-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vqv4WnQqBDbLpJc44DFLKW+EL0FUhk1VA4OXadbRA41IOsvqV/Y7qTiOkOBSUMmF nU21QAxHl2dTUvT5oa1YgA== 0000913355-99-000144.txt : 19991102 0000913355-99-000144.hdr.sgml : 19991102 ACCESSION NUMBER: 0000913355-99-000144 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMSCO INC /MA/ CENTRAL INDEX KEY: 0000924396 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 043021770 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24520 FILM NUMBER: 99738824 BUSINESS ADDRESS: STREET 1: 40 BAYFIELD DR CITY: NORTH ANDOVER STATE: MA ZIP: 01845 BUSINESS PHONE: 9786892080 MAIL ADDRESS: STREET 1: 40 BAYFIELD DR CITY: NORTH ANDOVER STATE: MA ZIP: 01845 10QSB 1 QUARTERLY REPORT FOR THE PERIOD ENDED 6/30/99 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 Commission file number 0-24520 IMSCO TECHNOLOGIES, INC. (Exact name of small business issuer as specified in its charter) Delaware 04-3021770 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 40 Bayfield Drive, North Andover, Massachusetts 01845 (Address of principal executive offices) (Zip Code) (978) 689-2080 (Registrant's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 7,786,508. IMSCO TECHNOLOGIES, INC. INDEX PART I ------ Item 1. - Financial Statements: Balance Sheets - June 30, 1999 ................................................3 Statement of Operations - For the Six Months Ended June 30, 1999 and June 30, 1998.........................................................5 Statement of Operations For the Three months ended June 30, 1999 and 1998 .................................................................6 Statement of Cash Flows - For the Six Months Ended June 30, 1999 and June 30, 1998 ........................................................7 Statement of Stockholders' Equity - For the Year Ended December 31, 1998 and the Six Months Ended June 30, 1998...........................9 Notes to Unaudited Financial Statements ......................................13 Item 2. Management's Discussion and Analysis or Plan of Operation ...........17 PART II ------- Item 6. Exhibits and Reports on Form 8-K.....................................20 2 PART I Financial Information --------------------- Item 1. Financial Statements IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES a development stage enterprise CONSOLIDATED BALANCE SHEET As of June 30, 1999 ASSETS 1999 ---- CURRENT ASSETS Cash and cash equivalents $ 200 Prepaid Taxes Prepaid Insurance 1,000 TOTAL CURRENT ASSETS $ 1,200 ------- FIXED ASSETS Property and equipment 123,066 Leasehold improvements 5,845 Accumulated depreciation (103,958) ------- NET FIXED ASSETS 24,953 DUE FROM OFFICER DEPOSITS 3,499 Total Other Assets 3,499 TOTAL ASSETS $ 29,652 ======== The accompanying notes are an integral part of these consolidated statements. 3 IMSCO TECHNOLOGIES, INC AND SUBSIDIARIES a development stage enterprise CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes Payable $ 193,355 Convertible Notes Payable 600,000 Accounts payable 85,510 Accrued salaries 186,370 Accrued expenses 50,955 Accrued payroll taxes 36,637 Accrued Interest 36,572 Due To Stockholders 32,780 --------- TOTAL CURRENT LIABILITIES 1,222,179 STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock-authorized 1,000,000 shares at $.0001 par value; 45,000 shares issued and outstanding 5 Additional Paid-in capital-Series A Convertible Preferred Stock 224,995 Common stock-authorized 15,000,000 shares at $.0001 par value; 7,786,508 shares issued and outstanding at June 30, 1999 779 Additional paid-in capital 9,946,721 Deficit Accumulated: Developments stage (9,365,623) Discontinued Operations (620,908) Prepaid advertising credits (1,378,496) --------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,192,527) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 29,652 ========= The accompanying notes are an integral part of these consolidated statements. 4
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES a development stage enterprise CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the current development stage) TO JUNE 30, 1999 Cumulative Amounts From Current 1999 1998 Development Stage ---- ---- ----------------- Development Expense $ 8,911 $ 33,000 $301,925 Salaries and Wages 117,691 262,167 933,005 Officer Salaries 30,807 206,705 1,102,500 Payroll Taxes 13,931 11,085 154,803 Outside Labor 0 1,193,093 191,136 Professional Services 75,745 186,649 983,765 Professional Services-Non Cash 0 0 2,074,969 Rent 9,269 9,859 165,288 Rent- Related 1,750 0 5,500 Insurance 23,401 37,408 186,644 Travel and Business Meeting 11,321 50,356 189,250 Auto Expense 5,448 7,193 66,217 Telephone and Utilities 6,014 5,266 67,416 Office Expense 4,165 4,917 135,008 Equipment Rental 2,781 4,880 36,080 Corporate Fees -- 8,701 69,981 Advertising 12,000 20,625 330,703 Depreciation and Amortization 5,040 4,540 28,967 Litigation Settlement 0 0 1,538,392 Franchise Tax -- 456 1,987 ------- --------- --------- TOTAL GENERAL, ADMINISTRATIVE AND DEVELOPMENT EXPENSE 328,274 2,046,900 8,563,536 ------- --------- --------- OTHER INCOME (EXPENSE) Dividend and Interest Income 0 0 11,633 Interest Expense 235,870 0 769,648 Loss on sale of fixed assets 0 0 (44,072) ------- --------- --------- Other Income (Expenses)- Net 235,870 0 (802,087) LOSS BEFORE INCOME TAXES (564,144) (2,046,900) (9,365,623) Provision for Income Tax 0 0 0 ------- --------- --------- NET LOSS $(564,144) $(2,046,900) $(9,365,623) ======== ========= ========= LOSS PER SHARE $ (.07) $ (.28) (1.20)
