  prevents  the  Company  from  complying  with all of its  obligations
hereunder.

         Section 14. HEADINGS.  The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or  interpretation  of
this Agreement.

         Section  15.  GOVERNING  LAW,  ARBITRATION.  This  Agreement  shall  be
governed by and construed in  accordance  with the laws of the State of New York
applicable to contracts  made in New York by persons  domiciled in New York City
and without  regard to its  principles  of conflicts of laws.  Any dispute under
this Agreement shall be submitted to arbitration under the American  Arbitration
Association  (the  "AAA") in New York City,  New York,  and shall be finally and
conclusively  determined by the decision of a board of arbitration consisting of
three (3)  members  (hereinafter  referred  to as the  "Board  of  Arbitration")
selected as according to the rules  governing the AAA. The Board of  Arbitration
shall meet on  consecutive  Trading Days in New York City,  New York,  and shall
reach and  render a  decision  in writing  (concurred  in by a  majority  of the
members of the Board of Arbitration)  with respect to the amount,  if any, which
the losing  party is  required  to pay to the other  party in respect of a claim
filed.  In connection  with  rendering its  decisions,  the Board of Arbitration
shall  adopt  and  follow  the laws of the  State  of New  York.  To the  extent
practical,  decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following  commencement  of  proceedings  with respect
thereto.  The Board of  Arbitration  shall  cause  its  written  decision  to be
delivered to all parties involved in the dispute. Any decision made by the Board
of  Arbitration  (either  prior to or after the  expiration  of such thirty (30)
calendar day period)  shall be final,  binding and  conclusive on the parties to
the dispute,  and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction.  The non-prevailing party to
any  arbitration  (as  determined  by the  Board of  Arbitration)  shall pay the
expenses of the  prevailing  party,  including  reasonable  attorneys'  fees, in
connection with such arbitration.

         Section 16. SEVERABILITY.  If any provision of this Agreement shall for
any reason be held invalid or unenforceable,  such invalidity or unenforceablity
shall not affect any other



                                       12





provision  hereof and this  Agreement  shall be  construed as if such invalid or
unenforceable provision had never been contained herein.


         Section 17.  CAPITALIZED  TERMS.  All  capitalized  terms not otherwise
defined  herein  shall  have  the  meaning  assigned  to  them  in the  Purchase
Agreement.




                                       13






         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.


                                        IMSCO TECHNOLOGIES, INC.


                                        By:
                                           -------------------------------------
                                           Alexander T. Hoffmann,
                                           Chairman and Chief Executive Officer


                                        AMRO INTERNATIONAL, S.A.



                                        By:
                                           -------------------------------------
                                           H. U. Bachofen,
                                           Director


                                       14

EX-10.12

NEITHER  THIS WARRANT NOR THE SHARES  ISSUABLE  UPON  EXERCISE  HEREOF HAVE BEEN
REGISTERED  WITH THE UNITED  STATES  SECURITIES  AND  EXCHANGE  COMMISSION  (THE
"COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM  REGISTRATION  UNDER  REGULATION D PROMULGATED  UNDER THE SECURITIES ACT OF
1933,  AS AMENDED (THE  "SECURITIES  ACT").  NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE  UPON EXERCISE  HEREOF MAY BE SOLD,  PLEDGED,  TRANSFERRED  OR ASSIGNED
EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION  WHICH IS EXEMPT
FROM  REGISTRATION  UNDER  THE  PROVISIONS  OF  THE  SECURITIES  ACT  AND  UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.



                             STOCK PURCHASE WARRANT


                  To Purchase 120,000 Shares of Common Stock of

                            IMSCO TECHNOLOGIES, INC.

         THIS CERTIFIES that, for value received, AMRO INTERNATIONAL,  S.A. (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth,  at any time on or after the date of  issuance of this  Warrant  (the
"Initial Exercise Date") and on or prior to the close of business on January 31,
2002 (the "Termination Date") but not thereafter,  to subscribe for and purchase
from IMSCO TECHNOLOGIES, INC., a Delaware corporation (the "Company"), up to One
Hundred and Twenty Thousand  (120,000)  shares (the "Warrant  Shares") of Common
Stock, no par value per share of the Company (the "Common Stock").  The purchase
price of one share of Common  Stock (the  "Exercise  Price")  under this Warrant
shall be One Dollar and Fifty Cents  ($1.50).  The Exercise Price and the number
of shares for which the Warrant is exercisable shall be subject to adjustment as
provided  herein.  This Warrant is being issued in connection with the Debenture
and Warrant  Purchase  Agreement  between the Holder and the Company dated as of
February 3, 1999 (the  "Agreement")  and is subject to its terms and conditions.
In the  event  of any  conflict  between  the  terms  of  this  Warrant  and the
Agreement, the Agreement shall control. Capitalized terms used and not otherwise
defined  herein  shall  have  the  meanings  set  forth  for  such  terms in the
Agreement.






         1. TITLE OF  WARRANT.  Prior to the  expiration  hereof and  subject to
compliance  with  applicable  laws,  this Warrant and all rights  hereunder  are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized  attorney,  upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.

         2.  AUTHORIZATION OF SHARES.  The Company  covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights  represented by this Warrant,  be duly
authorized,  validly  issued,  fully  paid and  nonassessable  and free from all
taxes,  liens and charges in respect of the issue  thereof  (other than taxes in
respect of any transfer occurring contemporaneously with such issue).

         3.  EXERCISE  OF  WARRANT.  Except  as  provided  in  Section 4 herein,
exercise of the purchase  rights  represented by this Warrant may be made at any
time or times on or after the  Initial  Exercise  Date,  and before the close of
business on the Termination Date, or such earlier date on which this Warrant may
terminate  as provided  elsewhere  in this  Warrant,  by the  surrender  of this
Warrant and the Notice of Exercise  Form annexed  hereto duly  executed,  at the
office of the Company  (or such other  office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address of
such  holder  appearing  on the books of the  Company)  and upon  payment of the
Exercise  Price of the shares  thereby  purchased by wire  transfer or cashier's
check  drawn on a United  States  bank,  the  holder  of this  Warrant  shall be
entitled to receive a  certificate  for the number of shares of Common  Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to the
holder  hereof  within  three (3)  business  days  after the date on which  this
Warrant shall have been exercised as aforesaid.  This Warrant shall be deemed to
have been exercised and such certificate or certificates shall be deemed to have
been issued,  and Holder or any other person so  designated  to be named therein
shall be  deemed  to have  become a holder  of  record  of such  shares  for all
purposes,  as of the date the  Warrant  has been  exercised  by  payment  to the
Company of the Exercise  Price and all taxes  required to be paid by Holder,  if
any, pursuant to Section 5 prior to the issuance of such shares, have been paid.
If this Warrant shall have been  exercised in part,  the Company  shall,  at the
time of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant  evidencing the rights of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.  Notwithstanding the
provisions of the Debenture and Warrant  Purchase  Agreement or of the Warrants,
in no event other than upon a Mandatory Conversion, as defined in the Debenture,
or while there is outstanding a tender offer for any or all of the shares of the
Company's common stock shall the Holder be entitled,  shall the Company have the
obligation,  to permit  exercise of this Warrant to the extent that,  after such
exercise, the sum of (1) the number of shares of Common Stock beneficially owned
by the Holder and its Affiliates (other than shares of Common Stock which may be
deemed  beneficially  owned through the ownership of the unconverted  portion of
the  Debentures or unexercised  portion of the Warrants),  and (2) the number of
shares of  Common  Stock  issuable  upon the  conversion  of the  Debentures  or
exercise of the Warrants with respect to which the determination of this proviso
is being  made,  would  result in  beneficial  ownership  by the  Holder and its
affiliates of more than 9.99% of the  outstanding  shares of Common Stock (after
taking into account the shares to be issued to the



                                       2





Holder upon such  conversion  or  exercise).  For  purposes  of the  immediately
preceding sentence,  beneficial ownership shall be determined in accordance with
Section  13(d) of the  Securities  Exchange  Act of 1934,  as amended (the "1934
Act") and Regulation 13D-G  thereunder,  except as otherwise  provided in clause
(1) of such sentence.  The Holder further agrees that if the Holder transfers or
assigns any of this Warrant to a party who or which would not be  considered  an
Affiliate, such transfer or assignment shall be made subject to the transferee's
or assignee's specific agreement to be bound the provisions of this paragraph as
if such transferee or assignee were a signatory to this Agreement.






                                       3





         4. NO  FRACTIONAL  SHARES  OR  SCRIP.  No  fractional  shares  or scrip
representing  fractional  shares  shall  be  issued  upon the  exercise  of this
Warrant.  As to any fraction of a share which Holder would otherwise be entitled
to purchase  upon such  exercise,  the Company  shall pay a cash  adjustment  in
respect of such final fraction in an amount equal to the Exercise Price.

         5. CHARGES, TAXES AND EXPENSES.  Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant  shall be made without  charge to
the holder hereof for any issue or transfer tax or other  incidental  expense in
respect of the  issuance of such  certificate,  all of which taxes and  expenses
shall be paid by the Company,  and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant;  provided,  however,  that in the event certificates for
shares of Common  Stock  are to be issued in a name  other  than the name of the
holder of this  Warrant,  this Warrant when  surrendered  for exercise  shall be
accompanied by the Assignment  Form attached  hereto duly executed by the holder
hereof;  and provided further,  that upon any transfer involving the issuance or
delivery  of any  certificates  for  shares of Common  Stock,  the  Company  may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

         6. CLOSING OF BOOKS.  The Company will not close its shareholder  books
or records in any manner which prevents the timely exercise of this Warrant.

         7. TRANSFER,  DIVISION AND COMBINATION.  (a) Subject to compliance with
any  applicable  securities  laws  (including the provision to the Company of an
opinion of counsel for the assignor of this  Warrant),  transfer of this Warrant
and all rights hereunder,  in whole or in part, shall be registered on the books
of the Company to be maintained for such purpose, upon surrender of this Warrant
at the principal  office of the Company,  together with a written  assignment of
this Warrant  substantially  in the form attached hereto duly executed by Holder
or its agent or attorney and funds  sufficient to pay any transfer taxes payable
upon the making of such transfer.  Upon such  surrender  and, if required,  such
payment,  the Company shall execute and deliver a new Warrant or Warrants in the
name of the  assignee or  assignees  and in the  denomination  specified in such
instrument  of  assignment,  and  shall  issue  to the  assignor  a new  Warrant
evidencing  the portion of this Warrant not so assigned,  and this Warrant shall
promptly be cancelled.  A Warrant,  if properly assigned,  may be exercised by a
new Holder  for the  purchase  of shares of Common  Stock  without  having a new
Warrant issued.

              (b) This  Warrant may be divided or combined  with other  Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice  specifying the names and denominations in which new Warrants are
to be issued,  signed by Holder or its agent or attorney.  Subject to compliance
with Section 7(a), as to any transfer  which may be involved in such division or
combination,  the Company shall execute and deliver a new Warrant or Warrants in
exchange  for the Warrant or  Warrants  to be divided or combined in  accordance
with such notice.




                                       4






              (c) The  Company  shall  prepare,  issue  and  deliver  at its own
expense  (other than  transfer  taxes) the new  Warrant or  Warrants  under this
Section 7.

              (d) The Company agrees to maintain, at its aforesaid office, books
for the registration and the registration of transfer of the Warrants.

         8. NO RIGHTS AS  SHAREHOLDER  UNTIL  EXERCISE.  This  Warrant  does not
entitle the holder  hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof.  Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such  holder as the record  owner of such
shares as of the close of business on the later of the date of such surrender or
payment.

         9. LOSS,  THEFT,  DESTRUCTION  OR  MUTILATION  OF WARRANT.  The Company
represents and warrants that upon receipt by the Company of evidence  reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in case
of loss, theft or destruction,  of indemnity or security reasonably satisfactory
to it, and upon surrender and cancellation of such Warrant or stock certificate,
if  mutilated,  the  Company  will  make  and  deliver  a new  Warrant  or stock
certificate  of like  tenor and dated as of such  cancellation,  in lieu of such
Warrant or stock certificate.

         10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the  taking of any action or the  expiration  of any right  required  or granted
herein shall be a Saturday,  Sunday or a legal holiday,  then such action may be
taken or such right may be exercised on the next  succeeding day not a Saturday,
Sunday or legal holiday.

         11. ADJUSTMENTS OF  EXERCISE  PRICE AND NUMBER OF WARRANT  SHARES.  (a)
Stock  Splits,  etc.  The number  and kind of  securities  purchasable  upon the
exercise of this Warrant and the Exercise  Price shall be subject to  adjustment
from  time to time  upon  the  happening  of any of the  following.  In case the
Company  shall  (i)  pay a  dividend  in  shares  of  Common  Stock  or  make  a
distribution  in shares of Common  Stock to  holders of its  outstanding  Common
Stock,  (ii)  subdivide  its  outstanding  shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller  number of shares of Common  Stock or (iv) issue any shares
of its capital stock in a reclassification  of the Common Stock, then the number
of Warrant Shares  purchasable upon exercise of this Warrant  immediately  prior
thereto  shall be adjusted so that the holder of this Warrant  shall be entitled
to  receive  the kind and number of Warrant  Shares or other  securities  of the
Company  which he would have  owned or have been  entitled  to receive  had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and  number of  Warrant  Shares or other  securities  of the  Company  which are
purchasable  hereunder,  the holder of this Warrant shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
adjustment  at an  Exercise  Price  per such  Warrant  Share  or other  security
obtained by multiplying the Exercise Price in effect  immediately  prior to such
adjustment  by  the  number  of  Warrant  Shares  purchasable   pursuant  hereto
immediately  prior to such  adjustment  and  dividing  by the  number of Warrant
Shares or other securities of the Company resulting from such



                                       5





adjustment. An adjustment made pursuant to this paragraph shall become effective
immediately  after the effective  date of such event  retroactive  to the record
date, if any, for such event.

