U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File # 333-69686
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
(Exact name of small business issuer as specified in its charter)
Florida 86-0000714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 Hanes Drive, Wayne, New Jersey 07470
(Address of Principal Executive Offices)
(973)305-8700
(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report)
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 issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 13, 2004: 57,989,083 shares of common stock outstanding,
$0.001 par value.
1
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page
----
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2004 (Unaudited) 3
Condensed Consolidated Statements of
Operations for the three months ended June 30, 2004 and 2003 (Unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the three months ended June 30, 2004 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
Item 3. Controls and Procedures
Part II-- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
2
ITEM 1. FINANCIAL STATEMENTS
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 405,502
Accounts receivable, net 499,368
Inventories 522,755
Prepaid expenses and other current assets 247,515
-----------
Total current assets 1,675,140
Property and equipment, net 1,316,467
Other assets:
Security deposits 18,650
Debt financing costs, net of amortization of $9,604 105,646
Investment in Caled Signal Products Canada Ltd. 332,266
-----------
Total other assets 456,562
-----------
Total assets $ 3,448,168
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt and short-term borrowings $ 1,242,508
Accounts payable and accrued expenses 1,199,704
Due to officer and affiliate 201,788
Current portion of convertible notes payable, net of deferred
debt discount of $57,877 265,874
-----------
Total Curent Liabilities 2,909,874
Long-term debt, less current portion 381,762
Convertible notes payable, less current portion, net deferred
Debt discount of $191,444 839,805
Other liabilities 782,383
-----------
Total Liabilities 4,913,824
Stockholders' deficiency:
Common stock, $.001 par value 75,000,000 shares
Authorized, 56,747,746 issued and outstanding 56,748
Common stock to be issued, $0.001 par value, 2,400,000 shares 2,400
Additional paid-in capital 7,271,462
Deferred compensation (135,000)
Accumulated deficiency (8,695,304)
Accumulated other comprehensive income 34,037
-----------
Total stockholders' deficit (1,465,657)
-----------
Total liabilities and stockholders' deficiency $ 3,448,168
===========
See notes to condensed consolidated financial statements.
3
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
JUNE 30
--------------------------------
2004 2003
-------------- --------------
Revenues $ 1,230,833 $ 1,113,594
Cost of revenues 554,944 506,721
-------------- --------------
Gross profit 675,889 606,873
Operating expenses:
Selling 478,105 381,200
General and administrative 424,213 231,184
-------------- --------------
Total operating expenses 902,318 612,384
Loss from operations (226,429) (5,511)
Other income (expenses):
Non cash reverse acquisition expense -- (4,650,000)
Other income - net (19,287) (168,057)
-------------- --------------
Total other income (expenses) (19,287) (4,818,057)
-------------- --------------
Net loss $ (245,716) $ (4,823,568)
============== ==============
Per share information
Net loss per share, basic and diluted $ (.00) $ (0.10)
Weighted average shares outstanding 56,648,460 47,593,288
See notes to condensed consolidated financial statements.
4
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
JUNE 30
---------------------------------------
2004 2003
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash FLOWS FROM operating activities (220,187) 28,076
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (88,242) (26,275)
----------- -----------
Net cash FLOWS FROM investing activities (88,242) (26,275)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of credit line (562,754) 815
Net repayments of long-term debt (106,642) (9,781)
Proceeds from sale of common stock 118,111 --
Proceeds from convertible debt 1,300,000 --
Debt financing costs (115,250) --
----------- -----------
Net cash FLOWS FROM financing activities 633,465 (8,966)
----------- -----------
Increase in cash and cash equivalents 325,036 (7,165)
Cash and cash equivalents, beginning of the period 80,466 10,079
----------- -----------
Cash and cash equivalents, end of the period $ 405,502 $ 2,914
=========== ===========
Supplemental schedule of cash paid:
Interest $ 43,056 $ 24,684
Taxes $ -- $ --
See notes to condensed consolidated financial statements.
5
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Anscott Chemical Industries, Inc. was incorporated in the State of New
Jersey on January 21, 1960. The Company is engaged in the business of
manufacturing and distribution of cleaning chemicals and filters used
specifically in the dry cleaning industry.
