<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________to_____________.
Commission file number: 0-23153
VOLU-SOL, INC.
(Exact name of small business issuer as specified in its charter)
Utah 87-0543981
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5095 West 2100 South
Salt Lake City, Utah 84120
(Address of principal executiv offices) (Zip Code)
(801) 974-9474
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 10, 2000, the registrant had issued and outstanding 2,444,219 shares
of Common Stock, par value $.0001.
[Note: On April 28, 2000, the registrant declared a one-for-five stock split of
its common stock that reduced the number of issued and outstanding shares as of
that date. Outstanding common stock data in this report have been adjusted to
reflect the reverse stock split.]
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
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Page 3
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2000...3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended March 31, 2000 and 1999....4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended March 31, 2000 and 1999 ....................5
Notes to Unaudited Condensed Consolidated Financial Statements........6
2. Management's Discussion and Analysis or Plan of Operation.............8
PART II. OTHER INFORMATION...................................................11
Page 2
<PAGE>
ITEM 1 - Financial Statements
VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
2000
---------------------
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 1,123,846
Accounts receivable, less allowance for doubtful accounts of $2,188 84,744
Inventories 49,446
---------------------
Total current assets 1,258,036
Property and equipment, net 67,489
Other assets 4,122
---------------------
Total assets $ 1,329,647
---------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 13,716
Accrued liabilities 26,177
Preferred stock dividends payable 182,645
---------------------
Total current liabilities 222,538
---------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized:
15,133 shares outstanding (aggregate liquidation preference $4,268,296) 3,577,916
Common Stock, par value $.0001; 50,000,000 shares authorized,
2,444,219 shares issued and outstanding 1,222
Additional paid-in capital 3,231,581
Preferred stock subscriptions receivable (338,300)
Accumulated deficit (5,365,310)
---------------------
Total stockholders' equity 1,107,109
---------------------
Total liabilities and stockholders' equity $ 1,329,647
---------------------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Page 3
<PAGE>
VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 141,384 $ 116,813 $ 256,734 $ 250,732
Cost of goods sold 92,093 78,143 165,144 171,244
--------------- --------------- --------------- ---------------
Gross Margin 49,291 38,670 91,590 79,488
Selling, general and administrative expenses 1,068,682 230,627 1,249,301 508,625
--------------- --------------- --------------- ---------------
Loss from operations (1,019,391) (191,957) (1,157,711) (429,137)
Other income (expense):
Interest income 1,961 43 1,961 128
Interest expense (9,924) (17,632)
--------------- --------------- --------------- ---------------
Net loss before provision for income taxes (1,017,430) (201,838) (1,155,750) (446,641)
Provision for income taxes - 200 - 200
--------------- --------------- --------------- ---------------
Net loss $ (1,017,430) $ (202,038) $ (1,155,750) $ (446,841)
--------------- --------------- --------------- ---------------
Dividends on Series A preferred stock (76,987) (36,464) (117,087) (65,777)
--------------- --------------- --------------- ---------------
Net loss applicable to common stock $ (1,094,417) $ (238,502) $ (1,272,837) $ (512,618)
--------------- --------------- --------------- ---------------
Net loss per common share - basic and diluted (0.93) (0.44) (1.48) (0.95)
--------------- --------------- --------------- ---------------
Weighted average common shares outstanding 1,177,545 538,609 859,454 538,609
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
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VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
2000 1999
---------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,272,837) $ (446,641)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 38,895 39,951
Preferred stock issued for services 220,000 265,000
(Increase) decrease in:
Accounts receivable (9,047) (7,222)
Inventories 6,774 (1,119)
Other assets 100 13,367
Increase (decrease) in:
Accounts payable (20,650) (27,537)
Accrued liabilities (2,157) (18,014)
-------------------- --------------------
Net cash used in operating activities: $ (1,038,922) $ (182,215)
-------------------- --------------------
Cash flows from investing activities: - -
Cash flows from financing activities:
Proceeds from sale of preferred stock 236,000 89,500
Proceeds from sale of common stock 1,700,000 -
Proceeds from notes payable - 96,000
-------------------- --------------------
Net cash provided by financing activities 1,936,000 185,500
-------------------- --------------------
Net increase (decrease) in cash 1,079,723 3,086
Cash, beginning of period 44,123 16,411
-------------------- --------------------
Cash, end of period $ 1,123,846 $ 19,497
-------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Page 5
<PAGE>
VOLU-SOL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Volu-Sol, Inc. and Volu-Sol Reagents Corporation, its wholly owned subsidiary
(collectively, the "Company"), have been prepared consistent with generally
accepted accounting principles for interim financial information in accordance
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, such unaudited financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows of
the Company for the interim periods presented, have been included. Operating
results for the three and six months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2000. The Company suggests that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for the year ended September 30,
1999.