              (a)

              (b)  REORGANIZATION,  RECLASSIFICATION,  MERGER,  CONSOLIDATION OR
DISPOSITION  OF  ASSETS.  In case the  Company  shall  reorganize  its  capital,
reclassify  its  capital  stock,  consolidate  or  merge  with or  into  another
corporation  (where the Company is not the surviving  corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business  to another  corporation  and,  pursuant to the terms of such
reorganization,   reclassification,  merger,  consolidation  or  disposition  of
assets, shares of common stock of the successor or acquiring corporation, or any
cash,  shares of stock or other securities or property of any nature  whatsoever
(including  warrants or other subscription or purchase rights) in addition to or
in lieu of  common  stock of the  successor  or  acquiring  corporation  ("Other
Property"),  are to be received by or distributed to the holders of Common Stock
of the Company,  then the holder of this Warrant shall have the right thereafter
to receive,  upon exercise of this Warrant, the number of shares of common stock
of the  successor  or  acquiring  corporation  or of the  Company,  if it is the
surviving corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common  Stock for which  this  Warrant is
exercisable immediately prior to such event. In case of any such reorganization,
reclassification,  merger, consolidation or disposition of assets, the successor
or acquiring  corporation (if other than the Company) shall expressly assume the
due and  punctual  observance  and  performance  of each and every  covenant and
condition of this  Warrant to be  performed  and observed by the Company and all
the obligations and liabilities hereunder,  subject to such modifications as may
be deemed  appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for  adjustments  of shares of Common Stock for
which  this  Warrant  is  exercisable  which  shall be as nearly  equivalent  as
practicable to the adjustments  provided for in this Section 11. For purposes of
this Section 11, "common stock of the successor or acquiring  corporation" shall
include  stock of such  corporation  of any class which is not  preferred  as to
dividends or assets over any other class of stock of such  corporation and which
is  not  subject  to  redemption   and  shall  also  include  any  evidences  of
indebtedness,  shares of stock or other securities which are convertible into or
exchangeable  for any such stock,  either  immediately  or upon the arrival of a
specified  date or the happening of a specified  event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing  provisions of
this  Section  11  shall   similarly   apply  to   successive   reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         12. VOLUNTARY  ADJUSTMENT BY THE  COMPANY.  The Company may at any time
during the term of this Warrant,  reduce the then current  Exercise Price to any
amount and for any period of time deemed  appropriate  by the Board of Directors
of the Company.

         13. NOTICE  OF ADJUSTMENT.  Whenever  the number of  Warrant  Shares or
number or kind of securities or other property  purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided,  the Company
shall promptly mail by registered or certified



                                       6





mail,  return  receipt  requested,  to the holder of this Warrant notice of such
adjustment or adjustments  setting forth the number of Warrant Shares (and other
securities  or property)  purchasable  upon the exercise of this Warrant and the
Exercise Price of such Warrant Shares (and other  securities or property)  after
such  adjustment,  setting forth a brief  statement of the facts  requiring such
adjustment and setting forth the  computation by which such adjustment was made.
Such notice, in absence of manifest error,  shall be conclusive  evidence of the
correctness of such adjustment.

         14. NOTICE OF CORPORATE ACTION. If at any time:

              (a) the  Company  shall take a record of the holders of its Common
Stock  for the  purpose  of  entitling  them to  receive  a  dividend  or  other
distribution,  or any right to subscribe  for or purchase  any  evidences of its
indebtedness,  any  shares  of stock of any  class or any  other  securities  or
property, or to receive any other right, or

              (b) there shall be any capital  reorganization of the Company, any
reclassification  or recapitalization of the capital stock of the Company or any
consolidation  or merger of the  Company  with,  or any sale,  transfer or other
disposition of all or substantially all the property,  assets or business of the
Company to, another corporation or,

              (c)  there  shall  be  a  voluntary  or  involuntary  dissolution,
liquidation or winding up of the Company;

then, in any one or more of such cases,  the Company shall give to Holder (i) at
least 30 days'  prior  written  notice  of the  record  date for such  dividend,
distribution or right or for  determining  rights to vote in respect of any such
reorganization,   reclassification,   merger,  consolidation,   sale,  transfer,
disposition,  liquidation  or  winding  up,  and  (ii) in the  case of any  such
reorganization,   reclassification,   merger,  consolidation,   sale,  transfer,
disposition,  dissolution,  liquidation  or winding  up, at least 30 days' prior
written  notice of the date  when the same  shall  take  place.  Such  notice in
accordance  with the  foregoing  clause also shall specify (i) the date on which
the holders of Common Stock shall be entitled to any such dividend, distribution
or right, and the amount and character  thereof,  and (ii) the date on which any
such reorganization,  reclassification,  merger, consolidation,  sale, transfer,
disposition,  dissolution,  liquidation  or  winding up is to take place and the
time,  if any such time is to be fixed,  as of which the holders of Common Stock
shall be entitled to exchange  their  shares of Common Stock for  securities  or
other property  deliverable upon such disposition,  dissolution,  liquidation or
winding up. Each such written notice shall be sufficiently given if addressed to
Holder at the last  address of Holder  appearing on the books of the Company and
delivered in accordance with Section 17(d).

              15.  AUTHORIZED  SHARES.  The  Company  covenants  that during the
period the Warrant is  outstanding,  it will  reserve  from its  authorized  and
unissued Common Stock a sufficient  number of shares to provide for the issuance
of the  Warrant  Shares  upon the  exercise of any  purchase  rights  under this
Warrant.  The Company further  covenants that its issuance of this Warrant shall
constitute  full  authority  to its  officers  who are charged  with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares



                                       7





upon the exercise of the purchase  rights under this  Warrant.  The Company will
take all such reasonable  action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without  violation of any applicable law
or  regulation,  or of any  requirements  of NASDAQ or any  domestic  securities
exchange upon which the Common Stock may be listed.

         The Company  shall not by any action,  including,  without  limitation,
amending  its  certificate  of  incorporation  or  through  any  reorganization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action,  avoid or seek to avoid the observance
or  performance  of any of the terms of this  Warrant,  but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or  appropriate to protect the rights of Holder
against  impairment.  Without  limiting the  generality  of the  foregoing,  the
Company  will (a) not  increase  the par value of any  shares  of  Common  Stock
receivable  upon the exercise of this Warrant above the amount payable  therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be  necessary  or  appropriate  in order that the Company may
validly and legally  issue fully paid and  nonassessable  shares of Common Stock
upon the  exercise of this  Warrant,  and (c) use its best efforts to obtain all
such  authorizations,  exemptions  or consents from any public  regulatory  body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.

         Upon the  request of Holder,  the  Company  will at any time during the
period this Warrant is outstanding  acknowledge in writing,  in form  reasonably
satisfactory  to  Holder,  the  continuing  validity  of  this  Warrant  and the
obligations of the Company hereunder.

         Before taking any action which would cause an  adjustment  reducing the
current Exercise Price below the then par value, if any, of the shares of Common
Stock  issuable  upon  exercise  of the  Warrants,  the  Company  shall take any
corporate  action  which may be  necessary in order that the Company may validly
and legally issue fully paid and  non-assessable  shares of such Common Stock at
such adjusted Exercise Price.


         16. MISCELLANEOUS.

              (a)   JURISDICTION.   This  Warrant  shall  be  binding  upon  any
successors or assigns of the Company.  This Warrant shall  constitute a contract
under the laws of New York without regard to its conflict of law,  principles or
rules,  and be subject  to  arbitration  pursuant  to the terms set forth in the
Agreement.

              (b) RESTRICTIONS.  The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered,  will have
restrictions upon resale imposed by state and federal securities laws and by the
Agreement.

              (c) NONWAIVER  AND EXPENSES.  No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights



                                       8





hereunder  terminate on the Termination Date. If the Company fails to make, when
due, any  payments  provided  for  hereunder,  or fails to comply with any other
provision of this Warrant, the Company shall pay to Holder such amounts as shall
be  sufficient  to cover any costs and expenses  including,  but not limited to,
reasonable attorneys' fees, including those of appellate  proceedings,  incurred
by Holder  in  collecting  any  amounts  due  pursuant  hereto  or in  otherwise
enforcing any of its rights, powers or remedies hereunder.

              (d) NOTICES.  Any notice,  request or other  document  required or
permitted to be given or delivered to the holder  hereof by the Company shall be
delivered in accordance with the notice provisions of the Agreement.

              (e) LIMITATION OF LIABILITY.  No provision  hereof, in the absence
of  affirmative  action by Holder to  purchase  shares of Common  Stock,  and no
enumeration herein of the rights or privileges of Holder hereof, shall give rise
to any  liability of Holder for the  purchase  price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

              (f) REMEDIES.  Holder,  in addition to being  entitled to exercise
all rights granted by law,  including  recovery of damages,  will be entitled to
specific  performance of its rights under this Warrant.  The Company agrees that
monetary  damages  would not be adequate  compensation  for any loss incurred by
reason of a breach by it of the  provisions of this Warrant and hereby agrees to
waive the defense in any action for  specific  performance  that a remedy at law
would be adequate.

              (g) SUCCESSORS AND ASSIGNS. Subject to applicable securities laws,
this Warrant and the rights and obligations  evidenced hereby shall inure to the
benefit of and be binding upon the  successors of the Company and the successors
and permitted assigns of Holder.  The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.

              (h)  COOPERATION.  The  Company  shall  cooperate  with  Holder in
supplying such information as may be reasonably necessary for Holder to complete
and file any information  reporting forms presently or hereafter required by the
SEC as a condition to the  availability  of an exemption from the Securities Act
for the sale of any Warrant or any Warrant Shares.

              (i)  INDEMNIFICATION.  The Company  agrees to  indemnify  and hold
harmless Holder from and against any liabilities,  obligations, losses, damages,
penalties,  actions,  judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against  Holder in any manner  relating  to or arising out of any failure by the
Company to perform or observe  in any  material  respect  any of its  covenants,
agreements,  undertakings  or obligations  set forth in this Warrant;  provided,
however,  that the Company  will not be liable  hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims,  costs,  attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from



                                       9





Holder's  negligence,  bad faith or  willful  misconduct  in its  capacity  as a
stockholder or warrantholder of the Company.

              (j)  AMENDMENT.  This  Warrant  may be  modified or amended or the
provisions  hereof  waived only with the written  consent of the Company and the
Holder.

              (k)  SEVERABILITY.  Wherever  possible,  each  provision  of  this
Warrant shall be  interpreted  in such manner as to be effective and valid under
applicable  law, but if any  provision of this Warrant shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

              (l)  HEADINGS.  The  headings  used  in this  Warrant  are for the
convenience of reference  only and shall not, for any purpose,  be deemed a part
of this Warrant.







                                       10






         IN WITNESS WHEREOF,  the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.


Dated:  February 3, 1999

                                    IMSCO TECHNOLOGIES, INC.



                                    By:
                                       ------------------------------------



                                       11






                               NOTICE OF EXERCISE



To:   IMSCO TECHNOLOGIES, INC.



         (1) The undersigned hereby elects to purchase          shares of Common
                                                       --------
Stock (the "Common Stock"), of IMSCO TECHNOLOGIES, INC. pursuant to the terms of
the attached  Warrant,  and tenders  herewith  payment of the exercise  price in
full, together with all applicable transfer taxes, if any.

         (2) Please issue a certificate or certificates representing said shares
of  Common  Stock in the name of the  undersigned  or in such  other  name as is
specified below:


                     -------------------------------------
                     (Name)

                     -------------------------------------
                     (Address)

                     -------------------------------------




Dated:


                                           ----------------------------------
                                           Signature









                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)



         FOR VALUE  RECEIVED,  the  foregoing  Warrant and all rights  evidenced
thereby are hereby assigned to


                                               whose address is
- ----------------------------------------------

- ---------------------------------------------------------------.




- ---------------------------------------------------------------

                                            Dated:
                                                   ----------------, -------


                      Holder's Signature:
                                            -----------------------------

                      Holder's Address:
                                            -----------------------------

                                            -----------------------------



Signature Guaranteed:
                      ---------------------------------------------------




NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of  corporations  and  those  acting  in an  fiduciary  or other  representative
capacity  should  file  proper  evidence of  authority  to assign the  foregoing
Warrant.



