2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2004
-------------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
Commission File number 0-25541
-------
VISUALANT, INCORPORATED
------------------------
(Exact name of registrant as specified in charter)
Nevada 91-1948357
------ --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 406, 500 Union Street,
Seattle, Washington USA 98101
- -------------------------------- -------
(Address of principal executive offices) (Zip Code)
604-688-3931, Ext. 1
---------------------------
Registrant's telephone number, including area code
N/A
---
(Former name, address, and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and ( ) has
been subject to filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding as of December 31, 2004
---------- ----------------------------------------
Common Stock, $0.001 per share 14,779,350
==========
-1-
INDEX
Page
Number
---------
PART 1. . .FINANCIAL INFORMATION
ITEM 1. . Financial Statements (unaudited) 3
Balance Sheet as at December 31, 2004 and September 30,
2004 4
Statement of Operations
For the three months ended December 31, 2004 and
2003, and for the period from October 8,
1998 (Date of Inception) to December 31, 2004 . 5
Statement of Cash Flows
For the three months ended December 31, 2004 and
2003 and for the period from October 8, 1998
(Date of Inception) to December 31, 2004. . . . . 6
Notes to the Financial Statements . . . . . 7
Management's Discussion and Analysis or Plan
ITEM 2. . . of Operation 11
ITEM 3. . Controls and Procedures 17
PART 11 . . . . OTHER INFORMATION 17
ITEM 1. . Legal Proceedings 17
ITEM 2. . Changes in Securities 17
ITEM 3. . Default Upon Senior Securities 17
ITEM 4. . Submission of Matters to a Vote of Security Holders 17
ITEM 5. . Other Information 17
ITEM 6. . Exhibits and Reports on Form 8-K 17
SIGNATURES. . . . 19
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheet of Visualant, Incorporated (development stage
company) at December 31, 2004 and September 30, 2004 and the statement of
operations and statement of cash flow for the three months ended December 31,
2004 and 2003 and for the period from October 8, 1998 (date of incorporation) to
December 31, 2004, have been prepared by the Company's management, in conformity
with principles generally accepted in the United States of America. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
Operating results for the quarter ended December 31, 2004 are not necessarily
indicative of the results that can be expected for the year ending September 30,
2005.
-3-
VISUALANT, INCORPORATED
(Development Stage Company)
BALANCE SHEET
December 31, 2004
DECEMBER 31, SEPTEMBER 30,
2004 2004
-------------- --------------
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,420 $ 12,831
-------------- --------------
FIXED ASSETS
Equipment . . . . . . . . . . . . . . . . . . . . . . . . 15,700 -
-------------- --------------
$ 36,120 $ 12,831
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable. . . . . . . . . . . . . . . . . . . . . . . $ - $ 500,000
Accrued interest on note payable. . . . . . . . . . . . . - 93,750
Accounts payable - related parties. . . . . . . . . . . . 12,795 83,237
Accounts payable. . . . . . . . . . . . . . . . . . . . . 32,508 794,538
-------------- --------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . 45,303 1,471,525
-------------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock
50,000,000 shares authorized, at $0.001 per share;
none outstanding
Common stock
200,000,000 shares authorized, at $0.001 par value;
14,779,350shares issued and outstanding . . . . . . . 14,779 11,690
Capital in excess of par value. . . . . . . . . . . . . . 2,271,289 723,626
Deficit accumulated during the development stage. . . . . (2,295,251) (2,194,010)
-------------- --------------
TOTAL STOCKHOLDERS' DEFICIENCY. . . . . . . . . . . . . . . . (9,183) (1,458,694)
-------------- -------------
$ 36,120 $ 12,831
============== =============
The accompanying notes are an integral part of these financial statements
-4-
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF OPERATIONS
For the Three Months Ended December 31, 2004 and 2003 and Period
October 8,1998 (Date of Inception) to December 31, 2004
Three Three
Months Months October 8, 1998
Ended Ended to
