U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| Annual report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30,
1998 or
|_| Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for transition period from to . ---------
---------
Commission file number 0-23153
VOLU-SOL, INC.
(Name of small business issuer in its charter)
UTAH 87-0543981
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5095 West 2100 South
Salt Lake City, Utah 84120
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 974-9474
Securities registered under Section 12(b) of the Act: Name of each exchange on
which registered:
None None
Securities registered under Section 12(g) of the Act:Common Stock $.0001 par
value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the 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 ]
Issuer's revenues for the fiscal year ended September 30, 1998 were $514,256.
Registrant's common stock has not traded and there is no market for the
registrant's common stock at this time.
The number of shares of common stock of the Registrant outstanding as of January
12, 1999 was 2,211,407
Transitional Small Business Disclosure
Format (Check one):
Yes ___ No X
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PART I
ITEM 1. BUSINESS
Introduction
Volu-Sol, Inc. (the "Company" or "Volu-Sol") was incorporated in Utah
on July 27, 1995, as a wholly owned subsidiary of Biomune Systems, Inc., a
Nevada corporation ("Biomune"). The Company was organized to engage in the
business of manufacturing and marketing medical diagnostic stains and solutions
and related equipment, which business operations were conducted prior to that
time as an unincorporated division of Biomune called the Volu-Sol Medical
Division. Biomune purchased the assets comprising the Volu-Sol Medical Division
in December 1991 from Logos Scientific, Inc. After the Company's incorporation,
Biomune transferred all of the net assets of the Volu-Sol Medical Division to
the Company. Through fiscal 1995, Volu-Sol operated out of leased facilities in
Henderson, Nevada. In October 1995, the Company relocated to West Valley City,
Utah (a suburb of Salt Lake City, Utah), where it continues to have its
manufacturing facility and corporate offices.
A total of 2,211,407 shares of the Company's $.0001 par value Common
Stock were distributed pro rata as a stock dividend to the holders of the Common
Stock of Biomune. As a consequence of the Distribution, the Company ceased to be
a subsidiary of Biomune and commenced operations as a separate, independent
company. The Company continues to conduct the same operations it did while it
was a subsidiary of Biomune.
Special Note Regarding Forward-looking Information
Certain statements in this Item 1 - "Business" and in Item 6 -
"Management's Discussion and Analysis or Plan of Operation" constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. For this purpose, any statements
contained herein or incorporated herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "plans," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements. These
factors include those set forth in "Risk Factors" in Item 6 - "Management's
Discussion and Analysis or Plan of Operation."
Business Strategy
The Company's primary business strategy is to capitalize on the global
medical diagnostic industry by providing "building block" stains and reagents
and to grow through the selective acquisition of complimentary businesses,
devices and product lines. The Company's strategy includes the following
elements:
Acquire Complementary Businesses, New Products and Technologies. The
Company intends to evaluate potential acquisitions of distributors and
complementary products and businesses from time to time and to
consummate transactions in those situations where there is an
appropriate economic and strategic fit.
Expand Distribution. The Company intends to increase its distribution
base through agreements with independent distributors.
Develop Broader Product Lines. The Company offers over 70 products in
five major product lines as well as instrumentation, in an effort to
serve effectively a diverse and highly decentralized industry. The
Company believes that its many and diverse products economically and
reliably address the needs of medical diagnosticians and laboratory
technicians. Nevertheless, the Company has determined that it can
improve its revenue-generating capacity by adding to its existing
product line.
Offer Top Quality Products. The Company constantly strives to offer
products with the greatest purity and reliability possible through its
quality control system. It intends to continue to assure the quality of
its product line.
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Outsource Non-Stain Manufacturing. To minimize capital requirements
associated with the manufacture of products other than stains,
solutions and other chemicals, the Company intends to continue to take
advantage of strategic alliances with third-party manufacturers.
Esprit de Corps. The Company seeks to create a team spirit among its
employees, foster awareness of the Company's objectives and strategies
at all levels within the Company, and reward meritorious performance
with compensation and other incentives. The Company believes this
creates loyalty to the Company and pride in its products, which
translates into greater product quality and enhanced customer service.
Business Plan
The Company intends to continue to implement its Business Strategy by
completing a private placement of preferred stock (the "Offering"). The Offering
is intended to provide the Company with gross proceeds of up to $2,400,000. The
offering is to accredited investors as that term is defined by Rule 501 of
Regulation D, promulgated under the Securities Act. These proceeds will be used
to repay debt to Biomune ($372,149 as of the date of this report on Form
10-KSB), and finance the Company's operations within the framework of the
Business Strategy. The primary focus will be on the acquisition of complimentary
businesses and additional products to expand the current product line. There can
be no assurance that the Company's stock will become traded on the OTC
Electronic Bulletin Board or that if it does become listed that a market will
develop for such stock. See "Recent Sales of Unregistered Securities."
Research and Development
The Company has not invested material amounts in research and
development because of the extent of the product line acquired when Biomune
purchased the assets comprising the Volu-Sol business. The Company does not
presently anticipate making material investments for the foreseeable future.
Dependence on Major Customers
During the fiscal year ended September 30, 1998, sales to Lab Supply
and Infolab, Inc. accounted for approximately 11.8% and 12.3%, respectively, of
the Company's total revenues. No other single customer accounted for more than
10% of the Company's total revenues during fiscal year 1998.
During the fiscal year ended September 30, 1997, sales to Lab Supply,
Infolab, Inc. and Hardy Diagnostic accounted for approximately 13.5%, 12.7% and
11.4%, respectively, of the Company's total revenues. No other single customer
accounted for more than 10% of the Company's total revenues during fiscal year
1997.
Employees
At September 30, 1998, the Company had 10 full time employees. The
Company will, as needed, hire additional employees or sub-contract the balance
of its personnel requirements through independent contractors. The Company's
manufacturing operations do not require specially-skilled employees and the
Company believes that it will be able to satisfy its labor requirements for the
foreseeable future. None of the Company's employees are represented by a
collective bargaining arrangement, and the Company believes its relationship
with its employees is good.
ITEM 2. PROPERTIES
The Company leases approximately 11,500 square feet of laboratory
facilities at 5095 West 2100 South, West Valley City, Utah. The leased premises
serve as the Company's manufacturing, warehouseing and shipping facilities as
well as its corporate headquarters and offices. Base monthly rent payments are
$4,620. The monthly base rent amount is subject to adjustments according to
changes in the Consumer Price Index. The premises originally were leased by
Biomune, but Biomune has assigned its rights under the lease to the Company. The
lessor of the Company's facility is an unaffiliated third party. The lease was
the product of arms-length negotiations. The lease extends through November
2000. The Company believes that its facilities will be adequate to meet its
needs at least through fiscal year 1999.
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ITEM 3. LEGAL PROCEEDINGS
The Company currently is not a party to, and none of its property is
subject to, any pending or threatened legal proceedings which, in the opinion of
management, are likely to have a material adverse impact on the financial
condition, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders during the fourth
quarter of fiscal year 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market. Prior to the Distribution, all of the Company's Common Stock
was owned by Biomune and consequently there has never been a public trading
market for the Company's securities. Although the Company anticipates that a
public market for over-the-counter trading of the Company's securities may
develop in the future, there can be no assurance that such a market will ever
develop or that it will be sustained. At such time, if any, as the Company
satisfies applicable entry or listing criteria, the Company may seek to include
or list its Common Stock on the Stock Market or a securities exchange. The
Company does not meet those listing qualifications at this time. There is
presently no market for the Company's Common Stock and there is no assurance
that a market will ever develop. There can be no assurance that the Company will
ever be able to satisfy such criteria or that its application for inclusion or
listing on the Nasdaq Stock Market or securities exchange will be accepted.
Holders. As of December 31, 1998, there were approximately 1,215 record
holders of the Company's Common Stock.