                                       2

EX-10.13

                            IMSCO Technologies, Inc.
                                40 Bayfield Drive
                             North Andover, MA 01845


                                                                   July 31, 1998




Sands Brothers & Co., Ltd.
90 Park Avenue
New York, New York 10016

Gentlemen:

         The    undersigned,    IMSCO    Technologies,    Inc.,    a    Delaware
corporation (together with any of its  subsidiaries,  affiliates,  successors or
assigns  the  "Company"),  proposes  to offer  for sale to  certain  "accredited
investors",  through  Sands  Brothers & Co.,  Ltd.,  as placement  agent ("Sands
Brothers" or the "Placement  Agent") in an "all-or-none"  private  placement,  a
minimum of $500,000 (the  "Minimum  Amount") and a maximum of  $10,000,000  (the
"Maximum  Amount") of (a) the  Company's  capital stock  (whether  Common Stock,
Preferred Stock or any combination thereof) (collectively, the "Capital Stock"),
at a price to be mutually agreed upon and (b) capital lease,  operating lease or
equipment  lease  financing on behalf of the Company or any form of  commercial,
institutional  or bank debt financing  transactions  (hereinafter,  collectively
"Other  Financing").  The  Securities  (as  hereinafter  defined)  to be offered
pursuant to the Offering Documents (as hereinafter  defined) and Other Financing
transactions   to  be  consummated   are  sometimes   hereinafter   referred  to
collectively as the "Financing" or the "Offering".

         The closing (the  "Closing") of the Financing shall not occur until the
Company has, in any  combination,  received and accepted  subscriptions  for the
purchase of  Securities  and/or  consummated  Other  Financing  transactions  in
amounts equal to the Minimum Amount.





                                       1





         The Securities  will be offered  pursuant to those terms and conditions
acceptable  to  you  and  your  counsel  as  reflected  in  the  final  form  of
Confidential  Private  Placement  Memorandum  of the Company  and/or "long form"
subscription  agreement for  institutional  investors  only  (together  with the
exhibits and any supplements thereto, the "Memorandum").  The Securities will be
offered  pursuant to the Memorandum in accordance  with Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act").

         Each   prospective   investor   subscribing   to  purchase   Securities
("Subscriber")  will be required to deliver,  among other things, a subscription
agreement ("Subscription Agreement") and an investment suitability questionnaire
("Questionnaire")  in the forms to be  provided,  representing  and  warranting,
among other things,  that such  Subscriber is an  "accredited  investor" as such
term is defined in Regulation D.

         The Memorandum and the form of proposed Subscription  Agreement between
the  Company  and  each  Subscriber  and  the  exhibits  which  are  part of the
Memorandum  (including,  without  limitation,  the Registration Rights Agreement
between  the  Company  and  each of the  Subscribers  with  respect  to  certain
registration   rights  under  the  Securities  Act  (the  "Registration   Rights
Agreement")) and/or  the   Subscription   Agreement   are   referred  to  herein
collectively as the "Offering Documents."

         The  Securities  will be offered  for minimum  subscription  amounts of
$100,000 on a "best efforts",  basis,  exclusively by Sands Brothers;  PROVIDED,
HOWEVER,  that the Company  and the  Placement  Agent may, in their  discretion,
accept subscriptions for a lesser amount from a Subscriber.

         The  Company  will  prepare  and  deliver  to  the  Placement  Agent  a
reasonable  number of copies of the  Offering  Documents  in form and  substance
satisfactory  to the Placement Agent and its counsel,  which Offering  Documents
shall include reviewed financial statements for such periods as may be required.

         Capitalized  terms used herein,  unless otherwise defined or unless the
context  otherwise  indicates,  shall  have the same  meanings  provided  in the
Memorandum.





                                       2





         1. APPOINTMENT OF PLACEMENT  AGENT. You are hereby appointed  exclusive
Placement Agent of the Company during the offering period herein  specified (the
"Offering Period") for the purposes of assisting the Company on a "best efforts"
basis in finding  qualified  Subscribers  for the purchase of Securities  and to
identify  potential  sources to engage in Other Financing  transactions with the
Company in connection  with the Offering.  The Offering Period shall commence on
the date of delivery and  acceptance  by the Placement  Agent of the  Memorandum
("Commencement  Date") and shall  continue until the earlier to occur of (i) the
sale of the Minimum Amount;  or (ii) 90 days from the Commencement  Date (as the
same may be extended by the Placement Agent for an additional 60 days or another
period  to be  determined  by  mutual  consent  of the  Placement  Agent and the
Company).  If the  Minimum  Amount is not sold prior to the end of the  Offering
Period,  the Offering will be terminated and all finds received from Subscribers
and held in a special  non-interest  bearing escrow  account (the  "Account") at
Republic  National  Bank,  New York,  New York (the  "Bank")  will be  returned,
without deduction or accrued interest thereon. You hereby accept such agency and
agree to assist the Company in finding qualified Subscribers for the purchase of
Securities in connection with the Offering and to identify  potential sources to
engage in Other Financing  transactions  with the Company in connection with the
Offering.  Your agency  hereunder is not  terminable by the Company  except upon
termination of the Offering.

         As  part  of the  Placement  Agent's  exclusive  representation  of the
Company  with  respect to the  Offering,  the  Placement  Agent shall assist the
Company in identifying  potential  investors and sources of Other  Financing and
shall on behalf of the  Company,  contact  such  potential  investors  and other
potential  investors as the Company may  designate.  In addition,  the Placement
Agent shall assist the Company in  structuring,  negotiating  and  effecting the
Offering.  The  Company  agrees  that,  during  the  course  of  the  engagement
hereunder,  neither it, nor any of its  management,  nor any of its  affiliates,
shall initiate any  discussions  with third parties with respect to the Offering
and to the extent any of such persons receives an inquiry from any third parties
concerning the Offering or any other financing related to the Company, they will
promptly identify to the Placement Agent the name of such person and the date of
such initial contact.




                                       3






         2.   REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY.   The  Company
represents and warrants as follows:

              (a)  SECURITIES  LAW  COMPLIANCE.  The  Offering  Documents,  upon
delivery,  will conform in all respects with the  requirements of the Securities
Act and  Regulation D promulgated  thereunder and with the  requirements  of all
other  published  rules and  regulations  of the United  States  Securities  and
Exchange Commission (the "Commission")  currently in effect relating to "private
offerings"  and/or  "accredited  investors"  of  the  type  contemplated  by the
Company.  The  Offering  Documents  will not  contain an untrue  statement  of a
material  fact or omit to state a material  fact  necessary in order to make the
statements  therein,  in the light of the  circumstances  under  which they were
made, not misleading. The Offering Documents will not be amended or supplemented
and no amendment or supplement thereto will be made without the prior consent of
the Placement Agent.

              (b) ORGANIZATION. The Company, and each of the companies under its
control  (each a  "Subsidiary",  and  collectively,  the  "Subsidiaries"),  is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation  and has all requisite  corporate power and
authority to own and lease its properties, to carry on its business as currently
conducted  and as proposed to be conducted.  The Company and each  Subsidiary is
duly  qualified  to do  business  in the  states or  jurisdictions  set forth on
Schedule 2(b). Except as set forth in Schedule 2(b), there is no jurisdiction in
which the conduct of the  Company's  or  Subsidiary's  business or  ownership or
leasing of its  properties  requires  it to be  qualified  to do  business  as a
foreign corporation,  except where such qualifications have been obtained or the
failure  to be so  qualified  would not have a  material  adverse  effect on the
business,  financial  condition or prospects of the Company or such  Subsidiary.
The Company has all  requisite  power and  authority to execute and deliver this
Agreement and to carry out the transactions contemplated by this Agreement.

              (c) CAPITALIZATION.

                    (i) The authorized,  issued and outstanding capital stock of
the Company prior to the consummation of the Closing of



                                       4





the transactions  contemplated by the Offering is set forth on Schedule 2 (c)(i)
hereto. Each such share is validly paid, fully paid and nonassessable. Except as
set forth on Schedule 2 (c)(i),  there are no other  classes of capital stock or
other securities authorized by the Company.

                    (ii) The authorized, issued and outstanding capital stock of
the Company  immediately  upon the  consummation  of the Closing shall be as set
forth on Schedule 2 (c)(ii)  hereto,  such  Schedule to be  recalibrated  by the
Company to reflect the sale of Securities at the Closing.

                    (iii)  The  Company  has  no   obligation   (contingent   or
otherwise) to pay any dividend or make any other  distribution in respect of any
of its  capital  stock.  The Company is not a party to and there exist no voting
trusts or agreements,  stockholders'  agreements,  pledge  agreements,  buy-sell
agreements, rights of first refusal or proxies relating to any securities of the
Company (whether or not the Company is a party thereto).  All of the outstanding
securities of the Company were issued, in all material  respects,  in compliance
with all  applicable  federal  and state  securities  laws.  The  Company has no
obligation (contingent or otherwise) to repurchase,  redeem or otherwise acquire
any shares of its capital stock.

                    (iv)  The   stockholders   of  record  and  the  holders  of
subscriptions,  warrants, options, preemptive rights, convertible securities and
other rights  (contingent or otherwise) to purchase or otherwise  acquire equity
securities  of the  Company,  and the number of shares of  capital  stock of the
Company  and the number of such  subscriptions,  warrants,  options,  preemptive
rights,  convertible  securities  and other such rights held by each, are as set
forth in  Schedule  2(c)(iv)  hereto.  The  designations,  powers,  preferences,
rights, privileges,  qualifications,  limitations and restrictions in respect of
each class and series of  authorized  capital  stock of the  Company  are as set
forth in the Certificate of  Incorporation  and all such  designations,  powers,
preferences,  rights, privileges,  qualifications,  limitations and restrictions
are valid,  binding and  enforceable  in  accordance  with all  applicable  laws
(subject,  as to  enforcement,  to the  discretion  of the  courts  in  awarding
equitable  relief  and to  applicable  bankruptcy,  reorganization,  insolvency,
moratorium and similar laws affecting the rights of creditors generally). Except
as



                                       5





disclosed  in Schedule 2 (c)(iv),  no person owns of record,  or is known to the
Company to own  beneficially,  any share of  capital  stock of the  Company;  no
subscription, warrant, option, preemptive right, convertible security, agreement
or other right (contingent or otherwise) to purchase or otherwise acquire equity
securities  of the  Company  is  authorized  or  outstanding;  and  there  is no
commitment by the Company to issue  shares,  subscriptions,  warrants,  options,
preemptive rights,  convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or asset
other than the  Placement  Agent  Warrants and the  Investment  Banking (each as
hereinafter  defined and  collectively  the "Sands  Warrants").  An  appropriate
number of shares of the Common Stock have been  reserved  for issuance  upon the
conversion or exercise, as the case may be, of any of the securities referred to
in this Section.  All of the outstanding  securities of the Company were issued,
in all material  respects,  in compliance with all applicable  federal and state
securities  laws.  The Company has no  obligation  (contingent  or otherwise) to
repurchase, redeem or otherwise acquire any shares of its capital stock.

              (d) SUBSIDIARIES AND INVESTMENTS.  Except as set forth in Schedule
2(d)  hereto,  the Company  does not own,  directly or  indirectly,  any capital
stock,  or  other  equity  ownership  or  proprietary  interest,  in  any  other
corporation,  association,  trust,  partnership,  joint venture or other entity.
Each Subsidiary is wholly owned by the Company.

              (e) FINANCIAL  STATEMENTS.  The consolidated  balance sheet of the
Company as of  December  31,  1997 (the "1997  Balance  Sheet")  and the related
consolidated  statements of  operations,  shareholders  equity and statements of
cash flow for the fiscal year ended  December 31, 1997 audited by Moore  Stevens
LLP and the unaudited  consolidated  balance sheet (the "June Balance Sheet") of
the  Company as of June 30, 1998 (the  "Balance  Sheet  Date"),  and the related
unaudited  consolidated  statements  of  operations,   shareholders  equity  and
statements  of cash  flow for the  three  month  period  ending  June  30,  1998
(collectively,  the "Financial  Statements"),  have heretofore been delivered to
the Placement Agent. Except as may be otherwise indicated therein, the Financial
Statements have been prepared in conformity with Generally  Accepted  Accounting
Principles  consistently  applied and present fairly the financial  position and
results of operations



                                       6





of the Company as of the dates and for the periods  indicated.  Except as may be
otherwise  indicated herein,  the Financial  Statements of the Company as of the
dates  indicated,  and for the periods then ended,  present fairly the financial
position and results of operations of the Company (and its  Subsidiaries)  as of
the dates and for the periods indicated.

              (f)  KEEPING OF RECORDS  AND BOOKS OF  ACCOUNT.  The  Company  has
maintained and shall continue to maintain adequate records and books of account,
in which complete  entries will be made in accordance  with  Generally  Accepted
Accounting   Principles,   consistently   applied,   reflecting   all  financial
transactions  of the Company  and in which,  for each  fiscal  year,  all proper
reserves for depreciation,  depletion,  obsolescence,  amortization,  taxes, bad
debts and other  purposes in  connection  with its business  shall be made.  The
records  and books of  account  of the  Company  are in good order and have been
properly maintained in all material respects.

              (g) ACCESS TO CORPORATE DOCUMENTS. The minute books of the Company
and of its  Subsidiaries  have been made  available to the  Placement  Agent and
contain a complete  summary of all  meetings  and actions of the  directors  and
stockholders of the Company or of its Subsidiaries, respectively, since the time
of their respective  incorporation  and reflect all transactions  referred to in
such minutes accurately in all respects.

              (h)  ABSENCE  OF  UNDISCLOSED  LIABILITIES.  The  Company  has  no
material   outstanding   claims,   liabilities,   obligations  or  indebtedness,
contingent or otherwise, whether asserted or unasserted,  except as set forth in
the  June  Balance  Sheet  or  referred  to in  any of the  notes  thereto.  All
liabilities  of the  Company and its  Subsidiaries  incurred  subsequent  to the
Balance Sheet Date have been incurred in the ordinary  course of business and do
not involve borrowings which individually exceed $50,000 and which do not exceed
$100,000  in the  aggregate.  Neither the  Company  nor its  Subsidiaries  is in
default in respect of the terms or conditions of any indebtedness.