December 31, December 31, December 31,
2004 2003 2004
-------------- -------------- -----------------
REVENUES. . . . . . . . . . . . . . $ - $ - $ -
-------------- -------------- -----------------
EXPENSES
Research and development. . . . 55,800 - 120,900
Administrative. . . . . . . . . 26,940 35,812 927,174
Compensation - incentive option. 6,000 - 30,000
-------------- -------------- -----------------
NET LOSS - before other losses. . . (88,740) (35,812) (1,078,074)
OTHER EXPENSES AND LOSSES
Settlement of debt. . . . . . . - - 43,400
Interest. . . . . . . . . . . . (12,500) (18,750) (106,250)
Loss of deposit - note 7. . . . - - (1,154,327)
-------------- -------------- -----------------
NET LOSS. . . . . . . . . . . . . . $ (101,240) $ (54,562) $ (2,295,251)
============== ============== =================
NET LOSS PER COMMON SHARE
Basic and diluted . . . . . . . $ - $ -
============== ==============
AVERAGE OUTSTANDING SHARES
(stated in 1000,s)
Basic . . . . . . . . . . . . . 12,864 10,535
============== ==============
The accompanying notes are an integral part of these financial statements
-5-
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period October 8, 1998 (Date of Inception) to September 30, 2004
Common Stock
Capital in
Excess of Accumulated
Shares Amount Par Value Deficit
------------ ------------- ----------- ------------
Balance, October 8, 1998
(date of inception). . . . . . . . - $ - $ - $ -
Issuance of common stock for cash at
..002 - November 20,1998. . . . . . . . . 4,500,000 4,500 4,500 -
Issuance of common stock for cash at
..01 - November 25, 1998. . . . . . . . . 6,000,000 6,000 54,000 -
Issuance of common stock for cash at
..25 - December 4, 1998 . . . . . . . . . 35,000 35 8,715 -
Capital contributions - expenses. . . . - - 3,650 -
Net operating loss for the period
October 8, 1998 to September 30, 1999 . - - - (27,748)
Capital contributions - expenses. . . . - - 3,650 -
Net operating loss for the year ended
September 30, 2000. . . . . . . . . . . - - - (64,537)
Capital contributions - expenses. . . . - - 3,650 -
Net operating loss for the year ended
September 30, 2001. . . . . . . . . . . . - - - (7,585)
Issuance of common stock for cash at
..50 - July 5, 2002 . . . . . . . . . . 26,200 26 13,116 -
Net operating loss for the year ended
September 30, 2002. . - - - (113,475)
Issuance of common stock as bonus at
..001 - July 1, 2003. . . . . . . . . . . 150,000 150 - -
Issuance of common shares for cash at
..50 per share - July 4, 2003 . . . . . . 100,000 100 49,900 -
Issuance of common stock for debt at
$.50 - July 30, 2003 . 184,848 185 92,239 -
Issuance of common shares for cash at
..75 per share - September 30, 2003 . . 520,000 520 389,480 -
Refund and return of common shares at
$.50 per share. . . (26,200) (26) (13,074) -
Net operating loss for the year ended
September 30, 2003. . . . . . . . . . . - - - (1,819,398)
Issuance of common stock for cash at
$.50 per share - net of issuance
costs - August 2004 . . . . . . . . . . 200,000 200 89,800 -
Compensation - incentive stock options. - - 24,000 -
Net operating loss for the year ended
September 30, 2004. . . . . . . . - - - (161,267)
------------ ------------- ----------- ------------
BALANCE, SEPTEMBER 30, 2004 . . . . . 11,689,848 11,690 723,626 (2,194,010)
Issuance of common stock for cash at
$.50 per share - October 2004 160,000 160 79,840 -
Issuance of common stock for cash at
$.50 per share - November 2004. . . . . 120,000 120 59,880 -
Issuance of common stock for cash at
$.50 per share - December 2004. . . . . . 144,000 144 71,856 -
Issuance of common stock for debt at
$.50 per share. . . . . . . . . . . . . 2,665,502 2,665 1,330,786 -
Compensation - stock options. . . . . . - - 6,000 -
Net operating loss for the three months
Ended December 31, 2004 - - - (101,240)
-------------- ------------- ----------- ------------
Balance, December 31, 2004. . . . . . 14,779,350 $ 14,779 $ 2,271,988 $ (2,295,250)
============== ============= =========== ============
The accompanying notes are an integral part of these financial statements
-6-
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the three months ended December 31, 2004 and 2003 and the Period
October 8, 1998 (Date of Inception) to December 31, 2004
December 31, December 31, Oct 8, 1998 to