(2) RELATED-PARTY TRANSACTIONS
From March 5, 1997 through December 31, 1999, the Company borrowed money from
Biomune Systems, Inc. its former parent ("Biomune") totaling $486,500. At March
31, 1999, the amount owed Biomune was $400,961, payable pursuant to a promissory
note bearing interest at an annual rate of ten percent and due on demand.
Biomune sold the note during the three months ended March 31, 1999 and the
Company paid the note in full by issuing 2,011 shares of its Series A Preferred
Stock at the request of the new noteholder.
(3) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventories consist of the following as of March 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
Raw materials, packaging and supplies $ 29,777
Instruments, biological stains and reagents 19,669
-----------
$ 49,446
===========
</TABLE>
(4) SERIES A PREFERRED STOCK
In September 1998, the Company entered into a subscription agreement for the
purchase of $1,200,000 of its Series A Preferred Stock. As of March 31, 2000,
$338,300 of such subscription remained unpaid and a total of 1,692 shares of
Series A Preferred Stock remain unsold. During the six months ended March 31,
2000, the Company sold 133 shares of Series A Preferred Stock for proceeds of
$236,000 net of $30,000 offering costs. During the six months ended March 31,
2000, the Company issued a total of 820 shares of Series A Preferred Stock as
fees for consulting services provided to the Company. The Company also issued
2,011 shares of Series A Preferred Stock in satisfaction of the note payable to
Biomune (see Note 2). The Series A Preferred Stock is convertible into Common
Stock. The "conversion price," which 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) $6.25 per share
Page 6
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(5) NET LOSS PER COMMON SHARE
Basic net loss per common share ("Basic EPS") excludes dilution and is computed
by dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share ("Diluted EPS") reflects
the potential dilution that could occur if stock options or other contracts to
issue Common Stock including convertible Preferred Stock were exercised or
converted into Common Stock. The computation of Diluted EPS does not assume
exercise or conversion of securities that would have an anti-dilutive effect on
net loss per common share. Because the Company has incurred a loss for the
periods presented, no exercises or conversions have been considered as they
would be anti-dilutive, thereby decreasing the net loss applicable to common
shares.
During the six months ended March 31, 2000 the Company issued 1,718 shares of
Common Stock, as part of the original divestiture, in the nature of a dividend.
Also, the Company sold 1,900,000 shares of Common Stock for $1,700,000 net of
$200,000 offering costs.
At March 31, 2000, there were outstanding options to purchase 89,220 shares of
Common Stock and there were 15,133 shares of Series A Preferred Stock
convertible into a minimum of 718,395 shares of Common Stock, neither of which
are included in the computation of Diluted EPS because they would be
anti-dilutive. The options all related to options to purchase Biomune Common
Stock outstanding at the time of the divestiture. The holders of such Biomune
options were also granted options to purchase Volu-Sol, Inc. Common Stock.
(6) SUBSEQUENT EVENTS
On April 11, 2000 the board of directors of the Company announced a reverse
split of its Common Stock issued and outstanding, to become effective April 28,
2000. The action reduces the number of issued and outstanding shares of the
Company Common Stock at a ratio of 1 for 5. Prior to the reverse split, the
Company had a total of 12,221,092 shares of Common Stock issued and outstanding.
After giving effect to the reverse split, there are 2,444,219 shares of Common
Stock issued and outstanding. All share data in this report have been adjusted
to reflect this reverse split.