              (i) ABSENCE OF CHANGES.  Since the Balance Sheet Date, the Company
and its Subsidiaries have operated in the ordinary course of business consistent
with past  practice.  Since the Balance  Sheet Date,  and except as set forth in
Schedule 2(i) hereto,



                                       7





there has not occurred  (i) any change in the  financial  condition,  results of
operations,  assets,  liabilities  or business of the Company or any  Subsidiary
which,  in the  aggregate,  was  materially  adverse;  (ii)  to the  best of the
Company's  knowledge,  any other event or condition of any  character  which can
reasonably  be  expected  to  materially   and  adversely   affect  the  assets,
properties, financial condition, operating results or business of the Company or
of any Subsidiary (as such business is presently conducted and as it is proposed
to be conducted, as the same shall be described in the Memorandum); or (iii) any
commitment (contingent or otherwise) to do any of the foregoing.

              (j) ACCOUNTS  RECEIVABLE.  The accounts  receivable of the Company
reflected on the June Balance Sheet, and all accounts  receivable of the Company
arising  since the Balance Sheet Date,  are not subject to discount  (other than
discounts and allowances  provided by normal trade terms),  rebate or offset and
have arisen from bona fide transactions in the ordinary course of business.

              (k) TITLE TO PROPERTIES; ENCUMBRANCES.

                    (i) Except for properties  and assets  reflected in the June
Balance  Sheet or acquired  since the Balance Sheet Date which have been sold or
otherwise  disposed of in the ordinary  course of business  since such date, the
Company and each of its Subsidiaries has good, valid and marketable title to (A)
all of its properties and assets (personal, tangible and intangible), including,
without limitation,  all the properties and assets reflected in the June Balance
Sheet, except as indicated in the notes thereto;  and (B) all the properties and
assets purchased or otherwise acquired by the Company or by any Subsidiary since
the Balance Sheet Date; in each case clear of all encumbrances,  liens,  claims,
charges or other  restrictions  of whatever  kind or  character,  except for (1)
liens  reflected  in the June  Balance  Sheet and (2) liens for  current  taxes,
assessments  or  governmental  charges  or  levies on  property  not yet due and
delinquent.

                    (ii) The Company and its  Subsidiaries own no real property.
To the  best  of  the  Company's  knowledge  after  due  inquiry,  there  are no
condemnation,  environmental,  zoning or other land use regulation  proceedings,
either instituted or planned to be instituted,  which would adversely affect the
use or



                                       8





operation of the Company's and its Subsidiaries; properties and assets for their
respective  intended uses and purposes or the value of such properties,  and the
Company and its Subsidiaries have not received notice of any special  assessment
proceedings which would affect such properties and assets.

              (l) CONDITION OF EQUIPMENT, MACHINERY AND FIXTURES. The equipment,
machinery  and  fixtures  utilized by the Company  and its  Subsidiaries  in the
conduct of their business are in good operating  condition and are fit for their
intended purpose.

              (m) LEASED  PROPERTY.  Each real  property and  personal  property
lease or sublease to which the Company or any of its  Subsidiaries is a party is
valid and binding and is in full force and effect;  all rent and other sums, and
charges  payable by the  Company or by each  Subsidiary  as lessee or  sublessee
thereunder,  are  current  through  the  last day of the  immediately  preceding
calendar  month;  no  notice  of  default  or  termination  under  any  lease is
outstanding; no termination event or condition or uncured default on the part of
the Company or any  Subsidiary,  or the  landlord,  exists under any lease;  the
Company  and  its  Subsidiaries  currently  occupy  or use the  premises  leased
pursuant to the real property leases; and no event has occurred and no condition
exists  which  with the  giving of  notice  or the lapse of time or both,  would
constitute  such a  default  or  termination  event or  condition.  Neither  the
Company,  nor its  Subsidiaries,  nor any of the  officers or  directors  of the
Company or of its Subsidiaries has any ownership, financial or other interest in
the landlord  under any real  property  lease.  Each lease was  negotiated on an
arm's-length basis.

              (n) INVENTORIES. All inventory reflected in the June Balance Sheet
of the Company and of its Subsidiaries and all inventory acquired by the Company
and by its Subsidiaries  subsequent to the Balance Sheet Date, were acquired and
have been  maintained in accordance with the regular  business  practices of the
relevant entity,  consists of items of quality and quantity  reasonably expected
to be useable or saleable in the  ordinary  course of business  consistent  with
past practice,  are valued in accordance with United States  Generally  Accepted
Accounting Principles,  and such inventory which is known or reasonably believed
to be  obsolete  or slow  moving has been  adequately  reserved  to reduce  such
inventory to net realizable value.



                                       9





Subject to amounts reserved therefor on the Financial Statements,  the values at
which all inventories of the Company and of its Subsidiaries (collectively,  the
"Inventories")  are carried on the Financial  Statements  reflect the historical
inventory  valuation  policy of the Company and of its  Subsidiaries  of stating
such  Inventories.  at the lower of cost (determined on the first-in,  first-out
method) or market value and all Inventories are valued such that the Company and
its  Subsidiaries  will earn  its/their  customary  gross margins  thereon.  The
Company has good and marketable  title to the Inventories  free and clear of all
encumbrances.  The  Inventories do not consist of any items held on consignment.
The  Company is under no  obligation  or  liability  with  respect to  accepting
returns of items of Inventory or  merchandise in the possession of its customers
other than in the ordinary course of business consistent with past practice.  No
clearances or extraordinary sale of the Inventories has been conducted since the
Balance  Sheet  Date.  Neither  the  Company  or  any of  its  Subsidiaries  has
manufactured Inventory for sale which is not of a quality and quantity usable in
the  ordinary  course of business  consistent  with past  practice  and within a
reasonable period of time nor has the Company or any of its Subsidiaries changed
the price of any Inventory except (i) for reductions to reflect any reduction in
the  cost  thereof  to the  Company  or to any of  its  Subsidiaries;  (ii)  for
reductions  and  increases  responsive  to  normal  competitive  conditions  and
consistent with the Company's or the  Subsidiaries'  past sales  practices;  and
(iii) to reflect  any  increase  in the cost  thereof  to the  Company or to the
Subsidiaries.  The  Inventories  are in good and  merchantable  condition in all
material  respects,  are suitable and usable for the purposes for which they are
intended  and are in a  condition  such  that  they can be sold in the  ordinary
course of business consistent with past practice.

              (o) PATENTS,  TRADEMARKS AND COPYRIGHTS,  ETC. The Company and its
Subsidiaries  own or are  licensed or  otherwise  entitled  to use all  patents,
trademarks,  trade  names,  service  marks,  copyrights,  technology,  know-how,
processes and other intellectual property used in the conduct of its business as
currently  conducted  and as  proposed  to be  conducted.  The  Company  and its
Subsidiaries  have  received no notice of any claims,  have no  knowledge of any
threatened claims, and know of no facts which would form the basis of any claim,
asserted  by any  person,  to the effect  that the sale or use of any product or
process now used or



                                       10





offered by the Company or any  Subsidiary  infringes on any patents or infringes
upon the use of any such  trademarks,  trade names,  service marks,  copyrights,
technology, know-how, processes or other intellectual property of another person
or challenges or questions the validity or  effectiveness of any such license or
agreement.  The sale and use of any such  products and  processes by the Company
and its Subsidiaries,  and the use of any such patents, trademarks, trade names,
service marks, copyrights, technology, know-how, processes or other intellectual
property by the Company and its Subsidiaries, does not infringe on the rights of
any person.

              (p) LITIGATION. There is no action, suit, investigation,  customer
complaint,  claim or proceeding at law or in equity by or before any arbitrator,
governmental  instrumentality  or other agency now pending or threatened against
or affecting  the Company or any  Subsidiary,  nor, to the best of the Company's
knowledge,  does there  exist any basis  therefor.  Neither  the Company nor any
Subsidiary is subject to any judgment,  order, writ, injunction or decree of any
federal, state, municipal or other governmental department,  commission,  board,
bureau,  agency or instrumentality,  domestic or foreign.  The Company agrees to
promptly  notify the Placement  Agent of the  commencement  of any litigation or
proceedings  against  the  Company  or any  Subsidiaries  or  any  of  its/their
respective  officers or directors in connection with the sale of the transaction
contemplated in the Offering Documents.

              (q)  NON-DEFAULTS;  NON-CONTRAVENTION.  Except  as  set  forth  in
Schedule 2(q) hereto,  neither the Company nor its Subsidiaries is in default in
the  performance or observance of any  obligation  (i) under its  Certificate of
Incorporation, as amended, or its By-laws, or any indenture, mortgage, contract,
purchase order or other  agreement or instrument to which the Company is a party
or by which it or any of its property is bound or affected; or (ii) with respect
to any order,  writ,  injunction  or decree of any court of any federal,  state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and there exists no condition, event or act
which  constitutes,  nor which after  notice,  the lapse of time or both,  would
constitute, a default under any of the foregoing.

              (r) EMPLOYMENT OF OFFICERS, EMPLOYEES AND CONSULTANTS. To the best
of the Company's knowledge, no third party may assert



                                       11





any valid claim against the Company or its Subsidiaries  with respect to the (i)
continued employment by, or association with, the Company or its Subsidiaries of
any of its present  officers,  employees or consultants;  or (ii) the use by the
Company  or its  Subsidiaries  of  any  information  which  the  Company  or its
Subsidiaries  would be  prohibited  from  using  under any prior  agreements  or
arrangements  or any laws  applicable  to unfair  competition,  trade secrets or
proprietary information.

              (s)  TAXES.  The  Company  and its  Subsidiaries  have  filed  all
federal,  state, local and foreign tax returns which are required to be filed by
them,  and all such returns are true and correct in all material  respects.  The
Company and its  Subsidiaries  have paid all taxes  pursuant to such  returns or
pursuant to any assessments received by them and have withheld all amounts which
they are obligated to withhold  from amounts owing to any employee,  creditor or
third party. The tax returns of the Company and of its  Subsidiaries  have never
been  audited by any state,  local or federal  authorities.  The Company and its
Subsidiaries have not waived any statute of limitations with respect to taxes or
agreed  to any  extension  of  time  with  respect  to  any  tax  assessment  or
deficiency. All tax elections have been made by the Company and its Subsidiaries
in accordance with generally accepted practices.  No deficiency  assessment with
respect to or proposed adjustment of the Company's and its Subsidiaries federal,
state,  county  or  local  taxes is  pending  or,  to the best of the  Company's
knowledge,  threatened.  There is no tax lien,  whether  imposed by any federal,
state,  county  or local  taxing  authority,  outstanding  against  the  assets,
properties  or  business  of the  Company or of its  Subsidiaries.  Neither  the
Company nor any of its Subsidiaries nor any of its/their  respective  present or
former  stockholders has ever filed an election  pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"),  that the Company or any
of its Subsidiaries be taxed as an S corporation.

              (t)  AGREEMENTS.  Except as set  forth in  Schedule  2(t)  hereto,
neither  the  Company  nor any  Subsidiary  is a party  to any  written  or oral
contract not made in the ordinary course of business and, whether or not made in
the ordinary course business,  neither the Company nor any Subsidiary is a party
to any written or oral contract,  agreement,  arrangement or understanding which
is material to the business of the Company or



                                       12





to the business of any  Subsidiary  or which is material to, and which a prudent
investor would need to review in order to make an informed  investment  decision
with respect to the purchase of the Securities  offered pursuant to the Offering
Documents.  Each material  contract of the Company or of any of its Subsidiaries
is valid and  binding on the  Company or on such  Subsidiary,  and  neither  the
Company nor any of its  Subsidiaries  has received notice that any such contract
is not  binding on any party  thereto.  The Company  and its  Subsidiaries  have
performed in all material  respects all  obligations  to have been  performed on
such  contracts  through  the date  hereof,  and  neither  the  Company  nor any
Subsidiary is in default in any material  respect under any such contract.  Each
material  contract  of the  Company or of any of its  Subsidiaries  is valid and
binding  on the  Company or the  respective  Subsidiary  and the  Company or the
respective  Subsidiary  has not  received  notice that any such  contract is not
binding on any party  thereto.  The  Company  and each of its  Subsidiaries  has
performed in all material  respects all  obligations  to have been  performed on
such  contracts  through  the  date  hereof  and  the  Company  and  each of its
Subsidiaries is not in default in any material respect under any such contract.