2004 2003 December 31, 2004
-------------- ------------------ ------------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . $ (101,240) $ (54,562) $ (2,295,251)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Issuance of common stock for
expenses . . . . . . . . . . . . . - - 150
Changes in accounts and notes payable (1,426,222) 54,287 45,303
Capital contributions - expenses. . . - - 10,950
Incentive stock options . . . . . . . 6,000 - 30,000
Loss of deposit . . . . . . . . . . . - - 1,154,327
-------------- ------------------ -------------------
Net Cash Used in Operations . . . (1,521,462) (275) (1,054,521)
-------------- ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment - deposit. . . - - (1,154,327)
Purchase of equipment . . . . . . . . (15,700) - (15,700)
-------------- ------------------ -------------------
(15,700) - (1,170,027)
-------------- ------------------ -------------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net proceeds from issuance of
common stock. . . . . . . . . . . 1,544,751 - 2,204,128
-------------- --------------------
1,544,751 - 2,204,128
-------------- ------------------ -------------------
Net Increase (Decrease) in Cash . . . . . 7,589 (275) 20,420
Cash at Beginning of Period . . . . . . . 12,831 380 -
-------------- ------------------ -------------------
Cash at End of Period . . . . . . . . . . $ 20,420 $ 105 $ 20,420
============== ================== ===================
SCHEDULE OF NONCASH
FLOWS FROM OPERATING ACTIVITIES
Capital contributions - expenses. . . $ - $ - $ 10,950
============== ================== ===================
The accompanying notes are an integral part of these financial statements
-7-
VISUALANT, INCORPORATED
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. ORGANIZATION
The Company was incorporated under the laws of the State of Nevada on October 8,
1998 under the name of "Cigar King Corporation" with authorized common stock of
200,000,000 shares at $0.001 par value. On September 13, 2002 the name was
changed to "Starberrys Corporation" as part of a change in the authorized
capital stock by the addition of 50,000,000 shares of preferred stock with a par
value of $0.001 and on August 18, 2004, the name was changed to "Visualant,
Incorporated". There are no preferred shares issued and the terms have not been
determined.
The Company was originally organized for the purpose of engaging in quality
cigar sales. During 1998 the Company purchased the right to use the name "Cigar
King" to market high quality cigars and during 2000 the activity was abandoned.
During 2002, the Company entered into a contract of purchase of all assets and
intelluctual property related to the "Color by Numbers" business and system and
on April 9, 2003 the Company signed a Purchase Agreement for the Acquisition of
all shares of the Company which owns design, paint and building products. The
contract was subsequently rescinded.
During June 2004, the Company entered into a contract for the further
development of a color technology, providing 3D spectral-based pattern file
creation and matching.
The Company has not started any operations and is in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
- -------------------
The Company recognizes income and expenses based on the accrual method of
accounting.
Dividend Policy
- ----------------
The Company has not adopted a policy regarding payment of dividends.
Basic and Diluted Net Income (Loss) Per Share
- ----------------------------------------------------
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding as if shares had been issued on the
exercise of the common share rights unless the exercise becomes antidilutive and
then only if the basic per share amounts are shown in the report.
-8-
VISUALANT, INCORPORATED
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes
- -------------
The Company utilizes the liability method of accounting for income taxes. Under
the liability method deferred tax assets and liabilities are determined on the
differences between financial reporting and the tax bases of the assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect, when the differences are expected to reverse. An allowance against
deferred tax assets is recognized, when it is more likely than not, that such
tax benefits will not be realized.
