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 DECEMBER 31, 2000
OR
( ) 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 (IRS 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)
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 February 8, 2001, the issuer had issued and outstanding 3,136,527 shares
of common stock, par value $.0001.
Transitional Small Business Disclosure Format (Check One): Yes __ No X
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
No.
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of
December 31, 2000............................................3
Unaudited Condensed Consolidated Statements of Operations for
the three months ended December 31, 2000 and 1999............4
Unaudited Condensed Consolidated Statements of Cash Flows for
the three months ended December 31, 2000 and 1999............5
Notes to Unaudited Condensed Consolidated Financial
Statements...................................................6
2. Management's Discussion and Analysis or Plan of Operation....8
PART II. OTHER INFORMATION....................................................10
4. Exhibits and Reports on Form 8-K............................10
5. Other Information...........................................10
2
PART I
Item 1 - Financial Statements
VOLU-SOL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
December 31,
2000
--------------
Current assets:
Cash and cash equivalents $ 51,999
Accounts receivable, less allowance for doubtful accounts of $21,188 83,840
Inventories 55,227
--------------
Total current assets 191,066
Property and equipment, net 49,220
Other assets - deposits 3,022
---------------
Total assets $ 243,308
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 43,270
Accrued liabilities 74,060
Preferred stock dividends payable 72,230
Loan from related party 335,000
--------------
Total current liabilities 524,560
--------------
Stockholders' deficit:
Preferred stock, $.0001 par value; 10,000,000 shares authorized 16,138
shares outstanding (aggregate liquidation preference $39,387) 3,847,132
Common Stock, par value $.0001; 50,000,000 shares authorized,
3,136,527 shares issued and outstanding 314
Additional paid-in capital 4,687,312
Preferred stock subscriptions receivable (338,300)
Accumulated deficit (8,477,610)
--------------
Total stockholders' deficit (281,252)
--------------
Total liabilities and stockholders' deficit $ 243,308
==============
The accompanying notes are an integral part of these unaudited
condensed consolidated balance sheets.
3
VOLU-SOL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended December 31,
2000 1999
Sales $ 114,205 $ 115,350
Cost of goods sold 70,850 73,051
------------ -----------
Gross Margin 43,355 42,299
------------ -----------
Selling, general and administrative expenses 654,704 180,619
Loss from operations (611,399) (138,320)
Other income (expense):
Interest income 2,244 -
------------ -----------
Net loss before provision for income taxes (609,105) (138,320)
Provision for income taxes - -
Net loss (609,105) (138,320)
------------ -----------
Dividends on Series A preferred stock (72,230) (40,100)
Preferred stock accretion (18,020) (48,291)
------------ -----------
Net loss applicable to common stock $ (699,355) $ (226,711)
------------ -----------
Net loss per common share - basic and diluted $ (0.23) $ (0.41)
------------ -----------
Weighted average common shares outstanding 3,038,886 544,209
------------ -----------
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
4
VOLU-SOL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended December 31,
2000 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (609,105) $ (138,320)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 7,095 19,875
Stock issued for services 150,000 90,000
Options issued for services 12,799 -
(Increase) Decrease in:
Accounts receivable (5,735) 1,236
Inventories (4,337) 6,401
Other assets 250 -
Increase (decrease) in:
Accounts payable (147,360) 23,535
Accrued liabilities 34,971 (9,000)
------------ -----------
Net cash used in operating activities: (561,422) (6,273)
------------ -----------
Cash flows from investing activities - -
Cash flows from financing activities-
Proceeds from notes payable 335,000 -
------------ -----------
Net decrease in cash (226,422) (6,273)
Cash, beginning of period 278,421 44,123
------------ -----------
Cash, end of period $ 51,999 $ 37,850
============ ===========
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
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VOLU-SOL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Organization and Business Activity
The unaudited condensed consolidated financial statements consist of Volu-Sol,
Inc., which is incorporated 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 (collectively, the "Company").
The Company engages in the manufacturing, marketing and distribution of medical
diagnostic stains.