The reverse split as adopted by the Company's board of directors did not require
a change in the par value of the Company's Common Stock. Therefore, both before
and after the reverse split, the par value of the Company's Common Stock is
$.0001 per share. In addition, the Board of Directors has not authorized a
change in the authorized number of shares of Common Stock or any other class of
securities of the Company. Therefore, both before and after the reverse split,
the authorized number of shares of Common Stock continue to be 50,000,000
shares.
Outstanding options, warrants and preferred stock convertible to Common Stock
will be adjusted according to the terms of the instruments evidencing such
rights and shares, reducing the number of shares that may be acquired by
exercise or conversion, as the case may be, by the same 1 for 5 ratio and
increasing the exercise price in the case of the options and warrants, by 5
times the current price. No other rights or interests are affected by the
change.
The board of directors determined that the reverse split was in the best
interest of the Company to enable the Company to attract more investment capital
and to prepare the Company for the trading of its Common Stock.
Page 7
<PAGE>
On April 17, 2000, the Company entered into a Technical Services Agreement for
research and development with Battelle Memorial Institute. This agreement forms
the basis for the parties' cooperation in the further research and development
of a remote access diagnostic system for medical professionals and consumers to
further the Company's business plan. Under the terms of the agreement, the
Company will compensate Battelle for its services in furthering the research and
development of the project by payment of $800,000 in the form of $400,000 cash
and 400,000 shares of common stock of the Company.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Until October 1, 1997, the Company operated as a division and then a
wholly owned subsidiary of Biomune. Effective October 1, 1997, Biomune divested
itself of the Company by distributing Volu-Sol Common Stock to holders of
Biomune Common Stock as of March 5, 1997. Since October 1, 1997, the Company has
operated as a separate entity. The following discussion and analysis should be
read in conjunction with the Company's unaudited condensed consolidated
financial statements and the notes thereto contained elsewhere in this report.
The discussion of these results should not be construed to imply that any
condition or circumstance discussed herein will necessarily continue in the
future.
Plan of Operations
The Company has recently adopted a revised business plan. The principal
objective of this new business plan is the development of a medical diagnostic
device and related services to facilitate a more effective patient-doctor
relationship, improve health care by increasing the amount and type of relevant
patient information readily available to qualified medical professionals and
facilitating access to diagnostic information at remote and alternate sites. The
Company has entered into a strategic alliance with Battelle Memorial Institute
to research and develop a "Rapid Access Diagnostic System" or "RADx System" that
is expected to provide faster and higher quality health care delivery in
alternative sites, including the home.
Battelle is currently engaged in the design and engineering of the RADx
System for the Company and expects to have a working prototype completed for
testing by the end of the current fiscal year. Battelle has a staff of 7,500
scientists, engineers, and support specialists. It pursues hundreds of
technology projects for nearly 2,000 companies and government agencies, with
business volume of approximately $1 billion annually.
The RADx System will simulate a physician house call by allowing the
attending medical professional to access patient vital signs and diagnostic data
and obtain and make a diagnosis based on remotely recorded data or to request
additional testing or follow on attention at a hospital or treatment center. The
RADx System uses the Internet to connect patients and healthcare professionals
in a way that was previously impossible. This technology will provide physicians
and healthcare professionals with reliable diagnostic data and link them to
their patients outside the office.
This new plan represents a departure from the business currently
conducted by the Company. Our business strategy currently being reviewed and
developed by the board of directors is to focus our primary attention on the
RADx System and related technology. We will continue to operate our reagent
business.
Page 8
<PAGE>
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999.
During the three months ended March 31, 2000, the Company's revenues
totaled $141,384 compared to $116,813 for the three months ended March 31, 1999.
This increase in revenues resulted primarily from the increased sales of
reagents.
Cost of revenues for the three months ended March 31, 2000 totaled
$92,093 compared to $78,143for the three months ended March 31, 1999. The
overall gross margin for the three months ended 2000 was 35% of revenues
compared to 33% of revenues for the comparable three months ended in 1999. The
increased gross margin results from a continued effort to create a leaner
production team and better inventory management.