On September 30, 2004 the Company had a net operating loss carry forward of $
2,295,251. The tax benefit of approximately $ 689,000 from the loss carry
forward has been fully offset by a valuation reserve because the use of the
future tax benefit is doubtful since the Company has no operations. The loss
carryforward will expire in 2023.
Key Employee Incentive Stock Option Plan
- ---------------------------------------------
SFAS No.123, "Accounting for Stock-Based Compensation", establishes accounting
and reporting standards for stock-based employee compensation plans. As
permitted by SFAS No. 123, the Company accounts for such arrangements under APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations.
Cash and Cash Equivalents
- ----------------------------
The Company considers all highly liquid instruments purchased with a maturity,
at the time of purchase, of less than three months, to be cash equivalents.
Financial Instruments
- ----------------------
The carrying amounts of financial instruments, including cash and accounts
payable, are considered by management to be their estimated fair values due to
their short term maturities.
Financial and Concentrations Risk
- ------------------------------------
The Company does not have any concentration or related financial credit risk.
Research and Development Costs
- ---------------------------------
Research and development costs, including wages, supplies, depreciation of
equipment used in the research activity, and any assigned overhead expenses, are
expensed as incurred.
-9-
VISUALANT, INCORPORATED
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Revenue Recognition
- --------------------
Revenue will be recognized on the sale and delivery of a product or the
completion of a service provided.
Advertising and Market Development
- -------------------------------------
The Company will expense advertising and market development costs as incurred.
Estimates and Assumptions
- ---------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States
of America. Those estimates and assumptions affect the reported amounts of the
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing these financial statements.
Foreign Currency Translation
- ------------------------------
Part of the transactions of the Company were completed in Canadian dollars and
have been translated to US dollars as incurred, at the exchange rate in effect
at the time, and therefore, no gain or loss from the translations is recognized.
US dollars are considered to be the functional currency.
Recent Accounting Pronouncements
- ----------------------------------
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
3. DEVELOPMENT OF TECHNOLOGIES OWNED BY THE COMPANY
The Company is in the business of researching, developing, acquiring, and
commercializing products and services related to color technology outside the
visible spectrum, using specialized narrow and N-IR and N-UV sensors and spatial
analysis software modeling which translate the invisible into the visible and
involving specialized and proprietary information and trade secrets which the
Company owns, which is considered to be among its most sensitive, confidential,
and proprietary information.
The Company has a working agreement with an independent contractor to further
develop the technology in which the Company has agreed to pay development costs
incurred semi monthly.
-10-
VISUALANT, INCORPORATED
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2004
4. COMMON CAPITAL STOCK
Since its inception, the Company has completed private placements of 11,779,000
of its common capital stock for $ 829,792, 150,000 shares for services and
2,850,350 shares for payment of debt.
5. INCENTIVE STOCK OPTIONS
During 2003 the Company granted stock options, to a related party of 25,000
shares of common stock at $1.00 per share, which will expire December 31, 2006.
On the date of grant the fair market value of the shares was $.50.
On August 15, 2004 the Company granted incentive stock options to a related
party, of 300,000 common shares at $.10 per share, which will expire August 15,
2009. The options will vest at 25,000 shares each quarter starting on August
15, 2004. On the date of grant the fair market value of the shares was $.50.
None of the options had been exercised by the report date.
SFAS No. 123, "Accounting for Stock-Based Compensation", establishes accounting
and reporting standards for stock-based employee compensation plans. As
permitted by SFAS No. 123, the Company accounts for such arrangements under the
intrinsic value method as provided in APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations.
The Company applies the intrinsic value method in accounting for its
compensation based stock options. If the Company had measured the options under
the fair value based method the net pro-forma operating loss and loss per share
amounts for the year ended December 31, 2004 would have been unchanged.
6. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers, directors and key consultants have acquired 17% of the outstanding
common stock and have received the stock options as outlined in Note 5.
During December 2004 $60,487 in debt due to related parties was paid by the
issuance of 120,974 common shares. (Note 4)
7. GOING CONCERN
The Company does not have the working capital to service its debt and for any
future planned activity which raises substantial doubt about its ability to
continue as a going concern.