The accompanying notes are an integral part of these consolidated statements. 5 IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES a development stage enterprise CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 1999 1998 ---- ---- Development Expense $ 152 $ 33,000 Salaries and Wages 8,314 212,665 Officer Salaries 0 130,359 Payroll Taxes - 13,170 8,413 Outside Labor 0 1,190,961 Professional Services 5,356 92,293 Rent 6,297 5,886 Insurance 5,889 17,300 Travel and Business Meeting 5,515 3,274 Auto Expense 1,400 2,717 Telephone and Utilities 2,968 2,970 Office Expense 687 2,799 Equipment Rental 341 3,083 Corporate Fees 341 1,701 Advertising 0 0 Marketing Expense 0 0 Depreciation and Amortization 2,520 2,270 Litigation Settlement 0 0 Franchise Tax 0 0 ------ ------ TOTAL GENERAL, ADMINISTRATIVE AND DEVELOPMENT EXPENSE 26,269 1,709,716 OTHER INCOME (EXPENSE) Dividend and Interest Income 0 Interest Expense 16,900 Loss on sale of fixed assets 0 ------ ------- Other Income (Expense) - Net 0 LOSS BEFORE INCOME TAXES (43,169) (1,709,716) Provision for Income Tax 0 ------ ------- NET LOSS $(43,169) $(1,709,716) ====== ========= LOSS PER SHARE $ (.006) $ (0.23) The accompanying notes are an integral part of these consolidated statements. 6
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES a development stage enterprise CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the current development stage) RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Cumulative Amounts from July 9, 1992 to 1999 1998 June 30, 1999 ---- ---- ------------- Net Loss $ (564,144) $(2,046,914) $(9,365,623) Issuance of Stock Purchase Warrants 45,000 - 834,659 Decrease (increase) in Due from Officers 2,980 3,500 2,860 Depreciation and Amortization 5,040 4,540 31,579 Interest Expense-Financing Cost 82,577 - 299,085 Interest Paid with Common Stock 300,253 Amortization of Prepaid Advertising - - 229,674 Loss on Disposal of Property And Equipment - - 44,072 Stock issued to retire debt/services 97,961 3,446,660 2,168,876 Increase(decrease)in: Other Assets - - 19,200 Security Deposits - - 1,176 Accounts Receivable - - 2,998 Accounts Payable (76,472) (29,605) 21,059 Accrued Payroll Taxes (11,369) 115 36,637 Accrued Expenses 26,483 (1,540,834) 1,589,347 Accrued Interest 36,572 - 36,572 Accrued Marketing (53,000) - - Accrued Legal Fees (50,955) - 50,955 Cash Overdraft - (18,804) - Accrued Salaries 33,180 (48,125) 186,370 Prepaid Consulting - (147,830) - ------- --------- --------- Total adjustments 137,997 1,669,616 5,804,417 ------- --------- --------- Net Cash Provided by Operating Activities $ (426,147) $ (377,284) $(3,561,206) ------- ------- ---------
The accompanying notes are an integral part of these consolidated statements. 7
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES a development stage enterprise CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS FROM JULY 9, 1992 (inception of the current development stage) TO JUNE 30, 1999 Cumulative July 9, 1992 to 1999 1998 June 30, 1999 ---- ---- ------------- Net Cash Provided by operating activities -Forward $(426,147) $(377,284) $(3,561,206) ------- ------- --------- Cash flows from investing activities: Prepaid research testing - - (7,734) Purchase of Fixed Assets - - (118,212) Sale of Fixed Assets - - 21,000 ----- ----- ------- Net cash used in investing activities - - (104,946) ----- ----- ------- Cash flows from financing activities: Convertible Note Payable 600,000 - 600,000 Proceeds from Notes Payable - - 775,000 Proceeds form Preferred Stock - - 225,000 Interim Loans from Stockholders - - 41,300 Payment on Loans from Stockholders - - ( 11,500) Proceeds from issuance of common stock - 379,400 2,247,304 Payment of Notes Payable (196,645) - (196,645) ------- -- ------- Net cash provided by financing activities 403,355 379,400 3,680,459 ------- ------- --------- Net Increase (decrease) in cash and cash equivalents (22,792) 2,116 14,307 Cash and cash equivalents at beginning of period 22,992 13,780 (14,107) ------ ----- ------ Cash and cash equivalents at end of period $ 200 $ 15,896 $ 200 ===== ======== =====
The accompanying notes are an integral part of these consolidated statements. 8