The Company sells the cleaning chemicals and filters primarily to customers
throughout the United States. The Company performs ongoing credit evaluations of
its customers' financial conditions and generally requires no collateral from
its customers. Credit losses, when realized, have been within the range of the
Company's expectations and, historically have not been significant
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in conformity with accounting principles for interim
financial statements generally accepted in the United States of America and with
Form 10-QSB and Item 310 of Regulation SB of the Securities and Exchange
Commission. It is management's opinion that these statements include all
adjustments, consisting of only normal recurring adjustments necessary in order
to make the financial statements not misleading.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It is
suggested that These condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto as of
March 31, 2004 and 2003 and for each of the two years ended March 31, 2004,
which are included in the Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
NOTE 2 - REVERSE ACQUISITION
On April 15, 2003, (April 1, 2003 for accounting purposes) Liquidix acquired
100% of the outstanding capital stock of Anscott Industries, Inc. In connection
with this acquisition, Anscott became a wholly-owned subsidiary and Anscott's
directors and officers replaced all of Liquidix directors and officers. The
stockholders of Anscott were issued 45,000,000 of Liquidix shares of common
stock, in exchange for their shares, or 98.6% of Liquidix total outstanding
common shares. Accordingly, a change in control of Liquidix occurred in
connection with the acquisition, and the acquisition was deemed a "reverse
acquisition" for accounting purposes. The reverse acquisition was accounted for
as a recapitalization of Anscott and the stockholders' deficiency was
retroactively restated to April 1, 2002. The financial statements prior to April
1, 2003 are those of Anscott.
Concurrent with the issuance of the 45,000,000 shares, Liquidix transferred of
all of their operating assets and liabilities to AFS for no monetary
consideration. ASF is controlled by the former directors and officers if
Liquidix. At April 1, 2003 Liquidix assets and liabilities consisted of
approximately:
Current Assets $ 1,061,000
Property and Equipment 183,000
Other Assets 209,000
-----------------
1,453,000
Liabilities 1,352,000
----------------
Loss on disposal $ 101,000
================
As a result of the reverse acquisition Liquidix changed its name to Anscott
Industries, Inc. and Anscott changed its year end from December 31st to March
31st. As a result of the reverse acquisition with Liquidix the Company issued to
a placement
6
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Continued
agent 4,000,000 shares of its common stock and agreed to issue at a future date
3,750,000 shares to a financial consultant. The agent and the consultant were
issued stock in consideration for assistance in facilitating the reverse
acquisition.
The Company had a written agreement with the consultant that upon Anscott
becoming a publicly traded company, Anscott, would issued to the consultant 10%
of the shares received by the Anscott shareholders. This agreement expired prior
to the reverse acquisition transaction with Liquidix. The Company and the
consultant agreed to issue the consultant 3,750,000 as consideration for
assistance in facilitating the reverse acquisition. Accordingly, the Company
recorded an expense in the amount of $4,650,000 relating to the issuance of the
4,000,000 shares and the 3,750,000 shares to be issued.
NOTE 3 - MANAGEMENTS LIQUIDITY PLANS
The accompanying audited consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United Sates of
America, which contemplate continuation of the Company as a going concern.
However, for the THREE MONTHS June 30, 2004, the Company incurred a net loss of
approximately $245,700 and had a working capital deficiency of approximately
$1,231,000.
The Company has begun implementing various marketing plans to increase revenues
and is also seeking to make strategic acquisitions. In April 2004 the Company
raised $1,300,000 in the form of a convertible term loan (See Note 7) and if
needed will attempt to raise additional capital to assist in the further
execution of its marketing plans and to fund any possible future acquisitions. A
portion of the new term loan was used to pay off the line of credit. In addition
in July 2004 the Company entered into an agreement with the Internal Revenue
Service whereby agreeing to pay $10,000 per month in overdue payroll taxes (See
Note 5).
The Company believes that with the capital raised in April 2004, the cash flows
from the successful execution of its marketing plans resulting in increased
sales, and any additional capital that the Company may obtain through sales of
its equity and debt securities will be sufficient to pay that portion of its
debt that is due within the next twelve months, as well as to fund the Company's
operations. The Company also believes that they will be able to resolve
foreclosure proceedings with their mortgage lender (See Note 5).