Continuation of the company as a going concern is dependant upon obtaining
additional working capital and the management of the Company has developed a
strategy, which it believes will accomplish this objective through additional
equity funding, payment of debt by the issuance of common stock, and
contributions to capital by officers, which will enable the Company to conduct
operations for the coming year.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
Visualant Incorporated (formerly Starberry's Corporation), a Nevada corporation
(the "Company"), was incorporated on October 8, 1998. The Company's executive
offices are located in Seattle, Washington.
The Company's Articles of Incorporation currently provide that the Company is
authorized to issue 200,000,000 shares of Common Stock, par value $0.001 per
share, and 50,000,000 Preferred Shares. As at December 31, 2004 there were
14,779,350 Common Shares and no Preferred Shares outstanding.
On June 16, 2004, the Company executed an Intellectual Property Agreement with
Ken Turpin to confirm the Company's ownership of the business of researching,
developing, acquiring and commercializing products and services related to color
technology outside the visible spectrum, using specialized narrow band N-IR and
N-UV sensors and special analysis software modeling. In this Agreement, Turpin
acknowledges and agrees that all work product has been made for the Company and
that the Company is the exclusive owner of all right, title and interest in and
to the work product and all intellectual property rights therein.
Also on June 16, 2004, the Company executed an Independent Contractor Agreement
with E-Vision Technologies Inc., by which the Company hired E-Vision to research
and develop the Company's color technology outside the visible spectrum on a fee
for service basis.
On August 18, 2004, the Company changed its name to Visulant, Incorporated to
reflect its new business pursuits.
During the three months ended December 31, 2004, the Company raised $212,000 in
additional share capital through the sale of common shares.
The Company has no revenue to date from its operations, and its ability to
affect its plans for the future will depend on the future availability of
financing. Such financing will be required to enable the Company to acquire new
businesses. The Company anticipates obtaining such funds from its officers and
directors, financial institutions or by way of the sale of its capital stock
under an SB-2. However, there can be no assurance that the Company will be
successful in obtaining additional capital for such business acquisitions from
the sale of its capital stock, or in otherwise raising substantial capital.
When used in this discussion, the words "believe", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, which 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 republish
revised forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. Readers are
also urged to carefully review and consider the various disclosures made by the
Company that attempt to advise interested parties of factors which affect the
Company's business, in this report, as well as the Company's periodic reports on
Forms 10-KSB, 10-QSB and 8-K filed with the Securities and Exchange Commission
(the "SEC").
-12-
The Company's financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
RISK FACTORS
There are certain inherent risks which will have an effect on the Company's
development in the future and some of these risk factors are noted below but are
not all encompassing since there may be others unknown to management at the
present time which might have an impact in the future on the development of the
Company.
1. FUTURE TRADING IN THE COMPANY'S STOCK MAY BE RESTRICTED BY THE SEC'S PENNY
STOCK REGULATIONS WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL
THE COMPANY'S SHARES WHEN, AND IF, THE SHARES ARE EVENTUALLY QUOTED.
The SEC has adopted regulations which generally define "penny stock" to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. The Company's shares most likely will be covered by the penny stock
rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and "accredited investors."
The term "accredited investor" refers generally to institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the SEC which provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to broker-dealers to trade in the Company's securities. The
Company believes that the penny stock rules discourage investor interest in and
limit the marketability of, its common stock when, and if, it is called for
trading. The Company feels that its shares will be considered to be penny stock
when the shares are finally quoted.
2. THE COMPANY IS UNCERTAIN IF IT WILL BE ABLE TO OBTAIN ADDITIONAL CAPITAL
NECESSARY FOR ITS DEVELOPMENT.
The Company has incurred a cumulative net loss for the period from October
8, 1998 (date of inception) to December 31, 2004 of $2,289,251. As a result of
these losses and negative cash flows from operations, the Company's ability to
continue operations will be dependent upon the availability of capital from
outside sources unless and until it achieves profitability. It can only achieve
profitability if an ore body is found on the Bridge claim.
