SB-2/A: Optional form for registration of securities to be sold to the public by small business issuers
Published on November 10, 2005
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Commission File No. 0-25541
VISUALANT, INCORPORATED
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(Name of Small Business Issuer in its charter)
Nevada 7373 91-1948357
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
500 Union Street, Suite 406, Seattle, Washington 98101
(206) 903-1351
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(Address and telephone number of Registrant's principal executive
offices and place of business)
Nevada Agency & Trust Company
50 W. Liberty Street, Suite 880, Reno, NV 89501
(775) 322-0626
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(Name, Address and Telephone Number of Agent for Service)
____________________________
Copies to: James F. Biagi, Jr., Monahan & Biagi, PLLC
701 Fifth Avenue, Suite 2800, Seattle, WA 98104
(206) 587-5700
Approximate Date of Proposed Sale to the Public: As soon as practicable from
time to time after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
1
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
2
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(2) A registration fee in the amount of $1,294.70 previously has been paid by
the registrant.
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The purpose of this Amendment No.2 is to: (1) reflect events reported on the
Company's Form 8-K filed on September 2, 2005 and Form 8-K filed on September
15, 2005 announcing changes in the Company's officers and directors; (2) include
as part of this registration statement an additional 200,000 shares that are
held by shareholders of the Company; and (3) eliminate from this registration
statement shares of the Company's Common Stock which were to be offered by the
Company.
Dated November 4, 2005
3
VISUALANT, INCORPORATED
500 Union Street, Suite 406
Seattle, WA 98101
(206) 903-1351
Securities Offered: A maximum of 13,698,375 shares of Common Stock of Visualant,
Incorporated (the "Company") offered at a price of $0.75 per share (the
"Shares"). The sellers of the 13,698,375 Shares are current shareholders of the
Company, who are listed on Exhibit 99.1 hereto. The Shares being offered do not
include any shares owned by the officers, directors and beneficial owners of
more than 5% of the Common Stock of the Company.
This registration statement is being filed by the Company pursuant to a
contractual obligation with one or more of its shareholders to provide for such
registration. Except for the shares owned by the officers, directors and owners
of more than 5% of the Common Stock, which are excluded from this registration
statement, all the other issued and outstanding shares of Common Stock of the
Company are included in this offering.
The Shares are not listed on any national securities exchange or the NASDAQ
Stock Market.
Investing in these Shares involves a high degree of risk. The Shares offered
should not be purchased by any investor who cannot afford to sustain a total
loss of his or her investment. (See "RISK FACTORS" on page 7).
These securities have not been approved by the United States Securities and
Exchange Commission ("SEC") or any state securities agency. Neither the SEC nor
any state securities agency has passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
The securities are being offered on a best efforts basis and there are no
minimum purchase requirements. The Shares may be offered and sold by
broker-dealers from time to time, and such broker-dealers may be paid normal and
customary commissions with respect to such sales. It is anticipated that this
offering will continue until such time as all or substantially all of the shares
held by the selling shareholders are eligible for sale under Rule 144 under the
Securities Act of 1933 (the "Act"). There are not arrangements for the placement
of funds in an escrow, trust or similar account.
The information in this prospectus is not complete and may be changed. The
Shares may not be sold until the registration statement filed with the SEC is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
The date of this Prospectus is November 4, 2005.
4
TABLE OF CONTENTS
OVERVIEW OF BUSINESS ........................................................ 6
RISK FACTORS ................................................................ 8
USE OF PROCEEDS ............................................................ 15
DETERMINATON OF OFFERING PRICE ............................................. 15
DILUTION ....................................................................15
SELLING SHAREHOLDERS ........................................................15
PLAN OF DISTRIBUTION ........................................................16
LEGAL PROCEEDINGS ...........................................................16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS ....................................16
AND CONTROL PERSONS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .......................................................18
DESCRIPTION OF SECURITIES ...................................................20
INTERESTS OF NAMED EXPERTS AND COUNSEL ......................................20
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ..............................21
ORGANIZATION WITHIN LAST FIVE YEARS .........................................21
DESCRIPTION OF BUSINESS .....................................................21
MANAGEMENT'S PLAN OF OPERATION ..............................................23
DESCRIPTION OF PROPERTY .....................................................24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..............................24
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .........................................................25
EXECUTIVE COMPENSATION ......................................................26
FINANCIAL STATEMENTS ....................................................... 28
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ..................................... 46
INDEMNIFICATION OF DIRECTORS AND OFFICERS ...................................47
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION .................................47
RECENT SALES OF UNREGISTERED SECURITIES .....................................49
EXHIBITS ................................................................... 50
UNDERTAKINGS ............................................................... 51
5
FORWARD-LOOKING STATEMENTS
Statements contained in this report, which are not historical in nature, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements in the sections entitled Description of Business, Market for Common
Equity and Related Stockholder Matters, and Management's Plan of Operation,
which can be identified by the use of forward-looking terminology such as
believes, expects, plans, estimates, predicts, potential, continue, may, will,
should, or anticipates or the negative thereof, or other variations thereon or
comparable terminology, or by discussions of strategy. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled "Risk Factors" that may
cause the Company's or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
Such forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from anticipated results. These
risks and uncertainties include regulatory constraints, changes in laws or
regulations governing the Company's products and international trade, the
ability of the Company to successfully market its products in an increasingly
competitive worldwide market, changes in the Company's operating or expansion
strategy, failure to consummate or successfully integrate proposed product
developments, the ability of the Company to manage growth, the general economy
of the United States and the specific global markets in which the Company
competes, the availability of financing from internal and external sources, and
other factors as may be identified from time to time in the Company's filings
with the Securities and Exchange Commission or in the Company's press releases.
OVERVIEW OF BUSINESS
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. The
Company owns or has obtained an exclusive license to use this specialized and
proprietary color technology.
On June 16, 2004, the Company entered into a contract for the development of its
color technology providing 3D spectral-based pattern file creation and matching.
Color pattern files can be created from any digital photograph or scan, without
having to reprint, recreate, recall or modify existing digital source of
documents. Those pattern files can then be matched against existing databases to
detect and identify crime, forgery, counterfeiting and other frauds. The Company
believes that its technology will provide a new, accurate and fast detection
tool for critical applications such as national security, forgery/fraud
prevention, brand protection, and product tampering.
6
OVERVIEW OF BUSINESS - continued
The Company intends to position its technology as both a revolutionary as well
as a practical solution for security and fraud prevention applications and
markets. The Company's current focus is to capitalize upon the potential
business opportunities in the areas of national security, document
forgery/fraud, brand protection, label fraud and product tampering.
Background
Visualant, Incorporated (formerly known as Starberrys Corporation) was
incorporated on October 8, 1998 as a Nevada corporation. The Company has no
subsidiaries and no affiliated companies. The Company's executive offices are
located at 500 Union Street, Suite 406, Seattle, Washington 98101.
Under the Company's Articles of Incorporation, 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 of November 4, 2005, there were 16,387,224
shares of Common Stock issued and outstanding. No shares of Preferred Stock have
been issued.
On November 24, 1998 the Company acquired the exclusive rights to market high
quality cigars through a climate-controlled kiosk merchandise display case,
known as the King Climate Control, at a cost of $50,000. The Company did not
proceed with this new business and in 2000 abandoned the activity.
In November 2002, the Company signed a Letter of Intent with eVision
Technologies Corporation and its founder, Ken Turpin, to acquire 100% of the
assets related to the business of Colour By Number ("CBN"). The CBN System is a
digital color management system providing one color language across industries
and materials, empowering architects, designers, contractors, retailers and
consumers to take full control of their choice and use of color.
Unfortunately, the Company was unsuccessful in raising the financing needed to
complete this acquisition, and the acquisition ultimately was abandoned.