Dividends. Since its incorporation, the Company has not declared any
dividend on any of its Common Stock. The Company does not anticipate declaring a
dividend on any of its Common Stock for the foreseeable future. The Series A
Preferred shares will be entitled to a 10% dividend annually which may be paid
in cash or additional shares of Preferred Stock at the option of the Company.
During the fiscal year ended September 30, 1998 a 10% dividend in the
form of additional shares was declared and paid on the outstanding shares of
Series A Preferred stock.
Dilution. The Company has a large number of shares of Common Stock
authorized in comparison to the number of shares issued and outstanding. The
Board of Directors determines when and under what conditions and at what prices
to issue the stock of the Company. In addition, a significant number of shares
of Common Stock of the Company are reserved for issuance upon exercise of
purchase or conversion rights. The Company agreed with NASD to issue additional
shares of common stock in connection with the distribution. The issuance of any
shares, whether in connection with the Distribution, new equity offerings,
acquisitions, or the exercise of option or conversion rights will result in
dilution of the equity and voting interests of existing shareholders, including
those receiving their shares in the Distribution.
Transfer Agent and Registrar. The transfer agent and registrar for the
Company's Common Stock is American Stock Transfer & Trust Company, 40 Wall
Street, New York City, NY 10005.
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Recent Sales of Unregistered Securities
The following information sets forth certain information for all
securities the Company sold during the past three years without registration
under the Securities Act of 1933 (the "Securities Act").
On July 27, 1995, in connection with the incorporation of the Company
as a wholly owned subsidiary of Biomune, 10,000 shares of the Company's common
stock, consisting of all of the issued and outstanding shares of common stock
prior to the Distribution, were issued to Biomune. Such issuance was
accomplished without registration under the Securities Act in reliance on the
exemption afforded by Section 4(2) of the Securities Act.
In February 1997, Biomune declared that it would divest itself of the
Company in a dividend by which one share of Volu-Sol common stock would be
issued to each Biomune stockholder of record as of March 5, 1997 for every 10
shares of Biomune common stock held by such stockholder. The divestiture of
Volu-Sol was effective as of October 1, 1997. The Company registered its common
stock as a class under Section 12(g) of the Exchange Act of 1934 by filing a
Form 10 S-B which was declared effective by the SEC December 1, 1997. On or
about February 1, 1998, the dividend shares of Volu-Sol Common Stock were
delivered to Biomune stockholders who had been shareholders of record as of
March 5, 1997.
Both the Company and Biomune were unaware that NASD had announced
February 11, 1998 to be the ex- dividend date for the spin-off distribution,
notwithstanding the fact that Biomune had previously notified NASD and publicly
announced that March 5, 1997 would be the ex dividend date. Consequently,
holders of Biomune common stock as of February 11, 1998 were informed by NASD
that they would receive the dividend of one share of Volu-Sol common stock for
each share of Biomune common stock held by them as of such date.
After consultation with the NASD, parent of the Nasdaq Stock Market,
Biomune and Volu-Sol agreed to issue additional shares of Volu-Sol common stock
as part of the original dividend announced March 5, 1997, to cover (a) the
dividend in Volu-Sol that technically inured to the benefit of the holders of
the Company's common stock issued between March 5, 1997 and February 11, 1998 by
reason of the NASD action; and (b) short positions held by accounts which
purchased Biomune common stock after March 5, 1997 and before February 11, 1998,
which were purchased from accounts not then held in "street name" and which did
not, therefore, by operation of Depository Trust procedures, send on the
Volu-Sol dividend shares when they were physically received. Street name
accounts were electronically credited with the dividend shares.
Prior to the issuance of such additional dividend shares, Volu-Sol
estimated that the issued and outstanding common stock would be 2,111,216
shares. Effective September 30, 1998, the Company's issued and outstanding
common stock resulting from this agreement with the NASD and Biomune was
determined to be 2,211,407 shares.
The Company has determined it will issue up to 12,000 shares of its
Series A Preferred to accredited investors. Such offer and sale is made in
accordance with exemptions under Section 4(2) and 3(b) of the Securities Act,
including Rule 506 of Regulation D. In fiscal year 1997, the Company received
subscriptions for a total of $900,000 and received payment in cash of $338,904,
in exchange for which it issued a total of 6,375 shares of Series A Preferred.
Payment of the balance of $900,000 as part of a subscription received in 1997
will be paid in installments following the acceptance of the Company's
securities in the Nasdaq over-the-counter electronic bulletin board. During
fiscal year 1998, the Company also issued a total of 2,650 shares of Series A
Preferred Stock for $312,000 cash and $163,000 of services provided to the
Company by employees and consultants of the Company, including commissions
earned in connection with the sale of the Series A Preferred to the accredited
investors described above. All such shares of Series A Preferred are restricted
shares.
The Series A Preferred is convertible to common stock at the holder's
option into the number of shares of the Company's common stock determined by
dividing $200.00 plus any accrued and unpaid regular or special dividends by an
amount equal to the lesser of (i) the market price of the common stock on the
date of conversion less 20%; or (ii) $1.25. In the event of a merger,
consolidation or sale of all or substantially all of the assets of the Company
or a similar business combination involving the Company, all of the shares of
Series A Preferred, at the option of the holder, may
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be converted into the number of shares of common stock into which the shares of
Series A Preferred are convertible at the time of the closing of such
transaction. Based on a conversion factor of $200/$1.25, the number of shares
issued during the last two fiscal years would be convertible into a total of
722,520 shares of common stock as of the date of this Report.
Notwithstanding the conversion rights of the Series A Preferred, no
single holder (or group of affiliated holders) may convert shares of Series A
Preferred into shares of common stock in an amount that would result in such
holder's aggregate ownership of shares of common stock exceeding 4.9% of the
total number of issued and outstanding shares of common stock. See "Security
Ownership of Certain Beneficial Owners and Management."
With respect to all of the foregoing offers and sales of restricted and
unregistered securities by the Company, the Company relied on the provisions of
Sections 3(b) and 4(2) of the Securities Act and rules and regulations
promulgated thereunder, including, but not limited to Rules 505 and 506 of
Regulation D, in that such transactions did not involve any public offering of
securities and were exempt from registration under the Securities Act. The offer
and sale of the securities in each instance was not made by any means of general
solicitation, the securities were acquired by the investors without a view
toward distribution, and all purchasers represented to the Company that they
were sophisticated and experienced in such transactions and investments and able
to bear the economic risk of their investment. A legend was placed on the
certificates and instruments representing these securities stating that the
securities evidenced by such certificates or instruments, as the case may be,
have not been registered under the Securities Act and setting forth the
restrictions on their transfer and sale. Each investor also signed a written
agreement that the securities would not be sold without registration under the
Securities act or pursuant to an applicable exemption from such registration.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Company's financial statements and the notes thereto contained
elsewhere in this report. The discussion of these results should not be
construed to imply any conclusion that any condition or circumstance discussed
herein will necessarily continue in the future.
When used in this report, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date of
this report, or to reflect the occurrence of unanticipated events.
Results of Operations
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September 30,
1997
In the fiscal year ended September 30, 1998, the Company had revenues
totaling $514,256 compared to $493,754 for fiscal year ended September 30, 1997.
This increase in revenues is attributable to increased sales of reagents and a
price increase implemented in March 1998.
Cost of goods sold in the fiscal year ended September 30, 1998 totaled
$399,013 compared to $453,434 for the fiscal year ended September 30, 1997. The
overall gross margin for the fiscal year ended September 30, 1998 was 22.4%
compared to 8.2 % of revenues in fiscal year 1997. This increase in the gross
margin on sales of stains and reagents is attributable to payment of shipping
charges by customers as well as implementation of a price increase in March
1998. Also, the increase in gross margin results from a continued effort to
create a leaner production team and better inventory management.