3. WHETHER THE COMPANY WILL CONTINUE TO BE A GOING CONCERN
-13-
The Company's auditors, in the audited financial statements as at September 30
2004, have indicated a concern in their audit opinion as to whether the Company
will be able to raise sufficient funds to complete its objectives and, if not,
indicates that the Company might not be able to continue as a going concern.
Without adequate future financing, the Company might cease to operate and the
existing shareholders and any future shareholders will lose their entire
investment.
4. THE PRESENT SHAREHOLDERS HAVE ACQUIRED SHARES AT EXTREMELY LOW PRICES
Some of the present shareholders have acquired shares at prices ranging
from $0.001 to $0.25 per share whereas other shareholders have purchased their
shares at $0.50 and $0.75 per share.. In addition, the Company has issued
300,000 incentive stock options to a related party at $0.10 per share
exercisable in whole or in part on or before August 15, 2009.
5. FUTURE ISSUANCE OF STOCK OPTIONS, WARRANTS AND/OR RIGHTS WILL HAVE A
DILUTING FACTOR ON EXISTING AND FUTURE SHAREHOLDERS
The grant and exercise of stock options, warrants or rights to be issued in
the future would likely result in a dilution of the value of the Company's
common shares for all shareholders. At present, the Company has established a
Non-Qualified Stock Option Plan as noted on page 10 of this report and may in
future issue further stock options to officer, directors and consultants which
will dilute the interest of the existing and future shareholders. Moreover, the
Company may seek authorization to increase the number of its authorized shares
and to sell additional securities and/or rights to purchase such securities at
any time in the future. Dilution of the value of the common shares would likely
result from such sales.
6. THE COMPANY DOES NOT EXPECT TO DECLARE OR PAY ANY DIVIDENDS
The Company has not declared or paid any dividends on its common stock
since its inception, and it does not anticipate paying any such dividends for
the foreseeable future.
7. CONFLICT OF INTEREST
Some of the Directors of the Company are also directors and officers of
other companies and conflicts of interest may arise between their duties as
directors of the Company and as directors and officers of other companies.
8. CONCENTRATION OF OWNERSHIP BY MANAGEMENT.
The management of the Company, either directly or indirectly, owns
1,140,000 shares. Even though this only represents 7.71 % of the issued and
outstanding shares, it might be difficult for any one shareholder to solicit
sufficient votes to replace the existing management. Therefore, any given
shareholder may never have a voice in the direction of the Company.
9. KEY-MAN INSURANCE
The Company carries no key-man insurance. In the event that Mr. Erickson
or Mr. Brier either departed the Company or passed away, the Company would not
have the available funds to attract individuals of similar experience.
Management is considering obtaining key-man insurance once it has sufficient
funds to do so.
10. LIMITED FULL TIME EMPLOYEES
-14-
The only director who works full time for the Company is its President,
Ralph Brier. The other directors will devote time to the activities of the
Company as required from time to time. At the present time, there are no other
employees other Ralph Brier.
11. RECENTLY ENACTED AND PROPOSED REGULATORY CHANGES
Recently enacted and proposed changes in the laws and regulations affecting
public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and
rules proposed by the SEC and NASDAQ could cause the Company to incur increased
costs as it evaluates the implications of new rules and responds to new
requirements. The new rules will make it more difficult for the Company to
obtain certain types of insurance, including directors and officers liability
insurance, and the Company may be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more difficult for the
Company to attract and retain qualified persons to serve on the Company's board
of directors, or as executive officers. The Company is presently evaluating and
monitoring developments with respect to these new and proposed rules, and it
cannot predict or estimate the amount of the additional costs it may incur or
the timing of such costs.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2004, the Company had assets of $36,120, including cash
of $20,420 and equipment of $15,700, and liabilities of $45,303. The
liabilities include accounts payable of $32,508 and accounts payable to related
parties of $12,795.
There has been no change in the Company's financial position since its last
fiscal year.