Selling, general and administrative expenses totaled $947,195 for the
three months ended March 31, 2000, compared to $230,627 for the three months
ended March 31, 1999, an overall increase of $716,568. This increase is
primarily attributable to consulting expenses paid by the issuance of shares of
the Company's Preferred Stock.
Interest expense decreased from $9,924 for the three months ended March
31, 1999 to $0 for the three months ended March 31, 2000. The decrease in
interest expense resulted from the payoff of borrowings from Biomune, the
Company's former parent.
The Company incurred a net loss applicable to common shares of $972,027
for the three months ended March 31, 2000 compared to a net loss applicable to
common shares of $238,502 for the three months ended March 31, 1999. This
increase is due primarily to consulting expenses paid during the quarter with
shares of preferred stock.
It is anticipated that the net losses applicable to common shares will
increase in the future due to the accrual of dividends payable on the Series A
Preferred Stock. In September 1998, the Company entered into a subscription
agreement with an investor for the purchase of $1,200,000 of the Company's
Series A Preferred Stock. As of March 31, 2000, the Company had remaining
subscriptions receivable totaling $338,300 under that agreement. If only those
subscriptions are collected and no further sales of Series A Preferred Stock are
made, the net loss applicable to common shares would increase by approximately
$84,575 for the one-time charge related to the beneficial conversion feature and
by approximately $33,830 per year for recurring dividends at 10%.
Six Months Ended March 31, 2000 Compared to Six Months Ended March 31,1999
During the six months ended March 31, 2000 the Company generated
revenues totaling $256,734 compared to $250,732 for the six months ended March
31, 1999. This increase in revenues is mainly attributable to increased sales of
reagents.
Cost of revenues for the six months ended March 31, 2000 totaled
$165,144 compared to $171,244 for the six months ended March 31, 1999. The
overall gross margin for the six months ended March 31, 2000 was 36% of revenues
compared to 32% of revenues for the comparable six months ended in 1999. This is
attributable to a more efficient production team.
Page 9
<PAGE>
Selling, general and administrative expenses totaled $1,127,814 for the
six months ended March 31, 2000, compared to $508,625 for the six months ended
March 31, 1999, an overall increase of $619,189. This increase is due to payment
of Board of Directors fees, and increased consulting expenses incurred by the
Company and paid in shares of preferred stock.
Interest expense decreased from $17,632 for the six months ended March
31, 1999 to $0 for the six months ended March 31, 2000. The decrease in interest
expense is due to the payoff of borrowings to Biomune, the Company's former
parent.
The Company incurred a net loss applicable to common shares of
$1,150,447 ($0.47 per share), for the six months ended March 31, 2000 compared
to a net loss applicable to common shares of $512,618 for the six months ended
March 31, 1999. This increase in net loss is primarily due to dividends and
consulting expenses as well as an increase in selling, general, and
administrative expenses.
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 December
31, 1999, Biomune financed the Company's operations through a series of loans
and other capital contributions totaling approximately $2,900,000, of which
approximately $486,500 was in the form of loans. The Company has also sold
shares of Series A Preferred Stock and Common Stock to provide additional
working capital.
The Company believes that cash generated by operations, together with
the proceeds from additional sales of its securities will be sufficient to meet
its capital requirements for a minimum of twelve months.
As of March 31, 2000, the Company had cash of $1,123,846 and positive
working capital of $1,036,401 compared to cash of $19,497 and negative working
capital of $81,371 as of March 31, 1999. This increase in cash is the result of
the sale of common stock during the quarter ended March 31, 2000.
During the six months ended March 31, 2000, the Company's operating
activities used cash of $856,277, much of which was provided by the sale of
Series A Preferred Stock and Common Stock. During the six months ended March 31,
1999, the Company's operating activities used cash in the amount of $182,215,
which was provided by the sale of Series A Preferred Stock.
The Company 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.
The unaudited condensed consolidated 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 the Company has relied
upon borrowings and financing from the sale of its equity securities to sustain
operations. Additional financing will be required if the Company is to continue
as a going concern. If such additional funding cannot be obtained, the Company
may be required to scale back or discontinue its operations. Even if such
additional financing is available to the Company, there can be no assurance that
it will be on terms favorable to the Company. In any event, such financing will
result in immediate and possible substantial dilution to existing shareholders.