(1) PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim condensed consolidated financial statements of 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 months
ended December 31, 2000 are not necessarily indicative of the results that may
be expected for the year ending September 30, 2001. 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, 2000.
(2) RELATED-PARTY TRANSACTIONS
During the three months ended December 31, 2000, the Company borrowed $335,000
from an entity controlled by a major shareholder.
(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 December 31, 2000:
Raw materials, packaging and supplies $35,227
Instruments, biological stains and reagents 20,000
--------
$55,227
(4) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
----------------------------------------------------------------------
During the three months ended December 31, 2000, the Company:
|X| Accrued preferred stock dividends payable of $72,230.
|X| Increased preferred stock and decreased additional paid-in-capital for
$18,020 due to accretion.
During the three months ended December 31, 1999, the Company:
|X| Accrued preferred stock dividends payable of $40,100.
|X| Increased preferred stock and decreased additional paid-in-capital for
$48,291 due to accretion.
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Actual amounts paid for interest and income taxes are as follows:
Three Months Ended
December 31,
-----------------------------------
2000 1999
-----------------------------------
Interest $ - $ -
===================================
Income taxes $ - $ -
===================================
(5) SERIES A PREFERRED STOCK
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 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.
(6) 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 three months ended December 31, 2000 the Company issued 45,281shares
of common stock as part of the original divestiture of the Company from Biomune
Systems, Inc. in the nature of a dividend.
At December 31, 2000, there were outstanding options to purchase 2,600,500
shares of common stock and there were 16,138 shares of Series A Preferred Stock
outstanding, convertible into a minimum of 4,808,000 shares of common stock.
Approximately 500,500 options relate to options to purchase Biomune common stock
outstanding at the time of the Company's divestiture from Biomune Systems, Inc.
The holders of such Biomune options were also granted options to purchase
Volu-Sol common stock.
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Item 2 - Management's Discussion and Analysis or Plan of Operation
Introduction
The Company 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 the fiscal year ended September 30,
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 422,244 shares of the Company's common stock were
distributed pro rata as a stock dividend to the holders of the common stock of
Biomune in 1997 (the "Distribution"). 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 to conduct the operations it
conducted as a subsidiary of Biomune. The Company's management has recently
developed a new business plan to broaden the business emphasis of the Company
to include remote medical diagnostics and medical alert technologies and
services.
Special Note Regarding Forward-looking Information
Certain statements in this Item 2 - "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 under the
caption "Risk Factors" in Item 6 - "Management's Discussion and Analysis or
Plan of Operation."
Business Strategy
Until recently, Volu-Sol's primary business strategy has been 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. Management recently
determined to pursue a more expanded role in the medical diagnostic industry.
The new business strategy of the Company is outlined in greater detail below.
New Business Direction
Volu-Sol's management has determined to expand the scope of the
Company's operations to develop products that provide a powerful way to manage
patient medical information and to link patients, physicians and payors. The
Company will continue to conduct its medical stains and solutions business under
the Volu-Sol(TM) name and will operate its remote health monitoring and
diagnostic business under the name RemoteMDx(TM).
Results of Operations
Comparison of the Three Months Ended December 31, 2000 to the Three Months Ended
December 31, 1999.
During the three months ended December 31, 2000, the Company's revenues
totalled $114,205 compared to $115,350 for the three months ended December 31,
1999. This decrease in revenues resulted primarily from a decrease in sales of
reagents.
Cost of revenues for the three months ended December 31, 2000 totalled
$70,850 compared to $73,051 for the three months ended December 31, 1999. The
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overall gross margin for the three months ended December 31, 2000 was 38% of
revenues compared to 36% of revenues for the comparable three months ended
December 31, 1999. 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 were implemented. The increased gross
margin results from a continued effort to create a leaner production team and
better inventory management.
Selling, general and administrative expenses totalled $654,704 for the
three months ended December 31, 2000, compared to $180,619 for the three months
ended December 31, 1999, an overall increase of $474,085. This increase is
attributed to increased expenses associated with the development of the
Company's technology as well as one-time expenses associated with issuing stock
options to non-employees.
