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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, 1999
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for transition period from to .
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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: None
Name of each exchange on which registered: 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, 1999 were $528,904.
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
7, 2000 was 2,721,042.
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"). Volu-Sol was organized to engage in the business
of manufacturing and marketing medical diagnostic stains and solutions and
related equipment, which business operations were conducted before 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. 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, where its manufacturing
facility and corporate offices are presently located.
A total of 2,211,407 shares of the Company's 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, Volu-Sol ceased to be a
subsidiary of Biomune and commenced operations as a separate, independent
company. Volu-Sol continues conducts the operations it conducted as 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" are "forward-looking
statements" within the meaning of the Exchange Act. For this purpose, any
statements contained or incorporated in this report that are not statements of
historical fact may be deemed to be forward-looking statements. The words
"believes," "plans," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. A number of important factors
could cause the actual results of the Company to differ materially from those
anticipated by 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
Volu-Sol'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. Volu-Sol's strategy includes the following elements:
Acquire Complementary Businesses, Products and Technologies. Volu-Sol
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 with the Company's.
Expand Distribution. Volu-Sol intends to increase its distribution
base through agreements with independent distributors.
Develop Broader Product Lines. Volu-Sol 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.
Volu-Sol believes that its many and diverse products economically and
reliably address the needs of medical diagnosticians and laboratory
technicians. Nevertheless, Volu-Sol has determined that it can
improve its revenue-generating capacity by adding to its existing
product line.
Offer Top Quality Products. Volu-Sol 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, Volu-Sol intends to continue to take
advantage of strategic alliances with third-party manufacturers.
Esprit de Corps. Volu-Sol seeks to create a team spirit among its
employees, foster awareness of its objectives and strategies at all
levels and reward meritorious performance with compensation and other
incentives. Volu-Sol believes this creates loyalty to and pride in
its products, which translates into greater product quality and
enhanced customer service.
Research and Development
Volu-Sol 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. Volu-Sol does not
presently anticipate making material investments in research and development for
the foreseeable future.
Dependence on Major Customers
During the fiscal year ended September 30, 1999, Volu-Sol had sales
to a company which accounted for approximately 11% and 12%, respectively of the
Company's total revenues. Another single customer accounted for approximately
15% of the Company's total revenues during fiscal year 1999 and 1998.
Employees
At September 30, 1999 Volu-Sol had 5 full time employees and 3
part-time employees. Volu-Sol will, as needed, hire additional employees or
sub-contract the balance of its personnel requirements through independent
contractors. Volu-Sol's manufacturing operations do not require
specially-skilled employees and Volu-Sol believes that it will be able to
satisfy its labor requirements for the foreseeable future. The Company's
employees are not represented by a collective bargaining arrangement, and
Volu-Sol believes its relationship with its employees is good.
Item 2. Properties
Volu-Sol leases approximately 11,500 square feet of laboratory
facilities at 5095 West 2100 South, West Valley City, Utah from a third party.
The leased premises serve as the Company's manufacturing, warehouse 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 annual
adjustments according to changes in the Consumer Price Index. The lease extends
through November 2000 and the Company anticipates it will renew the Lease.
Item 3. Legal Proceedings
Volu-Sol 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 1999.
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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 Volu-Sol 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 Volu-Sol satisfies
applicable entry or listing criteria, Volu-Sol may seek to include or list its
Common Stock on a securities market or exchange. Volu-Sol 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 Volu-Sol 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 January 7, 2000, there were approximately 1,295
record holders of the Company's Common Stock.
Dividends. Since its incorporation, Volu-Sol has not declared any
dividend on any of its Common Stock. Volu-Sol does not anticipate declaring a
dividend on any of its Common Stock for the foreseeable future. The Series A
Preferred accrues dividends at the rate of 10% 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, 1999 a 10% dividend in the
form of 848.4 additional shares was declared and paid on the outstanding shares
of Series A Preferred.