Page 10
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Forward-looking Statements and Certain Risk Factors
Statements which are not historical facts contained in this report are
forward-looking statements. Section 27A of the Securities Act of 1933, as
amended, provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company cautions that a variety of
factors could cause the Company's actual results to differ materially from
anticipated results or other expectations expressed in this report. The
forward-looking statements contained in this Management's Discussion and
Analysis or Plan of Operation also contemplate a number of risks and
uncertainties that could cause actual results to differ from projected or
anticipated results. The risk factors discussed in Part I, Item 1 ("Business")
and in the "Management's Discussion and Analysis or Plan of Operation" (Item 6)
of the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1998 may also affect actual operating results.
PART II - OTHER INFORMATION
ITEM 4. Changes in Securities
Unregistered Sales of equity securities during the quarter (other than in
reliance on Regulation S).
During the quarter ended March 31, 2000, the Company sold 1,900,000
shares of common stock for $1,900,000. The offer and sale of these securities
was accomplished without registration under the Securities Act of 1933, or
amended, in reliance upon exemptions from registration for offerings made
pursuant to Regulation D and under Section 4(2) of the Securities Act.
The offer and sale were 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
accredited or 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 they
have not been registered under the Securities Act and setting forth the
restrictions on their transfer and sale. Investors also signed a written
agreement that the securities would be sold only upon registration under the
Securities Act or pursuant to an applicable exemption from registration.
ITEM 5. Other Information
Following the end of the quarter ended March 31, 2000, two of the
directors of the Company, Nicholas Smith and Chris Mathews, resigned to pursue
other interests. The Board of Directors will nominate replacements for these
directors at the next annual meeting of the shareholders.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-B
Exhibit No. Description
10.05 Technical Services Agreement
27 Financial Data Schedule
Page 11
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VOLU-SOL, INC.
Date: May 13, 2000 By: /s/ W. W. Kirton, III
------------------------
Wilford W. Kirton, III,
Chief Executive Officer
Date: May 13, 2000 By: /s/ Michael G. Acton
------------------------
Michael G. Acton,
Acting Principal Accounting
Officer
Page 12
TECHNICAL SERVICES AGREEMENT
For Research and Development
AGREEMENT NUMBER CP044223
LABOR AND MATERIALS Type
Battelle Memorial Institute, through its Commercial Business Operations
(BATTELLE) agrees to provide to Volu-Sol, Inc. (CLIENT) technical research
services, substantially in accordance with BATTELLE's Proposal No. CP044223,
(the Project) and the Memorandum-of-Understanding to be executed within 30 days
of the execution of this Agreement, both incorporated herein by reference, under
the following terms and conditions:
1. ACCEPTANCE AND COMMENCEMENT
BATTELLE's Proposal may be accepted within sixty (60) days from the date of
BATTELLE's signature below. BATTELLE will begin work within thirty (30) days of
receipt of this Agreement executed by CLIENT. The Project period is estimated as
five (5) months from commencement.
2. PAYMENT
CLIENT agrees to pay BATTELLE's charges for labor services, estimated at Eight
Hundred Thousand Dollars and No Cents ($800,000.00) plus charges for other
expenses incurred in the performance of the Project, without set-off, payable
within thirty (30) days of the date of semimonthly invoices. CLIENT agrees to
make payment to BATTELLE in the form of a check for 50% of the invoiced labor
charges, and the remaining 50% from CLIENT under an arrangement to be determined
within five (5) days after execution of this Agreement. CLIENT will not be
required to reimburse, and BATTELLE shall not be required to incur any charges
in excess of the estimate stated above, unless mutually agreed upon in writing.
Invoices not paid within thirty (30) days of the date of invoice shall accrue
interest at the rate of two (2) percent per month. In the event the parties do
not execute and enter into the Memorandum of Understanding within 30 days of the
execution of this Agreement, then BATTELLE will be entitled to a reduced equity
position based upon the amount of charges incurred.
Travel, materials, consultants, and other non-labor charges will be billed in
addition to the above amount.