On January 19, 2003, the Company signed a Letter of Intent with Malaremastarnas
Riksforening, the sole shareholder of Skandinaviska Farinstituter AB ("SCI" or
the Scandinavian Color Institute), for the acquisition by the Company of all of
the shares of SCI. SCI owns the Scandinavian Color School and the color notation
system Natural Color Systems ("NCS"), which is the leading color notation system
in Europe. On April 9, 2003, the Company entered into a Purchase Agreement to
complete the acquisition of SCI for a purchase price of SEK 35,000,000. The
acquisition was scheduled to close on November 30, 2003 subject, however, to the
satisfaction of certain conditions prior to closing. The Company, however, was
unsuccessful in raising the necessary funds to complete this acquisition, and
the transaction was abandoned.
On June 16, 2004, the Company entered into an independent contractor agreement
with eVision Technologies pursuant to which eVision Technologies is to provide
research and development services to the Company for its color technology
outside the visible spectrum.
On August 18, 2004, the Company changed its name to Visualant, Incorporated to
reflect its new business pursuits.
7
OVERVIEW OF BUSINESS - continued
On April 21, 2005, the Company entered into an exclusive, worldwide licensing
agreement with eVision Technologies Inc., pursuant to which the Company has been
granted exclusive rights to the CBN coding system, which identifies colors and
uses the identification for the purpose of formulating colors. As consideration
for this license, the Company granted and issued 10,000 shares of its Common
Stock to eVision Technologies.
To date, the Company has no revenues from its operations, and its ability to
implement its business plans for the future will depend on the availability of
financing. Such financing also 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 from the sale of its capital stock
through private placements. There can be no assurance, however, that the Company
will be successful in obtaining additional capital from the sale of its capital
stock, or in otherwise raising substantial capital.
Presently, the Company does not have its own website. During the past fiscal
year, the Company has filed various periodic reports with the SEC, including
Forms 10-KSB, 10-QSB, and 8-K. These documents may be reviewed and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549.
In addition, the SEC maintains an Internet website that contains reports, proxy
and information statements, and other information which the Company has filed
electronically with the SEC. Interested parties can review these filings by
accessing the SEC's website using the following address: http://www.sec.gov.
RISK FACTORS
Investment in early-stage companies is highly risky. An investor must be mindful
of the fact that loss of all or part of the investor's monetary investment is
possible. While opportunity for substantial returns exists, so does substantial
risk. The investment is only suitable for qualified investors who have no
immediate need for liquidity in their investment and who can bear the risk of
potential total loss.
The Company is an early stage development company without revenues or a proven
track record in achieving the objectives outlined in the Company's business
plan. Readers should carefully consider the risks described below before
deciding whether to invest in shares of the Company's Common Stock.
If the Company does not successfully address any of the risks described below,
there could be a material adverse effect on the Company's business, financial
condition and/or results of operations, and the price of the Company's common
stock may decline and investors may lose all or part of their investment.
The Company cannot assure any investor that it will successfully address these
risks.
SUMMARY: Potential risk factors include but are not limited to failure to raise
sufficient capital, failure to complete product development, changes in
government regulations, non-acceptance of products in the marketplace, death or
disability of key employees, unforeseen radical changes in the underlying
technologies, and failure to properly engage strategic and channel partners. The
following provides more detail concerning some of the risks.
8
RISK FACTORS -continued
A. Risks Related to the Business and Operations of the Company
Possible Loss of Entire Investment
Given the Company's continued need for additional capital, the Company's stock
involves a high degree of risk, and should not be purchased by any person who
cannot afford the loss of their entire investment. A purchase of the Company's
stock is currently unsuitable for a person who cannot afford to lose his or her
entire investment.
The Company has incurred a cumulative net loss of $2,642,951 for the period from
October 8, 1998 (the date of inception) to June 30, 2005. It is very possible
that the Company will continue to incur significant operating losses and
generate negative cash flow from operating activities during the next few years
while it develops its color technologies and applications. The Company currently
has sufficient funds to cover existing operations for approximately seventeen
(17) months. There is no assurance that the Company will be able to obtain
sufficient additional debt or equity financing or achieve or sustain
profitability or positive cash flow from operating activities in the future or
that it will generate sufficient cash flow to service any debt requirements.
Need for Additional Capital
As of June 30, 2005, the Company has incurred a cumulative net loss of
$2,642,951. As a result of these losses and negative cash flows from operations,
the Company's ability to continue operations and to achieve its objectives will
be dependent upon obtaining substantial additional funding. No assurance can be
given that such funding will be obtained, and the Company's auditors, in the
audited financial statements as at September 30, 2004, have indicated a concern
as to whether the Company will be able to raise sufficient funds to complete its
objectives and, if not, the Company may not be able to continue as a going
concern. If the Company cannot obtain such financing, it is possible that the
Company will be unable to successfully commercialize and market its products,
ultimately resulting in a failure of the Company.
Lack of Operating History and Experience
The Company has no revenues from operations, has no significant tangible assets,
and has incurred a cumulative net loss in excess of $2.5 million through the
second quarter of 2005. Accordingly, there can be no assurance that the Company
will operate at a profitable level. The Company's business involves the
research, development and commercialization of applications for its color
technology. Future development and operating results will depend on many
factors, including the completion of developed applications or products, demand
for the Company's products, level of product and price competition, success in
setting up and expanding distribution channels, and whether the Company can
develop and market new products and control costs. In addition, the Company's
future prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in establishing a new business in the
software industry, which is characterized by intense competition and rapid
technological change. There can be no assurance that the Company's future
financial forecasts will be met.
9
RISK FACTORS -continued
Uncertainty of New Product Development
The Company is still in the development phase for its technology and products.
Substantial additional efforts and expenditures to enhance their capabilities
are critical to commercial viability.
Acceptance of Company's Products; Change in Regulatory Situation
The market place for the Company's products is a dynamic and evolving sector,
and there is no guarantee that the approach outlined in this prospectus will be
readily accepted. Additionally, future regulatory compliance may be altered
based upon changes in the political landscape.
There can be no assurance that the Company will successfully develop any
products or applications, or that its products/applications will be adopted, or
that its products/applications will be marketed successfully. In addition, there
can be no assurance that the Company's products/applications will be widely
adopted as an industry standard, even if similar products have been introduced
successfully to the marketplace.
The markets for the Company's products have only recently begun to develop. As
is typical in the case of a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty and risk. Because the markets for the Company's products
are new and evolving, it is difficult to predict the future growth rate, if any,
and size of this market. There is no assurance either that the markets for the
Company's products will emerge or become sustainable. If markets fail to
develop, develop more slowly than expected or become saturated with competitors,
or if the Company's products do not achieve or sustain market acceptance, the
Company's business, results of operations and financial condition will be
materially and adversely affected.
Need for Full-Time, Experienced Management and Key Employees
The Company is a growing company dependent upon the services of certain
management and technical personnel, particularly Ralph Brier (CEO and Director),
Ronald Erickson (Chairman of the Board and Director) and Ken Turpin (Chief
Science Officer). At present, the Company has only one full-time employee, Ralph
Brier. The other officers and directors devote such time to the activities of
the Company as are required from time to time. The loss of the services of any
one of these persons, or an inability to recruit and retain additional qualified
personnel, could have a material adverse effect on the Company. The Company
carries no key-man life insurance for any of these individuals.
Conflicts of Interest
Some of the Directors are also directors and/or 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. Where possible, these
conflicts will be disclosed and appropriately managed.
10
RISK FACTORS -continued
Concentration of Ownership by Management
The management of the Company, either directly or indirectly, owns 1,150,000
shares. Even though this represents only 7% of the issued and outstanding
shares, it may be difficult for any one shareholder to solicit sufficient votes
to replace the existing management. Therefore, any one shareholder may not have
an effectual voice in the direction of the Company.
