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, 1999.
[ ] 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 executive 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 13, 1999, the registrant had issued and outstanding 2,693,042 shares
of Common Stock, par value $.0001.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
Page 1
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of March 31, 1999 .....................................3
Unaudited Condensed Consolidated Statement of Operations
for the Three Months and Six Months Ended March 31, 1999 and 1998 ......................................4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended March 31, 1999 and 1998 .......................................................5
Notes to Unaudited Condensed Consolidated Financial Statements...........................................6
2. Management's Discussion and Analysis or Plan of Operation................................................7
PART 2. OTHER INFORMATION...................................................................................... 10
Page 2
VOLU-SOL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheet
(UNAUDITED)
March 31,1999
- -------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 19,497
Accounts receivable, less allowance for
doubtful accounts of $2,708 69,930
Inventories 169,689
------------
Total current assets 259,116
Property and equipment, net 145,997
Other assets 23,097
------------
Total assets $ 428,210
============
- --------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 14,998
Accrued liabilities 27,697
Preferred stock dividends payable 65,777
Accrued interest payable 28,961
Notes payable 372,149
------------
Total current liabilities 509,582
------------
Commitments and contingencies -
Stockholders' deficit:
Preferred Stock, $.0001 par value; 10,000,000 shares authorized:
6,668 shares outstanding (aggregate
liquidation preference $3,053,656) 2,476,069
Common Stock, par value $.0001; 50,000,000 shares authorized,
2,693,042 shares issued and outstanding 269
Additional paid-in capital 1,871,243
Preferred stock subscriptions receivable (900,000)
Accumulated deficit (3,528,953)
------------
Total stockholders' deficit (81,372)
------------
Total liabilities and stockholders' equity $ 428,210
============
- -------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
Page 3
VOLU-SOL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(UNAUDITED)
Three Months and Six Months Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
----------------------------- ------------------------------
Sales $ 116,813 $ 115,887 $ 250,732 $ 237,288
Cost of goods sold 78,143 97,922 171,244 218,341
----------- ----------- ----------- -----------
Gross Margin 38,670 17,965 79,488 18,947
Selling, general and administrative expenses 230,627 179,395 508,625 351,107
----------- ----------- ----------- -----------
Loss from operations (191,957) (161,430) (429,137) (332,160)
Other income (expense):
Interest Income 43 1,647 128 2,545
Interest Expense (9,924) (9,763) (17,632) (19,606)
----------- ----------- ----------- -----------
Net loss before provision for income taxes (201,838) (169,546) (446,641) (349,221)
Provision for income taxes 200 - 200 -
----------- ----------- ----------- -----------
Net loss $ (202,038) $ (169,546) $ (446,841) $ (349,221)
=========== =========== =========== ===========
Dividends on Series A preferred stock (36,464) (10,248) (65,777) (20,330)
Net loss applicable to common stock $ (238,502) $ (179,794) $ (512,618) $ (369,551)
=========== =========== =========== ===========
Net loss per common share - basic and diluted (0.09) (0.09) (0.19) (0.18)
=========== =========== =========== ===========
Weighted average common shares outstanding 2,693,042 2,111,216 2,693,042 2,111,216
=========== =========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
Page 4
VOLU-SOL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Cash Flows
(UNAUDITED)
Six Months Ended March 31,
1999 1998
---------------------------------------
Cash flows from operating activities:
Net loss $ (446,841) $ (349,221)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 39,950 39,514
Provision for losses on A/R (468)
Preferred stock issued for services 265,000 56,650
(Increase) decrease in:
Accounts receivable (6,754) 3,889
Inventories (1,118) (24,864)
Other assets 13,367 (13,590)
Decrease in:
Accounts payable (27,536) 33,901
Accrued liabilities (18,014) (45,194)
----------- ----------
Net cash used in
operating activities: (182,414) (298,915)
----------- ----------
Cash flows from Investing activities - -
Cash flows from financing activities:
Proceeds from sale of preferred stock 89,500 270,000
Proceeds from notes payable 96,000 -
Net cash provided by
financing activities 185,500 270,000
---------- ----------
Net increase (decrease) in cash 3,086 (88,161)
Cash, beginning of period 16,411 337,691
----------- ----------
Cash, end of period $ 19,497 $ 249,530
----------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
Page 5
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 six months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending September 30, 1999. 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, 1998.