CLIENT will provide a check for deposit prior to commencement of work in the
amount of $100,000.00. The deposit amount will be returned to CLIENT upon
receipt of final payment, or applied to the final invoice, at CLIENT's option.
3. INTELLECTUAL PROPERTY
All intellectual property rights for this program will be established by mutual
agreement in the MOU. In the event the parties do not execute and enter into the
Memorandum-of-Understanding within 30 days of the execution of this Agreement,
then BATTELLE and CLIENT will have joint ownership to inventions and
Intellectual Property developed under the Phase I program only, and either party
may use the Intellectual Property royalty free and without further obligation to
the other, and any background information, Intellectual Property, or proprietary
information of either party will remain the property of that party.
1
<PAGE>
4. NO ENDORSEMENT/LITIGATION
BATTELLE does not endorse products or services. Therefore, CLIENT agrees that it
will not use or imply BATTELLE's name, or use BATTELLE's reports, for
advertising, promotional purposes, raising of capital, recommending investments,
or any way that implies endorsement by BATTELLE, except with prior written
approval of an officer of BATTELLE.
BATTELLE does not undertake Projects for the purposes of litigation or to assign
fault or blame and does not provide expert witness services. Therefore, CLIENT
agrees not to use any Project results in any dispute, litigation, or other legal
action, except for the prosecution and litigation of patents resulting from
inventions assigned to CLIENT hereunder and except defensively in disputes,
litigation, or other legal action not pending or contemplated at the time of
execution of this Agreement.
In any event, if, at any time, BATTELLE or its employees are required to respond
to any subpoenas, orders for attendance at depositions, hearings or trials,
document requests, or other legal proceedings as a result of or relating to
BATTELLE's work on the Project, CLIENT agrees to reimburse BATTELLE, in addition
to any other amounts payable under this Agreement, BATTELLE's labor charges,
attorney time and/or fees, travel, photocopying and other miscellaneous
expenses.
5. CONFIDENTIALITY
BATTELLE agrees not to disclose the specific results of the Project as embodied
in reports and correspondence transmitted to CLIENT, and not available to the
public generally, without CLIENT's written consent, except as required by law,
or except as necessary to protect BATTELLE's intellectual property rights, such
as filing for patent(s). Acceptance of this Agreement does not preclude
BATTELLE's undertaking work in this general field for others.
If proprietary information other than Project results is disclosed by either
party to the other in connection with the performance of this Agreement, the
receiving party agrees that such information shall be maintained in confidence
for a period of five (5) years from the date of termination of this Agreement as
may be amended, provided that such information is clearly identified in writing
as proprietary. Oral disclosures of proprietary information must be identified
as proprietary at the time of disclosure and must be followed by written
confirmation within two (2) weeks. The parties shall not be liable for
disclosures made inadvertently or by mistake, providing the parties exercise the
same standard of care to protect the information received as they do to protect
their own proprietary information. These obligations with respect to handling
proprietary information shall not be applicable to the following: (a)
information that is now in, or hereafter enters, the public domain through no
fault of the receiving party; (b) information that was previously known by the
receiving party independently of the disclosing party; (c) information that is
independently developed by the receiving party; (d) information that is
disclosed with the written approval of the other party; or (e) information that
is received from a third party without a duty of confidentiality.
No license to the other party, under any trademark, patent, or copyright is
either granted or implied by conveying information to that party. None of the
information that may be submitted or exchanged by the respective parties shall
constitute any representation, warranty, assurance, guarantee or inducement by
either party to the other with respect to infringement of trademarks, patents,
copyrights or any right of privacy, or other rights of third persons. The
confidentiality obligations of this paragraph shall survive the termination or
expiration of this Agreement.
2
<PAGE>
6. LIMITATION OF LIABILITY
BATTELLE will provide a high standard of professional service on a best efforts
basis. However, BATTELLE, as a provider of such services, cannot guarantee
success; thus BATTELLE MAKES NO WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY, FOR ANY REPORT, DESIGN, ITEM, SERVICE, OR OTHER RESULT TO BE
DELIVERED UNDER THIS AGREEMENT.