Substantial Competition
The security, document forgery and fraud detection industry is characterized by
rapidly evolving technology and potentially intense competition. The Company
will be at a disadvantage with other companies having larger technical staffs,
established market shares and greater financial and operational resources than
the Company. There can be no assurance that the Company will be able to
successfully compete. There can be no assurance that the Company's competitors
will not succeed in developing applications, products or competing technologies
that are more effective or more effectively marketed than products marketed by
the Company, or that render the Company's technology obsolete. Earlier entrants
into a market often obtain and maintain significant market share relative to
later entrants. The Company believes that an increasing number of applications
and products in the market and the desire of other companies to obtain market
share will result in increased price competition. Price reductions by the
Company in response to competitive pressure could have a material, adverse
effect on the Company's business, financial condition, and results of
operations.
Protection of Proprietary Technology
The Company's success will depend in part on its ability to preserve and protect
its trade secrets and proprietary technology, and to operate without infringing
upon the patents or proprietary rights of third parties in both the United
States and other countries. At this time, the Company has filed one patent
application in the United States. The Company currently seeks to protect its
proprietary technology through its patents and agreements with employees and
others requiring that such information be kept confidential and that software
code not be reverse engineered. There can be no assurance that such protection
will be sufficient or that patent and/or copyright claims will not be
challenged. Furthermore, the possibility exists that the Company could be found
to be infringing on patents or copyrights held by others. The Company may have
to sue to defend its intellectual property, to prosecute infringers, or to
defend itself from infringement claims by others. Intellectual property
litigation is expensive and time-consuming, and can be used by well-funded
adversaries as a strategy for depleting the resources of a small company such as
the Company. There is no assurance that the Company will have sufficient
resources to successfully prosecute its interests in any patent-related or
copyright infringement litigation that may be brought.
The Company is not aware of any disputes with respect to any of its intellectual
property at this time. The possibility exists, however, that the Company could
be found to infringe on patents, service marks, trade marks or copyrights held
by others. The use of trade marks, service marks, trade names, slogans, phrases
and other expressions in the course of the business of the Company may be the
subject of dispute and possible litigation.
11
RISK FACTORS -continued
Dependence on Third Parties
The Company is a small enterprise and has yet to establish substantial internal
management, personnel and other resources. The Company depends substantially
upon third parties for several critical elements of its business including,
among other things, product research and technology development.
Need for Future Strategic Partnerships
The successful execution of the Company's business strategy is dependent upon
enlisting key strategic partners in order to assist in product research and
development, commercialization of the Company's applications and products, and
to provide financial support or strength. There is no assurance that the Company
will be successful in developing such strategic partnerships on a timely basis
or in developing enough strategic partnerships to successfully market the
Company's technologies and products domestically and globally.
Failure to Maintain Technological Advantages/Risk of Obsolescence
The Company will be dependent upon what it perceives as performance and
usefulness advantages of its applications and its ability to maintain trade
secret protection for its products. There can be no assurance that the Company
will be able to obtain or maintain such advantages; failure to do so would have
substantial adverse consequences to the business of the Company.
Technological obsolescence of the Company's applications and products remains a
possibility. There is no assurance that the competitors of the Company will not
succeed in developing related applications or products using similar processes
and marketing strategies before the Company, or that they will not develop
products that are more effective than any which have been or are being developed
by the Company. Accordingly, the Company's ability to compete will be dependent
on timely enhancement and development of its applications and products, as well
as the development and enhancement of future products. There is no assurance
that the Company will be able to keep pace with technological developments or
that its products will not become obsolete.
Recently Enacted and Proposed Regulatory Changes
Recently enacted and proposed changes in the laws and regulations affecting
public and reporting 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.
12
RISK FACTORS -continued
B. Risks Relating to the Common Stock of the Company
Limited Public Market for Common Stock
The Company's common stock is not quoted or listed on any national securities
exchange or the NASDAQ Stock Market. Although management's strategy is to
develop a public market for the Company's common stock, there can be no
assurance that the Company will be successful in soliciting brokers to become
market makers of the stock, or that a stable market for the Company's common
stock will ever develop or, if it should develop, be sustained. It should be
assumed that any market for the Company's common stock will be highly illiquid,
sporadic and volatile. The Company's stock should not be purchased by anyone who
cannot afford the loss of their entire investment.
The Company is required to maintain status as a "reporting" issuer under the
Securities Exchange Act of 1934 (the "Exchange Act"), in order to be traded by
broker-dealers regulated by the National Association of Securities Dealers
("NASD"). If the Company fails to continue to be a reporting issuer, management
may encounter difficulty in maintaining or expanding a trading market in the
near term, if at all, and shareholders may not be able to sell their shares in
the public market. While management currently intends to maintain status as a
reporting issuer under the Exchange Act, there can be no assurance that the
Company can or will maintain such status.
Penny Stock Regulation
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 per share (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
National Market System, if current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, before consummation of a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the SEC that 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 bid and ask 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. In addition, the penny stock rules
require that, before consummation of a transaction in a penny stock not
otherwise exempt from such rules, the broker-dealer must make a special written
determination that a penny stock is a suitable investment for the purchaser and
receive the purchaser's written agreement to the transaction. These disclosure
requirements often have the effect of reducing the level of trading activity in
any secondary market for a stock that becomes subject to the penny stock rules.
The Company's stock is currently subject to the penny stock rules, and
accordingly, investors may find it difficult to sell their shares, if at all.
Possible Issuance of Additional Shares in the Future
The Company's Certificate of Incorporation authorizes the issuance of
200,000,000 shares of common stock and 50,000,000 shares of preferred stock. The
Company's Board of Directors may issue all such shares that are not yet issued,
without stockholder approval. The Company's Board of Directors may choose to
issue some or all of such shares to acquire one or more businesses or other
13
RISK FACTORS -continued
types of property, or to provide additional financing in the future. The
issuance of any such shares may result in a reduction of the book value or
market price of the outstanding shares of the Company's common stock. If the
Company does issue any such additional shares, such issuance also will cause a
reduction in the proportionate ownership and voting power of all other
shareholders. Further, any such issuance may result in a change of control of
the Company.
Absence of Dividends; Dividend Policy
The Company has never paid dividends on its common stock and does not anticipate
paying any dividends on its common stock in the foreseeable future. The
declaration and payment of dividends by the Company are subject to the
discretion of the Company's Board of Directors. Any determination as to the
payment of dividends in the future will depend upon results of operations,
capital requirements, and restrictions in loan agreements, if any, and such
other factors as the Board of Directors may deem relevant.
Present Shareholders Have Acquired Shares At Lower Prices
Some of the present shareholders have acquired their shares at prices ranging
from $0.001 to $0.25 per share, while other, more recent shareholders have
purchased their shares at $0.50 and $0.75 per share. In addition, the Company
has issued to a related party options for 300,000 shares of common stock at an
exercise price of $0.10 per share (see section below entitled "Stock Options").
Stock Options
In June 2005 the Company adopted a combined incentive and non-qualified stock
option plan authorizing the issuance of up to 2,000,000 shares of its common
stock. Some options may be granted under certain circumstances at exercise
prices below market at the time of grant. In any event, if the price of the
Company's common stock should increase, the difference between the current
market stock price and the exercise prices of outstanding options will increase.
As of June 30, 2005, no options have been granted under the Company's 2005 stock
option plan; however, the following options to purchase common stock of the
Company were granted prior to the adoption of the stock option plan: (i) 25,000
shares at an exercise price of $1.00 per share, which options will expire on
December 31, 2006; (ii) 300,000 shares at $0.10 per share, which options will
expire on August 15, 2009; and (iii) 210,000 shares at $1.00 per share, which
options will expire on June 6, 2006. As of the date hereof, none of the granted
options have been exercised.
The existence of below-market options could adversely affect the market price of
the Company's common stock and impair the Company's ability to raise additional
capital through the sale of its equity securities or debt financing.