Dilution. Volu-Sol 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. Volu-Sol agreed with Nasdaq to issue additional
shares of common stock in connection 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.
Recent Sales of Unregistered Securities
The following information sets forth certain information for all
securities sold by the Company during the past three years without registration
under the Securities Act of 1933 (the "Securities Act").
1997
In February 1997, Biomune, the Company's former parent, 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.
Volu-Sol 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 Volu-Sol and Biomune were unaware that Nasdaq had announced
February 11, 1998 to be the ex-dividend date for the spin-off distribution,
notwithstanding the fact that Biomune had previously notified Nasdaq and
publicly announced that March 5, 1997 would be the ex dividend date.
Consequently, holders of Biomune common
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stock as of February 11, 1998 were informed by Nasdaq that they would receive
the dividend of one share 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
Volu-Sol's common stock issued between March 5, 1997 and February 11, 1998 by
reason of the Nasdaq 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.
Immediately prior to the issuance of such additional dividend shares,
Volu-Sol had 2,111,216 shares of Common Stock issued and outstanding. The number
of additional shares to be issued as part of the dividend is not expected to
exceed 3,500,000 shares. Since the original distribution, a total of 609,826
additional shares of common stock have been issued to former Biomune
stockholders.
Volu-Sol sold 797.5 shares of Series A Preferred to accredited
investors for $159,500. The offer and sale was made in accordance with
exemptions under Section 4(2) and 3(b) of the Securities Act, including Rule 506
of Regulation D.
1998
During fiscal year 1998, Volu-Sol sold 1,835 shares of Series A
Preferred to accredited investors for cash of $312,000. Volu-Sol also issued a
total of 800 shares of Series A Preferred, valued at $160,000, for services
provided to the Company by employees and consultants, including commissions
earned in connection with the sale of the Series A Preferred to the accredited
investors described above. The Company also issued 15 shares in settlement of a
lawsuit.
1999
During fiscal year 1999, Volu-Sol sold 797.5 shares of Series A
Preferred Stock for cash proceeds totaling $159,500. All sales were to
accredited investors. In addition, Volu-Sol issued 848.4 shares of Series A
Preferred Stock as a stock dividend to its Series A holders and 2,460 shares of
Series A Preferred Stock to certain employees, orricers, directors, and
consultants as compensation for services rendered to the Company. Volu-Sol also
issued 2,011 shares of Series A Preferred Stock to satisfy a note payable to
Biomune in the principal amount of $372,411, and accrued interest of $29,789.
With respect to all of the foregoing offers and sales of restricted
and unregistered securities by the Company, Volu-Sol 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.
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When used in this report, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Those 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. Volu-Sol 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, 1999 Compared to Fiscal Year Ended September 30,
1998
In the fiscal year ended September 30, 1999, Volu-Sol had revenues
totaling $528,904 compared to $514,256 for fiscal year ended September 30, 1998.
Cost of goods sold in the fiscal year ended September 30, 1999
totaled $364,646 compared to $399,013 for the fiscal year ended September 30,
1998. The overall gross margin for the fiscal year ended September 30, 1999 was
approximately 31% compared to 22.4% of revenues in fiscal year 1998.
Selling, general and administrative expenses totaled $938,898 in
fiscal year 1999, compared to $804,551 in 1998, an overall increase of $134,347.
Volu-Sol incurred a net loss of $906,500 in 1999, compared to a net
loss of $719,781 in fiscal year 1998. This net loss is the result of increased
selling, general and administrative expenses in 1999 and a write-down of
inventory.
Liquidity and Capital Resources
Volu-Sol currently is unable to finance its operations solely from
its cash flows from operating activities. During the year ended September 30,
1999, the Volu-Sol financed its operations primarily through the sale of 797.5
shares of Series A Preferred for gross proceeds of $159,500. These proceeds were
used to supplement cash from operations as working capital.
In addition, during the year ended September 30, 1999, the Company
borrowed $70,000 from Biomune, its former parent. The obligation was repaid by
the issuance of 2,011 shares of Series A Preferred Stock.
