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 JUNE 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________to_____________.
Commission file number: 0-23153
VOLU-SOL, INC.
(Exact name of small business issuer as specified in its charter)
Utah 87-0543981
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5095 West 2100 South
Salt Lake City, Utah 84120
(Address of principal 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 August 10, 2000, the registrant had issued and outstanding 2,869,219
shares of Common Stock, par value $.0001.
Note: On April 28, 2000, the registrant declared a one-for-five stock split of
its common stock that reduced the number of issued and outstanding shares as of
that date. Outstanding common stock data in this report have been adjusted to
reflect the reverse stock split.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
1
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2000....3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended June 30, 2000 and 1999.....4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended June 30, 2000 and 1999 ....................5
Notes to Unaudited Condensed Consolidated Financial Statements........6
2. Management's Discussion and Analysis or Plan of Operation.............8
PART II. OTHER INFORMATION...................................................11
2
VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30,
2000
---------------------
Assets
Current assets:
Cash and cash equivalents $ 516,243
Accounts receivable, less allowance for doubtful accounts of $2,188 95,371
Note receivable 200,000
Inventories 50,772
---------------------
Total current assets 862,386
Property and equipment, net 54,525
Other assets 3,697
---------------------
Total assets $ 920,608
---------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 141,363
Accrued liabilities 25,800
Preferred stock dividends payable 192,778
---------------------
Total current liabilities 359,941
---------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized:
15,133 shares outstanding (aggregate liquidation preference $4,280,157) 3,626,111
Common Stock, par value $.0001; 50,000,000 shares authorized,
2,869,219 shares issued and outstanding 287
Additional paid-in capital 4,148,166
Preferred stock subscriptions receivable (338,300)
Accumulated deficit (6,875,597)
---------------------
Total stockholders' equity 560,667
---------------------
Total liabilities and stockholders' equity $ 920,608
---------------------
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
Sales $ 119,724 $ 134,951 $ 376,458 $ 385,686
Cost of goods sold 44,944 66,926 210,088 239,035
-------------- -------------- -------------- -------------
Gross margin 74,780 68,028 166,370 146,651
Selling, general and administrative expenses 465,504 137,484 1,714,805 648,173
Research and development 1,053,670 - 1,053,670 -
-------------- --------------- --------------- ---------------
Loss from operations (1,444,394) (69,456) (2,602,105) (501,522)
Other income (expense):
Interest income 9,798 - 11,759 140
Interest expense - (10,146) - (18,864)
-------------- -------------- -------------- --------------
Net loss before provision for income taxes (1,434,596) (79,602) (2,590,346) (520,246)
Provision for income taxes - 100 - -
-------------- -------------- -------------- --------------
Net loss $ (1,434,596) $ (79,702) $ (2,590,346) $ (520,246)
-------------- -------------- -------------- --------------
Dividends on Series A preferred stock (75,691) (34,388) (192,778) (110,220)
-------------- -------------- -------------- --------------
Net loss applicable to common stock $ (1,510,287) $ (114,090) $ (2,783,124) $ (630,466)
-------------- -------------- -------------- --------------
Net loss per common share - basic and diluted $ (1.00) $ (0.21) $ (2.86) $ (1.49)
-------------- -------------- -------------- --------------
Weighted average common shares outstanding 1,510,877 540,000 970,561 422,000
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended June 30,
2000 1999
---------------------------------------------
Cash flows from operating activities:
Net loss $ (2,590,346) $ (520,246)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 51,859 59,586
Preferred and common stock issued for services 615,000 265,000
Issuance of stock options for serviceS 338,845 -
(Increase) decrease in:
Accounts receivable (19,674) (12,504)
Inventories 5,448 2,488
Other assets 525 17,117
Increase (decrease) in:
Accounts payable 106,997 (11,675)
Accrued liabilities (2,534) (22,783)
-------------------- --------------------
Net cash used in operating activities: $ (1,493,880) $ (224,783)
-------------------- --------------------
Cash flows from investing activities-payments
on issuance of related party note receivable (200,000) -
-------------------- ---------------------
Cash flows from financing activities:
Proceeds from sale of preferred stock 266,000 -
Proceeds from sale of common stock 1,900,000 -
Payment on subscription receivable - 133,690
Proceeds from notes payable - 96,000
-------------------- --------------------
Net cash provided by financing activities 2,166,000 229,690
-------------------- --------------------
Net increase (decrease) in cash 472,120 4,907
Cash, beginning of period 44,123 16,411
-------------------- --------------------
Cash, end of period $ 516,243 $ 21,318
-------------------- --------------------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
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 three and nine months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2000. The Company suggests that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for the year ended September 30,
1999.