              (u) COMPLIANCE WITH LAWS;  ENVIRONMENTAL MATTERS,  LICENSES,  ETC.
The Company and its Subsidiaries have received no notice of any violation of, or
noncompliance  with,  any federal,  state,  local or foreign  laws,  ordinances,
regulations  or  orders  (including,   without  limitation,  those  relating  to
environmental  protection,  occupational safety and health and other labor laws,
ERISA, federal drug laws, federal securities laws, equal employment opportunity,
consumer protection,  credit reporting,  "truth-in-lending,"  and warranties and
trade  practices)  applicable to its business or the business of any Subsidiary,
the violation of, or  noncompliance  with which,  would have a material  adverse
effect on the Company's business or operations,  or that of any Subsidiary,  and
the Company knows of no facts or set of  circumstances  which would give rise to
such a notice.  The Company and its  Subsidiaries  have all licenses and permits
and other  governmental  certificates,  authorizations and permits and approvals
(collectively, "Licenses") required by every federal, state and local government
or  regulatory  body for the  operation  of their  business and the use of their
properties.  The Licenses are in full force and effect and no violations  are or
have been recorded in respect of any License and no proceeding is pending



                                       13





or threatened to revoke or limit any thereof.  The Company and its  Subsidiaries
have not received any written opinion or memorandum from legal counsel providing
that it/they has taken any action which has resulted in, or is reasonably likely
to result in, the Company or any of its  Subsidiaries  incurring  any  liability
which may be material to its/their  respective  business,  prospects,  financial
condition,  operations,  property or affairs.  The Company and its  Subsidiaries
shall  comply with all  applicable  laws,  rules,  regulations  and orders,  the
noncompliance with which could materially  adversely affect its/their respective
business or condition, financial or otherwise.

              (v) AUTHORIZATION OF AGREEMENT,  ETC. Each of this Agreement,  the
Offering Documents and all other agreements or documents required to be executed
and delivered by the Company in connection with the Offering  (collectively  the
"Ancillary  Documents")  has been or will be duly  executed and delivered by the
Company  and the  execution,  delivery  and  performance  by the Company of this
Agreement and the Ancillary  Documents has been duly authorized by all requisite
corporate action by the Company; and each constitutes,  or will constitute,  the
legal,  valid and binding  obligation of the Company,  enforceable in accordance
with  its  terms,  except  as  enforceability  may  be  limited  by  bankruptcy,
insolvency,   reorganization,   usury  or  other  similar  laws   affecting  the
enforcement  of  creditors'  rights  generally.  The  execution,   delivery  and
performance  of this  Agreement  and the  issuance,  sale  and  delivery  of the
Securities,  and the issuance and delivery of the Common Stock upon  exercise of
the Sands Warrants (the "Reserved  Shares"),  will not (i) violate any provision
of law or  statute  or any  order of any  court or other  agency  of  government
binding on the Company or its  Subsidiaries;  or (ii) conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute (with
due notice or lapse of time or both) a default under,  or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or  assets of the  Company  or of its  Subsidiaries  under  the  Certificate  of
Incorporation,  as amended,  or By-Laws of the Company or of its Subsidiaries or
any indenture,  mortgage,  lease  agreement or other  agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or any of
its property is bound or affected,  except for such conflict,  breach or default
as to which requisite waivers or consents shall



                                       14





have been  obtained by the Company or by its  Subsidiaries  and delivered to the
Subscribers by the time of Closing.

              (w) AUTHORIZATION OF SECURITIES AND SANDS WARRANTS.  The issuance,
sale and  delivery  of the  Securities  and the  Sands  Warrants  have been duly
authorized by all requisite corporate action of the Company, and when so issued,
sold and delivered,  (i) the shares of Common Stock and Reserved  Shares will be
validly  issued and  outstanding,  duly executed and  delivered,  fully paid and
nonassessable,  free and  clear of all  liens,  charges,  claims,  encumbrances,
restrictions  or preemptive  or any other  similar  rights and the Company shall
have paid all taxes, if any, in respect of the issuance thereof;  (ii) the Sands
Warrants  will be validly  issued and  outstanding,  duly  executed,  issued and
delivered,  fully paid and nonassessable,  free and clear of all liens, charges,
claims, encumbrances, restrictions or preemptive or any other similar rights and
the  Company  shall have paid all  taxes,  if any,  in  respect of the  issuance
thereof;  and (iii) neither the shares of Common Stock,  nor the Sands  Warrants
will be subject to preemptive or any other similar rights of the shareholders of
the Company or others  which rights shall not have been waived prior to the time
of acceptance by the Company of the first Subscriber's  Subscription  Agreement.
The  offer  and  sale  of  the  Securities  is  exempt  from  the   registration
requirements  of the  Securities Act and the rules and  regulations  promulgated
thereunder and the Securities  will be issued in compliance  with all applicable
federal securities laws.

              (ww)  AUTHORIZATION  OF RESERVED  SHARES.  The issuance,  sale and
delivery by the Company of the Reserved  Shares have been duly authorized by all
requisite  corporate  action of the Company,  and the Reserved  Shares have been
duly reserved for issuance upon exercise of all or any of the Securities and the
Sands Warrants and when so issued, sold and delivered,  the Reserved Shares will
be validly issued and outstanding,  duly executed,  issued and delivered,  fully
paid  and  nonassessable,   free  and  clear  of  all  liens,  charges,  claims,
encumbrances,  restrictions  or preemptive  or any other similar  rights and the
Company  shall have paid all taxes,  if any, in respect of the issuance  thereof
and the  Reserved  Shares  will not be  subject to any  preemptive  or any other
similar rights of the  shareholders  of the Company or others which rights shall
not have been waived prior to the time of



                                       15





acceptance by the Company of the first Subscriber's Subscription Agreement.

              (x)  RELATED  TRANSACTIONS.   Except  as  set  forth  on  Schedule
2(x)hereto, no current or former shareholder,  director,  officer or employee of
the Company,  nor any affiliate of any such person,  is presently,  or since the
inception of the Company has been,  directly or indirectly,  through his, her or
its  affiliation  with any other person or entity,  a party to any loan from the
Company or from any of its Subsidiaries.

              (y) REGISTRATION  RIGHTS.  Except as may exist with respect to the
holders of the  Securities and the Sands  Warrants,  (i) no person or entity has
any right to cause the Company to effect the  registration  under the Securities
Act of any  securities  of the  Company  and (ii) no person or entity  holds any
anti-dilution  or "piggy  back"  rights with  respect to any  securities  of the
Company.

              (z) SALARIES AND BONUSES. Schedule 2(z) hereto contains a true and
complete  list of all current  officers,  directors and employees of the Company
and of its  Subsidiaries  who received during the fiscal year ended December 31,
1997  remuneration from the Company or from any of its Subsidiaries in excess of
$50,000,  together  with the  current  aggregate  base salary rate for each such
person.

              (AA) INSURANCE. All insurable assets and properties of the Company
and its  Subsidiaries  are  insured,  for the  benefit  of the  Company  and its
Subsidiaries,  against all risks usually  insured  against by persons  owning or
operating  similar  properties  in the  localities  where  such  properties  are
located,  through insurance  policies all of which are in full force and effect.
The Company and each  Subsidiary  are insured,  for their  benefit,  against all
claims  relating  to their  services  to the same  extent that the risks of such
claims are usually insured against by persons providing  similar services.  Each
of the insurance policies referred to in this Section is issued by an insurer of
recognized  responsibility,  and neither the  Company nor its  Subsidiaries  has
received  any notice or threat of the  cancellation  or  nonrenewal  of any such
policy.  The  Company  will make  available  to the  Placement  Agent,  upon its
request, a list of all insurance



                                       16





coverage carried by the Company or its  Subsidiaries,  the carrier and the terms
and amount of coverage.

              (BB) EMPLOYEE BENEFIT PLANS.

                (i)  WELFARE  PLANS.  Each  welfare  plan of the Company and its
        Subsidiaries  is in compliance  with the applicable  provisions of ERISA
        and the Internal  Revenue Code of 1986,  as amended  (the  "Code").  The
        Company  and  each  Subsidiary  have  no  contingent,  future  or  other
        obligations  or  liabilities  under or with  respect to any welfare plan
        which  provides for the  continuation  of benefits at the expense of the
        Company or any  Subsidiary  after  retirement  or other  termination  of
        employment.

                (ii) PENSION PLANS. Each pension plan of the Company and of each
        Subsidiary is in compliance with the applicable  provisions of ERISA and
        the Code including,  without limitation,  any applicable minimum funding
        requirements. There have been no reportable events within the meaning of
        Section 4043 of ERISA with respect to any pension  plan. In the event of
        the  termination of all pension plans,  the Company and each  Subsidiary
        would have no liability under Sections 4062, 4063 or 4064 of ERISA.

                (iii) EFFECT OF TRANSACTIONS. The execution and delivery of this
        Agreement  by the  Company  and  the  consummation  of the  transactions
        contemplated  hereby will not involve any prohibited  transactions  with
        respect to the Company or any of its Subsidiaries  within the meaning of
        ERISA.

              (CC)   BROKERS.   The  Company  has  not,  nor  have  any  of  its
Subsidiaries, or any of its/their respective officers,  directors,  employees or
shareholders,  employed any broker or finder in connection with the transactions
contemplated by this Agreement, other than Sands Brothers.

              (DD) NO MATERIAL CHANGES.  Since the Balance Sheet Date, there has
not been any change in the condition,  financial or otherwise, of the Company or
of any of its  Subsidiaries,  which  could  adversely  affect the ability of the
Company or the ability of any of its  Subsidiaries  to conduct its operations to
be



                                       17





described  in the  Offering  Documents  and  neither  the Company nor any of its
Subsidiaries  have incurred any material  liabilities or obligations,  direct or
contingent,  not in the ordinary  course of business  since such  Balance  Sheet
Date.

              (EE)  ISSUANCE  OF OTHER  SECURITIES.  Except as set forth in this
Agreement, there are no preemptive or other rights to subscribe for or purchase,
or any restriction upon the voting or transfer of, any shares of Common Stock or
any other  securities of the Company,  under the Certificate of Incorporation or
ByLaws, or any agreement or other outstanding instrument to which the Company or
any of its Subsidiaries is a party or by which it/they is bound.  Except for the
Securities and the Sands Warrants or as set forth in this Agreement, neither the
Company  nor  any of its  Subsidiaries  has  outstanding  any  option,  warrant,
convertible  security,  or other right  permitting or requiring it to issue,  or
others to purchase or convert any obligation into, shares of Common Stock or any
other  securities  of the  Company,  and  neither  the  Company  nor  any of its
Subsidiaries has agreed to issue or sell any shares of Common Stock or any other
securities of the Company.

              (FF) NO CONSENTS.  No permit,  consent,  approval,  authorization,
order or  filing  with any  court  or  governmental  authority  is  required  to
consummate the  transactions  contemplated  by this  Agreement,  except that the
offer and sale of the Securities in certain  jurisdictions may be subject to the
provisions of the securities or Blue Sky laws of such jurisdictions.

              (GG) INFORMATION.  The Company and its Subsidiaries  shall provide
the holders of the Securities  with the  information,  if any,  specified in the
Memorandum.

              (HH) RESTRICTIVE  AGREEMENTS  PROHIBITED.  Neither the Company nor
any of its Subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement.

              (II)   CHANGE  IN  NATURE  OF   BUSINESS.   The  Company  and  its
Subsidiaries  shall not, without the prior approval of a majority of their Board
of Directors, make any material change in the



                                       18





nature of its/their respective  businesses as the same shall be set forth in the
Memorandum.

              (JJ) CORPORATE  EXISTENCE.  The Company and its Subsidiaries shall
maintain  their  corporate  existence,  rights and  franchises in full force and
effect.

              (KK)  TITLE TO  SECURITIES.  When  certificates  representing  the
Securities shall have been duly delivered to the Subscribers,  payment therefore
will become due, and to the extent such payment  shall have been made  therefor,
the several  Subscribers  shall have good and marketable title to the Securities
free and clear of all liens, encumbrances and claims whatsoever, and the Company
shall have paid all taxes, if any, in respect of the issuance thereof.

              (LL) EMPLOYEE RELATIONS.  Each of the Company and its Subsidiaries
has generally  enjoyed a satisfactory  employer-employee  relationship  with its
employees and is in compliance with all federal,  state, local, and foreign laws
and  regulations  respecting  employment  and  employment  practices,  terms and
conditions   of   employment   and  wages  and  hours.   There  are  no  pending
investigations  involving  the  Company or any of its  Subsidiaries  by the U.S.
Department  of  Labor,  or any other  governmental  agency  responsible  for the
enforcement  of such federal,  state,  local,  or foreign laws and  regulations.
There is no unfair labor practice charge or complaint against the Company or its
Subsidiaries  pending before the National Labor  Relations  Board or any strike,
picketing,  boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or its  Subsidiaries,  or any predecessor  entity,  and
none has  ever  occurred.  No  representation  question  exists  respecting  the
employees  of the Company or the  employees of any of its  Subsidiaries,  and no
collective  bargaining  agreement or  modification  thereof is  currently  being
negotiated  by the Company or its  Subsidiaries.  No  grievance  or  arbitration
proceeding  is pending  under any  expired  or  existing  collective  bargaining
agreements of the Company or any of its Subsidiaries.  No labor dispute with the
employees of the Company or its Subsidiaries exists, or, is imminent.