Selling, general and administrative expenses totaled $804,551 in fiscal
year 1998, compared to $747,434 in 1997, an overall increase of $57,117. This
increase is due to expenses associated with the preparation and filing of the
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registration statement in connection with the distribution of shares in the
divestiture of the Company by Biomune. In addition, the Company incurred
increased employee expenditures in the form of a severance package granted to
the Company's former President and increased consulting expenses.
The Company incurred a net loss of $719,781 in 1998, compared to a net
loss of $719,652 in fiscal year 1997.
Liquidity and Capital Resources
The Company currently is unable to finance its operations solely from
its cash flows from operating activities. From October 1, 1993 through September
30, 1997, Biomune financed the Company's operations through a series of loans
and other capital contributions totaling approximately $2,800,000. Of this
amount, $390,500 is repayable by the Company on demand together with interest at
the rate of 10% per year. The Company has announced its intentions to sell up to
12,000 shares of its Series A Preferred in a private offering ("Offering"), for
a total of up to $2,400,000. The Series A Preferred is convertible to common
stock of the Company. The conversion ratio that is the basis for such conversion
is the lesser of (i) 80% of the average closing bid price of the Company's
common stock for the three trading days immediately preceding the date of
conversion or (ii) $1.25 per share. The Company issued a total of 4,515.75
shares of Series A Preferred Stock during the period covered by this Report.
The Company intends to use the proceeds from the sale of the Series A
Preferred to repay its indebtedness to Biomune ($372,149 as of the date of this
Report), pay the expenses of the offer and sale of the stock and expenses
incurred in the divestiture of the Company, acquire yet-to-be identified
complimentary businesses or product rights, and supplement working capital. The
Company believes that cash generated by operations, together with the proceeds
from the sale of its securities will be sufficient to meet its capital
requirements for a minimum of twelve months.
As of September 30, 1998, the Company had cash and cash equivalents of
$16,411 and a negative working capital of $145,665, as compared to cash of
$337,691 and working capital of $38,083 as of September 30, 1997.
Interest expense increased from $12,538 in fiscal year 1997 to $34,683
in the fiscal year ended September 30, 1998. The $22,145 increase in interest
expense is due to the costs of borrowing from Biomune.
During fiscal year 1998, the Company's operating activities used cash
of $539,337 primarily provided by the sale of Series A Preferred Stock. During
the fiscal year ended September 30, 1997, the Company's operating activities
required cash in the amount of $641,580, which was primarily provided by capital
contributions from Biomune and the sale of Series A Preferred Stock.
The Company presently has no credit facility with any commercial
lending institution. In the past, the Company borrowed and received capital from
time to time from Biomune, but the Company has no formal financing arrangement,
agreement or understanding with Biomune or any other party to provide debt
financing in the future. It is anticipated that the Company will obtain funding
through the sale of its securities.
The Company has agreed to sell its Series A Preferred shares to raise
funds to finance operations and acquire complimentary businesses. There can be
no assurance that its efforts to sell all of the Series A Preferred will be
successful or that additional financing will not be needed in the future.
Although the Company believes that the proceeds from the sale of its Series A
Preferred, together with revenues from operations, will be sufficient to meet
the needs of the Company for the next twelve months, there is no assurance that
this will be the case. The Company has suffered recurring losses from operations
since its inception.
Recent Accounting Pronouncements
In September 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires entities presenting a complete set of financial statements to include
details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net earnings or loss for the current period and
other comprehensive income, which consists of revenue, expenses, gains and
losses that bypass the statement of earnings and are reported directly in a
separate component of equity. Other
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comprehensive income includes, for example, foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investment securities.
SFAS 130 requires that components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of prior period financial statements
presented for comparative purposes. Adoption of SFAS 130 is not required for
reporting on interim periods prior to the close of the fiscal year beginning
after December 15, 1997. The Company will adopt SFAS 130 commencing with the
year ending September 30, 1999.
During January 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 98-5 "Reporting on the Costs
of Start-up Activities" ("SOP 98-5). SOP 98-5 becomes effective for all fiscal
years beginning after December 15, 1998. The Company will adopt SOP 98-5 in its
fiscal year beginning October 1, 1999.
Risk Factors
This Report contains forward-looking statements which may be affected
by, risks and uncertainties including many that are outside the Company's
control. The Company's actual operating results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth below and elsewhere in this Report.
Absence of Profitable Operations. From the Company's incorporation to
date, the Company has not achieved profitable operations and continues to
operate at a loss. The Company's present business strategy is to improve its
profitability and cash flows by adding to its existing product line. While
management believes the cash generated by operations together with the proceeds
from the sale of Series A preferred Stock will satisfy the Company's ordinary
cash requirements for at least 12 months, there can be no assurance that the
Company will ever be able to achieve profitable operations or that it will not
require additional financing to achieve its business plan. See "Management's
Discussion and Analysis or Plan of Operation."
"Going Concern" Issues. The financial statements of the Company have
been prepared on the assumption that the Company will continue as a going
concern. The Company's product line is limited and it has been necessary to rely
upon loans and capital contributions to sustain operations. Additional financing
is required if the Company is to continue as a going concern. If such additional
funding is not obtained, the Company will be required to scale back or
discontinue its operations.
Uncertainty of Future Financial Results. Profitability depends upon
many factors, including the success of the Company's marketing program, the
Company's ability to identify and obtain the rights to additional products to
add to its existing product line, expansion of its distribution and customer
base, maintenance or reduction of expense levels and the success of the
Company's business activities. The Company (since its incorporation in July
1995) has an accumulated deficit as of September 30, 1998 of $3,016,335. The
Company anticipates that it will continue to incur operating losses in the
future. The Company's ability to achieve profitable operations will also depend
on its ability to develop and maintain an adequate marketing and distribution
system. There can be no assurance that the Company will be able to develop and
maintain adequate marketing and distribution resources. If adequate funds are
not available, the Company may be required to materially curtail or cease its
operations. See "Management's Discussion and Analysis or Plan of Operation."
Intense Competition. The medical diagnostic supply and biochemical
industries, including those segments devoted to manufacturing and distributing
laboratory equipment, stain solutions and chemical reagents are characterized by
intense competition. The Company faces, and will continue to face, competition
in the stain solution, reagent and related equipment fields. Many, if not most,
of the Company's competitors and potential competitors are much larger and
consequently have greater access to capital as well as mature and highly
sophisticated distribution channels. Some of the Company's larger competitors
are able to manufacture chemical products on a much larger scale and therefore
presumably would be able to take advantage of economies of scale not presently
enjoyed by the Company. Moreover, many of the Company's competitors have far
greater name recognition and experience in the medical diagnostic supply
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industry. There can be no assurance that competition from other companies will
not render the Company's products noncompetitive.
Uncertainties Related to Ability to License Proprietary Technology. The
Company historically has not been involved in research and development of new
technologies. Consequently, the Company's success in adding to its existing
product line will depend on its ability to acquire or otherwise license
competitive technologies and products and to operate without infringing the
proprietary rights of others, both in the United States and internationally. No
assurance can be given that any licenses required from third parties will be
made available on terms acceptable to the Company, or at all. If the Company
does not obtain such licenses, it could encounter delays in product
introductions while it attempts to adopt alternate measures, or could find that
the manufacture or sale of products requiring such licenses is not possible.
Litigation may be necessary to defend against claims of infringement, to protect
trade secrets or know-how owned by the Company, or to determine the scope and
validity of the proprietary rights of others. Such litigation could have an
adverse and material impact on the Company and its operations.
Inability to Adequately Protect Proprietary Information. The Company
relies upon unpatented trade secrets and improvements, unpatented know how and
continuing technological innovation to develop and maintain its competitive
position, which it seeks to protect, in part, by confidentiality agreements with
its employees and consultants. There can be no assurance that such agreements
will not be breached or that they will be enforceable by the Company, or that
the Company's trade secrets and know how will not otherwise be compromised.
Environmental Risks. The chemical manufacturing processes of the
Company involve the controlled use of hazardous materials. The Company is
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its activities currently comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company. In
addition, there can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in the
future.