(2) RELATED-PARTY TRANSACTIONS
From March 5, 1997 through December 31, 1999, the Company borrowed money from
Biomune Systems, Inc. its former parent ("Biomune") totaling $486,500. At March
31, 1999, the amount owed Biomune was $400,961, payable pursuant to a promissory
note bearing interest at an annual rate of ten percent and due on demand.
Biomune sold the note during the three months ended March 31, 1999 and the
Company paid the note in full by issuing 2,011 shares of its Series A Preferred
Stock at the request of the new noteholder.
(3) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventories consist of the following as of June 30, 2000:
Raw materials, packaging and supplies $ 31,918
Instruments, biological stains and reagents 18,854
---------
$ 50,772
=========
(4) SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended June 30, 2000 and 1999, the Company accrued Series
A Preferred Stock dividends payable of $192,778 and $110,220, respectively.
During the nine months ended June 30, 2000, increased preferred stock and
decreased additional paid-in-capital for $169,695 due to accretion.
During the nine months ended June 30, 1999, reduced notes payable by $276,149
and the associated accrued interest of $30,051 in partial satisfaction of
subscription receivable.
During the nine months ended June 30, 1999, the Company reduced notes payable by
$276,149 and the associated accrued interest of $30, 051 in partial satisfaction
of a subscription receivable.
Actual amounts paid for interest and income taxes are as follows:
For the Nine Months
Ended June 30,
2000 1999
---------------------
Interest $ - $ -
---------------------
Income taxes $ - $ -
(5) SERIES A PREFERRED STOCK
During the nine months ended June 30, 2000, the Company sold 1330 shares of
Series A Preferred Stock for proceeds of $266,000 net of $30,000 offering costs.
The Company also issued 2,011 shares of Series A Preferred Stock in satisfaction
of the note payable to Biomune (see Note 2). The Series A Preferred Stock is
convertible into Common Stock. The "conversion price," which is the basis for
such conversion, is the lesser of (i) 80 % of the average closing bid price of
the Company's Common Stock for the three trading days immediately preceding the
date of conversion or (ii) $6.25 per share.
(6) COMMON STOCK
During the nine months ended June 30, 2000, the Company issued 400,000
restricted shares of Common Stock to Battelle Memorial Institute for services of
$400,000 in connection with the development of the Company's technology. During
6
the quarter ended June 30, 2000, the Company issued 25,000 shares of
restricted Common Stock to a consultant for services provided to the Company.
(7) 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 nine months ended June 30, 2000 the Company issued 1,718 shares of
Common Stock, as part of the original divestiture, in the nature of a dividend.
Also, the Company sold 1,900,000 shares of Common Stock for $1,700,000 net of
$200,000 offering costs.
At June 30, 2000, there were outstanding options to purchase 1,439,220 shares of
Common Stock and there were 15,133 shares of Series A Preferred Stock (excluding
approximately 1,000 shares issuable in payment of accrued dividends). Depending
upon the fair market value of the Company's Common Stock and the interpretation
of the conversion feature in the rights and preferences of the Series A
Preferred Stock, these shares could be converted up to 6,000,000 shares of
Common Stock. The outstanding Series A Preferred Stock and the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock are not included
in the computation of Diluted EPS because they would be anti-dilutive. Of the
outstanding options, 1,350,000 were granted to Battelle Memorial Institute in
connection with the development of the Company's new technology. These options
are exercisable at prices ranging from $3.00 to $7.00 per share. The remaining
options outstanding at June 30, 2000 are related to options to purchase Biomune
Common Stock outstanding at the time of the divestiture. The holders of such
Biomune options were also granted options to purchase Volu-Sol, Inc. Common
Stock.
(8) OTHER INFORMATION
On April 11, 2000 the board of directors of the Company announced a reverse
split of its Common Stock issued and outstanding, to become effective April 28,
2000. The action reduces the number of issued and outstanding shares of the
Company Common Stock at a ratio of 1 for 5. Prior to the reverse split, the
Company had a total of 2,712,502 shares of Common Stock issued and outstanding.
After giving effect to the reverse split, there are 2,869,219 shares of Common
Stock issued and outstanding. All share data in this report have been adjusted
to reflect this reverse split.
The reverse split as adopted by the Company's board of directors did not require
a change in the par value of the Company's Common Stock. Therefore, both before
and after the reverse split, the par value of the Company's Common Stock is
$.0001 per share. In addition, the Board of Directors has not authorized a
change in the authorized number of shares of Common Stock or any other class of
securities of the Company. Therefore, both before and after the reverse split,
the authorized number of shares of Common Stock continue to be 50,000,000
shares.