Exercise of any such options will result in dilution of the proportional
interests of shareholders of the Company at the time of exercise, and, to the
extent that the exercise price is less than the book value of the common stock
at that time, to the book value per share of the common stock.
14
USE OF PROCEEDS
Existing shareholders, and not the Company, will receive the proceeds from the
sale of up to 13,748,375 of the Shares. None of the proceeds from shareholder
sales will be used to fund the Company's operations.
As of June 30, 2005, the Company had $650,779 in cash on hand and $61,054 of
short-term liabilities. The Company is consuming approximately $38,000 per month
for its current level of operations and product development.
DETERMINATON OF OFFERING PRICE
There is no established public market for the Shares being registered. The
offering price for these Shares was determined by the Company, and no
independent appraisal was done to determine this price. Although the price is
"arbitrary", it does reflect the offering price for the Company's Common Stock
in the most recent private offering undertaken by the Company in 2005.
Each prospective investor will need to make an independent evaluation of whether
or not the price per Share is reasonable.
DILUTION
The net tangible book value of the Company on June 30, 2005 was $615,116,
yielding a per share net tangible book value of $0.038 per share. If you
purchase Shares in this offering from selling shareholders, the net tangible
book value of the Company will remain the same, and you will suffer immediate
and substantial dilution of approximately $0.71 per Share or 95% (assuming the
Shares are purchased for $0.75 per share).
SELLING SHAREHOLDERS
The Company is not participating in this offering. The 13,698,375 Shares being
offered are owned by the current shareholders of the Company. None of the
selling shareholders are officers, directors, or owners of more than 5% of the
common stock of the Company. The amount of Shares owned by the Company's
officers and directors, including their respective ownership percentages, are
reflected on page 16 of this prospectus in the section entitled "Security
Ownership of Certain Beneficial Owners and Management."
All of the shares of all shareholders who are not officers, directors or owners
of more than 5% of the common stock of the Company are being registered for sale
under this offering. Attached as Exhibit 99.1 is a list of the names of the
selling shareholders and the number of Shares beneficially owned by each of
them. The Company is filing this registration statement to meet certain
obligations to some or all of these shareholders. Although they will have the
right to sell their shares under this offering, such sales will be at their
discretion and the Company does not know if such shareholders will, in fact,
sell their shares under this offering. The Company intends to keep this offering
open until all or substantially all of such shares are eligible for sale under
Rule 144 under the Act.
15
PLAN OF DISTRIBUTION
The selling shareholders may, from time to time after the registration statement
becomes effective, sell any or all of their Shares in private transactions or on
any stock exchange, market or trading facility on which the Company's common
stock is traded. The Company's common stock, however, presently is not traded on
any market or securities exchange. The selling shareholders also may sell Shares
under Rule 144 of the Securities Act, if available, rather than under this
prospectus.
LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth, as of June 30, 2005, the name, age and position
of each executive officer and director, and the term of office of each director
of the Company. Each member of the Board of Directors of the Company serves for
a term of one year and until his successor is elected at the Company's annual
shareholders' meeting and is qualified. Each officer is appointed by the Board
of Directors, serves at the pleasure of the Board, and holds office until
his/her earlier death, retirement, resignation or removal.
There are no agreements for any officer or director to resign at the request of
any other person, and none of the officers or directors named below is acting on
behalf of, or at the direction of, any other person.
Year
Name Age Position first elected
- ------------------- ----- -------------------------------------- -------------
Ronald P. Erickson 60 Chairman of the Board 2003
- ------------------- ----- -------------------------------------- -------------
Ralph Brier 53 Chief Executive Officer and Director 2004
- ------------------- ----- -------------------------------------- -------------
Terry H. McKay (1) 55 Director 2002
- ------------------- ----- -------------------------------------- -------------
Mary Hethey (2) 55 Chief Financial Officer, Chief Account- 2003
ing Officer and Secretary
- ------------------- ----- -------------------------------------- -------------
Ken Turpin 58 Chief Science Officer 2004
- ------------------- ----- -------------------------------------- -------------
Jerry D. Goldberg (3) 41 Chief Financial Officer, Treasurer 2005
and Secretary
- ------------------- ----- -------------------------------------- -------------
16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
(1) On September 13, 2005, the Company accepted the resignation of Terry McKay
as a Director of the Company. Mr. McKay's resignation was not due to any
disagreement with the Company on any matter relating to the Company's
operations, policies or practices.
(2) On August 31, 2005, Mary Hethey resigned as Chief Financial Officer, Chief
Accounting Officer and Secretary of the Company.
(3) On August 31, 2005, Jerry D. Goldberg was appointed as Chief Financial
Officer, Treasurer and Secretary of the Company.
RONALD P. ERICKSON has been a director and officer of the Company since April
24, 2003. He was appointed President and Chief Executive Officer of the Company
on September 29, 2003, and resigned from this position on August 31, 2004, at
which time he was appointed Chairman of the Board. Resident in Seattle, he is a
seasoned executive with more than 20 years of expertise in the high technology,
telecommunications and microcomputer industries. Mr. Erickson is also Chairman
of Intrinsyc Software Inc., a Vancouver-based publicly-traded company providing
proprietary software and solutions which enable the development and networking
of intelligent devices such as PDA's. Mr. Erickson is the current Chair and
former CEO of eCharge, an electronic payment systems developer, where he played
a major role in raising approximately USD $100 million in equity capital from
major international investors. Mr. Erickson previously was co-founder, Chairman,
President and CEO of GlobalTel Resources, Inc., a provider of telecommunication
services, messaging and intranet solutions. During his career, Mr. Erickson has
also held executive positions at Egghead Software Inc, NBI Inc and MicroRim,
Inc. With a law degree from the University of California, Davis, he maintains an
active license to practice law in the State of Washington and the District of
Columbia.
RALPH BRIER was appointed CEO, President and Director of the Company on August
31, 2004. He has over 25 years of diverse experience in marketing, sales,
business development and strategic planning, with a focus in the security and
biometrics sector. Ralph was Executive Vice President of Strategic Sales with
Applied DNA Sciences, a Los Angeles based biotechnology security firm. He was
previously employed by Sagem Morpho, a division of Groupe SAGEM in France, a
global leader in the provisioning of biometric solutions for business and
government. During his tenure there, he doubled commercial sales revenues,
serving as the senior commercial, channel and OEM business executive of
biometric software, smart card implementation and hardware.
TERRY H. MCKAY, who has been a director since June 6, 2002, resigned as a
director of the Company effective September 13, 2005. Dr. McKay currently
practices Dentistry in North Vancouver, BC. Since 1999 he has been a director of
Swident, a Swiss dental insurance company, and serves on its Financial Audit
Committee. Dr. McKay is past Clinical Director for Knowell Technology and a past
Board member of longivitystore.com. Dr. McKay graduated from the University of
British Columbia with a B.A. and D.M.D. in 1975. He has practiced Dentistry in
British Columbia and in Seattle, Washington. Dr. McKay's professional
memberships include the Canadian Dental Association, B.C. College of Dental
Surgeons, Washington State Dental Association, American Academy of Gold Foil
Operations and the American Academy of Operative Dentists.
17
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
MARY M. HETHEY, C.A., was appointed Chief Financial Officer, Chief Accounting
Officer and Secretary of the Company on November 3, 2003. Ms. Hethey graduated
with a B.A. in Economics from the University of Toronto in 1973. She moved to
Vancouver and started to article with Clarkson Gordon Chartered Accountants in
1975, and transferred to Collins Barrow in 1978, where she performed both audits
and non-audit engagements. In 1979 she obtained her Chartered Accountant
designation. Since 1985, Mrs. Hethey has been a senior executive with various
public companies listed both on the Canadian and US stock exchanges. She has
continued to work as a Chartered Accountant since 1979. Ms. Hethey resigned as
CFO, CAO and Secretary of the Company effective August 31, 2005.