In addition the Company has obtained a firm commitment from two key stockholders
that if needed they will assists in funding the Company's operations and meet
the Company's current debt requirements. These commitments and pledges extend
though at least March 31, 2005 and any advances will be due no early than March
31, 2006. On August 26, 2004 one of the stockholders advanced the Company
$100,000 as part of the Company's negotiations with its mortgage lender.
However, there can be no assurance that the Company will be successful in any of
its plans. To the extent that the Company is unsuccessful in its plans to
increase its cash position, the Company may find it necessary to curtail some of
its operations and possible future acquisitions.
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES
STOCK BASED COMPENSATION
- ------------------------
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of FASB Statement No. 123" amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The Company continues to follow the pro-forma disclosures for stock-based
compensation as permitted in SFAS 123. As of June 30, 2004 and 2003, the Company
had no outstanding options and warrants, therefore no pro forma disclosures are
required.
7
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Continued
REVENUE RECOGNITION
- -------------------
Revenue consists of the sale of cleaning chemicals and filters. Revenue on the
sale of cleaning chemicals and filters is recognized upon evidence of an
agreement and when title of merchandise has passed.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
LITIGATION
- ----------
The Company is involved in litigation with a vendor relating to the issuance of
shares of common stock for services rendered. The plaintiff, Internet Marketing
Solutions, Inc. has filed a lawsuit in the U.S. District Court of Utah to seek
250,000 shares issued to it for services. The plaintiff claims that it was
issued 250,000 of Liquidix shares for services rendered. Pursuant to the
complaint, on December 18, 2002, the shares were cancelled. The Company cannot
make a determination of the outcome of this matter. No adjustments have been
recorded in the financial statements related to this matter.
The mortgage lender or the Company's headquarters building located in Wayne NJ,
has commenced a foreclosure action on the building in 2004. The Company has
begun negotiations with the lender. On August 26, 2004 the Company paid $100,000
which was put into escrow until a settlement with the lender can be completed.
Management believes that we will resolve this matter with no material impact to
the Company's financial statements or operations. However there can be no
assurances that the Company will be successful.
The Company is also in an arbitration proceeding with Itochu International
regarding the 50% ownership in Global Technologies, L.L.C. whereby Itochu is
claiming the Company owes $250,000 to Itochu for joint venture expenditures. The
Company has filed a counter claim alleging that the Company is owed monies from
the joint venture. The case is in its early stage and the Company cannot make a
determination of the outcome of this matter. However, the Company has accrued
approximately $149,000 (which is included in Due to Stockholder and Affiliate)
related to this matter.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
PAYROLL TAXES PAYABLE
- ---------------------
At June 30, 2004 $782,384 of unpaid payroll taxes (including interest and
penalties) are included in other liabilities, respectively and $120,000 is
included in accounts payable and accrued expenses. On July 2, 2004, the Company
entered into a settlement agreement with the Internal Revenue Service, whereby
the Company agreed to pay in the aggregate $902,384 payable in monthly
installments of $10,000.
Future minimum payments on the Internal Revenue Service Settlement Agreement are
as follows:
June 30,
2005 $ 120,000
2006 120,000
2007 120,000
2008 120,000
Thereafter 422,384
----------------------
$ 902,384
======================
8
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE 6 - STOCKHOLDERS' DEFICIENCY
During the period ended June 30, 2004 the Company sold 576,367 shares of its
restructured common stock for an aggregate purchase price of $101,111.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
Long-term debt at March 31, June 30, 2004 consists of the following:
2004 Notes Payable [1] $ 55,000
Convertible Term Note Payable [2] 1,300,000
---------------
1,355,000
Less Deferred Debt Discount (253,408)
----------------
Total convertible notes payable 1,101,592
Less current portion, net of derferred discount of $61,964 (261,787)
----------------
Convertible notes payable, net of current maturities and deferred debt
discount of $191,444 $ 839,805
===============
[1] At various dates in February and March 2004, the Company issued Notes
Payable in varying amounts to six (6) individuals for an aggregate amount
of $55,000. The notes are due one (1) year from issuance date. In lieu of
interest, the Company issued one (1) of its common stock for each two (2)
dollars of debt. Accordingly the Company issued 27,500 shares of common
stock. The relative fair value of the stock in the amount of $16,391 has
been recorded as a deferred debt discount and will accrete to interest
expense over the life of the notes. At March 31, 2004, the company
recognized $1,927 of interest expense relating to the notes.