              (MM) FOREIGN  CORRUPT  PRACTICES  ACT.  None of the  Company,  its
Subsidiaries nor to their knowledge any of their respective officers, employees,
agents or any other person acting on behalf



                                       19





of the Company or any of its Subsidiaries has, directly or indirectly,  given or
agreed to give any  money,  gift or similar  benefit  (other  than  legal  price
concessions  to customers in the ordinary  course of business) to any  customer,
supplier,  employee or agent of a customer or supplier,  or official or employee
of any  governmental  agency  (domestic  or foreign) or  instrumentality  of any
government  (domestic or foreign) or any political party or candidate for office
(domestic  or foreign) or other  person who was,  is, or may be in a position to
help or  hinder  the  business  of the  Company  or the  business  of any of its
Subsidiaries  (or to assist the Company or any of its Subsidiaries in connection
with any actual or proposed  transaction) which (a) might subject the Company or
any of its  Subsidiaries,  or any other such person, to any damage or penalty in
any civil,  criminal or  governmental  litigation  or  proceeding  (domestic  or
foreign); (b) if not given in the past, might have had a material adverse effect
on  the  assets,  business  or  operations  of  the  Company  or of  any  of its
Subsidiaries;  or (c) if not continued in the future, might adversely affect the
assets,   business,   operations   or  prospects  of  the  Company  and  of  its
Subsidiaries,  taken  as  a  whole.  The  Company  believes  that  its  and  its
Subsidiaries'  international  accounting  controls are  sufficient  to cause the
Company and its Subsidiaries to comply with the Foreign Corrupt Practices Act of
1977, as amended.

              (NN)  AFFILIATIONS.  Except as set forth in Schedule 2(NN) hereto,
no officer,  director  or  shareholder  of the  Company or officer,  director or
shareholder of any of its  Subsidiaries,  or any  "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any such person or entity or of the Company or its  Subsidiaries,  has or has
had, either directly or indirectly (i) an interest in any person or entity which
(A) furnishes or sells  services or products  which are furnished or sold or are
proposed  to be  furnished  or sold by the Company or its  Subsidiaries;  or (B)
purchases  from or sells or furnishes to the Company or any of its  Subsidiaries
any  goods or  services;  or (ii) a  beneficiary  interest  in any  contract  or
agreement to which the Company or any of its Subsidiaries is a party or by which
it may be bound or affected. Except as set forth in Schedule 2(OO) hereto, there
are no existing  agreements,  arrangements,  understandings or transactions,  or
proposed agreements,  arrangements,  understandings or transactions,  between or
among the Company or



                                       20





any of its Subsidiaries,  and any officer, director, or principal stockholder of
the Company or any of its  Subsidiaries,  or any  affiliate  or associate of any
such person or entity.

              (OO)  CORPORATE  REPRESENTATIONS.  Any  certificate  signed by any
officer of the Company or by an officer of any of the Company's Subsidiaries and
delivered to the Placement Agent or to the Placement Agent's counsel pursuant to
this Agreement, shall be deemed a representation and warranty by the Company and
by any of its  Subsidiaries  to the  Placement  Agent as to the matters  covered
thereby.

              (PP) ESCROW ARRANGEMENTS. Pursuant to paragraph 3(e)(i) hereof, if
the Closing does not take place before the  termination of the Offering  Period,
the  Company  will  instruct  the Bank to return  the  funds to the  Subscribers
without any deduction or interest thereon.

              (QQ) CONFIDENTIAL  ARRANGEMENTS.  The Company and its Subsidiaries
agree to take reasonable precautions in protecting the confidentiality,  privacy
and security of the  business  contacts  identified  by the  Placement  Agent by
taking  appropriate  administrative  and managerial action, and to use its/their
respective  best efforts to prevent  disclosure of such property  information to
any all persons and  entities.  The Company and each of its  Subsidiaries  agree
that, without the expressed written consent of the Placement Agent, it/they will
not initiate,  respond or otherwise abide any contract with any person, company,
institution,  professional  association,  nor other  entity to which it has been
introduced or with whom it has become acquainted in the course of doing business
with the other party.  The Company and each of its  Subsidiaries  agrees to hold
completely confidential the name, address,  telephone,  telex, facsimile number,
account or other  business  number of such contact as may be  introduced  by the
Placement  Agent.  The above  restrictions  apply to any  subsequent  follow up,
repeated or  extended  or  renegotiation  transactions  related to the  Offering
regardless of the results of the Offering.

              (RR)  DISCLOSURE.  Neither this Agreement nor any other  document,
certificate  or written  statement to be furnished to the  Subscribers  by or on
behalf of the Company in connection with the transactions  contemplated  hereby,
including the Offering



                                       21





Documents,  contains or will contain any untrue  statement of a material fact or
omits  or will  omit to state a  material  fact  necessary  in order to make the
statements  contained herein and therein not misleading.  There is no fact known
to the  Company  which  adversely  affects  the  business  operations,  affairs,
prospects,   conditions,   properties  or  assets  of  the  Company  or  of  its
Subsidiaries (hereinafter "Material Facts") which has not been set forth in this
Agreement.  To the extent Material Facts become known to the Company  subsequent
to the date hereof, such facts will be set forth in the Memorandum and/or in the
other documents,  certificates or statements  furnished to the Subscribers by or
on behalf of the Company pursuant hereto.

         3.  REPRESENTATIONS,  WARRANTIES AND COVENANTS OF THE PLACEMENT  AGENT.
The Placement Agent represents, warrants and covenants as follows:

              (a) AUTHORIZATION OF AGREEMENT,  ETC. This Agreement has been duly
and validly authorized,  executed and delivered by or on behalf of the Placement
Agent.

              (b) COMPLIANCE  WITH THE SECURITIES  ACT. The Placement Agent will
not knowingly take any action which will result in the Securities  being offered
or sold in a manner which does not comply with the  provisions  of  Regulation D
under the Securities Act.

              (c) COMPLIANCE WITH OFFERING  DOCUMENTS.  The Placement Agent will
offer the Securities in accordance with the Offering  Documents and will deliver
the Offering  Documents to each Subscriber before accepting a signed copy of the
Subscription Agreement or payment for any Securities.

              (d) COMPLIANCE  WITH LAWS OF  JURISDICTIONS.  The Placement  Agent
will offer the Securities only in those  jurisdictions  in which it is permitted
to sell  the  Securities  pursuant  to the  laws of said  jurisdiction,  and the
Placement  Agent may arrange for the Securities to be offered by a broker/dealer
or  offshore  or domestic  facilitator(s),  in which event the Company  shall be
responsible  for  fees of such  facilitator(s)  up to  three  (3%) of the  gross
offering proceeds of investors arranged by such facilitator(s).





                                       22





              (e) ESCROW ARRANGEMENTS.

                   (i) The Placement Agent will promptly  deposit funds received
from  Subscribers  in the Account with the Bank and hold the funds in accordance
with the terms of this Agreement and hold the Offering Documents for the benefit
of the  Subscribers  and the  Company.  The Bank shall  release  funds from such
Account only upon receipt of instruction executed by each of the Placement Agent
and the Company.  If the Closing does not take place before the  termination  of
the Offering  Period,  the Placement  Agent will instruct the Bank to return the
funds to the Subscribers without any deduction or interest thereon.

                   (ii) In the event the  Placement  Agent has  deposited  funds
from any  Subscriber  into the Account and the  Company  exercises  its right to
reject such  Subscriber's  funds, in whole or in part, the Placement Agent shall
be entitled  to payment by the  Company of a sum equal to the fees and  expenses
due by the terms of this  Agreement  and  entitled to issuance by the Company of
the  Placement  Agent  Warrants  that the  Placement  Agent would have  received
pursuant to sub-paragraphs 4(d) and 4(e) of this Agreement, respectively.

         4. CLOSING; PLACEMENT AND FEES.

              (a) CLOSING. The initial Closing of the Financing shall take place
at the offices of the Placement Agent, 90 Park Avenue, New York, New York 10016,
at a time and date agreed upon between the Placement  Agent and the Company upon
the (i) receipt of  Subscription  Agreements  and related  documents in form and
substance  satisfactory to the Company and the Placement Agent and (ii) delivery
of  documentation  evidencing the  consummation of Other Financing  transactions
which,  in the cases of (i) or (ii)  individually,  or in the  aggregate (in any
combination),  are  equal to or are in  excess  of the  Minimum  Amount.  At the
initial and  subsequent  Closing(s),  payment for the  Securities  shall be made
against delivery of certificates  representing the Securities sold. All proceeds
received  from the sale of the  Securities  sold after the initial  Closing date
will continue to be deposited in the Account  maintained with the Bank until the
occurrence of additional Closing(s).

              (b) PROCEDURES AT CLOSING. At each Closing:




                                       23






                   (i)  The  Placement   Agent  on  behalf  of  itself  and  the
Subscribers  shall receive the opinion of [ ] ("Company  Counsel"),  in form and
substance acceptable to the Placement Agent.

                   (ii) At the Closing, the Placement Agent will have received a
signed  letter  from [ ],  confirming  that such firm is an  independent  public
accountant  within the  meaning of the  Securities  Act and  stating  that:  (i)
insofar as reported on by such firm, in their opinion,  the financial statements
of the Company included in the Memorandum  (including,  without limitation,  the
Financial  Statements)  comply  as to form in all  material  respects  with  the
applicable  accounting  requirements of the Securities Act; (ii) on the basis of
procedures and inquiries  (not  constituting  an examination in accordance  with
generally  accepted  auditing  standards)  consisting  of a reading  of the last
available  financial  statements  of the  Company,  inquiries of officers of the
Company  responsible for financial and accounting matters as to the transactions
and events subsequent to the Balance Sheet Date, and a reading of the minutes of
meetings  of the  shareholders,  the Board of  Directors  of the Company and any
committees  of the Board of  Directors,  as set forth in the minute books of the
Company,  nothing has come to their attention  which,  in their judgment,  would
indicate  that (A) during the period from the Balance  Sheet Date to a specified
date not more  than five (5)  business  days  prior to the date of such  letter,
there have been any material  decreases  in net current  assets or net assets as
compared with amounts shown in such Financial  Statements or material  decreases
in net sales or in total or per share net loss compared  with the  corresponding
period in the preceding  year or any change in the  capitalization  or long-term
debt of the  Company or of any of its  Subsidiaries,  except in all cases as set
forth  in or  contemplated  by the  Memorandum;  and (B) the  unaudited  interim
financial  statements of the Company,  if any, appearing in the Memorandum,  are
not presented in conformity with Generally  Accepted  Accounting  Principles and
Practices  on a  basis  substantially  consistent  with  the  audited  financial
statements  included in the  Memorandum;  and (iii) they have compared  specific
dollar amounts,  numbers of shares,  numerical data, percentages of revenues and
earnings, and other financial information pertaining to the Company set forth in
the  Memorandum  (with  respect  to  all  dollar  amounts,  numbers  of  shares,
percentages and other



                                       24





financial  information  contained  in the  Memorandum,  to the extent  that such
amounts,  numbers,  percentages  and information may be derived from the general
accounting  records of the Company,  and excluding  any  questions  requiring an
interpretation  by legal counsel) with the results obtained from the application
of  specified  readings,  inquiries  and  other  appropriate  procedures  (which
procedures  do not  constitute  an  examination  in  accordance  with  generally
accepted  auditing  standards) set forth in the letter,  and found them to be in
agreement.

                   (iii)  Counsel for the  Placement  Agent and Company  Counsel
shall receive  certificates from the Company,  signed by the President or a Vice
President  thereof,  certifying  (A) that  the  representations  and  warranties
contained in Section 2 hereof are true and accurate at the Closing with the same
effect as though expressly made at the Closing; and (B) that attached thereto is
(1) a true and correct copy of  resolutions  adopted by the  Company's  Board of
Directors  authorizing  (i) the  execution,  delivery  and  performance  of this
Agreement and the Ancillary  Documents,  and (ii) the issuance of the Securities
and the  Sands  Warrants  and  certifying  that such  resolutions  have not been
modified,  rescinded or amended and are in full force and effect; and (2) a true
and correct copy of a resolution adopted by the Company's Board of Directors and
by each of the Company's Subsidiaries,  authorizing the execution,  delivery and
performance of each document to which it is a party,  and that such  resolutions
have not been modified, rescinded or amended and are in full force and effect.

                   (iv) There shall be  delivered  on behalf of each  Subscriber
one copy of the Subscription Agreement signed by each Subscriber and one copy of
the Questionnaire signed by each Subscriber.

                   (v) The Placement  Agent shall have received  certificates of
good standing of the Company,  dated as of a recent date,  from the Secretary of
State of the jurisdiction of its incorporation and certificates of good standing
of each  of the  Company's  Subsidiaries,  dated  as of a  recent  date,  by the
Secretary of State of the jurisdictions of incorporation of the Subsidiaries.




                                       25






                   (vi) At the Closing the  Placement  Agent shall  instruct the
Bank to pay to the Company out of the funds on deposit in the  Account,  as such
funds are received from Subscribers whose Subscriptions have been accepted.

              (c) BLUE SKY. Where  appropriate,  counsel for the Placement Agent
shall  prepare a summary  blue sky  survey  stating  the extent to which and the
conditions  upon which offers and sales of the Securities may be made in certain
jurisdictions.   Blue  Sky  applications  shall  be  made  in  such  states  and
jurisdictions  as shall be requested by the  Placement  Agent.  It is understood
that such  survey may be based on or rely upon (i) the  representations  of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber;
(ii) the  representations,  warranties  and agreements of the Company and of its
Subsidiaries set forth herein;  (iii) the  representations and warranties of the
Placement Agent set forth herein;  and (iv) the  representations  of the Company
and of its  Subsidiaries  set forth in the  certificate  to be  delivered at the
Closing pursuant to paragraph 4(b)(iii) hereof.

              (d) PLACEMENT FEE AND EXPENSES.