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 Series A Convertible Preferred Stock Common Stock Paid-In Capital ------------------ --------------------- ------------------- Number of Number of Preferred Common Shares Amount Shares Amount Stock Stock ------ ------ ------ ------ ----- ----- Balance at December 31, 1997 6,516,536 $652 $6,118,198 Exercise of Stock Warrants 66,000 7 59,393 Issuance of Shares in Settlement Litigation 399,081 39 1,538,353 Issuance of Shares for Service 612,911 62 903,838 Issuance of Stock Warrants For 600,000 Shares of Common Stock for Consulting Services 656,284 Granting of Stock Options For 266,750 Shares of Common Stock 133,375 Private Placement Of Common Stock 70,000 7 69,993 Exercise of Stock Options 16,750 2 24,998 Issuance of Stock Warrant for 390,000 Shares of Common for Notes Payable 299,085 Private Placement Of Series A Convertible Preferred Stock 45,000 5 224,995
The accompanying notes are an integral part of these consolidated statements. 9
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 Deficit Accumulated Accumulated Total During Deficit Prepaid Stockholders Development Discontinued Advertising Equity Stage Operations Credits (Deficit) ----- ---------- ------- --------- Balance at December 31, 1997 $ (5,920,317) $(620,908) $(1,394,438) $ (1,816,813) Exercise of Stock Warrants - - - 59,400 Issuance of Shares in Settlement Litigation - - - 1,538,392 Issuance of Shares for Service - - - 903,900 Issuance of Stock Warrants For 600,000 Shares of Common Stock for Consulting Services - - - 656,284 Granting of Stock Options For 266,750 Shares of Common Stock 133,375 Private Placement Of Common Stock - - 70,000 Exercise of Stock Options - - 25,000 Issuance of Stock Warrant for 390,000 Shares of Common for Notes Payable 299,085 Private Placement of Series A Convertible Preferred Stock 225,000
The accompanying notes are an integral part of these consolidated statements. 10
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 Series A Convertible Preferred Stock Common Stock Paid-In Capital ------------------ --------------------- --------------------- Number of Number of Preferred Common Shares Amount Shares Amount Stock Stock ------ ------ ------ ------ ----- ----- Issuance of 270 Shares Issuable Pursuant to Financing Penalty 253 Advertising Credits Used Net Loss Balance December 31, 1998 45,000 $ 5 7,681,278 $ 769 $245,995 $9,803,770 Issuance of Shares for Cancelled Liabilities 80,000 8 74,992 Issuance of Shares for Cancelled Liabilities 25,230 2 22,959 Issuance of Warrants-Loan extension 21,000 Issuance of Warrants - New Debt 24,000 Net Loss Balance ------- ---- --------- ------ -------- ---------- June 30, 1999 45,000 $ 5 7,786,508 $ 779 $245,995 $9,946,721 ======= ==== ========= ====== ======== ==========
The accompanying notes are an integral part of these consolidated statements. 11
IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATMENTS OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 Deficit Accumulated Accumulated Total During Deficit Prepaid Stockholders Development Discontinued Advertising Equity Stage Operations Credits (Deficit) ----- ---------- ------- --------- Issuance of Shares Pursuant To Financing Penalty 253 Advertising Credits Used 15,942 15,942 Net Loss (2,881,162) (2,881,162) --------- -------- --------- --------- Balance December 31, 1998 $(8,801,479) $(620,908) $(1,378,496) $ (771,344) Issuance of Shares For Cancelled Liabilities 75,000 Issuance of Shares For Cancelled Liabilities 22,961 Issuance of Warrants-Loan Extension 21,000 Issuance of Warrants- New Debt 24,000 Net Loss June 30, 1999 (564,144) - - (520,975) ------- --------- ---------- ------- Balance June 30, 1999 $(9,365,623) $ (620,908) $(1,378,496) $(1,149,358) ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. 12 IMSCO TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ [1] Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the six months ended June 30, 1999 and for the three months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1998. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries Decaf Products, Inc. ["DPI"] and BioElectric Separation and Testing, Inc. ["BEST"]. All significant inter-company accounts and transactions have been eliminated in consolidation. Earnings [Loss] Per Share - Earnings per share of common stock reflects the weighted average number of shares outstanding for each period. The Financial Accounting Standards Board ["FAS has issued Statement of Financial Accounting Standards ["SFAS"] No. 128, "earnings per share", which is effective for financial statements issued for periods ending after December 15, 1997. Accordingly, earnings per share data in the financial statements for the six months ended June 30, 1999, for the three months ended June 30 , 1999, and for the year ended December 31, 1998, have been calculated in accordance with SFAS No. 128. SFAS No. 