If the Company defaults on the notes they become convertible into the
Company's common stock at a conversion price equal to 50% of the fair
market value on the date of conversion. Accordingly if the Company defaults
on any or all of the notes, they will record a beneficial conversion
feature in the aggregate of $27,500.
[2] On April 20, 2004, the Company issued a convertible term note in the amount
of $1,300,000 and seven (7) year warrants to purchase 520,000 shares of the
Company's common stock with exercise prices of (i) $0.79 for the first
195,000 warrants (ii) $0.99 for the next 195,000 warrants and (iii) $1.15
for the remaining, which is due April 20, 2007. Interest is due monthly and
bears interest at prime rate plus 2% (6% at June 30, 2004). In addition the
Company paid a financing fee equal to 3.5% of gross proceeds plus other
expenses which totaled approximately $69,500.
Principal payments on the convertible term note are (1) $25,000 monthly
payment commencing November 1, 2004 through April 1, 2004 (2) $47,917
through April 2007. At the Company's option they can elect to make the
monthly payments in common stock (as defined).
In connection with the issuance of convertible term note, $253,000 of the
debt proceeds was allocated to the fair value of the warrants and recorded
as a deferred debt discount. The debt discount will accrete to interest
expense over the term of the debt.
9
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Continued
The note is convertible into the Company's common stock at an initial fixed
conversion price of $0.68 upon the registration of the underlying common
stock. When the underlying common stock is registered the Company will
record a minimum beneficial conversion feature in the amount of $138,000.
The beneficial conversion feature will accrete to interest expense over the
remaining life of the note or conversion of the note which ever is earlier.
Future minimum payments on the convertible notes payable are as follows:
June 30,
2005 $ 323,751
2006 575,004
2007 456,245
-------------------
Total cash payments 1,355,000
Less deferred debt discount (253,408)
--------------------
$ 1,101,592
====================
NOTE 8 - SUBSEQUENT EVENT
On August 26, 2004 a stockholder advanced the Company $100,000. The advance
is non-interest bearing and can be converted into common stock at fair
market value at the time of conversion. The proceeds were used to assist
the Company in negotiations with its mortgage lender with respect to the
foreclosure proceeding on their main operating building (See Note 5).
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
ANSCOTT INDUSTRIES, INC. AND SUBSIDIARIES
INTRODUCTION
The following discussion should be read in conjunction with our condensed
consolidated financial statements and related notes included herein. Certain
statements are not based on historical facts, but are forward-looking statements
that are based upon assumptions about our future conditions that could prove to
be inaccurate. Actual events, transactions and results may materially differ
from the anticipated events, transactions or results described. Our ability to
consummate transactions and achieve events or results is subject to certain
risks and uncertainties, which include, but are not limited to, the existence of
demand for and acceptance of our products, regulatory approvals and
developments, economic conditions, the impact of competition and pricing, and
other factors affecting our business that are beyond our control.
On April 15, 2003, pursuant to a Stock Purchase Agreement and Share Exchange
between us AFS Seals, Inc and Anscott Industries, Inc., we acquired all of the
shares of Anscott from the Anscott shareholders in consideration for the
issuance of a total of 45,000,000 shares of our common stock to the Anscott
shareholders and the transfer of all of our current assets and liabilities to
AFS. Pursuant to the Agreement, Anscott became a wholly owned subsidiary of the
Company and we filed articles of amendment in the state of Florida changing our
name to Anscott Industries, Inc.
Currently our principal activity is to manufacture and sell specialty chemicals,
cleaning agents, odor eliminators, repellents, treatments, purification and
decontamination processes for the commercial laundry and cleaning industries.