The Company incurred a net loss applicable to common shares of $699,355
for the three months ended December 31, 2000 compared to a net loss applicable
to common shares of $226,711 for the three months ended December 31, 1999. This
increase in net loss is attributable to the expenses incurred in connection with
the new business direction and development of technology and issuance of stock
options described in the preceding paragraph.
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 totalling approximately $2,900,000. The Company also
sold shares of Series A Preferred 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. However funds from
equity sales may not be available.
As of December 31, 2000, the Company had cash of $51,999 and negative
working capital of $285,494 compared to cash of $37,850 and positive working
capital of $39,807 as of December 31, 1999.
During the three months ended December 31, 2000, the Company's
operating activities used cash of $561,422, much of which was funded by the sale
of common stock. During the three months ended December 31, 1999, the Company's
operating activities used cash in the amount of $6,273, which was funded 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 for debt financing with Biomune in he future. During
the three months ended December 31, 2000, the Company borrowed $335,000 from a
shareholder, ADP Management. Under the terms of a Loan Agreement entered into
with ADP after the end of the quarter ended December 31, 2000, ADP may convert
amounts owing under the agreement to preferred stock.
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.
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PART II - OTHER INFORMATION
Item 4. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-B
No exhibits are filed with this report.
(b) Reports on Form 8-K
The Company filed no current Reports on Form 8-K in the
quarter ended December 31, 2000.
Item 5. Other Information
Subsequent to the quarter ended December 31, 2000, the Company's Board
of Directors was reorganized. Ken Westover and Barry Edwards resigned to pursue
other interests. The Board nominated and approved David G. Derrick and James
Dalton as their successors. The Board now comprises David G. Derrick, Chairman
and CEO, James Dalton, Co-Chairman, and Wilford W. Kirton, III.
The Board also approved the creation of three operating divisions and
appointed management to be responsible for those divisions and operations as
follows:
|X| Technology - David G. Derrick will have primary responsibility for this
division.
|X| P.A.L. - James Dalton will be President of this Division.
|X| Diagnostics - Wilford W. Kirton will head up this division, in addition
to his responsibilities for operations generally.
James Dalton, 56, from 1987 to present, Mr. Dalton has been the owner
and President of Dalton Development, a real estate development company, and in
that capacity has developed and managed several real estate projects. Mr. Dalton
was as a director of Biomune from February 1996 until 1998. He also served as a
director of Optim from 1996 until 1998. He was our General Manager until January
1996.
David G. Derrick, 48, has agreed to serve as Chairman of the Board of
Directors after the closing of this Offering. Mr. Derrick served as the Chief
Executive Officer and as Chairman of the Board of Directors of Biomune and its
subsidiary Optim, Inc. between 1989 and 1998. From 1996 to 1999 Mr. Derrick
served as Chairman of the Board of Directors of The Purizer Company (formerly
Bioxide Corporation). From September 1979 to June 1983, Mr. Derrick was a
faculty member at the University of Utah College of Business, Department of
Finance. Mr. Derrick graduated from the University of Utah College of Business
with a Bachelor of Science degree in Economics in 1975 and with a Masters in
Business Administration degree with an emphasis in Finance in 1976. Mr. Derrick
is the brother-in-law of Bill Kirton, our President. Mr. Derrick is also one of
our significant shareholders.
Also subsequent to December 31, 2000, the Company entered into a loan
agreement with ADP Management, a company owned by Mr. Derrick. Under the
agreement, advances made to the Company totaling $335,000, together with accrued
interest, were made a part of the agreement. ADP also agreed to loan additional
amounts up to an aggregate of $600,000 in principal. Amounts loaned under the
agreement are repayable at the option of ADP in cash or in shares of Series A
Preferred Stock or a series with terms and preferences substantially the same as
the Series A. The Board approved a new series of preferred as required to
accommodate eventual conversion of the Loans made under the agreement.
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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: February 13, 2000 By: /s/ Wilford W. Kirton, III
----------------------------------------
Wilford W. Kirton, III,
Chief Executive Officer
Date: February 13, 1999 By: /s/ Michael G. Acton
----------------------------------------
Michael G. Acton,
Acting Principal Accounting Officer
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