KEN TURPIN was appointed Chief Science Officer on August 31, 2004. He has worked
with the visual world of color as it applies to building materials for the past
15 years. His most recent business success was the founding, development, and
sale of Fire Stop Systems, which was acquired and renamed to PFP Partners by
Johns Manville in 1998. Throughout his career in manufacturing building
products, Ken often dealt with the world of color, where he observed how people
viewed and used color. In 1999, he began to allocate significant human,
technical and financial resources to the world of visual color. The result of
this research and development is CBN Systems. While doing the research on this
project, he identified many other opportunities in the "non-visual to humans"
spectrum of color.
JERRY D. GOLDBERG was appointed Chief Financial Officer, Treasurer and Secretary
of the Company on August 31, 2005 and has more than 15 years of experience in
financial and operational management of emerging and early-stage companies. Most
recently, Mr. Goldberg was CFO and President of Emanation Software Inc., a
start-up software development firm focused on digital media distribution. Mr.
Goldberg previously was Director of Finance for The Ackerley Group, a major
publicly-traded media and entertainment firm. Mr. Goldberg also spent nearly 10
years as CFO and principal of Strategic Capital Corp, an investment banking
advisory firm, through which he performed many interim-CFO assignments and was
involved in dozens of merger and acquisition and financing transactions. During
his career, Mr. Goldberg also held financial management positions with such
companies as AT&T Wireless Services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the ownership of
the Company's common stock as of September 30, 2005, with respect to: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the Company's common stock; (ii) all directors; and (iii) all directors and
executive officers of the Company as a group. The notes accompanying the
information in the table below are necessary for a complete understanding of the
figures provided below.
As of September 30, 2005, the Company had in place its 2005 Stock Option Plan
authorizing the issuance of up to 2,000,000 shares of the Company's common
stock. As of September 30, 2005, there were no options issued or outstanding
under the Plan.
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - continued
(1) Brier has been granted options for 300,000 shares of common stock at an
exercise price of $0.10 per share, which options expire on August 19, 2009
(2) Hethey has been granted options for 25,000 shares of common stock at an
exercise price of $1.00 per share, which options expire on December 31,
2006.
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - continued
(3) Goldberg has been granted options for 250,000 shares of common stock at an
exercise price of $0.75 per share, which options expire on August 31, 2008.
62,500 of these options are fully vested as of September 30, 2005.
DESCRIPTION OF SECURITIES
General Provisions of Common Stock
All outstanding shares of common stock are duly authorized, validly issued,
fully paid and non-assessable. Upon liquidation, dissolution or winding up of
the Company, the holders of common stock are entitled to share ratably in all
net assets available for distribution to stockholders after payment to creditors
and holders of preferred stock, if any. The common stock is not convertible or
redeemable and has no preemptive, subscription or conversion rights.
Each outstanding share of common stock is entitled to one vote on all matters
submitted to a vote of shareholders. There are no cumulative voting rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. Holders of
common stock will share equally on a per share basis in any dividend declared by
the Board of Directors. The Company has not paid any dividends on its common
stock and does not anticipate paying any cash dividends on such stock in the
foreseeable future.
In the event of a merger or consolidation, the holders of common stock will be
entitled to receive the same per share consideration.
General Provisions of Preferred Stock
The Board of Directors is authorized by the Certificate of Incorporation of the
Company to issue up to 50,000,000 shares of preferred stock. No such stock has
been issued to date. The preferred shares could, in certain instances, render
more difficult or discourage a merger, tender offer, or proxy contest, and thus
potentially have an "anti-takeover" effect, especially if preferred shares were
issued in response to a potential takeover. In addition, issuances of authorized
preferred shares can be implemented, and have been implemented by some companies
in recent years, with voting or conversion privileges intended to make
acquisition of the Company more difficult or more costly. Such an issuance could
deter the types of transactions which may be proposed or could discourage or
limit the shareholders' participation in certain types of transactions that
might be proposed (such as a tender offer), whether or not such transactions
were favored by the majority of the shareholders, and could enhance the ability
of officers and directors to retain their positions.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or legal counsel has been retained with respect to this prospectus on
a contingent basis or who will receive a direct or indirect interest in the
Company or who was a promoter, underwriter, voting trustee, director, officer or
employee of the Company.
20
DISCLOSURE OF THE SEC'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Company's Articles of Incorporation and Bylaws provide that directors and
officers shall be indemnified by the Company to the fullest extent authorized by
applicable law, against all expenses and liabilities reasonably incurred in
connection with services for or on behalf of the Company. The Articles of
Incorporation and Bylaws also authorize the Board of Directors to indemnify any
other person who the Company has the power to indemnify under applicable law,
and indemnification for such a person may be greater or different from that
provided in the Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted for directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
On May 28, 2002, the Company signed an agreement with First Equity Capital Group
Inc. for the assignment of the "Starberrys" name and business system from First
Equity Capital Group to the Company. The consideration was 2,500,000 shares of
common stock plus $50,000. The 2,500,000 shares were delivered by the Company to
First Equity on June 6, 2002.
On June 16, 2004, the Company executed an Intellectual Property Agreement with
Ken Turpin, the Company's Chief Science Officer, 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. As part of this Agreement, Turpin
acknowledged and agreed that all work product was 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. As consideration
for this Agreement, Ken Turpin received 500,000 shares of common stock. Except
as indicated above, there were no other transactions, or series of similar
transactions, since inception of the Company and during its current fiscal
period, or any currently proposed transactions, or series of similar
transactions, to which the Company was or is to become a party, in which the
amount involved exceeded $60,000, and in which any director or executive
officer, or any security holder who is known by the Company to own of record or
beneficially more than 5% of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, has an interest.
DESCRIPTION OF BUSINESS
The Company (formerly named Starberrys Corporation) was incorporated as a Nevada
corporation on October 8, 1998. The Company has no subsidiaries and no
affiliated companies.
The Company's executive offices are located in Seattle, Washington. On June 16,
2004, the Company entered into a contract with eVision Technologies Inc. to
conduct further research on and development of the Company's color technology.
The terms of the contract require the Company to pay eVision CDN $18,600 per
month (approximately USD $15,500) for such research and development services,
which are provided by Kenneth Turpin, a principal of eVision. The Company's
technology involves providing 3D spectral-based pattern file creation and
matching. Color pattern files can be created from any digital photograph or
21
DESCRIPTION OF BUSINESS - continued
scan, without having to reprint, recreate, recall or modify existing digital
source of documents. Those pattern files can then be matched against existing
databases to detect and identify crime, forgery, counterfeiting and other
frauds. The Company believes that this technology will provide a new, accurate
and fast detection tool for critical applications such as national security,
forgery/fraud prevention, brand protection, and product tampering.
The Company changed its name to Visualant, Incorporated on August 18, 2004 to
reflect its new business pursuits.
On April 21, 2005, the Company entered into a licensing agreement with eVision
Technologies Inc. pursuant to which eVision Technologies, as licensor, agreed to
grant the Company exclusive licensing rights to its technology. This technology,
the CBN coding system, identifies colors and uses the identification for the
purpose of formulating colors. This system has been licensed to the Company on
an exclusive worldwide basis for all purposes, except for the purpose of
formulating colors. As consideration for this license, the Company has agreed to
grant eVision Technologies 10,000 shares of common stock of the Company.
