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.



<PAGE>



                                     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



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<PAGE>




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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<PAGE>




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

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<PAGE>




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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<PAGE>



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



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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
<PAGE>




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
<PAGE>



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
<PAGE>




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
<PAGE>




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
<PAGE>




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
<PAGE>




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
<PAGE>




  (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
<PAGE>






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
<PAGE>




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
<PAGE>




    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
<PAGE>




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
<PAGE>




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
<PAGE>




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
<PAGE>




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
<PAGE>




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
<PAGE>




    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
<PAGE>




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
<PAGE>




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
<PAGE>




                                    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
<PAGE>




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
<PAGE>




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
<PAGE>




    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
<PAGE>




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
<PAGE>


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
<PAGE>




    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
<PAGE>




    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
<PAGE>




   (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
<PAGE>



                                   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
         ---