Sufficiency of Marketing and Sales Capabilities. The Company sells its
products to approximately 85 independent distributors who are free to resell the
products. In order to achieve profitable operations, the Company must maintain
its current base of distributors and must expand that base in the future. The
Company's sales staff competes with other companies that currently have
experienced and well funded marketing and sales operations. To the extent that
the Company enters into co-promotion or other marketing and sales arrangements
with other companies, any revenues to be received by the Company will be
dependent on the efforts of others, and there can be no assurance that such
efforts will be successful.
Potential Product Liability Exposure and Limited Insurance Coverage.
The use of any of the Company's existing or potential products in laboratory or
clinical settings may expose the Company to liability claims. These claims could
be made directly by persons who assert that inaccuracies or deficiencies in
their test results were caused by defects in the Company's products.
Alternatively, the Company could be exposed to liability indirectly by being
named as a third-party defendant in actions brought against companies or persons
who have purchased the Company's products. The Company has obtained limited
product liability insurance coverage in the amount of $1 million per occurrence
and $2 million in the aggregate. The Company intends to expand its insurance
coverage on an as-needed basis as its sales revenue increases. However,
insurance coverage is becoming increasingly expensive, and no assurance can be
given that the Company will be able to maintain insurance coverage at a
reasonable cost or in sufficient amounts to protect the Company against losses
due to liability. There can also be no assurance that the Company will be able
to obtain commercially reasonable product liability insurance for any products
added to its product line in the future. A successful product liability claim or
series of claims brought against the Company could have a material adverse
effect on its business, financial condition and results of operations.
Uncertainty Related to Health Care Reform Measures and Third-Party
Reimbursement. Political, economic and regulatory influences are likely to lead
to fundamental change in the health care industry in the United States. Numerous
proposals for comprehensive reform of the nation's health care system have been
introduced in Congress over
9
<PAGE>
the past years. In addition, certain states are considering various health care
reform proposals. The Company anticipates that Congress and state legislatures
will continue to review and assess alternative health care delivery systems and
payment methodologies, and that public debate of these issues will likely
continue in the future. Due to uncertainties regarding the ultimate features of
reform initiatives and their enactment and implementation, the Company cannot
predict which, if any, reforms will be adopted, when they may be adopted, or
what impact they may have on the Company. The Company's ability to earn profit
from the sale of its products may also depend in part on the extent to which
reimbursement for the costs of such products will be available from government
health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services, including medical
diagnostic procedures. There can be no assurance that adequate reimbursement
will be available or sufficient to allow the Company to sell its products on a
competitive basis.
Dilution. A significant number of shares of the Company's Common Stock
are authorized but not issued. In addition, there are a substantial number of
shares of Common Stock of the Company reserved for issuance upon the exercise of
certain options, warrants and preferred stock conversion rights. If and to the
extent such options, warrants or rights are exercised, or if the Board of
Directors determines to issue authorized but previously unissued shares of
Common Stock in connection with acquisitions or other transactions, such
issuances could substantially dilute the voting power of the existing
shareholders of the Company. Furthermore, the possibility of such issuances may
adversely affect the market for the Company's Common Stock, should such a market
ever develop.
Year 2000 Issues
Since its inception, the Company has attempted to make use of
increasingly sophisticated computer hardware and software to manage its business
and operations. The Company also relies on third-parties to facilitate its
business including, for example:
o contract manufacturers who produce its products;
o telecommunications providers on whom the Company must rely
for its communications;
o public utilities which provide electrical power and other
utilities needed in the Company's operations;
o major credit card companies that process payments for the
Company's products;
o major shipping companies through which the Company ships its
products;
o financial institutions that provide commercial banking and
other financial services to the Company.
Many existing computer programs use only two digits to identify a year
in the date field and were designed, developed and modified without considering
the impact of the upcoming change in the century. If not corrected, such
computer applications could fail or create erroneous results by or after the
Year 2000 by erroneously identifying the year "00" as 1900, rather than 2000.
Correcting a Year 2000 problem on a large mainframe or network application can
be difficult and expensive. If a company does not successfully address its Year
2000 issues, it may face material adverse consequences. The Company is in the
process of insuring that all of its internal computer systems are Year 2000
compliant. The Company will assess the readiness of the Company for meeting the
Year 2000 problem. It is expected that the assessment and remediation, if any,
of Year 2000 issues affecting the Company's internal systems or products,
including any issues involving embedded technology, will be completed by June
30, 1999 and that the cost to the Company will not be significant.
With respect to third-party providers whose services are critical to
the Company, the Company intends to monitor the efforts of such providers as
they become Year 2000 compliant. The Company is presently not aware of any Year
2000 issues that have been encountered by any such third party which could
materially affect the Company's operations. Notwithstanding the foregoing, there
can be no assurance that the Company will not experience operational
difficulties as a result of Year 2000 issues, either arising out of internal
operations or caused by third-party service providers, which individually or
collectively could have a material adverse effect on the Company's business,
financial condition or results of operations.
10
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements and associated notes are set forth
on pages F-1 through F-16.
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Index to Consolidated Financial Statements
- ----------------------------------------------------------------------------------------------------------
Page
<S> <C>
Report of Tanner + Co. F-2
Report of Arthur Andersen LLP F-3
Consolidated balance sheet F-4
Consolidated statement of operations F-5
Consolidated statement of stockholders' equity F-6
Consolidated statement of cash flows F-7
Notes to consolidated financial statements F-8
- ----------------------------------------------------------------------------------------------------------
F-1
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of Volu-Sol, Inc.
We have audited the accompanying consolidated balance sheet of Volu-Sol, Inc.
and subsidiary (the Company), as of September 30, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Volu-Sol, Inc. and
subsidiary as of September 30, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring operating losses, and
has an accumulated deficit. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 1. The consolidated financial statements do
not include any adjustments that might result form the outcome of this
uncertainty.
TANNER + CO.
Salt Lake City, Utah
December 15, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Volu-sol, Inc.:
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Volu-Sol, Inc. ("Volu-Sol" or the "Company"),a Utah
corporation and formerly wholly owned subsidiary of Biomune Systems, Inc., for
the year ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes 1 and 11 to the financial statements, during the periods
presented, Volu-Sol was operated as a wholly owned subsidiary of Biomune
Systems, Inc. Certain expenses presented in the financial statements are the
result of allocations of total expenses incurred by Biomune systems, Inc.