The focus of the Company is to capitalize upon the business opportunities in
national security, document forgery/fraud, brand protection, label fraud and
product tampering. The Company intends to position its technology as both a
revolutionary and practical solution for security and fraud/forgery prevention
markets and applications. The Company's plans include:
(i) Building awareness and acceptance among systems integrators in
selected markets;
(ii) Targeting and supporting market-specific software developers and
providing them with software development kits (SDKs) specific to their
market/application needs;
(iii)Pursuing strategic and business partnerships with known leaders in
selected markets while developing high visibility and contact with
designers and system integrators within their organizations;
(iv) Developing a visual presentation that captures the revolutionary
nature of the Company's technology, so that any audience can easily
grasp the significance of this new technology;
(v) Developing a complete marketing and sales plan with objectives,
strategies, sales goals, and measurement tools;
(vi) Developing white papers and technical briefs specific to selected
markets; (vii) Developing and placing a series of feature articles for
the technical press;
(viii) Targeting market-specific trade journals, and trade
shows/conferences with press releases and corporate presence; and
(ix) Deploying a marketspecific sales team with expertise and existing
relationships within their respective industries/market segments.
The Company intends to raise further funds through private placements of the
Company's common stock. The financing activities of the Company are current and
ongoing, and it will expand and accelerate its marketing program as the timing
and amount of financing allow.
22
DESCRIPTION OF BUSINESS - continued
To date the Company has no revenues from operations. The Company has one
full-time employee and intends to hire additional personnel in the near future,
depending on its success in raising funds to accelerate its research and
development program and marketing plans.
The Company files various periodic reports with the SEC, including Forms 10-KSB,
10-QSB, and 8-K. These documents may be reviewed and copied at the SEC's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that
contains reports, proxy and information statements, and other information which
the Company has filed electronically with the SEC. Interested parties can review
these filings by accessing the SEC's website using the following address:
http://www.sec.gov.
MANAGEMENT'S PLAN OF OPERATION
The Company has no revenue to date from its operations, and its ability to
implement its plans for the future will depend on the future availability of
financing. Such financing will be required to enable the Company to develop its
technology and acquire new businesses. The Company intends to raise further
funds through private placements of the Company's common stock. The financing
activities of the Company are current and ongoing, and it will expand and
accelerate its marketing program as the timing and amount of financing allow.
However, there can be no assurance that the Company will be successful in
obtaining additional capital for such technology development and/or business
acquisitions from the sale of its capital stock, or in otherwise raising
substantial capital.
The Company's cost to continue operations as they are now conducted is
approximately $38,000 per month, and the Company has sufficient funds to cover
existing operations for approximately seventeen (17) months. However, the
Company will need to raise additional funds in order to finance its plans to
expand its operations for the next year. The Company intends to raise the
required funds by obtaining share capital from outside sources. During the three
months ended December 31, 2004, the Company raised $212,000 in additional share
capital through the sale of common shares. From January 2005 through November 2,
2005, an additional $1,140,000 was raised through the sale of common shares. The
Company plans to raise a minimum of $500,000 and a maximum of $1,300,000 through
the sale of common shares in 2006. If the Company is successful in raising
additional funds, the Company's research and development efforts will be
increased.
There is no plan to purchase or sell any equipment, other than the $12,308 paid
for research and development equipment in October 2004.
If the Company is successful in raising additional funds, it intends to hire two
to three programmers and/or software engineers to accelerate its research and
development program and complete the development of its technology, as well as
file patents and initiate marketing of the technology. With the hiring of
additional personnel, the Company expects to have a product available for
demonstration within the next six months. The Company's software currently is in
modular form, and eventually will be developed into software development kits
specific to market/application needs.
23
MANAGEMENT'S PLAN OF OPERATION - continued
In addition to securing the necessary funds, commercialization of the Company's
technology and the availability of a marketable product are dependent upon a
number of factors including:
(i) Securing patent protection for the Company's intellectual property. The
Company has filed a patent application on its core technology, and expects to
receive notification from the U.S. Patent and Trademark Office before the end of
2005 as to whether a patent will be granted.
(ii) Development of new applications for the Company's technology and
pursuit of new markets and market segments that will utilize the technology.
(iii) Ongoing patent research and writing relating to the evolution of the
Company's technology and its product application(s) as the Company's technology
is tested and refined.
The Company recently became a member of the University of Washington HIT Lab
Consortium. The Lab is supported in part by the Virtual Worlds Consortium, a
group of over 45 companies or organizations that provide funding and direction
to the Lab. These companies include: Advanced Telecommunications Research (ATR),
Alias/Wavefront, American Express Company, Armstrong Aeromedical Research
Laboratory (AAMRL), Battelle, The Broken Hill Proprietary Company (BHP), Boeing,
Chevron Petroleum Technology Company, Change Tools, Eastman Kodak Company,
Fluke, Ford Motor Company, Franz, Fujitsu, Hewlett Packard, Hughes, Industrial
Technology Research Institute, Intel Corporation, Institute for Information
Industry, Kopin Corporation, Lockheed-Martin, Marconi Aerospace Systems Inc.,
Microsoft, Microvision Inc., Museum of Flight, NBBJ, NEC Corporation, Nike,
Omron Corporation, Pentax Corporation, Philips, Reachin Technologies, Rockwell
Science Center Inc., Samsung, SensAble Technologies, Sense8/EAI, Sharp
Corporation, Stratos, Sun Microsystems, Tektronix, Telecom Italia, Texas
Instruments, U.S. Navy, U.S. West Communications, VisionGate, and Virtual
Vision.
Membership in the HIT Lab Consortium enables the Company to conduct specific
testing and research projects at the HIT Lab involving its color screening
technology. Other potential benefits of membership in the Consortium include
academic testing, validation and certification of the Company's technology,
recommendations for technology investments and additional applications for the
Company's technology, and introductions to strategic partners and prospective
customers in the industry.
DESCRIPTION OF PROPERTY
The Company's executive offices are located at 500 Union Street in Seattle,
Washington, in space that is leased from another company, Blue Frog Mobile Inc.
The Company's Chairman is the CEO of Blue Frog Mobile. The Company pays rent of
$200 per month.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ronald Erickson, Chairman of the Company, is the CEO and a shareholder of Blue
Frog Mobile Inc. The Company leases space from Blue Frog Mobile as described
above under "Description of Properties."
On June 16, 2004, the Company entered into a contract with eVision Technologies
Inc. to conduct research and development of the Company's color technology. The
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - continued
Company pays eVision CDN $18,600 per month for such research and development
services, which are provided by Kenneth Turpin, a principal of eVision. In
addition, on April 21, 2005, the Company entered into an exclusive licensing
agreement with eVision Technologies for the exclusive licensing rights to
eVision's CBN coding system technology. eVision received 10,000 shares of common
stock of the Company as consideration for the license. Ken Turpin, the Company's
Chief Science Officer, owns 100% of eVision Technologies.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At present there is no established public trading market for the Company's
Common Stock.
Holders
As of November 4, 2005, there were approximately 98 shareholders of record of
the Company's outstanding 16,387,224 shares of Common Stock. There are no
additional shareholders through nominee or street name accounts with brokers. In
addition to the outstanding shares, there are outstanding options to purchase
785,000 shares of Common Stock at exercise prices ranging from $0.10 per share
to $1.00 per share.
Dividends
The Company has not declared or paid dividends on its Common Stock since its
formation, and the Company does not anticipate paying dividends in the
foreseeable future. Although the Company does not currently have a credit
facility, future credit facilities, if any, are likely to prohibit the payment
of dividends. Declaration or payment of dividends, if any, in the future, will
be at the discretion of the Board of Directors and will depend on the Company's
then current financial condition, results of operations, capital requirements
and other factors deemed relevant by the Board of Directors.
Equity Compensation Plan Information
25
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation paid or accrued by the Company to
its executive officers and directors. Other than the CEO, the table does not
include any executive officer whose total annual salary and bonus does not
exceed $100,000 during the fiscal year ended September 30, 2005.
The Company's Board of Directors and Shareholders have adopted the 2005 Stock
Option Plan for our officers, key employees, directors, agents, advisors and
consultants, which could result in additional compensation. Under this plan, the
Company may issue up to 2,000,000 shares of its Common Stock. As of the date of
this prospectus, no options have been granted under this Plan.