The Company has incurred certain expenses during the three months ended December
31, 2004 as follows:
EXPENDITURE AMOUNT
Accounting and audit . . . . . i $ 235
Bank Charges . . . . . . . . . . . . . 494
Consulting . . . . . . . . .. ii 36,831
Foreign exchange (gain). . . iii (15,704)
Incentive stock options. . .. iv 6,000
Office . . . . . . . . . . . v 1,109
Printing . . . . . . . . .. . vi 1,074
Research and development . . vii 55,800
Transfer agent's fees. . . . viii 974
Travel . . . . . . . . . . . . ix 1,927
---------
Total expenses before
other losses. 88,740
Interest expense. . . . . . . x 12,500
---------
Net loss for the period . . . . . . $101,240
========
i. The Company accrued $485 in fees to its auditors for the review of this
Form 10-QSB and $525 in fees to its Chief Financial Officer for the
preparation of the financial statements and 10-QSB. The Company made an
adjustment to its auditor's fees of $405 for an underaccrual and reduced
its fees payable to its Chief Financial Officer by $1,180 for an
overaccrual.
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ii. The Company has paid $15,000 to its President for management fees and
$3,000 to the Chairman of the Board for consulting fees. It has also paid
consulting fees to an agent of the firm for obtaining financings.
iii. Gain on foreign exchange consists of the difference between the US and
Canadian exchange rate on monies expended by the Company in Canadian
dollars.
iv. The Company has accrued incentive stock options of $6,000 for the quarter.
This is calculated on 300,000 options over 5 years, which is 60,000 options
per year. The value of these is calculated on the fair market value at the
time of granting of the options of $.50 minus the option price of $.10
times the number of options, which works out to $24,000 per year or $6,000
per quarter.
v. The Company has incurred expenses for photocopying, faxing, courier and
printing of cheques . Fees of $344 for the creation of a website are
included in this amount.
vi. Printing costs of $1,074 were incurred for the printing of the business
plan.
vii. Research and development fees consist of the bi-monthly charge of $9,300
Canadian for software development related to color technology outside the
visible spectrum.
viii. Transfer agent fees of $974 include the annual resident agent fees and
filing list of officers in the amount of $400. The balance of the fees is
for transfer costs, original issue costs and interest charges on the
balance outstanding.
ix. Travel costs were incurred for business trips by the President and a
shareholder involved in the Company.
x. Interest expense is accrued on the note payable to Glencoe Capital Inc. at
a rate of 15% per annum for two months, until the note was redeemed for
shares for debt.
Estimated expenses over twelve months and required funds:
Requirements
for
Expenditures twelve months
-------------- --------------
Accounting and audit . . 1 $ 9,500
Bank charges . . . . . . 500
Filing fees. . . . . . 2 400
Legal fees . . . . . . . 3 20,000
Office . . . . . . . . 4 1,200
Rent . . . . . . . . 5 2,400
Research and development 6 186,000
Telephone. . . . . . . . 7 3,600
Transfer agent's fees. . 8 2,150
Travel and promotion . . 9 10,000
Website and logo design. 10 2,000
--------
Estimated expenses . . $ 237,750
===========
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1. Accounting and auditing expense has been projected as follows:
Filing Accountant Auditors Total
---------------------------- ----------- --------- ---------
Form 10-QSB - Mar. 31, 2005. 500 500 1,000
Form 10-QSB - June 30, 2005. 500 500 1,000
Form 10-KSB - Sept. 30, 2005 2,000 4,500 6,500
Form 10-QSB - Dec. 31, 2005. 500 500 1,000
----------- --------- ---------
$ 3,500 $ 6,000 $ 9,500
=========== ========= =========
2. The Company will incur a cost for filing the Annual List of Directors and
Officers to the State of Nevada to maintain the Company in good standing
for the next twelve months. The annual charge for filing this form is $400.
Fees for filing the financial statements on Edgar are included in
accounting costs.
3. Legal fees are estimated based on the business done with the Company's
lawyers in the first quarter of the 2005 fiscal year. The costs are
estimates for preparing a provisional patent application, and for other
Company business.