128 supercedes Accounting Principles Board Opinion No. 15, "earnings per share," and replaces its primary earnings per share with a new basic earnings per share representing the amount of earnings for the period available to each share of common stock outstanding during the reporting period. SFAS No. 128 also requires a dual presentation of basic and diluted earnings per share on the face of the statement of operations for all companies with complex capital structures. Diluted earnings per share reflects the amount of earnings for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock. The computation of diluted earnings per share does not assume conversion, exercise or contingent issuance of securities that would have an antidulutive effect on earnings per share [i.e., increasing earnings per share or reducing loss per share]. The dilutive effect of outstanding options and warrants and their equivalents are reflected in dilutive earnings per share by the application of the treasury stock method which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. Options and warrants will have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants. Stock Options and Similar Equity Instruments - On January 1, 1996, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards ["SFAS"] No. 123, 13 "Accounting for Stock-Based Compensation," for stock options and similar equity instruments [collectively "Options"] issued to employees and directors, however, the Company will continue to apply the intrinsic value based method of accounting for options issued to employees prescribed by Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees" rather than the fair value based method of accounting prescribed by SFAS No. 123. SFAS No.123 also applies to transactions in which an entity issues its equity instruments to acquire goods and services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. [2] Stockholders' Equity For the six months ended June 30, 1999, 105,230 common shares with a market value of $97,961 were issued for current and past due invoices of $102,230 for advertising and marketing services rendered to the Company. [3] Convertible Notes Payable On February 9, 1999, the Company completed a private offering of $600,000 of 8% convertible debentures due January 21, 2002 and 120,000 warrants to purchase the Company's common stock at $1.50 per share until January 31, 2002. Interest is payable quarterly in cash or common stock at the option of the Company. The debentures are convertible in $5,000 multiples into shares of the Company's common stock at a conversion price for each share of common stock equal to 75% of the market price at the conversion date, but no more than $1.00 per share. The 25% fair market value adjustment at the date of issue will be an additional cost to the Company in the year exercised. [4] Defaults on Convertible Promissory Notes Two of the senior secured convertible promissory notes payable due January 31,1999 were extended until May 25, 1999 and in consideration of the extension the exercise price of the warrants was decreased to $.40 per share. This resulted in a financing cost of $21,000 and was recorded in the quarter ending March 31, 1999. The Company did not pay these notes on May 25, 1999. The Company has not received any notice of default, however, all five of the senior secured convertible promissory notes are deemed to be in default in the total amount of $118,355 plus interest because of the failure to receive and extension or pay timely. [5] Legal Proceedings In June 1997, an action was commenced against the Company by Edmund Abramson and by WRA Consulting, Inc. in the Eleventh Judicial Circuit of Dade County, Florida. Abramson alleged breach of contract, claims damages of $1,400,000, plus attorneys fee. WRA alleged breach of contract, failure of the Company to deliver 150,000 registered shares of common stock and 150,000 warrants to purchase common stock to WRA Consulting, Inc. and claims damages in the amount of $800,000, plus attorneys fees. In January 1998, the action was settled by the Company agreeing to issue a total of 438,410 shares of common stock and 400,000 warrants to purchase common stock at $1.32 and $2.00 respectively. On March 5, 1998, an action was commenced against the Company by BPV Enterprises, Inc. doing business as Universal sales in the Supreme Court of the State of New York, County of Suffolk. The plaintiff alleges breach of contract, claiming damages of $337,000 plus attorney's 14 fees. In addition, plaintiff also claims that the Company owes it 75,000 shares of common stock and 75,000 warrants to purchase common stock for recruitment services that it performed for the Company during 1996. The Company cannot predict the outcome of this matter although it believes it has meritorious defenses and will vigorously defend the action. However, if such action is