As of September 30, 1999, the Company had cash and cash equivalents
of $44,123 and working capital of $113,340, compared to cash of $16,411and
working capital of $145,665 as of September 30, 1998.
Interest expense decreased from $34,683 in fiscal year 1998 to
$18,864 in the fiscal year ended September 30, 1999.
During fiscal year 1999, the Company's operating activities used cash
of $227,449 compared to $539,337 in 1998. This cash was primarily provided by
the sale of Series A Preferred Stock in both years.
Volu-Sol presently has no credit facility with any commercial lending
institution. In the past, Volu-Sol borrowed and received capital from time to
time from Biomune, but Volu-Sol 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 Volu-Sol will obtain funding through the sale
of its securities to provide cash to meet its operating needs. There can be no
assurance that its efforts to sell its securities will be successful or that
additional financing will not be needed in the future.
Recent Accounting Pronouncements
For the year ended September 30, 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires entities
presenting a complete set of financial statements to include details
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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 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 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of prior period financial statements
presented for comparative purposes.
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. Volu-Sol adopted SOP 98-5 in its fiscal
year that began 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 as a
result of certain factors, including those set forth below and elsewhere in this
Report.
Absence of Profitable Operations. From its inception, Volu-Sol has
not achieved profitable operations and continues to operate at a loss. The
present business strategy is to improve 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 will
satisfy its ordinary cash requirements for at least 12 months, there can be no
assurance that Volu-Sol 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 it 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 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 its marketing program, its 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 its business activities.
Volu-Sol has an accumulated deficit as of September 30, 1999 of $4,092,473.
Volu-Sol anticipates that it will continue to incur operating losses in the
future. Volu-Sol'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, Volu-Sol 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. Volu-Sol 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 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 industry. There can
be no assurance that competition from other companies will not render the
Company's products noncompetitive.
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Uncertainties Related to Ability to License Proprietary Technology.
Volu-Sol historically has not been involved in research and development of new
technologies. Consequently, the Company's success in adding to its existing
product line depends 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 Volu-Sol, or at all. If Volu-Sol 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 those licenses is not possible. Litigation may be
necessary to defend against claims of infringement, to protect trade secrets or
know-how owned by Volu-Sol, or to determine the scope and validity of the
proprietary rights of others. Litigation could have an adverse and material
impact on the Company and its operations.
Inability to Adequately Protect Proprietary Information. Volu-Sol
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 these 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. Volu-Sol 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 Volu-Sol 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 an accident, Volu-Sol 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 Volu-Sol will not be required to incur significant
costs to comply with environmental laws and regulations in the future.
Sufficiency of Marketing and Sales Capabilities. Volu-Sol sells its
products to 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. Volu-Sol'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 its products. Alternatively,
Volu-Sol could be exposed to liability indirectly by being named as a
third-party defendant in actions brought against companies or persons who have
purchased its products. Volu-Sol has obtained limited product liability
insurance coverage for such events. However, insurance coverage is becoming
increasingly expensive and no assurance can be given that Volu-Sol will be able
to maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect Volu-Sol against losses due to liability. There can also be no assurance
that Volu-Sol 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 Volu-Sol could have
a material adverse effect on its business, financial condition and results of
operations.
Dilution. A significant number of shares of Volu-Sol's Common Stock
are authorized but not issued. In addition, there are a substantial number of
shares of Common Stock of Volu-Sol 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 Volu-Sol. Furthermore, the possibility of such issuances may
adversely affect the market for Volu-Sol's Common Stock, should such a market
ever develop.
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Item 7. Financial Statements
The Company's financial statements and associated notes are included
set forth on pages F-2 through F-16.