Therefore, the accompanying financial statements may not necessarily be
indicative of the financial condition or the results of operations that would
have existed if Volu-Sol had been operated as an unaffiliated company.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Volu-Sol,
Inc. for the year ended September 30, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from its
operations. As of September 30, 1997, the Company had an accumulated deficit of
$2,228,838. Recently, the Company has experienced certain technical difficulties
with the operation of its new hematology staining instrument. Although these
technical difficulties appear to have been resolved, total sales of this
instrument are significantly lower than expected. Further, subsequent to
September 30, 1997, the Company's worldwide exclusive license and
distributorship may be converted to a nonexclusive licenses and distributorship.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
December 5, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Balance Sheet
September 30, 1998
- ----------------------------------------------------------------------------------------------------------
Assets
Current Assets:
<S> <C>
Cash $ 16,411
Accounts receivable, less allowance for
doubtful accounts of $3,176 62,708
Inventories 168,571
------------------
Total current assets 247,690
Property and equipment, net 185,947
Other assets 36,464
------------------
Total assets $ 470,101
------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 42,534
Accrued liabilities 74,672
Notes payable 276,149
------------------
Total current liabilities 393,355
------------------
Commitments and contingencies -
Stockholders' equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized:
9,395 shares issued and 4,895 shares outstanding (aggregate
liquidation preference $9,790) 2,033,028
Common stock, $.0001 par value; 50,000,000 shares authorized,
2,211,407 shares issued and outstanding 221
Additional paid-in capital 1,959,832
Preferred stock subscriptions receivable (900,000)
Accumulated deficit (3,016,335)
------------------
Total stockholders' equity 76,746
------------------
Total liabilities and stockholders' equity $ 470,101
------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Statement of Operations
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Sales $ 514,256 $ 493,754
Cost of goods sold 399,013 453,434
-----------------------------------
Gross margin 115,243 40,320
Selling, general and administrative expenses (804,551) (747,434)
-----------------------------------
Loss from operations (689,308) (707,114)
Other income (expense):
Interest income 4,210 -
Interest expense (34,683) (12,538)
-----------------------------------
Net loss before provision for income taxes (719,781) (719,652)
Provision for income taxes - -
-----------------------------------
Net loss $ (719,781) $ (719,652)
===================================
Dividends on Series A preferred stock
(67,716) (4,000)
-----------------------------------
Net loss applicable to common stock $ (787,497) $ (723,652)
===================================
Net loss per common share - basic and diluted $ (.36) $ (.34)
===================================
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Statement of Stockholders' Equity
Years Ended September 30, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------
Preferred
Additional Stock
Preferred Stock Common Stock Paid-In Subscriptions Accumulated
-----------------------------------------
Shares Amount Shares Amount Capital Receivable Deficit
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996 - $ - 2,111,216 $ 211 $ 1,940,476 $ - $ (1,505,186)
Contributions from Biomune
Systems, Inc. - - - - 260,124 - -
Issuance of preferred stock
for:
Cash 6,375 1,238,904 - - - (900,000) -
Commissions 33 6,650 - - - - -
Dividends on preferred
stock - 4,000 - - - - (4,000)
Net loss - - - - - - (719,652)
--------------------------------------------------------------------------------
Balance at September 30,
1997 6,408 1,249,554 2,111,216 211 2,200,600 (900,000) (2,228,838)
Additional shares issued
as a result of the
divestiture of the
Company's common stock - - 100,191 10 (10) - -
Issuance of preferred
stock for:
Cash 1,835 312,000 - - - - -
Commissions 800 160,000 - - - - -
Settlement of lawsuit 15 3,000 - - - - -
Dividends on preferred
stock 337 67,716 - - - - (67,716)
Accretion of preferred stock - 240,758 - - (240,758) - -
Net loss - - - - - - (719,781)
--------------------------------------------------------------------------------
Balance at September 30,
1998 9,395 $ 2,033,028 2,211,407 $ 221 $ 1,959,832 $ (900,000)$ (3,016,335)
================================================================================
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Statement of Cash Flows
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------------
1998 1997
-----------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (719,781) $ (719,652)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 80,015 77,576
Provision for losses on accounts receivable (9,824) -
Preferred stock issued for services 163,000 -
(Increase) decrease in:
Accounts receivable 11,327 10,573
Inventories (15,683) (40,162)
Other assets (14,390) (15,825)
Increase (decrease) in:
Accounts payable (4,432) (8,124)
Accrued liabilities (29,569) 54,034
-----------------------------------
Net cash used in
operating activities (539,337) (641,580)
-----------------------------------
Cash flows from investing activities-
purchase of property and equipment (4,592) (4,074)
-----------------------------------
Cash flows from financing activities:
Payments on notes payable (114,351) -
Proceeds from sale of preferred stock 337,000 320,554
Proceeds from notes payable - 390,500
Capital contributions from Biomune Systems, Inc., - 260,124
-----------------------------------
Net cash provided by
financing activities 222,649 971,178
-----------------------------------
Net (decrease) increase in cash (321,280) 325,524
Cash, beginning of year 337,691 12,167
-----------------------------------
Cash, end of year $ 16,411 $ 337,691
===================================
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Organization and Business Activity
The consolidated financial statements consist of Volu-Sol, Inc. (the Company),
formerly a wholly owned subsidiary of Biomune Systems, Inc. (Biomune), which was
incorporated on July 27, 1995 in the state of Utah, and its wholly owned
subsidiary, Volu-Sol Reagents Corporation, which was incorporated on March 5,
1998 in the state of Utah. Prior to its incorporation, the Company had been
operated as a division of Biomune.
The Company engages in the manufacturing, marketing and distribution of medical
diagnostic stains and the marketing and distribution of the Definitive. The
Definitive is a hematology staining instrument that contains a microchip
(proprietary to a third party) that regulates precise stain amounts.
The board of directors of Biomune approved the divestiture and distribution of
the Company's common stock to the Biomune common stockholders of record as of
March 5, 1997 (the Distribution). This approval was subject to the completion of
certain definitive agreements. These agreements were finalized in September 1997
and the Company filed a Form 10-SB with the Securities and Exchange Commission
on October 1, 1997, the effective date of the Distribution. The Form 10-SB
became effective December 1, 1997. Biomune stockholders of record as of March 5,
1997 received one share of Volu-Sol, Inc. common stock for every ten shares of
Biomune common stock owned at that date.
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As of September 30, 1998, the Company
had a deficit in working capital of $145,665, an accumulated deficit of
$3,016,335 and incurred a loss of $719,781 for the year ended September 30,
1998. These conditions raise substantial doubt about the ability of the Company
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company's ability to continue as a going concern is subject to the
attainment of profitable operations or obtaining necessary funding from outside
sources. Management's plans with respect to this uncertainty include obtaining
debt or equity funding to finance the Company's operations. However, there can
be no assurance they will be successful.
- --------------------------------------------------------------------------------
F-8
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies Continued
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and
its subsidiary. All significant intercompany balances and transactions have been
eliminated.
Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Inventories
Inventories are recorded at the lower of cost or market, cost being determined
on a first-in, first-out (FIFO) method. Substantially, all items included in
inventory are finished goods.
Sales of the Definitive have been lower than initially expected by the Company,
as a result, the Company has written down a portion of the carrying cost of its
Definitive inventory to expected net realizable value.
- --------------------------------------------------------------------------------
F-9
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies Continued
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are determined using the straight-line method over
the estimated useful lives of the assets. Expenditures for maintenance and
repairs are expensed when incurred and betterments are capitalized. Gains and
losses on sale of property and equipment are reflected in operations.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to depreciation.
Earnings Per Share
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year.
Warrants and options outstanding have not been included in the computations
since any assumption of conversion would have an antidilutive effect, thereby
reducing the net loss per common share.
Common Stock Split
Effective August 14, 1997, the Company completed a forward common stock split of
approximately 211 for 1 to permit the issuance of a sufficient number of shares
to the stockholders of record of Biomune as of March 5, 1997. The financial
statements have been presented as though the stock split took place October 1,
1996. All share and per share information in the accompanying statements of
operations has been based on the outstanding number of shares issued in
connection with the Distribution.
Advertising
The Company expenses the cost of advertising the first time the advertising
takes place. For the years ended September 30, 1998 and 1997 advertising
expenses totaled approximately $18,000 and $50,000, respectively.
- --------------------------------------------------------------------------------
F-10
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies Continued
Revenue Recognition
Revenue from the sale of the Company's products, less reserves for returns, is
recognized upon shipment to the customer.
Reclassifications
Certain accounts in the 1997 financial statements have been reclassified to
conform with the current year presentation.
2. Property and Equipment
Property and equipment consist of the following:
Leasehold improvements $ 224,045
Furniture and fixtures 170,939
Equipment 31,721
------------------
426,705
Accumulated depreciation (240,758)
------------------
$ 185,947
==================
3. Notes Payable
Notes payable consist of several unsecured loans from Biomune with an
outstanding balance totaling $276,149. These loans bear interest of ten percent
and are due on demand. The Company has accrued interest payable of $11,505
related to these loans as of September 30, 1998, which is included in accrued
liabilities.
During the year ended September 30, 1998, the Company recognized interest
expense of approximately $35,000 related to these loans.
4. Related Party Transactions
The Company paid a commission to MK Financial of $55,000 in regards to the sale
of preferred Series A stock. MK Financial is owned by a major shareholder of the
Company.