unsuccessful, it may have a material adverse impact on the results of operations and financial condition of the Company. Alexander T. Hoffman, chairman of the Company, is a 50% shareholder of BPV Enterprises. On December 24, 1998, a second action was commenced against the Company and the Chairman and Chief Executive Officer of the Company by BPV Enterprises, Inc. doing business as Universal sales, and Victor Bauer in the Superior Court of the State of New York, County of Suffolk. The plaintiff alleges breach of contract under a sales and service administration agreement claiming a commission equal to 2.5% of the Company's sales in excess of $5,000,000 per year and a standard sales commission equal to 2.5% per year of revenue derived from customers obtained by the plaintiff. The plaintiff also alleges the amount of potential lost commissions to be $25,000,000. Additional causes of action, against the Chairman and Chief Executive Officer of the Company include breaches of his roles and duties for the plaintiff and unjust enrichment. The Company's counsel cannot predict the outcome of this matter although it believes it has meritorious defenses and will vigorously defend the action. However, if such defenses are unsuccessful, it may have a material adverse impact on the results of operations and financial condition of the Company. [6] Going Concern The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern and realization of assets and settlement of liabilities and commitments in the normal course of business. As shown in the accompanying financial statements, the Company incurred a net Loss of $564,144 for the six months ended June 30, 1999. The significant operating loss as well as the uncertain sources of financing, create an uncertainty about the Company's ability to continue as a going concern. Management of the Company has developed a business plan to finance the Company through licensing of its technology and individual patent rights and sell its products to manufacturers. The Company will also seek financing through a public offering. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. There can be no assurance that management's plans to reduce operating losses and obtain additional financing to fund operations will be successful. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. [7] Development Stage Enterprise On July 7, 1992, the Company discontinued regular operations relating to the sale of an automated luminometer. On July 22, 1992, the company and The General Hospital Corporation, doing business as Massachusetts General Hospital, entered a research agreement for $45,100, to perform the research and evaluation using the Company's electro-static filter. As defined by the Financial Accounting Standards board Statement No. 7, the Company is now a development 15 stage enterprise and it has been devoting substantially all of its efforts to developing, engineering and obtaining patents for new technologies relating to separation technologies for the medical and consumer product sectors. The Company applied for United States Patents covering its decaffeination and Plasma Pure separation technologies in 1993. With a prototype, marketing of this product began in December, 1993. Although no income has been received, letters of interest and royalty agreement negotiations have begun. The cumulative deficit during the development stage is $9,365,623 for the period July 7, 1992 through June 30, 1999. 16 Item 2. Management's Discussion and Analysis or Plan of Operation General The Company is in the development stage and its operations are subject to all the problems, expenses, delays, and other risks inherent in the establishment of a new business enterprise, as well as the problems inherent in the developing and marketing a new product/ service and in establishing a name and business reputation. The likelihood of the success of the Company must also be considered in connection with the rapidly and continually changing technology and the competitive environment in which the Company will operate. There can be no assurance that the Company's operations will result in it's becoming or remaining economically viable. Potential investors should be aware of the problems, delays, expenses and difficulties encountered by any company in a development stage, many of which may be beyond the Company's control. These include, but are not limited to, unanticipated regulatory compliance, marketing problems and intense competition that may exceed current estimates. The Company has had no revenues from operations to date and, because it is just beginning to enter the commercial stage, it will likely sustain operating losses for an indeterminate time period. Since entering the development phase in July 1992, the Company has devoted substantially all of its resources to the research and development of its products and the technology