Part III
Item 9. Directors and Executive Officers of the Registrant
Executive Officers, Key Employees and Directors
The executive officers and directors of Volu-Sol as of January 7,
2000 are as follows:
Name Age Position
Wilford W. Kirton, III 39 Chief Executive Officer and Director
Barry Edwards 47 Director
Christopher L. Matthews 45 Director
F. Kenneth Westover 72 Director
Nicholas A. Smith 48 Director
Michael Acton 36 Secretary, Treasurer and Acting CFO
Wilford W. Kirton, III
Mr. Kirton became a director and the Chief Executive Officer of Volu-
Sol in January 1998. Mr. Kirton holds a bachelors degree in Political Science
from the University of Utah. Prior to joining Volu-Sol, 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 Volu-Sol), from March 1997 until joining
Volu-Sol in January 1998.
Barry Edwards
Mr. Edwards became a director of Volu-Sol 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 Volu-Sol 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 Volu-Sol 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.
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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.
Nicholas A. Smith
Mr. Smith is Chairman and CEO of I-Sim Corporation, a technology
company that develops, manufactures and markets vehicle simulation and training
services for professional drivers in trucking, emergency vehicle and military
markets. Before joining I-Sim, he was Senior Vice President, Chief Operating
Officer, Director, Secretary and a founder of Phonex Corporation. Phonex is a
world leader in wireless dialtone technology. It has developed, manufactured and
sold over 2.5 million of its systems, with revenues of over $90 million since
1994, and has become one of the fastest growing companies in Utah. Mr. Smith was
responsible for the financing and capitalization of Phonex, in addition to
managing its operations. Prior to joining Phonex, Mr. Smith was a principal in
Mountain West Financial and Advisors West. He holds BA and MBA degrees from
Brigham Young University.
Michael G. Acton
Mr. Acton has been Secretary, Treasurer and acting CFO since March 3,
1999. Prior to that time, he was the President of Volu-Sol from March 1996 until
March 1997 and Chief Executive Officer and Chairman of Volu-Sol from March 1997
to January 1998. He is Chief Executive Officer of Biomune since June 1998 and
Chief Financial Officer since July 1997. From October 1994 to July 1997, he was
the Controller of Biomune. From June 1989 through October 1994, Mr. Acton was
employed by Arthur Andersen LLP in Salt Lake City, Utah, where he performed
various tax, audit and business advisory services. Mr. Acton received a Bachelor
of Science Degree in Accounting in 1988 and a Masters of Professional
Accountancy Degree in 1989, both from the University of Utah. He is a Certified
Public Accountant in the State of Utah.
None of Volu-Sol'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, Volu-Sol believes that all reports
required to be filed by these individuals and persons under Section 16(a) were
filed in a timely manner and Volu-Sol 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, 1999, 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 $48,000.
Director Compensation
Members of the Board of Directors received options to purchase common
stock of the Company as compensation for their service as directors.
10
<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
- ----------------------- ---------------------- -------------------
5% Beneficial Owners
<S> <C> <C>
Cygni S A 152,308 5.3%
C/O Soreq Inc.
620 Wilson Ave Ste 501
Toronto Ontario Canada
M3K 1Z3
Leviticus Trust (3) 238,918 8.0%
821 Northpoint Drive
Salt Lake City, UT 84103
Biomune Systems, Inc. 565,760 17.2%
2401 South Foothill Dr.
Salt Lake City, Utah 84109
David G. Derrick 465,248 14.6%
352 South 200 West, Suite 4
P.O. Box 643
Farmington, UT 84025
Executive Officers and Directors
Wilford W. Kirton III (4) 120,048 4.2%
(Chief Executive Officer, Director)
Barry Edwards, Director (4) 25,424 0.9%
9914 N. 4500 W.
Cedar Hills, Utah 84062
Chris Matthews (4) 52,704 1.9%
956 East Sunburst Lane
Alpine, Utah 84004
Ken Westover (4) 85,968 3.1%
1697 E. 6550 S.
Salt Lake City, Utah 84121
Nicholas A. Smith 22,960 *
2961 W. California Ave.
Salt Lake City, Utah 84104
All executive officers and 307,104 11.3%
directors as a group (5 persons)
</TABLE>
11
<PAGE>
* Less than 1%.