Our business is conducted through three segments: chemical & additive technology
for cleaning and coatings of textiles; filtration & equipment that extends the
life traditional cleaning chemicals through a recycling process;
commercialization venture leveraging aerospace technology and distribution in
order to move from laboratory to commercial products quickly, extending the
company's knowledge to deliver solutions to protect people, property and the
environment. We have our operations in New Jersey. We sell to over 100
distributors and 5,000 throughout North America. For the three months ended June
30, 2004 sales of chemicals & additive products accounted for 80% and filtration
& equipment, 20% of revenues, respectively.
We were established in 1960 and are a leading manufacturer servicing the
commercial laundry and garment cleaning industry. We manufacture chemicals and
filter equipment that clean textiles and clothes professionally. We sell our
products and services through an established distribution network of local
warehouses nationwide. We maintain a dedicated sales and technical force of
chemical technicians that provide service throughout the US and Canada. The
following sets forth some of our products:
We have recently established a dedicated group that will provide alternative
cleaning technology with advanced solvent products. The new solvents replace
"PERC", a probable carcinogen. These products will revolutionize the commercial
dry cleaning industry by providing an alternative without toxic chemicals such
as perchloroethylene (perc).
We are a specialty chemical company with a product line of disposable filters &
delivery systems adding in the sales of its chemical business. We have one of
the largest technical forces in the industry. Currently we are servicing over
5,000 businesses in more than 40 cities and expect to service over 10,000
businesses within the next two years.
11
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
Revenues for the three months ended June 30, 2004 were $1,230,833 as compared to
$1,113,594 for the three months ended June 30, 2003. The increase in revenues
were due to improved operations and distributor support of finished goods,
additional marketing and sales activities has also expanded the company's
end-user base. Cost of sales for the three months ended June 30, 2004 were
$554,944 as compared to $506,721 for the three months ended June 30, 2003. This
increase was due to additional purchases for inventory to satisfy the company's
revenue growth. Selling expenses for the three months ended June 30, 2004 were
$478,105 and compared to $381,200 for the three months ended June 30, 2003
increase in selling expense were due to additional territories and revenue
growth programs. General and administrative expenses were $424,213 for the three
months ended June 30, 2004 as compared to $231,184 for the three months ended
June 30, 2003. This increase was due to one time events for professional fees
related to the merger and certain reclassifications. For the three months ended
June 30, 2004, we incurred a net operating loss of $226,429 compared to a net
operating loss of $5,511 for the three months ended June 30, 2003. The net loss
resulted primarily from preparing the company for growth through its current
distribution channel and future acquisitions.
IMPACT OF INFLATION
We do not believe that inflation will have any material impact on its commercial
activities for the ensuing year, as our products do not fall under categories
that are traditionally affected.
LIQUIDITY AND CAPITAL RESERVES
The Company is reliant upon outside sources to eliminate its working capital
deficiency. As a result we are actively seeking additional capital resources
through the sale of equity. In April, 2004 we borrowed $1,300,000 in the form of
a convertible note (See Note 16 to the consolidated financial statements). These
funds were used to repay the Company's asset based lender with a balance of
$680,915 substantially reducing the company's cost of money. The remaining funds
have been used to expand the company's national sales force, launch new products
and assist in operational cost. Management believes these fundamental
investments will increase gross sales by more that 10%, which we expect will
enable the Company to become profitable in the coming year. The Company's is
expected growth and positive cash flow is expected to sustain its cash
requirements over the next twelve months. At the present time we have adequate
working capital for our immediate business. Historically, the Company's primary
source of cash has been from operations and debt financing by related parties.
Cash used in operating activities during the three months ended three months
ended June 30, 2004 amounted to $206,497 primarily the result of current losses.
Cash used in investing activities for the three months ended June 30, 2004 was
$217,182 primarily relating to loan acquisition fees and purchases of property
and equipment.
Cash provided by financing activities for the three months ended June 30, 2004
was $748,715 primarily from proceeds of convertible debt net of payoff of a
credit line.