- --------------------------------------------------------------------------------
F-11
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Income Tax
The benefit for income taxes is different than amounts which would be provided
by applying the statutory federal income tax rate to loss before provision for
income taxes for the following reasons:
September 30,
-----------------------------------
1998 1997
-----------------------------------
Federal income tax benefit at
statutory rate $ 245,000 $ 245,000
Change in valuation allowance (245,000) (245,000)
-----------------------------------
$ - $ -
===================================
The Company has previously filed a consolidated tax return with its parent,
Biomune. No tax sharing agreement exists between the Company and Biomune. In
connection with the Distribution, all net operating loss carryforwards and
credit carryforwards as of September 30, 1997 remain with Biomune and will not
be available to be utilized by the Company.
Deferred tax assets (liabilities) are comprised of the following at September
30, 1998:
Net operating loss carryforward $ 245,000
Depreciation and reserves 75,000
Valuation allowance (320,000)
----------------
$ -
================
At September 30, 1998, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $720,000, which will
begin to expire in 2018. The utilization of the net operating loss carryforwards
is dependent upon the tax laws in effect at the time the net operating loss
carryforwards can be utilized. The Tax Reform Act of 1986 significantly limits
the annual amount that can be utilized for certain of these carryforwards as a
result of the change in ownership.
- --------------------------------------------------------------------------------
F-12
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Lease Obligations
The Company leases facilities under a noncancellable operating lease that
expires in November 2000. Future minimum rental payments under the
non-cancelable operating lease as of September 30, 1998 are approximately as
follows:
Year Ending September 30: Amount
------------------
1999 $ 55,400
2000 55,400
2001 9,240
------------------
Total future minimum rental payments $ 120,040
==================
Rent expense related to these non-cancelable operating leases was approximately
$ 60,000 and $55,000 for the years ended September 30, 1998 and 1997,
respectively.
7. Supplemental Cash Flow Information
During the year ended September 30, 1998, the Company:
o Recognized dividends of $67,716 on preferred stock.
o Increased preferred stock and decreased additional paid-in-capital
for $240,758 due to accretion.
During fiscal year 1997, the Company recognized dividends of $4,000 resulting
from the beneficial conversion feature on the Series A preferred stock. These
dividends increased the recorded amount of the Series A preferred stock.
Actual amounts paid for interest and income taxes are as follows:
Years Ended
September 30,
-----------------------------------
1998 1997
-----------------------------------
Interest $ 34,683 $ -
===================================
Income taxes $ - $ -
===================================
- --------------------------------------------------------------------------------
F-13
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Capital Stock
The Company is authorized to issue 50,000,000 shares of common stock, $.0001 par
value per share, and 10,000,000 shares of preferred stock, $.0001 par value per
share. The Company's board of directors has the authority to amend the Company's
Articles of Incorporation, without further stockholder approval, to designate
and determine, in whole or in part, the preferences, limitations and relative
rights of the preferred stock before any issuance of the preferred stock and to
create one or more series of preferred stock.
9. Preferred Stock
Series A
On September 8, 1997, the Company amended its Articles of Incorporation to
create a series of preferred stock. The Series A 10% Convertible Non-Voting
Preferred Stock, consists of 20,000 shares with $.0001 par value. This series is
part of the Company's 10,000,000 authorized shares of non-voting preferred
stock. The Series A Preferred Stock has the following rights and privileges:
1. The holders of the shares are entitled to dividends at the rate of ten
percent (10%) per annum on the stated value of the Series A Preferred
Stock (or $200 per share), payable in cash or in additional shares of
Series A Preferred Stock at the discretion of the Board of Directors.
Dividends are fully cumulative and accrue from the date of original
issuance. At September 30, 1998, all dividends earned have been paid
through the issuance of additional shares of preferred stock.
2. Upon the liquidation of the Company, the holders of the Series A
Preferred Stock are entitled to receive, prior to any distribution of
any assets or surplus funds to the holders of shares of common stock
or any other stock, an amount equal to $2.00 per share, plus accrued
and unpaid regular or special dividends, if any, multiplied by 133%.
3. The shares are convertible at the option of the holder at any time
subsequent to January 1, 1998 into common shares, determined by
dividing $200 plus any accrued and unpaid regular or special dividends
by an amount equal to the lesser of (i) the "Market Price" (defined as
the average closing bid price of the Company's Common Stock for the
three trading days immediately preceding the applicable Conversion
Date) less 20%; or (ii) $1.25.
- --------------------------------------------------------------------------------
F-14
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Preferred Stock Continued
Series A - Continued
A single holder (or affiliated holders) may not at any time hold
shares of the Company's Common Stock exceeding 4.9% of the total
number of issued and outstanding shares of Common Stock. Thus, any
holder or group of affiliated holders will only be allowed to convert
shares of Series A Preferred Stock into shares of Common Stock in an
amount such that such holder's ownership of shares of Common Stock
does not exceed 4.9% of the total number of issued and outstanding
shares of Common Stock.
4. The holders of the shares have no voting rights.
5. The Company may, at its option, redeem up to 66-2/3% of the total
number of shares of Series A Preferred Stock. The Company may
designate a different and lower conversion price and the call price
for all shares of Series A Preferred Stock called for redemption by
the Company shall be 133% of the New Conversion Price for all shares
of Series A Preferred Stock called after January 1, 1998.
10. Major Customers
Sales to major customers which exceeded 10 percent of net sales are as follows:
Years Ended September 30,
-----------------------------------
1998 1997
-----------------------------------
Company A 12.3% 12.7%
Company B 11.8% 13.5%
Company C - 11.4%
- --------------------------------------------------------------------------------
F-15
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Stock Options and Warrants
Stock Incentive Plan
The Company has adopted the 1997 Volu-Sol, Inc. Stock Incentive Plan (the "1997
Plan"). The 1997 Plan was approved by action of Biomune, the original
stockholder of the Company, in August 1997. Under the 1997 Plan, the Company may
issue stock options, stock appreciation rights, restricted stock awards, and
other incentives to employees, officers and directors of the Company and the
award of nonqualified stock options and other awards to employees and certain
non-employees who have important relationships with the Company. Five million
shares are initially available for grant under the 1997 Plan. To date, no awards
of any kind have been made under the 1997 Plan.
Add-on Volu-Sol Options
In connection with the Distribution of the Company's common stock, the Board of
Directors of Biomune determined that each Biomune stock option ("Biomune
Option") would be divided into two separately exercisable options: an option to
purchase Biomune common stock and an option to purchase Volu-Sol common stock
(the latter being the "Add- on Volu-Sol Option"). The Add-on Volu-Sol Options
grant the holder the right to purchase the Company's common stock in an amount
that would have been issued in the Distribution in respect of the shares of
Biomune common stock subject to the applicable Biomune Option, if such Biomune
Option had been exercised in full immediately prior to the Distribution, and
containing substantially equivalent terms as the existing Biomune Option. The
Add-on Volu-Sol Options carry an option exercise price per share equal to the
price per share of the exercise price under the Biomune Option.
As a result of the foregoing, certain persons who remain Biomune employees or
non-employee directors after the Distribution and certain persons who were
Biomune employees prior to the Distribution but become Volu-Sol employees after
the Distribution hold both Biomune Options and separate Add-on Volu-Sol Options.
The obligations with respect to the Biomune Options and Add-on Volu-Sol Options
held by Biomune employees and non-employee directors following the Distribution
will be obligations solely of Biomune. Volu-Sol has agreed to sell to Biomune
from time to time shares of Volu-Sol common stock as necessary to satisfy
Biomune's obligations under the Distribution Agreement. The sales price of such
shares of Volu-Sol common stock will be a sum equal to the consideration
received by Biomune in exercise of the related option.