(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, Volu-Sol believes the persons named in this table
possess sole voting and investment power with respect to
all shares of common stock shown as being beneficially
owned. Percentages are calculated based on 2,721,042 shares
of common stock outstanding (as adjusted for additional
shares deemed to be beneficially owned by such
shareholder).
(3) 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.
(4) All shares shown are issuable upon conversion of Series A
Preferred held by such person as of the date of this Report
at a conversion rate of $1.25 per share.
Except for the matters described herein, there are no arrangements
known to Volu-Sol, the operation of which may, at a subsequent date, result in a
change of ownership or control of Volu-Sol.
Item 12. Certain Relationships and Related Transactions
Volu-Sol has agreed to indemnify each of its directors and officers
to the fullest extent permitted by the Revised Utah Business Corporation Act.
During the year ended September 30, 1999, the Company borrowed
$70,000 from Biomune under a promissory note. On March 31, 1999 Biomune sold the
note relating to this obligation to Bioxide Corporation in exchange for shares
of Bioxide Corporation common stock. Subsequently, Bioxide Corporation assigned
the note to MK Financial, Inc., an entity owned or controlled by David G.
Derrick, a shareholder of the Company, in satisfaction of an obligation owed to
MK Financial, Inc. by Bioxide Corporation. MK Financial accepted the issuance of
approximately 2,011 shares of Series A Preferred Stock from Volu-Sol in full
satisfaction of the note.
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).
12
<PAGE>
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).
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
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
[The remainder of this page is intentionally left blank.]
13
<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 10, 2000
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 10, 2000
- -------------------------- Chief Executive Officer
Wilford W. Kirton, III
/s/ Barry Edwards Director January 10, 2000
- --------------------------
Barry Edwards
/s/ Chris Matthews Director January 11, 2000
- --------------------------
Chris Matthews
/s/ Nicholas A. Smith Director January 11, 2000
- --------------------------
Nicholas A. Smith
/s/ Michael G. Acton Acting Chief Financial Officer January 12, 2000
- --------------------------
Michael G. Acton
14
<PAGE>
VOLU-SOL, INC.
Consolidated Financial Statements
September 30, 1999 and 1998
<PAGE>
VOLU-SOL, INC.
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
Report of Tanner + Co. F-2
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-7
- --------------------------------------------------------------------------------
F-1
<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, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended September 30, 1999 and 1998. 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 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.
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, 1999, and the results of their operations and
their cash flows for the years ended September 30, 1999 and 1998 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 from the outcome of this
uncertainty.
TANNER + CO.
Salt Lake City, Utah
December 1, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Balance Sheet
September 30, 1999
- -----------------------------------------------------------------------------------
Assets
Current Assets:
<S> <C>
Cash $ 44,123
Accounts receivable, less allowance for
doubtful accounts of $2,188 75,697
Inventories 56,220
-----------
Total current assets 176,040
Property and equipment, net 106,384
Other assets 4,222
-----------
Total assets $ 286,646
-----------
-----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 34,366
Accrued liabilities 28,334
-----------
Total current liabilities 62,700
-----------
Commitments and contingencies --
Stockholders' equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized:
12,703 shares issued and outstanding (aggregate liquidation
preference $29,291) 3,000,416
Common stock, $.0001 par value; 50,000,000 shares authorized,
2,712,502 shares issued and outstanding 271
Additional paid-in capital 1,654,032
Preferred stock subscriptions receivable (338,300)
Accumulated deficit (4,092,473)
-----------
Total stockholders' equity 223,946
-----------
Total liabilities and stockholders' equity $ 286,646
-----------
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Statement of Operations
Years Ended September 30,
- -----------------------------------------------------------------------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Sales $ 528,904 $ 514,256
Cost of goods sold 364,646 399,013
-------------------------------