4. Relates to photocopying, faxing and courier, in addition to miscellaneous
expenses incurred by the directors. The estimate of these charges is
approximately $100 per month for 12 months.
5. Rent expenses are payable at $200 per month for 12 months.
6. Research and development is paid to Kenneth Turpin at a rate of $18,600
Canadian ($15,500 US) per month for twelve months.
7. The estimate of telephone expenses to conduct Company business is
approximately $300 per month for 12 months.
8. The Company is charged $600 per annum by empire Stock Transfer Inc.
Additional stock transfer and original issue fees of $1,300 are estimated.
The Company has calculated $250 in late interest charges for the next year.
9. Travel and promotion expenses have been estimated at $10,000. These
expenses may be incurred by the directors and key consultants who may incur
travel expenses to obtain financing for the Company or to do other Company
business.
10. The estimate for website and logo design for the Company is $2,000.
As mentioned previously, the Company does not have sufficient funds to pay any
of the above noted expenses other than if its directors and officers continue to
contribute funds to the Company.
At the present time, the Company has no contractual obligations for leasing
premises.
-17-
At present, the directors devote time to the affairs of the Company as required.
There are no plans to hire any employees at this time. The Company will
continue to use the services of consultants in the furtherance of the Company's
goals.
ITEM 3. CONTROLS AND PROCEDURES
-------------------------------
(a) Evaluation of Disclosure Controls and Procedures
- -------------------------------------------------------------
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's controls and procedures (as
defined in the Securities Act of 1934 Rule 13a 14(c) and 15d 14 (c) of the date
within 45 days of the filing of this quarterly report on Form 10-QSB (the
"Evaluation Date"), have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to it would be made known to it by others,
particularly during the period in which this quarterly report on Form 10-QSB was
being made.
(b) Changes in Internal Controls
-------------------------------
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions.
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party or to which its
property is subject, nor to the best of management's knowledge are any material
legal proceedings contemplated.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-18-
The exhibits required to be filed herewith by Item 601 of Regulation S-B, as
described in the following index of exhibits, are incorporated herein by
reference, as follows:
(a) Exhibits
(1) Certificate of Incorporation incorporated herein by reference to the
Company's Registration Statement on Form 10-SB filed on March 9, 1999;
(2) Articles of Incorporation incorporated herein by reference to the Company's
Registration Statement on Form 10-SB filed on March 9, 1999; and
(3) By laws incorporated herein by reference to the Company's Registration
Statement on Form 10-SB filed on March 9, 1999.
99.1 Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certificate Pursuant to 18 U.S.C Section 1350 signed by the Chief Executive
Officer
99.3 Certification of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.4 Certificate Pursuant to 18 U.S.C. Section 1350 signed by the Chief
Financial Officer
(b) Reports on Form 8-K
(i) Form 8-K filed on February 5, 2004 regarding the Company's change of
certifying accountants from Sellers & Andersen LLC to Madsen & Associates,
CPA's Inc.
(ii) Form 8-K filed on September 13, 2004, announcing the Intellectual Property
Agreement between Kenneth Turpin and the Company, signed June 16, 2004.
Also announced were the resignation of Hans Nasholm as director and Ronald
Erickson as Chief Executive Officer and President of the Company. On August
31, 2004, Ralph Brier was appointed Chief Executive Officer, President and
a Director of the Company, Kenneth Turpin was appointed as Chief Science
Officer and Chair of the Research and Development Committee and Zack Wickes
was appointed Chief Technical Officer. The Form 8K also announced that the
name of the Company was changed to Visualant, Incorporated and was
registered with the Secretary of State of Nevada.
-19-
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.
VISUALANT, INCORPORATED
(FORMERLY STARBERRYS CORPORATION)
(Registrant)
By: "Ralph Brier"
--- -------------
Ralph Brier
Chief Executive Officer, President,
and Director
Date:
By: "Mary Hethey"
--- -------------
Mary Hethey
Chief Financial Officer and Secretary
Treasurer
Date:
-20-