- --------------------------------------------------------------------------------
F-16
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Stock Options and Warrants Continued
Volu-Sol Warrants
Biomune has granted rights to purchase Biomune common stock in the form of
warrants (the "Biomune Warrants"). Under the agreements governing the grant and
exercise of the Biomune Warrants, Biomune has agreed to issue to the holders of
such rights, securities otherwise issuable with respect to the Biomune common
shares underlying the Biomune Warrants if and to the extent the Biomune Warrants
are exercised. Consequently, if the holders of the Biomune Warrants exercise
their rights thereunder, Biomune must issue to those holders one share of
Volu-Sol common stock for each share of Biomune common stock issued in
connection with such exercise. Volu-Sol has agreed to sell to Biomune the shares
of Volu-Sol common stock needed to meet this obligation of Biomune. The sales
price of such shares of Volu-Sol common stock will be a sum equal to 10 percent
of the consideration received by Biomune in exercise of the Biomune Warrants.
Number of
Options and Price Per
Warrants Share
----------------------------------
Outstanding at October 1, 1996 - $ -
Granted 979,160 1.16 to 5.00
Expired (82,500) 1.67 to 5.00
----------------------------------
Outstanding at September 30, 1997 896,660 1.16 to 5.00
Expired (369,310) 1.16 to 5.00
----------------------------------
Outstanding at September 30, 1998 527,350 $ 1.16 to 4.00
==================================
- --------------------------------------------------------------------------------
F-17
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Stock Options and Warrants Continued
The following table summarizes information about stock options and warrants
outstanding at September 30, 1998:
Outstanding Exercisable
------------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 09/30/98 (Years) Price 09/30/98 Price
- --------------------------------------------------------------------------------
$1.16 - 2.38 442,350 1.9 $ 1.53 442,350 $ 1.53
3.00 - 4.00 85,000 1.2 3.71 85,000 3.71
- --------------------------------------------------------------------------------
$1.16 - 4.00 527,350 1.8 $ 1.88 527,350 $ 1.88
================================================================================
12. Earnings Per Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which requires
companies to present basic earnings per share (EPS) and diluted earnings per
share, instead of the primary and fully diluted EPS as previously required. The
new standard also requires additional informational disclosures, and makes
certain modifications to the previously applicable EPS calculations defined in
Accounting Principles Board No. 15. The new standard is required to be adopted
by all public companies for reporting periods ending after December 15, 1997,
and requires restatements of EPS for all prior periods reported. During the year
ended September 30, 1998, the Company adopted this standard. Earnings per share
information is as follows:
Year Ended
September 30,
-----------------------------------
1998 1997
-----------------------------------
Net loss available to common
stockholders $ (787,497) $ (723,652)
-----------------------------------
Average equivalent shares
(basic and diluted) 2,211,000 2,111,000
-----------------------------------
Net loss per share
(basic and diluted) $ (.36) $ (.34)
===================================
- --------------------------------------------------------------------------------
F-18
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
13. Fair Value of Financial Instruments
None of the Company's financial instruments are held for trading purposes. The
Company estimates that the fair value of all financial instruments at September
30, 1998, does not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgement is
necessarily required in interpreting market data to develop the estimates of
fair value, and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
14. Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income," Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" and
Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." Statements No. 130 and No. 131 are effective for years
beginning after December 15, 1997. Statement No. 132 is effective for years
beginning after December 15, 1998. It is not expected that the adoption of these
statements will have a material impact on the Company's financial statements.
During January 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-5). SOP 98-5 becomes effective for all fiscal years
beginning after December 15, 1998. The Company will adopt SOP 98-5 in its fiscal
year beginning October 1, 1999. The Company does not expect the adoption of SOP
98-5 to have a material impact on the Company's financial statements.
- --------------------------------------------------------------------------------
F-19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 9, 1998, the Company and Arthur Andersen LLP ("Andersen")
agreed that Andersen would not stand for appointment as the Company's
independent public accountants in 1998. On October 15, 1998, the Company
appointed Tanner + Co. ("Tanner") to replace Andersen as its independent public
accountants.
Until September 30, 1997, the Company was a wholly owned subsidiary of
Biomune. Biomune is a public company having a class of securities, its common
stock, registered under the Exchange Act. As a result, Biomune is subject to the
reporting and other requirements of the Exchange Act and the rules and
regulations promulgated under the Exchange Act. The Company was divested by
Biomune effective October 1, 1997. It filed a registration statement under the
Exchange Act which was declared effective or became effective by operation of
law on December 1, 1997. Since that time, the Company has been subject to the
reporting and other obligations of public companies under the Exchange Act and
the rules and regulations promulgated thereunder. Andersen had been the
independent public accountants to Biomune and continued to act in the same
capacity for the Company following the divestiture.
The report of Andersen on the Company's consolidated financial
statements for the years ended September 30, 1997 and 1996 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principle, except that such report on the
consolidated financial statements included an explanatory paragraph with respect
to the Company having suffered recurring losses and other matters which raise
substantial doubt about its ability to continue as a going concern.
The decision to engage Tanner as the Company's independent auditors was
approved by the unanimous consent of the Company's board of directors.
In connection with the audits for the years ended September 30, 1997
and 1996, and through October 8, 1998, the Company has had no disagreements with
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Andersen would have caused it to make reference
thereto in its report on the consolidated financial statements for 1997 and
1996.
In connection with the change, Andersen provided to the Company a
letter addressed to the Securities and Exchange Commission stating that it
reviewed the disclosure provided in this Current Report and has no disagreement
with the relevant portions of this disclosure, pursuant to the requirements of
Item 304(a)(3) of Regulation S-B. A copy of such letter, dated as of October 15,
1998, was filed as an Exhibit to the Company's Current Report on Form 8-K
reporting the change of accountants.
During the years ended September 30, 1997 and 1996, and through October
8, 1998, there were no other reportable events (as referenced in Item
304(a)(1)(iv) of Regulation S-B).
11
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers, Key Employees and Directors
The executive officers and directors of the Company as of January 12,
1999 are as follows:
Name Age Position
Wilford W. Kirton, III 38 Chief Executive Officer
Barry Edwards 46 Director
Christopher L. Matthews 44 Director
F. Kenneth Westover 71 Director
Wilford W. Kirton, III
Mr. Kirton became a director and the Chief Executive Officer of the
Company in January 1998. Mr Kirton holds a bachelors degree in Political Science
from the University of Utah. Prior to joining the Company, Mr. Kirton was the
proprietor and President of Travel Systems Network, a travel agency and tour
operator from 1987 to February 1994. From February 1994 to June 1996, Mr. Kirton
was Vice President of Old Republic Title, a real estate title company. From July
1996 to March 1997, Mr. Kirton was a sales representative for Schwanns Foods, a
food distributor in Utah. Mr. Kirton was an officer of Optim Nutrition, a
subsidiary of Biomune (former parent of the Company), from March 1997 until
joining the Company in January 1998.
Barry Edwards
Mr. Edwards became a director of the Company in December 1998. He is
the City Administrator of Highland, Utah and has been employed as Director of
Research and Development at Kiva, a software company, since February 1998. Prior
to joining Kiva, Mr. Edwards worked as the City Manager of Belmont, California
for three years and was the City Administrator of Ridgecrest, California. He
received a BS in Political Science and a Masters of Public Administration (MPA)
from Brigham Young University.
Christopher L. Matthews
Mr. Mathews became a director of the Company in December 1998. He
received his BS in Finance and his MBA degree from the University of Utah and
was the Director of Asset Services for CB Richard Ellis, a New York Stock
Exchange company that provides commercial real estate services worldwide. From
1990 to 1997, Mr. Matthews was principal of Chris Matthews & Associates, a
boutique leasing and property management services company specializing in
institutionally-owned distressed properties. From 1981 to 1990 he was Vice
President of Asset Management for the Denver region of Equitable Real Estate,
where he had responsibility for a portfolio of commercial properties located in
the Intermountain West, valued at $900,000,000.