Outstanding options, warrants and preferred stock convertible to Common Stock
will be adjusted according to the terms of the instruments evidencing such
rights and shares, reducing the number of shares that may be acquired by
7
exercise or conversion, as the case may be, by the same 1 for 5 ratio and
increasing the exercise price in the case of the options and warrants, by 5
times the current price. No other rights or interests are affected by the
change.
The board of directors determined that the reverse split was in the best
interest of the Company to enable the Company to attract more investment capital
and to prepare the Company for the trading of its Common Stock.
(9) RELATED PARTY INFORMATION
On April 17, 2000, the Company entered into a Technical Services Agreement for
research and development with Battelle Memorial Institute. This agreement forms
the basis for the parties' cooperation in the further research and development
of a remote access diagnostic system for medical professionals and consumers to
further the Company's business plan. Under the terms of the agreement, the
Company will compensate Battelle for its services in furthering the research and
development of the project by payment of $800,000 in the form of $400,000 cash
and 400,000 restricted shares of Common Stock of the Company. The Company also
granted options to Battelle to purchase 1,350,000 shares of Common Stock at
prices ranging from $3.00 to $7.00 per share.
During the nine months ended June 30, 2000, the Company paid shareholders and an
officer of the Company $477,000 for consulting services.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Until October 1, 1997, the Company operated as a division and then a
wholly owned subsidiary of Biomune. Effective October 1, 1997, Biomune divested
itself of the Company by distributing Volu-Sol Common Stock to holders of
Biomune Common Stock as of March 5, 1997. Since October 1, 1997, the Company has
operated as a separate entity. The following discussion and analysis should be
read in conjunction with the Company's unaudited condensed consolidated
financial statements and the notes thereto contained elsewhere in this report.
The discussion of these results should not be construed to imply that any
condition or circumstance discussed herein will necessarily continue in the
future.
Plan of Operations
The Company has recently adopted a revised business plan. The principal
objective of this new business plan is the development of a medical diagnostic
device and related services to facilitate a more effective patient-doctor
relationship, improve health care by increasing the amount and type of relevant
patient information readily available to qualified medical professionals and
facilitating access to diagnostic information at remote and alternate sites. The
Company has entered into a strategic alliance with Battelle Memorial Institute
to research and develop a "Rapid Access Diagnostic System" or "RADx System" that
is expected to provide faster and higher quality health care delivery in
alternative sites, including the home.
Battelle is currently engaged in the design and engineering of the RADx
System for the Company and expects to have a working prototype completed for
testing by the end of the current fiscal year. Battelle has a staff of 7,500
scientists, engineers, and support specialists. It pursues hundreds of
technology projects for nearly 2,000 companies and government agencies, with
business volume of approximately $1 billion annually.
The RADx System will simulate a physician house call by allowing the
attending medical professional to access patient vital signs and diagnostic data
and obtain and make a diagnosis based on remotely recorded data or to request
additional testing or follow on attention at a hospital or treatment center. The
RADx System uses the Internet to connect patients and healthcare professionals
8
in a way that was previously impossible. This technology will provide physicians
and healthcare professionals with reliable diagnostic data and link them to
their patients outside the office.
This new plan represents a departure from the business currently
conducted by the Company. Our business strategy currently being reviewed and
developed by the board of directors is to focus our primary attention on the
RADx System and related technology. The Company expects it will continue to
operate its reagent business through its wholly owned subsidiary, Volu-Sol
Reagents.
Results of Operations
Comparison of the Three Months Ended June 30, 2000 to Three Months Ended June
30, 1999.
During the three months ended June 30, 2000, the Company's revenues
totaled $119,724 compared to $134,954 for the three months ended June 30, 1999.
This decrease in revenues resulted primarily from a decrease in sales of
reagents.
Cost of revenues for the three months ended June 30, 2000 totaled
$44,944 compared to $66,926 for the three months ended June 30, 1999. The
overall gross margin for the three months ended 2000 was 62% of revenues
compared to 50% of revenues for the comparable three months ended in 1999. The
increased 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. 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 $465,504 for the
three months ended June 30, 2000, compared to $137,484 for the three months
ended June 30, 1999, an overall increase of $328,020. This increase is
attributable to the costs associated with researching and commercializing the
Company's RADX technology, upgrading the Company's fire suppression system, and
the issuance of restricted common stock to a consultant.
Research and development costs increased for the three months ended
June 30, 2000 from $0 for the same period in 1999 to $1,053,670. This increase
is related to expense recognition of options and common stock issued to Battelle
Memorial Institute for research and development of new technology.