Gross margin 164,258 115,243
Selling, general and administrative expenses (938,898) (804,551)
Impairment loss (114,620) -
-------------------------------
Loss from operations (889,260) (689,308)
Other income (expense):
Interest income 1,624 4,210
Interest expense (18,864) (34,683)
-------------------------------
Loss before provision for income taxes (906,500) (719,781)
Provision for income taxes - -
-------------------------------
Net loss $ (906,500) $ (719,781)
-------------------------------
Dividends on Series A preferred stock (169,638) (67,716)
-------------------------------
Net loss applicable to common stock $ (1,076,138) $ (787,497)
-------------------------------
Net loss per common share - basic and diluted $ (.42) $ (.36)
-------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Statement of Stockholders' Equity
Years Ended September 30, 1999 and 1998
- -----------------------------------------------------------------------------------------------------------
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, 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 15 3,000 - - - - -
lawsuit
Dividends on preferred
stock 337 67,716 - - - - (67,716)
Accretion of preferred - 240,758 - - (240,758) - -
stock
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)
Additional shares issued
as a result of the
divestiture of the
Company's common stock - - 501,095 50 (50) - -
Issuance of preferred
stock for:
Commission 775 155,000 - - - - -
Board of
directors 1,485 297,000 - - - - -
compensation
Compensation 200 40,000 - - - - -
Collection of stock
subscription:
Cash - - - - - 159,500 -
Exchange of - - - - - 402,200 -
liabilities
Dividends on preferred
stock 848 169,638 - - - - (169,638)
Accretion of preferred - 305,750 - - (305,750) - -
stock
Net Loss - - - - - - (906,500)
----------------------------------------------------------------------------------
Balance at September 30,
1999 12,703 $ 3,000,416 2,712,502 $ 271 $ 1,654,032 $ (338,300) $(4,092,473)
==================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOLU-SOL, INC.
Consolidated Statement of Cash Flows
Years Ended September 30,
- -----------------------------------------------------------------------------------------------
1999 1998
-------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (906,500) $ (719,781)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 79,902 80,015
Provision for losses on accounts receivable (987) (9,824)
Preferred stock issued for services 492,000 163,000
Impairment loss 114,620 -
(Increase) decrease in:
Accounts receivable (12,002) 11,327
Inventories 29,231 (15,683)
Other assets 742 (14,390)
Increase (decrease) in:
Accounts payable (8,168) (4,432)
Accrued liabilities (16,287) (29,569)
-------------------------------
Net cash used in
operating activities (227,449) (539,337)
-------------------------------
Cash flows from investing activities-
purchase of property and equipment (339) (4,592)
-------------------------------
Cash flows from financing activities:
Proceeds from notes payable 96,000 -
Proceeds from sale of preferred stock - 337,000
Payment on subscription recceivable 159,500 -
Payment on notes payable - (114,351)
-------------------------------
Net cash provided by
financing activities 255,500 222,649
-------------------------------
Net increase (decrease) in cash 27,712 (321,280)
Cash, beginning of year 16,411 337,691
-------------------------------
Cash, end of year $ 44,123 $ 16,411
-------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
- --------------------------------------------------------------------------------
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, 1999, the Company
had an accumulated deficit of $4,092,473 and has incurred continuous losses from
operations. 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-6
<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 expected by the Company, as a
result, the Company has written off the carrying cost of its Definitive
inventory, and recognized an impairment loss in its statement of operations.
- --------------------------------------------------------------------------------
F-7
<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
Basic and diluted earnings per share are computed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS).
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities or
contracts to issue common stock. Common equivalent shares are excluded from the
computation of diluted EPS when their effect is antidilutive.
Advertising
The Company expenses the cost of advertising the first time the advertising
takes place. For the years ended September 30, 1999 and 1998 advertising
expenses totaled approximately $-0- and $18,000, respectively.
Revenue Recognition
Revenue from the sale of the Company's products, less reserves for returns, is
recognized upon shipment to the customer.