and general and administrative expenses. Since entering the development stage in July,1992, the Company has generated an accumulated deficit of $9,365,623 at September 30, 1998 and has a total accumulated deficit of $9,986,531. The Company had no revenue from continuing operation in the years ending through December 31, 1998. The Company has incurred net losses in each year since its inception in 1986. Given the dormant level of business activity from 1988 through 1991, the Company realized that it could not continue with its luminator technology product, discontinued operation and was reactivated and entered into a new development stage in July 1992. The Company's losses incurred since the inception have resulted principally from expenditures under its research and development programs, and the Company expects to incur significant operating costs and possible losses therefrom over the next several years due primarily to expanded research and development efforts in the PLASMA PURE area and related medical products, preclinical and clinical testing of its product candidates and the performance of the commercialization activities. There can be no assurance of when and whether the Company will generate revenues or become profitable on a sustained basis, if at all. Although the Company believes it has substantially completed the research and development of its decaffeination technology which is called the DECAFFOMATIC and is anticipating sales thereof to commence in 1999, the Company's results of operations may vary significantly for quarter to quarter due to timing of payments and other factors. The timing of the Company's revenues, if any, may not match the timing of associated product development of other expenses. The Company's ability to achieve sales and increase its level of revenue depend upon its ability to secure additional financing and future licenses, if any, and successfully develop, test and sell the Company's products. The Company's ability to generate significant revenue and become profitable is dependent in large part on its commercializing the Company's leading product the DECAFFOMATIC, expanding in manufacturing contracts with third party manufacturers, entering into additional marketing agreements and the ability of its marketing contractors to successfully commercialize products incorporating the Company's technologies. There can be no assurance that the operations of the Company will generate significant revenue or will ever be profitable. 17 Statements included in this "Management's Discussion and Analysis or Plan of Operation" Section, and in other sections of the Report and in prior and future filings by the Company with the Securities and Exchange Commission, in the Company's prior and future press releases and in historical or current facts are "forward-looking statements" made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. There are numerous risk factors that in some cases have affected and in the future could affect the Company's actual results and could cause the Company's actual financial and operating performance to differ materially from that expressed in any forward-looking statement. The following discussion and the analysis should be read in conjunction with the Financial Statements and notes to Financial Statements which appear elsewhere in this report. RESULTS OF OPERATIONS FOR SIX MONTHS ENDED June 30, 1999; COMPARED WITH June 30, 1998 Net losses decreased from $2,046,900 for the six months ended June 30, 1998 to $564,144 for the six months ended June, 1999. The Company had no revenue or operating income for the six month period ended March 31, 1998 and March 31, 1999 from continuing operations. The general administrative and development expenses were $328,274 for the six months ended June 30, 1999, in comparison to $2,046,900 for the six months ended June 30, 1998. The decrease in these costs from 1999 to 1998 was in most expense categories, including salaries and wages of$144,000, officers salaries of $175,000, travel and business meetings of $39,000, professional services of $111,000 and advertising of $8,000. All research and development costs were expensed currently in the year incurred, rather than capitalized. At June 30, 1999 the Company had total assets of $29,652 and total liabilities of $1,222,179 and total stockholders' deficit of $(1,192,527). RESULTS OF OPERATIONS FOR THREE MONTHS ENDED June 30, 1999; COMPARED WITH June 30, 1998 Net losses decreased from $1,709,716 for the three months ended June 30, 1998 to $43,169 for the three months ended June 30, 1999. The Company had no revenue or operating income for the three month period ended March 31, 1998 and March 31, 1999 from continuing operations. The general administrative and development expenses were $26,269 for the three months ended June 30, 1999, in comparison to $1,709,716 for the three months