                   (i) At each  Closing,  the Company shall pay to the Placement
Agent a commission equal to ten (10%) percent of the aggregate  proceeds derived
from the  Financing.  In addition,  the Company shall pay the Placement  Agent a
non-accountable  and  non-refundable  expense  allowance,  equal to  three  (3%)
percent of the aggregate  proceeds derived from the Financing.  Prior to or from
the  proceeds  of the  Closing,  the  Company  shall pay all  Placement  Agent's
expenses in connection with the proposed  Offering,  including,  but not limited
to,  reasonable  counsel  expenses  and fees of  counsel to the  Company  and of
counsel to the Placement Agent,  disbursements and fees,  reasonable  accountant
expenses,  disbursements  and fees,  filing  fees,  business  and  investigatory
expenses,  printing  costs,  postage and mailing  expenses  with  respect to the
transmission  of the Offering and  Ancillary  Documents,  registrar and transfer
agent fees,  issue and transfer taxes, if any, and counsel fees of the Placement
Agent  in  connection  with  the  qualification  of  the  Securities  under  the
securities  or blue sky laws of the  states  which  the  Placement  Agent  shall
designate.  The  Company  also  shall  pay for the costs of  placing  "tombstone
advertisements" in any publications which



                                       26





may be selected by the  Placement  Agent,  all costs and expenses in  connection
with the establishment and maintenance of the Account referred to in paragraph 1
of this Agreement,  and all other costs and expenses incident to the performance
of its obligations  hereunder which are not otherwise  specifically provided for
in this paragraph 4(d), including the cost of transaction memorabilia determined
at the reasonable discretion of the Placement Agent.

              (e)  ISSUANCE OF  PLACEMENT  AGENT  WARRANTS.  At each  Closing as
provided in paragraph 4(a) above, the Company shall issue to the Placement Agent
or its  designee(s),  warrants to purchase up to 100,000  shares of Common Stock
for each $1 million (or portion thereof)  raised,  at an exercise price of $1.50
per share (the "Placement Agent  Warrants").  The Placement Agent Warrants shall
be exercisable  for five (5) years,  commencing upon the date of their issuance.
The Placement  Agent Warrants shall be in the form attached hereto as Exhibit B,
and will be governed by the terms of the Warrant  Agreement  attached  hereto as
Exhibit A. The certificates representing the Placement Agent Warrants will be in
such  denominations  and such names as the Placement  Agent may request prior to
each closing.

              (f)  PLACEMENT  AGENT'S  DECISION  NOT  TO  PROCEED,  ETC.  If the
Placement Agent decides not to proceed with the Offering  because of a breach by
the Company or by its Subsidiaries of its/their representations,  warranties, or
covenants in this Agreement, or as a result of adverse changes in the affairs of
the Company or of its Subsidiaries, the Company shall pay Sands Brothers the sum
of One Hundred and Fifty Thousand ($150,000) Dollars.

         5. COVENANTS OF THE COMPANY.

              (a) AMENDMENTS AND SUPPLEMENTS.  The Company  covenants and agrees
that,  until  the  Offering  contemplated  by the  Offering  Documents  has been
completed  or  terminated,  if  there  shall  occur  any  event  relating  to or
affecting,  among other things,  the Company,  any of its  Subsidiaries,  or the
proposed operations of the Company or of any of its Subsidiaries as described in
the Offering Documents,  as a result of which it is necessary, in the opinion of
the Placement Agent and its counsel or Company  Counsel,  to amend or supplement
the Offering  Documents in order that the Offering Documents will not contain an
untrue statement



                                       27





of a material fact or omit to state a material  fact  necessary in order to make
the statements  therein, in the light of the circumstances under which they were
made, not misleading,  the Company shall immediately  prepare and furnish to the
Placement Agent a reasonable number of copies of an appropriate  amendment of or
supplement to the Offering Documents,  in form and substance satisfactory to the
Placement Agent and its counsel.

              (b) USE OF  PROCEEDS.  The net  proceeds  of the  Offering  of the
Securities  will  be  used  by the  Company,  as  more  fully  described  in the
Memorandum, for the purposes to be set forth in the Memorandum.

              (c) EXPENSES OF OFFERING.  The Company shall be  responsible  for,
and shall bear all expenses directly and necessarily incurred in connection with
the proposed financing,  including,  but not limited to, the costs of preparing,
printing  and  filing  the  Offering  and  Ancillary  Documents  to be  used  in
connection  with  the  Offering  contemplated  hereby  and  all  amendments  and
supplements thereto; preparing, printing and delivering exhibits to the Offering
and Ancillary Documents;  preparing, printing and delivering all Placement Agent
and selling  documents,  including,  but not limited to, this  Agreement and the
blue sky memorandum, the Share certificates,  blue sky fees, filing fees and the
fees and  disbursements of the Placement  Agent's counsel and the other fees and
expenses set forth above.  As promptly as  practicable  after the final  Closing
date, the Company shall prepare, at its own expense,  hard cover "bound volumes"
relating to the Offering  and will  distribute  such volumes to the  individuals
designated by counsel to the Placement Agent.

              (d) RESERVATION OF COMMON STOCK. The Company will reserve and keep
available the maximum  number of its  authorized  but unissued  Reserved  Shares
which are issuable upon exercise of the Sands Warrants.

              (e) NO SENIOR  SECURITIES.  In the event any  Securities  are sold
hereunder,  the Company  shall not,  without the approval of the holder(s) of at
least a majority-in-interest of such shares then outstanding, by vote or written
consent, authorize, issue or enter into any agreement providing for the issuance
(contingent   or  otherwise)  of  any  equity   securities  (or  any  securities
convertible into or exchangeable for any equity securities) that



                                       28





are senior to or on a parity with the  Securities as to dividends or liquidation
rights.

              (f) EARLY TERMINATION BY THE COMPANY. Anything contained herein to
the  contrary  notwithstanding,  in the event that,  following  the date of this
Agreement until the termination of the Offering  Period,  the Company desires to
terminate  this  Agreement for any reason (which for purposes of this  Agreement
shall include,  but not be limited to, Sands  Brothers being ready,  willing and
able to proceed with the transactions  contemplated  hereunder,  but the Company
being  unwilling to proceed for any reason),  Sands Brothers has the right,  but
not the obligation,  to agree to such early  termination upon the payment by the
Company to Sands  Brothers  of a sum equal to the  placement  fees and  expenses
(including  its  counsel  fees and  expenses)  and Sands  Warrants it would have
received  under  Sections 4(d) and 4(e)  hereunder  had the Maximum  Amount been
sold.

              (g)  NO  CLOSING.  Anything  set  forth  herein  to  the  contrary
notwithstanding,  in the event that,  for any reason other than (i)  termination
hereof by the Company in accordance with the terms of Section 5(f) above or (ii)
termination hereof by the Placement Agent in accordance with Section 4(f) above,
a  Closing  does not occur in  accordance  with the terms  provided  herein,  no
amounts shall be payable  further to Sands Brothers  hereunder,  except for that
contemplated by Section 3(e)(ii) hereof and the  reimbursement of the reasonable
out-of-pocket  expenses  (including  its counsel fees and expenses)  incurred by
Sands Brothers prior to the expiration date of the Offering Period.  In no event
shall Sands  Brothers be  responsible  for any of the Company's  fees,  costs or
expenses  and  the  Company  shall  pay all  expenses  of the  Offering  and the
preparation of the Offering and Ancillary Documents. The Company shall reimburse
Sands Brothers for any out-of-pocket  expenses  (including,  but not limited to,
reasonable  counsel  fees  and  expenses)  which  Sands  Brothers  may  incur in
connection with the enforcement of its rights hereunder.

              (h) RATIFICATION AND CONFIRMATION OF INVESTMENT BANKING AGREEMENT.
The Company  hereby  confirms  and  ratifies the  investment  banking  agreement
between the  Company and the  Placement  Agent  dated May 11,  1998,  as amended
("Investment  Banking  Agreement"),   including,  without  limitation,  (i)  the
retention of Sands Brothers as financial advisor to the Company



                                       29





pursuant  to  Section  A  thereof,  (ii)  the  retention  of Sands  Brothers  in
connection with merger and acquisition activities pursuant to Section B thereof,
(iii) the granting of the right of first refusal to Sands  Brothers  pursuant to
Section C thereof, (iv) the granting of the right to designate a board member or
observer to the board of directors of the Company pursuant to Section D thereof,
(v) the issuance of warrants to purchase 600,000 shares of Common Stock to Sands
Brothers and its  designees  (the  "Investment  Banking  Warrants")  pursuant to
Section  E  thereof  and  (vi) the  expense  reimbursement  and  indemnification
provisions thereof.

              (i) FINANCING  SOURCES.  The Company will provide to the Placement
Agent a list of each of its  present  financing  sources,  with  such list to be
amended for a period of one year from the date of  termination  of the  Offering
if, and when,  the  Company  is  approached  by, or has any  contact  with,  any
potential financing sources ("Company Sources").

              (j)  PLACEMENT  AGENT  SOURCES.  For a period of one year from the
date of this  Agreement,  the Placement  Agent shall keep a list of the names of
all its sources of potential  financing  ("Placement Agent Sources" and together
with the Company  Sources  collectively,  the "Sources") for the Company,  which
list may be  furnished  to the  Company  and  amended  from  time to time by the
Placement Agent at its discretion.  The Company agrees, in the event it directly
or  indirectly  receives  financing  in any form or nature  whatsoever  from any
Source,  that it will fully  compensate the Placement  Agent under the terms and
conditions of this Agreement to the same extent as if the Placement Agent itself
had obtained such financing from such Source.

              (k) NO FINDER'S  FEE. The Company  represents  and warrants to the
Placement  Agent that it is not  obligated  to pay a finders'  fee to any one in
connection with the introduction of the Company to Sands Brothers.

         6. INDEMNIFICATION.

              (a) TERMS OF INDEMNIFICATION.  The Company agrees to indemnify and
hold harmless the  Placement  Agent and its agents,  stockholders,  officers and
directors,  and each  person,  if any,  who controls  the  Placement  Agent,  as
follows:




                                       30






                (i)  against  any and all loss,  liability,  claim,  damage  and
        expense whatsoever arising out of any untrue statement or alleged untrue
        statement of a fact contained in the Offering  Documents or the omission
        or alleged  omission  therefrom of a fact necessary in order to make the
        statements  therein,  in the light of the circumstances under which they
        were made, not misleading,  unless such untrue statement or omission was
        made in the  Offering or  Ancillary  Documents  in reliance  upon and in
        conformity  with  information  furnished  in writing  to the  Company in
        connection therewith by the Placement Agent expressly for use therein;

                (ii)  against  any and all loss,  liability,  claim,  damage and
        expense  whatsoever  to the  extent  of the  aggregate  amount  paid  in
        settlement  of any  litigation,  commenced or  threatened,  or any claim
        whatsoever  based upon any such untrue statement or omission or any such
        alleged untrue statement or omission; and

                (iii)  against  any  and  all  expense  whatsoever  incurred  in
        investigating,  preparing or defending against any litigation, commenced
        or  threatened,  or any  claim  whatsoever  based  upon any such  untrue
        statement or omission, or any such alleged untrue statement or omission,
        to the extent that any such expense is not paid under clause (i) or (ii)
        above.

              (b)  INDEMNITY  UNDER  SECURITIES  LAWS.  The  Company  agrees  to
indemnify and hold harmless the Placement Agent and its agents, and each person,
if any, who controls the  Placement  Agent,  to the same extent as the foregoing
Indemnity,  against  any and all loss,  liability,  claim,  damage  and  expense
whatsoever directly arising out of the exercise by any person of any right under
the Securities Act or the  Securities  Exchange Act of 1934, as amended,  or the
securities  or blue  sky laws of any  state  on  account  of  violations  of the
representations, warranties or agreements set forth herein.

              (c) If any action is brought against the Placement Agent or any of
its officers, directors, stockholders,  employees, agents, advisors, consultants
and counsel or any controlling persons of



                                       31





the Placement Agent (each, an "Indemnified Party" and collectively, "Indemnified
Parties"),  in respect of which  indemnity  may be sought  against  the  Company
pursuant  to  Sections  6(a) or 6(b) above,  each such  Indemnified  Party shall
promptly  notify  the  Company  (the  "Indemnifying  Party")  in  writing of the
institution  of such action (but the failure to so notify  shall not relieve the
Indemnifying  Party from any  liability  it may have under this Section 6 unless
such failure  results in the  imposition of a default  judgment  which cannot be
reopened) and the  Indemnifying  Party shall promptly assume the defense of such
action, including the employment of counsel reasonably satisfactory to each such
Indemnified  Party and payment of expenses.  Each such  Indemnified  Party shall
have the right to employ  its own  counsel  in any such  case,  but the fees and
expenses of such counsel shall be at the expense of each such Indemnified  Party
unless the  employment of such counsel shall have been  authorized in writing by
the  Indemnifying  Party in  connection  with the  defense of such action or the
Indemnifying  Party shall have not have  promptly  employed  counsel  reasonably
satisfactory  to each such  Indemnified  Party to have  charge of the defense of
such action or each such Indemnified Party shall have reasonably  concluded that
there  may be one or more  legal  defenses  available  to it or them or to other
Indemnified Parties which are different from or additional to those available to
one or more of the Indemnifying  Parties and it would be  inappropriate  for the
same  counsel to represent  both  parties due to actual or  potential  differing
interests  between them, in any of which events such fees and expenses  shall be
borne by the Indemnifying  Party and the  Indemnifying  Party shall not have the
right to direct the defense of such action on behalf of each Indemnified  Party.
Anything in this Section 6(c) to the contrary notwithstanding,  the Indemnifying
Party  shall  not be  liable  for any  settlement  of any such  claim or  action
effected  without its written  consent,  which consent shall not be unreasonably
withheld.  The Company  agrees to  promptly  notify the  Placement  Agent of the
commencement of any litigation or proceedings  against the Company or any of its
officers or  directors  in  connection  with the sale of the  Securities  or the
Memorandum.