Interest expense decreased from $10,146 for the three months ended June
30, 1999 to $0 for the three months ended June 30, 2000.
The Company incurred a net loss applicable to common shares of
$1,510,287 for the three months ended June 30, 2000 compared to a net loss
applicable to common shares of $114,066 for the three months ended June 30,
1999.
Comparison of the Nine Months Ended June 30, 2000 to Nine Months Ended June 30,
1999
During the nine months ended June 30, 2000 the Company generated
revenues totaling $376,458 compared to $385,686 for the nine months ended June
30, 1999. This decrease in revenues is mainly attributable to decreased sales of
Volu-Sol stains.
Cost of revenues for the nine months ended June 30, 2000 totaled
$210,088 compared to $239,035 for the nine months ended June 30, 1999. The
overall gross margin for the nine months ended June 30, 2000 was 44% of revenues
compared to 38% of revenues for the comparable nine months ended in 1999. This
is attributable to a more efficient production team and an increase in prices.
Selling, general and administrative expenses totaled $1,714,805 for the
nine months ended June 30, 2000, compared to $648,173 for the nine months ended
June 30, 1999, an overall increase of $1,066,632. Research and development
9
costs totaled $1,053,670 for the nine months ended June 30, 2000, compared to $0
for the nine months ended June 30, 1999. This increase is due to the research
and commercialization of the Company's RADX technology, upgrading the Company's
fire suppression system, and the issuance of restricted common stock to a
consultant.
The Company incurred a net loss applicable to common shares of
$2,783,124 for the nine months ended June 30, 2000 compared to a net loss
applicable to common shares of $630,466 for the nine months ended June 30, 1999.
This increase in net loss is primarily due to increase in selling, general
administrative expenses as well as the Company's research or the RADX
technology.
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. The Company also sold shares of Series A Preferred
Stock and Common Stock to provide additional working capital.
The Company believes that cash generated by operations, together with
the proceeds from additional sales of its securities will be sufficient to meet
its capital requirements for a minimum of twelve months.
As of June 30, 2000, the Company had cash of $516,243 and positive
working capital of $560,667 compared to cash of $21,318 and positive working
capital of $92,974 as of September 1999. This increase in available cash and
working capital is primarily the result of the sale of Common Stock for gross
proceeds of $1,900,000 during the quarter ended June 30, 2000.
During the nine months ended June 30, 2000, the Company's operating
activities used cash of $1,493,880, much of which was provided by the sale of
Common Stock. During the nine months ended June 30, 1999, the Company's
operating activities used cash in the amount of $224,783, which was provided by
the sale of Series A Preferred Stock. During the nine-month period ended June
30, 1999, the Company repaid the note to the new shareholder by issuing 2,011
shares of Series A Preferred Stock to the new noteholder. The Note has been
cancelled and the Company has no further obligations thereunder.
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 affiliates and former affiliates, but the Company has no formal
financing arrangement, agreement or understanding with Biomune or any other
party to provide debt financing in the future.
The unaudited condensed consolidated financial statements of the
Company have been prepared on the assumption that the Company will continue as a
going concern. The Company's product line is limited and the Company has relied
upon borrowings and financing from the sale of its equity securities to sustain
operations. Additional financing will be required if the Company is to continue
as a going concern. If such additional funding cannot be obtained, the Company
may be required to scale back or discontinue its operations. Even if such
additional financing is available to the Company, there can be no assurance that
it will be on terms favorable to the Company. In any event, such financing will
result in immediate and possible substantial dilution to existing shareholders.
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
10
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, 1999 may also affect actual operating results.
PART II - OTHER INFORMATION
ITEM 3. Changes in Securities
Unregistered Sales of equity securities during the quarter (other than in
reliance on Regulation S).
The following information sets forth certain information for all
securities of the Company sold during the quarter ended June 30, 2000, without
registration under the Securities Act of 1933 (the "Securities Act"). During the
quarter ended June 30, 2000, the Company issued 425,000 shares of common stock
for services. The offer and sale of these securities were exempt from
registration under the federal securities and state "blue sky" laws and
regulations pursuant to exemptions promulgated under those laws relating to
offers and sales made to accredited investors. These shares were restricted
shares and their sale or transfer by these investors are subject to restrictions
under applicable federal and state securities laws, including the registration
requirements of those laws.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-B
Exhibit No Description
27 Financial Data Schedule
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VOLU-SOL, INC.
Date: August 21, 2000 By: /s/ Wilford W. Kirton, III
-----------------------------------
Wilford W. Kirton, III,
Chief Executive Officer
Date: August 21, 2000 By: /s/ Michael G. Acton
-----------------------------------
Michael G. Acton,
Acting Principal Accounting Officer