Except for liability for injury to persons or damage to property occurring
during performance of the Project on BATTELLE-owned premises where fault of
CLIENT is not a contributing cause, CLIENT agrees: 1) to assume all
responsibility for CLIENT's use, misuse, or inability to use the Project
results; 2) to release BATTELLE from any liability to CLIENT for damages,
including but not limited to any indirect, incidental or consequential damages,
arising from or in connection with this Agreement and any services provided
under it; and 3) to indemnify and hold BATTELLE harmless from any and all
liabilities, suits, claims, demands and damages, and all costs and expenses in
connection therewith, in any manner relating to this Agreement or its
performance, asserted by third parties from any cause whatsoever.
7. NATURE OF SERVICES
CLIENT agrees that BATTELLE is an independent contractor and specifically
acknowledges that BATTELLE is a service provider, not a manufacturer,
distributor or supplier. CLIENT retains all final decision making authority and
all responsibility for the formulation, design, manufacture, assembly,
packaging, marketing, distribution and sale of CLIENT's products, including,
without limitation, product labeling, warnings, instructions to users, reporting
and for obtaining any governmental or other pre- or postmarket approvals,
certifications, registrations, licenses, or permits.
8. PRODUCT LIABILITY INSURANCE
CLIENT shall maintain adequate product liability insurance coverage in amounts
customary and prudent for a responsible entity in its industry in light of the
nature of its product(s). Such insurance shall specifically cover any CLIENT
products that may be developed in whole or in part based on BATTELLE's work
under this Agreement, and CLIENT shall provide evidence of such insurance upon
request.
9. FORCE MAJEURE
Neither CLIENT nor BATTELLE shall be liable in any way for failure to perform
any provision of this Agreement (except payment of monetary obligations) if such
failure is caused by any law, rule, or regulation, or any cause beyond the
control of the party in default.
10. EARLY TERMINATION
Either party shall have the right to terminate this Agreement upon thirty (30)
days written notice for any good-faith basis. Not withstanding the foregoing, in
the event the parties do not execute and enter into the MOU within 30 days of
the execution of this Agreement, then BATTELLE may terminate this Agreement on
notice. In the event of early termination, other than for failure to execute and
enter into an
3
<PAGE>
Memorandum-of-Understanding within 30 days of the execution of this Agreement,
BATTELLE agrees to provide CLIENT with all reports, materials, or other
deliverable items available as of the date of the termination, provided that
CLIENT is not in default of its obligations under this Agreement. In any event,
CLIENT agrees to pay all charges incurred or committed by BATTELLE, including
costs of termination, within thirty (30) days of receipt of a final invoice. In
the event the parties do not execute and enter into the
Memorandum-of-Understanding within 30 days of the execution of this Agreement,
then all jointly developed materials, reports or other deliverable items will be
dispersed in conjunction with the terms of Section 3 above.
11. ENTIRE AGREEMENT
This Agreement, including the Proposal incorporated herein, represents the
entire Agreement of the parties and supersedes any prior discussions or
understandings, whether written or oral, relating to the subject matter hereof.
This Agreement may be modified or amended only by mutual agreement in writing.
No course of dealing, usage of trade, waiver, or non-enforcement shall be
construed to modify or otherwise alter the terms and conditions of this
Agreement. In the event of any conflict or inconsistency between these terms and
conditions and the Proposal, these terms and conditions shall control.
12. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the laws of
and enforced within the jurisdiction of the State of Ohio.
13. MISCELLANEOUS
This Agreement may not be assigned in whole or in part without the prior written
approval of both parties. In any event, however, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by and against the successors,
assigns and transferees of the parties. If any part of this Agreement shall be
held invalid or unenforceable, such invalidity and unenforceability shall not
affect any other part of this Agreement. Captions used as headings in this
Agreement are for convenience only and are not to be construed as a substantive
part of this Agreement.
Volu-Sol, Inc. BATTELLE MEMORIAL INSTITUTE
Commercial Business Operations
By By
-------------------------------- ----------------------------------
Name Name
------------------------------ --------------------------------
Title Title
----------------------------- -------------------------------
Date Date
------------------------------ --------------------------------
4
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