Ken Westover
Mr. Westover became a director of the Company in December 1998. He is
the owner of Westover & Associates, a manufacturing representative for floor
coverings, a firm he founded in 1984. Prior to founding his own firm, Mr.
Westover was a factory representative for O'Brien Corporation from 1962 to 1971
and for Hollytex Carpet Mills from 1971 to 1984. He received his undergraduate
degree from LDS Business College in Salt Lake City and also attended the
University of Utah and Brigham Young University.
12
<PAGE>
None of the Company's executive officers or directors are related to
any other executive officer or director of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who beneficially own more than 10% of
a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% shareholders are required by regulation
of the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely upon its review of the copies of such forms furnished to
it, and representations made by certain persons subject to this obligation that
such filings were not required to be made, the Company believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
filed in a timely manner and the Company is not aware of any transactions in its
outstanding securities by or on behalf of any director, executive officer or 10%
holder, which would require the filing of any report pursuant to Section 16(a)
during the fiscal year ended September 30, 1998, that was not filed with the
Commission.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer or employee of the Company is paid more than
$100,000 per year in salary and benefits. The Company's Chief Executive Officer,
Wilford W. Kirton, III, receives an annual salary of $72,000.
Director Compensation
Members of the Board of Directors will be voting on the compensation
for meetings and other services performed by the members of the board of
directors.
[The remainder of this page is intentionally left blank.]
13
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock (i) by each person (or group of
affiliated persons) who owns beneficially more than 5% of the outstanding shares
of common stock, (ii) by each director and Named Executive Officer of the
Company, and (iii) by all of the directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
Name and Address Shares of Common Stock
of Beneficial Owner (1) Beneficially Owned (2) Percentage of Class
- ----------------------- --------------------------- -------------------
<S> <C> <C>
Cygni S A (3) 392,308 13.4%
C/O Soreq Inc.
620 Wilson Ave Ste 501
Toronto Ontario Canada
M3K 1Z3
Leviticus Trust (4) 238,918 8.9%
821 Northpoint Drive
Salt Lake City, UT 84103
Wilford W. Kirton III (5) 2,032 *
(Chief Executive Officer, Director)
Barry Edwards, Director (5) 22,000 *
9914 N. 4500 W.
Cedar Hills, Utah 84062
Chris Matthews (5) 22,000 *
956 East Sunburst Lane
Alpine, Utah 84004
Ken Westover (5) 58,000 2.1%
1697 E. 6550 S.
Salt Lake City, Utah 84121
All executive officers and 82,032 3.1%
directors as a group (4 persons)
</TABLE>
(1) Unless otherwise indicated, such person's address is the same as
the Company's address.
(2) A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the
date of this Report upon the exercise of options or warrants.
Each beneficial owner's percentage of ownership is determined
by assuming that options or warrants or convertible preferred
stock held by such person (but not those held by any other
person) and exercisable or convertible within 60 days from the
date of this Report have been fully exercised or converted.
Unless otherwise noted, the Company believes the persons named
in this table will possess sole voting and investment power
with respect to all shares of common stock shown as being
beneficially owned. Percentages are calculated based on
2,681,169 shares of common stock outstanding (as adjusted for
additional shares deemed to be beneficially owned by such
shareholder).
(3) Cygni S A owns 152,308 shares of common stock directly and
1,500 shares of Series A Preferred, convertible to 240,000
shares of common stock.
14
<PAGE>
(4) The Leviticus Trust owns 238,918 shares of Common Stock
directly. The Leviticus Trust is an irrevocable trust
established for the benefit of its sole beneficiary, Genesis
Investment Corporation, a Utah corporation ("GIC"). The
directors and executive officers of GIC are Jacob "Jack"
Solomon, President, Royden G. Derrick, Vice President and
Secretary, and Edna Ennise Richardson, Sam Pekeles and Jerry
Pekeles, directors. The beneficial owners of GIC are the
Solomon family. The trustee of the Leviticus Trust is Robert
Pomerantz, an individual residing in New York. The trustee has
the power to vote and to dispose of the shares held by the
Leviticus Trust, consistent with the terms and subject to the
conditions of the Trust Declaration establishing the trust.
(5) All shares shown are issuable upon conversion of Series A
Preferred held by such person as of the date of this Report.
Except for the matters described herein, there are no arrangements
known to the Company, the operation of which may, at a subsequent date, result
in a change of ownership or control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has agreed to indemnify each of its directors and officers
to the fullest extent permitted by the Revised Utah Business Corporation Act.
The Company has supplemented its cash flow from operations by borrowing from its
former parent, Biomune. As of the date of this Report, the Company owes Biomune
a total of $372,149. These amounts are due on demand and bear interest at the
rate of 10% per annum.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission:
(a) Exhibits
Exhibit Number Title of Document
3.01 Articles of Incorporation and Amendments thereto
(incorporated by reference to the Company's
Registration Statement and Amendments thereto on Form
10-SB, effective December 1, 1997).
3.02 Bylaws (incorporated by reference to the Company's
Registration Statement on Form 10- SB, effective
December 1, 1997).
10.01 Distribution and Separation Agreement (incorporated
by reference to the Company's Registration Statement
and Amendments thereto on Form 10-SB, effective
December 1, 1997).
10.02 1997 Stock Incentive Plan of the Company,
(incorporated by reference to the Company's
Registration Statement and Amendments thereto on Form
10-SB, effective December 1, 1997).
10.03 1997 Transition Plan (incorporated by reference to
the Company's Registration Statement and Amendments
thereto on Form 10-SB, effective December 1, 1997).
15
<PAGE>
10.04 Securities Purchase Agreement for $1,200,000 of
Series A Preferred Stock (incorporated by reference
to the Company's Registration Statement and
Amendments thereto on Form 10- SB, effective December
1, 1997).
27 Financial Data Schedule.
(b) Reports on Form 8-K
On October 6, 1998, the Company filed a Current Report on Form 8-K to
report its agreement with Nasdaq regarding the issuance of additional shares as
part of the divestiture of the Company from Biomune.
On October 15, 1998, the Company filed a Current Report on From 8-K to
report the change of its independent public accountants. See Item 8, above.
[The remainder of this page is intentionally left blank.]
16
<PAGE>
SIGNATURES
In accordance with Section 13 and/or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Volu-Sol, Inc.
By: /s/ Wilford W. Kirton, III
------------------------------
Wilford W. Kirton, III, Chief Executive Officer
Dated: January 12, 1999
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Wilford W. Kirton, III Director, Chairman, and January 12, 1999
- -------------------------- Chief Executive Officer
Wilford W. Kirton, III
/s/ Barry Edwards Director January 12, 1999
- --------------------------
Barry Edwards
/s/ Chris Matthews Director January 12, 1999
- --------------------------
Chris Matthews
/s/ Ken Westover Director January 12, 1999
- --------------------------
Ken Westover
/s/ Michael G. Acton Acting Principal January 13, 1999
- -------------------------- Accounting Officer
Michael G. Acton
G:\KRP\volusol\10KSB\10k98#3.wpd
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOLU-SOL,
INC. SEPTEMBER 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,411
<SECURITIES> 0
<RECEIVABLES> 65,884
<ALLOWANCES> 3,176
<INVENTORY> 168,571
<CURRENT-ASSETS> 247,690
<PP&E> 426,705
<DEPRECIATION> 240,758
<TOTAL-ASSETS> 470,101
<CURRENT-LIABILITIES> 393,355
<BONDS> 0
0
2,033,028
<COMMON> 221
<OTHER-SE> (1,956,503)
<TOTAL-LIABILITY-AND-EQUITY> 470,101
<SALES> 514,256
<TOTAL-REVENUES> 518,466
<CGS> 399,013
<TOTAL-COSTS> 1,203,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,683
<INCOME-PRETAX> (719,781)
<INCOME-TAX> 0
<INCOME-CONTINUING> (719,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (719,781)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