ended June 30, 1998. The decrease in these costs from 1999 to 1998 was in most expense categories, including salaries and wages of$204,000, officers salaries of $130,000, outside labor of $1,190,000, professional services of $87,000 and development expenses of 33,000. All research and development costs were expensed currently in the year incurred, rather than capitalized. LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital deficit position as of June 30, 1999 of $1,210,000. The Company had an accumulated deficit of $9,986,531 at June 30, 1999, in comparison to an 18 accumulated deficit of $9,422,387 as of December 31, 1998. The increase in the accumulated deficit is primarily related to continuing operating costs without any operating income. For the six months ended June 30, 1999, the Company's cash requirements were satisfied from the private placement of $600,000 of 8% convertible debentures and from issuing 105,230 shares with a current value of $97,961 in payment of $102,300 of accounts payable. The Company does not currently possess a bank source of financing and has not had any revenues. The Company cannot be certain that it's existing sources of cash will be adequate to meet its liquidity requirements. Therefore, the Company is considering the following options to meet its liquidity requirements: (a) attempting to raise additional funds through the sale of equity securities to persons or entities who are not presently stockholders of the Company; (b) attempting to obtain a bank line of credit; and (c) should insufficient funds be available from the foregoing sources, reducing the Company's present rate of expenditures which might materially adversely affect the ability of the Company to produce competitive products and services and to market them effectively. The Company's future capital requirements will depend on numerous factors, including (i) the progress of its research and product development programs, including clinical studies, (ii) the effectiveness of product commercialization activities and marketing agreements, including the development and progress of sales and marketing efforts and manufacturing operations, (iii) the ability of the Company to maintain existing marketing agreements and establish and maintain new marketing agreements, (iv) the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights and complying with regulatory requirements, and (v) the effect of competing technological and market developments. However, if operating expenses are higher than expected or if cash flow from operations is lower than anticipated, there can be no assurance that the Company will have sufficient capital resources to be able to continue as a going concern. Unless the Company is able to generate revenues or obtain additional financing in the future, the continuing losses incurred by the Company in its development phase raise substantial doubt about the Company's ability to continue as a going concern. Therefore, the Company's ability to continue in business as a going concern depends upon its ability to sell products, to generate licensing fees and royalties from the sale of its technology and products, to conserve liquidity by setting marketing and other priorities and reducing expenditures, to obtain bank financing and to obtain additional funds through offering of its securities. The Company's ability to obtain bank financing will require significantly improved operating results over the Company's results for its past twelve months, the likelihood of which the Company presently cannot assure. Similarly, the Company's ability to obtain funds through an offering of its debt securities is limited by its lack of revenue. In any event, there is no assurance that any expenditure reductions, financings or other measures that the Company may be able to effect will enable it to meet its working capital requirements. 19 PART II Other Information ----------------- Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit No. 27 - Financial Data Schedule (b) Reports on Form 8-K. The Company filed one report on Form 8-K during the quarterly period ended June 30, 1999 to report the removal of its president and the appointment of a director. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Imsco Technologies, Inc. By: /s/ Timothy J. Keating --------------------------- October 29, 1999 Timothy J. Keating Chief Executive Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial data extracted from the consolidated balance sheet and the consolidated statements of operations and is qualified in its entirety by reference to such statements. 0000924396 IMSCO TECHNOLOGIES, INC. 3-MOS DEC-31-1999 JUN-30-1999 200 0 0 0 0 1,200 128,911 (103,958) 29,652 1,222,179 0 0 5 779 (1,150,142) 29,652 0 0 0 0 328,274 0 235,870 (564,144) 0 (564,144) 0 0 0 (564,144) (.07) (.07)
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