(2) RELATED-PARTY TRANSACTIONS
From March 5, 1997 through March 31, 1999, the Company borrowed money from
Biomune Systems, Inc. ("Biomune,"the Company's former parent) totaling $486,500
(through the date of this report), of which $372,149 remains outstanding as of
the date of this report, and is evidenced by a promissory note. The note bears
interest at an annual rate of ten percent and is due on demand. Accrued but
unpaid interest on the note totaled $28,961 at March 31, 1999 and is included in
"accrued interest payable" in the accompanying condensed consolidated balance
sheet as of March 31, 1999. As of March 31, 1999 the note is no longer owed to
the former parent but to another entity. The Company anticipates repaying this
debt from proceeds raised in a private placement of the Company's Series A
Preferred Stock (see Note 4).
(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, 1999:
Raw materials, packaging and supplies $ 45,810
Instruments, biological stains and reagents 123,879
---------
$ 169,689
=========
(4) SERIES A PREFERRED STOCK
As of March 31, 1999, the Company has $900,000 of subscriptions receivable from
the sale of 4 ,500 shares of Series A Preferred Stock. During the six months
ended March 31, 1999, the Company sold 447.5 shares of Series A Preferred Stock
for $89,500 in cash. During the six months ended March 31, 1999, the Company
issued a total of 1,325 shares of Series A Preferred Stock as fees for
consulting services provided to the company. 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) $1.25 per share. An investor that subscribed to 6,000
shares of the Company's Series A Preferred at $200 per share has paid $300,000
Page 6
of a total $1,200,000 subscription. The investor has notified the Company that
it will pay the $900,000 balance of its subscription at such time as the Common
Stock of the Company begins trading.
(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, 1999 the Company issued 481,635 shares of
Common Stock, as part of the original divestiture, in the nature of a dividend.
At March 31, 1999, there were outstanding options to purchase 446,100 shares of
Common Stock and there were 6,667.65 shares of Series A Preferred Stock
convertible into a minimum of 1,066,824 shares of Common Stock, neither of which
are included in the computation of Diluted EPS because they would be
anti-dilutive. The options were granted to holders of options to purchase
Biomune Common Stock at the time of the divestiture of the Company by Biomune.
(6) SUBSEQUENT EVENTS
As of May 13 , 1999 the Company sold 25 shares of Series A Preferred Stock for
net proceeds of $5,000.
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.
When used in this report, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. The matters modified by such phrases are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date of this report, or to reflect the occurrence of
unanticipated events. A more detailed description of such risks is contained in
the Company's annual report on form 10-KSB for the year.
Page 7
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998.
During the three months ended March 31, 1999, the Company's revenues
totaled $116,813 compared to $115,887 for the three months ended March 31, 1998.
This increase in revenues resulted primarily from the sales of reagents.
Cost of revenues for the three months ended March 31, 1999 totaled
$78,143 compared to $97,922 for the three months ended March 31, 1998. The
overall gross margin for the three months ended 1999 was 33% of revenues
compared to 16% of revenues for the comparable three months ended in 1998. The
increase in the gross margin on sales of stains and reagents is attributable to
shipping charges that are now being paid by customers as well as a price
increase that was implemented in March 1998. 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 $230,627 for the
three months ended March 31, 1999, compared to $179,395 for the three months
ended March 31, 1998, an overall increase of $51,232.
This increase is primarily attributable to consulting expenses paid.
Interest expense increased from $9,763 for the three months ended March
31, 1998 to $9,924 for the three months ended March 31, 1999. The increase in
interest expense is due to additional borrowings from Biomune, the Company's
former parent.
The Company incurred a net loss applicable to common shares of $238,502
for the three months ended March 31, 1999 compared to a net loss applicable to
common shares of $179,794 for the three months ended March 31, 1998. This
increase is due primarily to consulting expenses paid during the quarter.
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. As of March 31, 1999, the Company had remaining subscriptions
receivable totaling $900,000. 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 $225,000 for the one-time charge
related to the beneficial conversion feature and by approximately $90,000 per
year for recurring dividends at 10 %.
Six Months Ended March 31, 1999 Compared to Six Months Ended March 31,1998
During the six months ended March 31, 1999 the Company generated
revenues totaling $250,732 compared to $237,288 for the six months ended March
31, 1998. This increase in revenues is mainly attributable to increased sales of
Volu-Sol stains.
Cost of revenues for the six months ended March 31, 1999 totaled
$171,244 compared to $218,341 for the six months ended March 31, 1998. The
overall gross margin for the six months ended March 31, 1999 was 32% of revenues
compared to 8% of revenues for the comparable six months ended in 1998. This is
attributable to a more efficient production team and an increase in prices
implemented March 1998.