              (d)  CONTRIBUTION.  In order  to  provide  for just and  equitable
contribution  in any case in which (i) an  indemnified  party  makes a claim for
indemnification  pursuant to this Section 6, but it is judicially determined (by
the entry of a final



                                       32





judgment or decree by a court of competent  jurisdiction  and the  expiration of
time  to  appeal  or  the  denial  of  the  last  right  of  appeal)  that  such
indemnification may not be enforced in such case;  notwithstanding the fact that
the express  provisions  of this Section 6 provide for  indemnification  in such
case; or (ii) contribution  under the Securities Act may be required on the part
of any indemnified  party, then each indemnifying  party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses or liabilities
(or actions in respect  thereof) (A) in such  proportion  as is  appropriate  to
reflect the relative benefits received by each of the contributing  parties,  on
the one  hand,  and the party to be  indemnified  on the  other  hand,  from the
Offering  of the  Securities;  or (B) if the  allocation  provided by clause (A)
above is not permitted by applicable  law, in such  proportion as is appropriate
to reflect not only the  relative  benefits  referred to in clause (i) above but
also the relative fault of each of the  contributing  parties,  on the one hand,
and the  party to be  indemnified  on the other  hand,  in  connection  with the
statements or omissions that resulted in such losses, claims, damages,  expenses
or liabilities,  as well as any other relevant equitable considerations.  In any
case where the Company is a  contributing  party and the Placement  Agent is the
indemnified  party,  the  relative  benefits  received by the Company on the one
hand, and the Placement  Agent, on the other,  shall be deemed to be in the same
proportion as the total net proceeds from the Offering of the Securities (before
deducting  expenses) bear to the total Placement Agent  commissions  received by
the  Placement  Agent  hereunder,  in each case as set forth in the table on the
cover page of the  Memorandum.  Relative  fault shall be determined by reference
to,  among other  things,  whether the untrue or alleged  untrue  statement of a
material  fact or the  omission  or alleged  omission  to state a material  fact
relates to information  supplied by the Company,  or by the Placement Agent, and
the parties' relative intent,  knowledge,  access to information and opportunity
to correct or prevent  such untrue  statement  or  omission.  The amount paid or
payable by an  indemnified  party as a result of the  losses,  claims,  damages,
expenses or  liabilities  (or actions in respect  thereof)  referred to above in
this  subsection  (c),  shall be deemed to include  any legal or other  expenses
reasonably  incurred by such indemnified party in connection with investigating,
preparing or defending any such action or claim.  Notwithstanding the provisions
of this subsection (c), the Placement Agent shall not be required to



                                       33





contribute any amount in excess of the Placement Agent commissions applicable to
the  Securities  placed by the Placement  Agent  hereunder.  No person guilty of
fraudulent  misrepresentation  (within  the  meaning  of  Section  11(f)  of the
Securities  Act) shall be entitled to  contribution  from any person who was not
guilty of such  fraudulent  misrepresentation.  For  purposes of this Section 6,
each  person,  if any,  who  controls  the  Company  within  the  meaning of the
Securities Act, each officer of the Company who has signed the  Memorandum,  and
each director of the Company shall have the same rights to  contribution  as the
Company,  subject in each case to this  subsection  (c).  Any party  entitled to
contribution  will,  promptly  after  receipt of notice of  commencement  of any
action,  suit or  proceeding  against such party in respect to which a claim for
contribution  may be made against another party or parties under this subsection
(c), notify such party or parties from whom contribution may be sought,  but the
omission  so to notify  such party or  parties  shall not  relieve  the party or
parties from whom  contribution may be sought from any obligation it or they may
have  hereunder or otherwise  than under this  subsection  (c), or to the extent
that such party or parties were not  adversely  affected by such  omission.  The
contribution  agreement set forth above shall be in addition to any  liabilities
which any indemnifying party may have at common law or otherwise.

         7. MISCELLANEOUS.

              (a) GENERAL.  The Company shall supply Sands  Brothers'  with such
financial statements, contracts and other corporate records and documents as may
be requested of it. In addition,  Sands  Brothers shall be fully informed by the
Company  of any events  which  might  have a  material  affect on the  financial
condition  of the Company or of any of its  Subsidiaries.  If, in the opinion of
Sands  Brothers,  the  condition of the Company,  or the condition of any of its
Subsidiaries,  financial or otherwise, and its/their prospects are affected in a
material  and/or  adverse  manner and do no  fulfill  the  expectation  of Sands
Brothers,  it  shall  have the sole  discretion  to  review  and  determine  its
continued interest in the Offering.


              (b) REPRESENTATIONS, WARRANTIES AND COVENANTS TO SURVIVE DELIVERY.
The respective representations, warranties,



                                       34





indemnities,  agreements,  covenants and other statements of the Company and its
Subsidiaries,   and   where   appropriate,    its/their   respective   principal
stockholders,  shall  survive  execution of this  Agreement  and delivery of the
Securities  and the  termination  of this  Agreement.  Notwithstanding  anything
provided herein to the contrary,  the provisions of Sections 4(d) and 4(e)hereof
shall survive the  termination  of the Offering  Period and shall remain in full
force and effect with respect to all Sources who invest, or commit to invest, in
the Company at any time during the twelve month period  commencing  the day that
the Offering  Period  terminates.  Additionally,  the  Placement  Agent shall be
entitled to also retain its non-accountable and non-refundable expense allowance
to the extent it has been paid prior to the date of termination.

              (c) NO OTHER  BENEFICIARIES.  This  Agreement  is intended for the
sole and exclusive benefit of the parties hereto and their respective successors
and controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.

              (d)  GOVERNING  LAW.  This  Agreement  shall  be  governed  by and
construed  in  accordance  with the law of the  State of New York.  The  parties
hereby  agree:  (i) in any legal  proceeding  brought  in  connection  with this
Agreement or the transactions  contemplated hereby, to irrevocably submit to the
nonexclusive  IN  PERSONAM  jurisdiction  of (A) any state or  federal  court of
competent  jurisdiction sitting in the State of New York, County of New York; or
(B) in the event that any party is a defendant in any legal  proceeding in which
it seeks to join  the  other as a third  party  defendant,  then,  any  state or
federal court in which such  proceeding has properly been brought,  and consents
to suit therein;  and (ii) to waive any objection they may now or hereafter have
to the venue of such  proceeding in any such court or that such  proceeding  was
brought in an inconvenient court.

              (e)   NOTICES.   All   notices,   requests,   demands   and  other
communications  which are required or may be given under this Agreement shall be
in  writing  and  shall  be  deemed  to have  been  duly  given  when  delivered
personally,  receipt  acknowledged,  or  five  (5)  days  after  being  sent  by
registered or certified mail,  return receipt  requested,  postage prepaid.  All
notices shall be made to the parties at the addresses  designated  above,  or at
such



                                       35





other or different addresses which a party may subsequently  provide with notice
thereof, and to their respective legal counsel, as follows:

               (i)  If to the Placement Agent, to:

               Sands Brothers & Co., Ltd.
               90 Park Avenue
               New York, NY  10016
               Attn:  Mr. Mark G. Hollo
                      Managing Director

               - with a copy to -

               Littman Krooks Roth & Ball P.C.
               655 Third Avenue 20th floor
               New York, NY  10017
               Attn:  Mitchell C. Littman, Esq.

or to such other  person or address as the  Placement  Agent  shall  furnish the
Company in writing.

               (ii) If to the Company, to:

               IMSCO Technologies, Inc.
               162-06 92nd Street
               Howard Beach, NY 11414
               Attn:  Alexander T. Hoffmann,
                      Chief Executive Officer



               - with a copy to -

               [



                                        ]
               Attn: [             ].






                                       36





or to such other person or address as the Company  shall  furnish the  Placement
Agent in writing.

              (f)  COUNTERPARTS.  This  Agreement may be signed in  counterparts
with the same effect as if both parties had signed one and the same instrument.

              (g)  REIMBURSEMENT.   Notwithstanding  the  non-occurrence  of  an
Closing,  or any  other  condition,  in no event  shall the  Placement  Agent be
responsible  for any of the  Company's  fees,  costs or expenses;  however,  the
Company  shall  reimburse  the Placement  Agent for any  out-of-pocket  expenses
(including,  but not limited to, reasonable  counsel fees and expense) which the
Placement  Agent may incur in  connection  with the  enforcement  of its  rights
hereunder.

              (h) FORM OF  SIGNATURE.  The  parties  hereto  agree  to  accept a
facsimile  transmission copy of their respective signatures as evidence of their
respective  actual  signatures to this Agreement;  PROVIDED  HOWEVER,  that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of his or her signature by fax, a true and
correct  original copy of his or her signature in overnight  mail to the address
of the other party.

              (i)  MODIFICATION.  This  Agreement  (i) may only be modified by a
written  instrument which is executed by both parties thereto,  (ii) constitutes
the entire  agreement  between the parties,  and (iii) shall be binding upon and
inure to the benefit of both parties hereto and their  respective  successor and
assignees.

              (j) NON-CIRCUMVENTION. Each of the Company and the Placement Agent
each agree that no effort shall be made to circumvent  the terms and  conditions
of this  Agreement or gain a fee,  commission,  remuneration,  consideration  or
benefit  whatsoever.  With  respect  to any  attempt  at  circumvention  of this
Agreement,  the injured  party is  entitled to seek any and all legal  remedies,
fees or  compensation  equal to those received or committed or agreed to be paid
pursuant to the terms of this  Agreement  as the same are due and payable to the
circumvented party under the terms of this Agreement.




                                       37






              (k)  GOOD  FAITH.  Each of the  Company  and the  Placement  Agent
understand  that this Agreement is a reciprocal and mutual one and both warrant,
covenant,  and promise  that it will act in good faith  toward each other in the
performance of this Agreement and in other matters.

              (l) FURTHER  SERVICES.  The Placement Agent shall, if requested by
the  Company,  testify in, and shall  prepare and assist in the  preparation  of
testimony  for,  any  judicial or  administrative  proceeding  in respect of the
services performed by the Placement Agent hereunder.  With respect thereto,  the
Company shall pay, in addition to the fees and expenses payable to the Placement
Agent  hereunder,  for the time required to expend by the Placement Agent at its
standard hourly rates as then in effect, together with reasonable  out-of-pocket
expenses, but not limited to, fees and expenses of its legal counsel.

              (m) WAIVER OF BREACH.  The waiver by either the Placement Agent or
the Company of any  provision  of this  Agreement  shall not be  construed  as a
waiver of any subsequent breach hereof.

         If you find the  foregoing  is in  accordance  with our  understanding,
kindly sign and return to us a counterpart  hereof,  whereupon  this  instrument
along with all counterparts will become a binding agreement between us.

                                            Very truly yours,

                                            IMSCO Technologies, Inc.

                                            By: /s/ Alexander T. Hoffmann
                                               ---------------------------------
                                               Name:  Alexander T. Hoffmann
                                               Title: Chairman & CEO

Agreed:

SANDS BROTHERS & CO., LTD.


By: /s/ Mark G. Hollo
   -------------------------------
   Name:  Mark G. Hollo
   Title: Senior Managing Director




                                       38






                                LIST OF SCHEDULES




SCHEDULE 2(b)  Organization

SCHEDULE 2(c)  Capitalization

SCHEDULE 2(d)  Subsidiaries and Investments

SCHEDULE 2(i)  Absence of Changes

SCHEDULE 2(q)  Non Defaults; Non Contravention

SCHEDULE 2(t)  Agreements

SCHEDULE 2(x)  Related Transactions

SCHEDULE 2(z)  Salaries and Bonuses

SCHEDULE 2(NN) Affiliations














                                       39





                                    EXHIBITS

Exhibit A - Placement Agent Warrant Agreement























                                       40

EX-27

 


<ARTICLE>                     5
<LEGEND>
This schedule  contains  summary  financial data extracted from the consolidated
balance sheet and the  consolidated  statement of operations and is qualified in
its entirety by reference to such statements

<CIK>                         0000924396
<NAME>                        IMSCO TECHNOLOGIES, INC.

                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                             DEC-31-1998
<PERIOD-END>                                  DEC-31-1998
<CASH>                                                  0
<SECURITIES>                                       22,992
<RECEIVABLES>                                           0
<ALLOWANCES>                                            0
<INVENTORY>                                             0
<CURRENT-ASSETS>                                   23,992
<PP&E>                                            128,911
<DEPRECIATION>                                     98,918
<TOTAL-ASSETS>                                    140,061
<CURRENT-LIABILITIES>                             911,405
<BONDS>                                                 0
<PREFERRED-MANDATORY>                                   0
<PREFERRED>                                             5
<COMMON>                                              769
<OTHER-SE>                                        772,118
<TOTAL-LIABILITY-AND-EQUITY>                      140,061
<SALES>                                                 0
<TOTAL-REVENUES>                                        0
<CGS>                                                   0
<TOTAL-COSTS>                                           0
<OTHER-EXPENSES>                                2,656,431
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