- --------------------------------------------------------------------------------
F-8
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Property and Equipment
Property and equipment consist of the following:
Leasehold improvements $ 224,045
Furniture and fixtures 170,939
Equipment 32,060
----------------
427,044
Accumulated depreciation (320,660)
----------------
$ 106,384
----------------
3. Related Party Transactions
During the year ended September 30, 1999, the Company entered a consulting
agreement with a shareholder. As a result of this agreement the Company
recognized and paid consulting expense of $120,000.
4. 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,
--------------------------------
1999 1998
--------------------------------
Federal income tax benefit at
statutory rate $ 308,000 $ 245,000
Meals and entertainment (1,000) -
Other (5,000) -
Change in valuation allowance (302,000) (245,000)
--------------------------------
$ - $ -
--------------------------------
- --------------------------------------------------------------------------------
F-9
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Income Tax Continued
Deferred tax assets (liabilities) are comprised of the following at September
30, 1999:
Net operating loss carryforward $ 553,000
Depreciation and reserves 69,000
Valuation allowance (622,000)
---------------
$ -
---------------
At September 30, 1999, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $1,617,000 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.
5. 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, 1999 are approximately as
follows:
Year Ending September 30: Amount
----------------
2000 $ 61,000
2001 10,000
----------------
Total future minimum rental payments $ 71,000
----------------
Rent expense related to these non-cancelable operating leases was approximately
$ 57,000 and $60,000 for the years ended September 30, 1999 and 1998,
respectively.
- --------------------------------------------------------------------------------
F-10
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Supplemental Cash Flow Information
During the year ended September 30, 1999, the Company:
o Recognized dividends of $169,638 on preferred stock.
o Increased preferred stock and decreased additional paid-in-capital
for $305,750 due to accretion.
o Reduced notes payable by $372,149 and the associated accrued interest of
$30,051 in partial satisfaction of subscription receivable.
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.
Actual amounts paid for interest and income taxes are as follows:
Years Ended
September 30,
--------------------------------
1999 1998
--------------------------------
Interest $ 318 $ 34,683
--------------------------------
Income taxes $ - $ -
--------------------------------
7. 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.
- --------------------------------------------------------------------------------
F-11
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
8. 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,
1999, 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-12
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
8. 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.
9. Major Customers
Sales to major customers which exceeded 10 percent of net sales are as follows:
Years Ended September 30,
--------------------------------
1999 1998
--------------------------------
Company A 14.6% -
Company B 11.0% 11.8%
Company C - 12.3%
- --------------------------------------------------------------------------------
F-13
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. 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-14
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. 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, 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
Expired (81,250) 1.25 to 4.00
------------------------------
Outstanding at September 30, 1999 446,100 $ 1.16 to 3.00
------------------------------
- --------------------------------------------------------------------------------
F-15
<PAGE>
VOLU-SOL, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Stock Options and Warrants
Continued
The following table summarizes information about stock options and warrants
outstanding at September 30, 1999:
Outstanding Exercisable
------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 09/30/99 (Years) Price 09/30/99 Price
- ------------------------------------------------------------------------
$1.16 - 2.38 421,100 0.9 $ 1.54 421,100 $ 1.54
3.00 25,000 1.8 3.00 25,000 3.00
- ------------------------------------------------------------------------
$1.16 - 3.00 446,100 1.0 $ 1.62 446,100 $ 1.62
- ------------------------------------------------------------------------
11. 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, 1999, 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.
- --------------------------------------------------------------------------------
F-16
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,123
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<RECEIVABLES> 77,855
<ALLOWANCES> 2,188
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<PP&E> 395,196
<DEPRECIATION> 288,812
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<BONDS> 0
0
3,000,416
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<TOTAL-LIABILITY-AND-EQUITY> 286,646
<SALES> 528,404
<TOTAL-REVENUES> 528,404
<CGS> 364,646
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (906,500)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (906,500)
<EPS-BASIC> (.42)
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