_________________________________
1 In August 2004, Ralph Brier was granted options to purchase 300,000
shares of common stock at an exercise price of $0.10 per share. The
options vest at a rate of 25,000 shares per quarter commencing August
15, 2004. The options will expire on August 15, 2009.
Table of Option/SAR Grants in Last Fiscal Year
26
EXECUTIVE COMPENSATION - continued
Compensation of Directors
Standard Arrangements. Directors are not paid any compensation for their
services as directors. All directors are reimbursed for their out-of-pocket
expenses incurred in connection with work performed on behalf of the Company.
Other Arrangements. None
Employment Contracts. The Company has an employment agreement with Ralph Brier,
as CEO of the Company, pursuant to which he was paid $5,000 per month commencing
August 15, 2004 through April 15, 2005. From April 16, 2005 through June 15,
2005, his compensation was increased to $9,000 per month. Commencing June 16,
2005, his compensation has been increased to $15,420 per month.
The Company also has an employment agreement with Jerry D. Goldberg as CFO of
the Company, pursuant to which he is to be paid $3,250 per month commencing
August 31, 2005.
27
FINANCIAL STATEMENTS
The Company's fiscal year end is September 30. The Company's audited financial
statements for the fiscal years ended September 30, 2004 and September 30, 2003
and its unaudited financial statements for three and nine month interim periods
ended June 30, 2005 immediately follow:
FINANCAIL STATEMENTS Table of Contents Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ......................... 29
BALANCE SHEET September 30, 2004 ........................................... 30
STATEMENT OF OPERATIONS - For the Years Ended September 30,
2004 and 2003 and Period October 8,1998 (Date of Inception)
to September 30, 2004 .................................................. 31
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the
period October 8, 1998 (Date of Inception) to September 30, 2004 ...... 32
STATEMENT OF CASH FLOWS - For the year ended September 30,
2004 and 2003 and the Period October 8, 1998 (Date of
Inception) to September 30, 2004 ....................................... 33
NOTES TO FINANCIAL STATEMENTS - September 30, 2004 ......................... 34
BALANCE SHEET - June 30, 2005 and September 30, 2004 (Unaudited) ........... 38
STATEMENT OF OPERATIONS - For the Three and Nine Months
Ended June 30, 2005 and 2004 and Period October 8,1998 (Date
of Inception) to June 30, 2005 (Unaudited) ............................. 39
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the
period October 8, 1998 (Date of Inception) to
June 30, 2005 (Unaudited)............................................... 40
STATEMENT OF CASH FLOWS - For the nine months ended June 30,
2005 and 2004 and the Period October 8, 1998 (Date of
Inception) to June 30, 2005 (Unaudited) ................................ 41
NOTES TO FINANCIAL STATEMENTS - June 30, 2005 .............................. 42
28
MADSEN & ASSOCIATES CPA's INC. 684 East Vine Street #3,
Certified Public Accountants and Murray, Utah 84107
Business Consultants Telephone 801-268-2632
Member SEC Practice Section of the AICPA Fax 801-268-3978
Board of Directors
Visualant, Incorporated
Vancouver, B.C., Canada
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Visualant, Incorporated
(development stage company) at September 30, 2004, and the related statements of
operations, stockholders' equity, and cash flows for the years ended September
30, 2004 and 2003 and the period October 8, 1998 (date of inception) to
September 30, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards accepted in
the United States of America. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visualant, Incorporated at
September 30, 2004, and the results of operations, and cash flows for the years
ended September 30, 2004 and 2003 and the period October 8, 1998 (date of
inception) to September 30, 2004 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company does not have the
necessary working capital to service its debt and for its planned activity,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 9. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Murray, Utah Madsen & Associates CPA's Inc.
29
VISUALANT, INCORPORATED
(Development Stage Company)
BALANCE SHEET
September 30, 2004
ASSETS
CURRENT ASSETS
Cash $ 12,832
-------------
TOTAL CURRENT ASSETS 12,832
-------------
TOTAL ASSETS $ 12,832
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable & accrued interest - related party $ 593,750
Accounts payable - related parties 645,652
Accounts payable 248,092
-------------
TOTAL CURRENT LIABILITIES 1,487,494
-------------
STOCKHOLDERS' EQUITY
Common stock 200,000,000 shares authorized, at $0.001
par value; 11,689,848 (2003 - 11,489,848) shares
issued and outstanding $ 11,690
Capital in excess of par value 709,626
Deficit accumulated during the development stage (2,195,978)
-------------
TOTAL STOCKHOLDERS' DEFICIENCY (1,474,662)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 12,832
=============
The accompanying notes are an integral part of these financial statements
30
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF OPERATIONS
For the Years Ended September 30, 2004 and 2003 and Period
October 8,1998 (Date of Inception) to September 30, 2004
Oct 8, 1998
Sept 30 Sept 30 to Sept 30,
2004 2003 2004
----------- ----------- -----------
REVENUES $ -- $ -- $ --
----------- ----------- -----------
EXPENSES
Administrative 146,515 646,321 1,006,181
----------- ----------- -----------
NET LOSS - before other losses (146,515) (646,321) (1,006,181)
OTHER EXPENSES AND LOSSES
(RECOVERIES)
Interest (75,000) (18,750) (93,750)
Loss of deposit - note 7 -- (1,154,327) (1,154,327)
Recovery of prior year's expense 58,280 -- 58,280
----------- ----------- -----------
NET LOSS $ (163,235) $(1,819,398) $(2,195,978)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (.01) $ (.17)
=========== ===========
AVERAGE OUTSTANDING SHARES
Basic (stated in 1,000's) 11,506 10,535
=========== ===========
The accompanying notes are an integral part of these financial statements
31
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY For the period October 8,
1998 (Date of Inception) to September 30, 2004
The accompanying notes are an integral part of these financial statements
32
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the year ended September 30, 2004 and 2003 and the Period
October 8, 1998 (Date of Inception) to September 30, 2004
The accompanying notes are an integral part of these financial statements
33
VISUALANT, INCORPORATED
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 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" and the authorized capital stock was changed
by the addition of 50,000,000 shares of preferred stock with a par value of
$0.001. On August 18, 2004, the Company changed its name a second time, 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
intellectual property related to the "Colour 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.
In June 2004, the Company entered into a contract for the development of its
color technology providing 3D spectral-based pattern file creation and matching.
The Company 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.
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 recorded, when it is more likely than not, that such tax
benefits will not be realized.
34
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income Taxes - continued
On September 30, 2004 the Company had a net operating loss carry forward of $
2,195,978 The tax benefit of approximately $ 659,000 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 2024.
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.
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.
Financial and Concentrations Risk
The Company does not have any concentration or related financial credit risk.
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 generally accepted accounting principles. 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.
35
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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. NOTE PAYABLE - RELATED PARTY
The Company has a note payable of $500,000 due July 31, 2004, including interest
of 15%. The note is secured by common shares of the Company owned by
officers-directors.
4. COMMON CAPITAL STOCK
Since its inception, the Company has completed private placements of 11,355,000
of its common capital stock for $ 617,792 and has issued 150,000 shares for
services and 184,848 shares for payment of debt.
5. COMMON CAPITAL STOCK OPTIONS
During 2003 the Company granted stock options to a related party of 300,000
shares of common stock at $.10 per share, which will expire August 15, 2009.
Stock options of 187,500 shares of common stock were cancelled during the year.
There are stock options outstanding to a related party of 25,000 shares of
common stock at $1.00 per share, which will expire on December 31, 2006.
On the date of the grant the fair value of outstanding shares of the Company was
less than $1.00 and therefore no value was recorded.
Officers, directors and key consultants have acquired 56% of the outstanding
common stock and have received the stock options as outlined in Note 5.
8. SUBSEQUENT EVENTS
9. 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
funding, long term debt, and contributions to capital by officers, which will
enable the Company to conduct operations for the coming year.