PLAN OF OPERATIONS FOR FISCAL YEAR 2005
We anticipate that sales will increase we should be able to achieve
profitability during fiscal year 2005. Future activities will be directed
towards expanding our footprint within our existing market for our products and
penetrating new markets. We currently have operations in the United States and
Canada. During the coming year Anscott Industries will be implementing strategic
acquisition plan that will include similar manufacturing companies to maximize
the company's existing operations and staff. The national sales and
12
distributions channel will be expanded to increase volume to the company's
existing end-user market. We believe that the cash flows from the successful
execution of our national sales and distributions channel will result in
increased sales and any additional capital that we may obtain through sales of
its equity and debt securities will be sufficient to pay that portion of its
debt that is due within the next twelve months, as well as to fund our
operations. In addition we have obtained a firm commitment from two key
stockholders that if needed they will assists in funding the Company's
operations and meet the Company's current debt requirements. These commitments
and pledges extend though at least March 31, 2005 and any advances will not be
due no early than March 31, 2006. On August 26, 2004 one of the stockholders
advanced the Company $100,000 as part of the Company's negotiations with its
mortgage lender. However, there can be no assurance that we will be successful
in any of our plans. To the extent that are unsuccessful in our plans to
increase our cash position, we may find it necessary to curtail some of our
operations and possible future acquisitions.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Securities Exchange Act reports
is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, as ours are designed to do, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As of June 30, 2004, an evaluation was performed under the supervision and with
the participation of our management, including the Chief Executive Officer /
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and / Chief Financial Officer concluded that our disclosure
controls and procedures were effective. Except as discussed in the following
paragraph, subsequent to the date of this evaluation, there have been no
significant changes in our internal controls or in other factors that could
significantly affect these controls.
In connection with the audits of our consolidated financial statements as of and
for the years ended March 31, 2004 and 2003, Marcum & Kliegman LLP advised our
management and that it had identified a deficiency in internal controls, which
was designated a "material weakness." The material weakness indicated that there
is inadequate structure within our accounting department. We believe this
resulted from continued cost cutting efforts, which resulted in the termination
of employees during the years ended March 31, 2004 and 2003. Management believes
that sufficient compensating controls have been implemented to minimize the
risks associated with this material weakness, including using a public
accounting firm to review monthly closings and the engagement of a consultant to
assist the Company with complex accounting issues.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant
changes in our internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there were
no such control actions with regard to significant deficiencies and material
weaknesses.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Internet Marketing Solutions, Inc. has filed a lawsuit to seek 250,000 shares
issued to it for services provided to the Company prior to the reverse
acquisition between Liquidix and Anscott. Such matter has been filed by the
plaintiff in the U.S. District Court of Utah. The plaintiff claims that it was
issued 250,000 of Liquidix shares for services rendered. Pursuant to the
complaint, on December 18, 2002, we cancelled those shares. We have been in
contact with the plaintiff's attorney to attempt to settle this matter amicably.
We have also been in discussion with the previous officers and directors of the
Company to determine the validity of this lawsuit. We intend to retain Florida
counsel to respond to this claim and we believe that such claim may be covered
under the indemnification clause set forth in the Stock Purchase Agreement and
Share Exchange between Anscott and Liquidix.
Our headquarters building mortgage lender, CIT, has commenced a foreclosure
action in 2004. We have begun negotiations with the lender and the lender agreed
to delay the foreclosure proceedings while we are in settlement negotiations. We
are confident that we will resolve this matter with no significant financial
consequence.
We are also in an arbitration proceeding with Itochu International regarding
each of our 50% ownership in Global Technologies, L.L.C. whereby Itochu is
claiming we owe money to Itochu for joint venture expenditures. We believe that
the results of the arbitration will not have a significant financial impact on
the company.
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security None.
Item 5. Other Information. None
Item 6. Exhibits and Reports of Form 8-K. None
On May 18, 2004, the Company filed a Form 8-K based on a change of its
accountant to Madsen & Associates, CPA and, on May 28, 2004, the Company filed
an amendment to this Form 8-K.
On June 18, 2004, the Company filed a Form 8-K based on a change of its
accountant to Marcum & Kliegman and, on June 25, 2004, the Company filed an
amendment to this Form 8-K.
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 in its
behalf by the undersigned, thereunto duly authorized, on September 13, 2004.
ANSCOTT INDUSTRIES, INC.
Date: September 16, 2004 By: /s/ Jack Belluscio
-------------------------
Jack Belluscio
Chairman and President