Page 8
Selling, general and administrative expenses totaled $508,625 for the
six months ended March 31, 1999, compared to $351,107 for the six months ended
March 31, 1998, an overall increase of $157,518. This increase is due to payment
of Board of Directors fees.
Interest expense decreased from $19,606 for the six months ended March
31, 1998 to $17,632 for the six months ended March 31, 1999. The decrease in
interest expense is due to repayment of borrowings to Biomune, the Company's
former parent.
The Company incurred a net loss applicable to common shares of $512,618
for the six months ended March 31, 1999 compared to a net loss applicable to
common shares of $369,551 for the six months ended March 31, 1998. 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 March 31,
1999, Biomune financed the Company's operations through a series of loans and
other capital contributions totaling approximately $2,900,000. Of this amount,
$372,149 represents a note payable to Biomune through the date of this report
which bears interest at the rate of 10% per year and which is payable on demand.
The Company has announced its intentions to sell up to 12,000 shares of its
Series A Preferred Stock for $2,400,000. The Series A Preferred Stock is
convertible into Common Stock of the Company. 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) $1.25 per share. The Company issued a
total of 180 shares of Series A Preferred Stock during the three months ended
March 31, 1999, covered by this report.
The Company intends to use the proceeds from the sale of the Series A
Preferred to repay its indebtedness to Biomune, pay the expenses of the offer
and sale of the stock and expenses incurred in the divestiture of the Company,
acquire yet-to-be identified complimentary businesses or product rights, and
supplement working capital. The Company believes that cash generated by
operations, together with the proceeds from the sale of its securities will be
sufficient to meet its capital requirements for a minimum of twelve months.
As of March 31, 1999, the Company had cash of $19,497 and negative
working capital of $254,066 compared to cash of $249,530 and negative working
capital of $62,439 as of March 31, 1998.
During the six months ended March 31, 1999, the Company's operating
activities used cash of $182,414, much of which was provided by the sale of
Series A Preferred Stock and funds borrowed from Biomune. During the six months
ended March 31, 1998, the Company's operating activities used cash in the amount
of $298,915, 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
Page 9
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.
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 2. Changes in Securities
Unregistered sales of equity securities during quarter (other than in
reliance on Regulation S).
The following information sets forth certain information for all
securities the Company sold during the quarter ended March 31, 1999, without
registration under the Securities Act of 1933 (the "Securities Act").
During the three months ended March 31, 1999, the Company sold 180
shares of Series A Preferred Stock for cash proceeds totaling $36,000. All sales
were to accredited investors (as that term is defined in Rule 501 under
Regulation D).
The Series A Preferred is convertible to Common Stock at the holder's
option into the number of shares of the Company's Common Stock determined by
dividing $200.00 plus any accrued and unpaid regular or special dividends by an
amount equal to the lesser of (i) the market price of the Common Stock on the
date of conversion less 20%; or (ii) $1.25. In the event of a merger,
consolidation or sale of all or substantially all of the assets of the Company
or a similar business combination involving the Company, all of the shares of
Series A Preferred, at the option of the holder, may be converted into the
number of shares of Common Stock into which the shares of Series A Preferred are
convertible at the time of the closing of such transaction. Based on a
conversion factor of $200/$1.25, the number of shares issued during the last two
fiscal years would be convertible into a total of 1,066,824 shares of Common
Stock as of March 31, 1999.
Notwithstanding the conversion rights of the Series A Preferred, no
single holder (or group of affiliated holders) may convert shares of Series A
Preferred into shares of Common Stock in an amount that would result in such
holder's aggregate ownership of shares of Common Stock exceeding 4.9% of the
total number of issued and outstanding shares of Common Stock.
Page 10
In making the foregoing offers and sales of restricted and unregistered
securities , the Company relied on the provisions of Sections 3(b) and 4(2) of
the Securities Act and rules and regulations promulgated thereunder, including,
but not limited to Rules 505 and 506 of Regulation D, which exempts transactions
that do not involve any public offering of securities 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 be sold only upon registration under
the Securities Act or pursuant to an applicable exemption from such
registration.
ITEM 4. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-B
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no current Reports on Form 8-K in the quarter ended
March 31, 1999.
Page 11
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, 1999 By: /s/ W. W. Kirton, III
-----------------------------------
Wilford W. Kirton, III,
Chief Executive Officer
Date: May 13, 1999 By: /s/ Michael G. Acton
-----------------------------------
Michael G. Acton,
Acting Principal Accounting Officer
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