36
VISUALANT, INCORPORATED
FINANCIAL STATEMENTS (UNAUDITED)
The accompanying balance sheet of Visualant, Incorporated (development stage
company) at June 30, 2005 and September 30, 2004 and the statement of operations
for the three and nine months ended June 30, 2005 and 2004 and statement of cash
flow for the nine months ended June 30, 2005 and 2004 and for the period from
October 8, 1998 (date of incorporation) to June 30, 2005, 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 June 30, 2005 are not necessarily
indicative of the results that can be expected for the year ending September 30,
2005.
37
VISUALANT, INCORPORATED
(Development Stage Company)
BALANCE SHEET
June 30, 2005 and September 30, 2004
The accompanying notes are an integral part of these financial statements
38
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF OPERATIONS
For the Three and Nine Months Ended June 30, 2005 and 2004 and Period
October 8,1998 (Date of Inception) to June 30, 2005
The accompanying notes are an integral part of these financial statements
39
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period October 8,
1998 (Date of Inception) to June 30, 2005
The accompanying notes are an integral part of these financial statements
40
VISUALANT, INCORPORATED
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the nine months ended June 30, 2005 and 2004 and the Period
October 8, 1998 (Date of Inception) to June 30, 2005
Oct 8, 1998
June 30, June 30, to June 30,
2005 2004 2005
----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (448,941) $ (105,767) $(2,642,951)
----------- ----------- -----------
Adjustments to reconcile net loss
to net cash provided by operating
activities
Depreciation of equipment 2,003 -- 2,003
Issuance of common stock for
expenses -- -- 150
Change in accounts receivable (7,587) -- (7,587)
Changes in accounts and notes (77,719) 105,426 1,476,230
payable
Capital contributions - expenses -- -- 10,950
Incentive stock options 18,000 -- 42,000
Loss of deposit -- -- 1,154,327
----------- ----------- -----------
Net Cash Used in Operations (514,244) (341) 35,122
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (12,308) -- (12,308)
Purchase of investment - deposit -- -- (1,154,327)
----------- ----------- -----------
(12,308) -- (1,166,635)
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net proceeds from issuance of
common stock 1,164,500 -- 1,782,292
----------- ----------- -----------
1,164,500 -- 1,782,292
----------- ----------- -----------
Net Increase (Decrease) in Cash 637,948 (341) 650,779
Cash at Beginning of Period 12,831 380 --
----------- ----------- -----------
Cash at End of Period $ 650,779 $ 39 $ 650,779
=========== =========== ===========
SCHEDULE OF NONCASH FLOWS FROM OPERATING ACTIVITIES
Issuance of 150,000 common shares for services - 2003 $ 150
===========
Capital contributions - expenses - 1999 - 2000 10,950
===========
Incentive stock options - 2004 - 2005 42,000
===========
The accompanying notes are an integral part of these financial statements
41
VISUALANT, INCORPORATED
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
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
intellectual 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 CBN 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.
42
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 June 30, 2005 the Company had a net operating loss carry forward of $
2,642,951. The tax benefit of approximately $ 793,000 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 2024.
Equipment
- ---------
Equipment consists of computers used in research and development and are
depreciated over five years.
Equipment $ 12,207
Accumulated depreciation (1,753)
-----------
Net equipment $ 10,554
===========
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.
43
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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.
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. LICENSE
The Company acquired a world wide license for the use of technology to further
develop its interest, as outlined in note 4, from a related party for $7,500 by
the issuance of 10,000 common shares. The license is being amortized over five
years, its estimated useful life.
44
4. 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.
5. COMMON CAPITAL STOCK
Since its inception, the Company has completed private placements of 13,058,999
of its common capital stock for $ 1,782,292, 10,000 shares for a license
outlined in note 3, 150,000 shares for services and 2,850,350 shares for payment
of debt of $1,425,175.
6. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers, directors and key consultants have acquired 7% of the outstanding
common stock and have received the stock options as outlined in Note 8.
7. CANCELLATION OF AGREEMENT TO PURCHASE SHARES OF SCI
On April 9, 2003, the Company signed a Purchase Agreement with
Malaremastastarnas Riksforening, the owner of all the shares of Skandinaviska
Farginstituer AB ( the Scandinavian Colour Institute or "SCI") which owns the
color notation system Natural Color Systems ("NCS"), containing the terms of an
acquisition by the Company or its assigns for a price of SEK 35,000,000 of all
shares of SCI. Pursuant to the terms of the agreements the Company made payments
of $1,154,327 into an escrow account as part payment toward the purchase price.
The Company subsequently failed to make further payments on the contracts and by
mutual agreement the contracts were cancelled and the moneys paid were expensed.
8. INCENTIVE STOCK OPTIONS
During 2002 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, to purchase 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.
On March 22, 2005, the Company granted stock options to a former key consultant
of the Company of 210,000 common shares at $1.00 per share to expire on June 6,
2006.
45
8. INCENTIVE STOCK OPTIONS - continued
None of the options had been exercised by the report date.
During June 2005 the Company established a stock option plan and reserved
2,000,000 common shares under the plan. The terms of the options have not been
established and no options have been issued.
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 period ended June 30, 2005 would have been unchanged.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On February 5, 2004, the Company dismissed Sellers & Andersen, LLC as the
Company's independent accountants. This action was approved by the Board of
Directors of the Company. The Company, with the approval of its Board of
Directors, engaged the services of Madsen & Associates CPA's Inc. as the
Company's new independent accountants on February 5, 2004.
The reports of Madsen & Associates CPA's Inc. for the financial statements as at
September 30, 2003 and September 30, 2004, and through the subsequent interim
periods ended December 31, 2004, March 31, 2005 and June 30, 2005 contain no
adverse opinions or disclaimers of opinion and were not modified or qualified as
to audit scope or accounting principles, but did contain modifications as to the
Company's ability to continue as a going concern.
During the fiscal years ended September 30, 2003 and September 30, 2004, and
through the subsequent interim periods ended December 31, 2004, March 31, 2005
and June 30, 2005, there have been no disagreements with the Company's
independent accountants on any matters of accounting principles or practices,
financial statement disclosure, or audit scope or procedures, which disagreement
if not resolved to the satisfaction of such accountants, would have caused them
to make reference in connection with their report on the financial statements of
the Company for such years.
END OF PROSPECTUS
46
PART II -- INFORMATON NOT REQUIRED IN THE PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation and Bylaws provide that directors and
officers shall be indemnified by the Company to the fullest extent authorized by
applicable law, against all expenses and liabilities reasonably incurred in
connection with services for or on behalf of the Company. The Articles of
Incorporation and Bylaws also authorize the Board of Directors to indemnify any
other person who the Company has the power to indemnify under applicable law,
and indemnification for such a person may be greater or different from that
provided in the bylaws.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Estimated expenses over twelve
months and required funds:
Requirements for
Expenditures twelve months
------------------------- ----------------
Accounting and audit (1) $ 45,255
Bank charges 1,500
Consulting (2) 185,000
Filing fees (3) 400
Legal fees (4) 20,000
Office (5) 12,000
Rent (6) 2,400
Research and development (7) 186,000
Telephone (8) 3,600
Transfer agent's fees (9) 2,150
Travel and promotion (10) 10,000
Website and logo design (11) 2,000
----------
Estimated expenses $ 470,305
==========
(1) Accounting and auditing expense has been projected as follows:
Filing by Public Accountants Cost
---------------------------- ----
Form 10-KSB - Sept. 30, 2005 4,500
Form 10-QSB - Dec. 31, 2005 585
Form 10-QSB - March 31, 2006 585
Form 10-QSB - June 30, 2006 585
--------
In-house accounting 39,000*
--------
Total $ 45,255
========
* The Company hired a CFO during the third calendar quarter, and expects
to incur an accounting expense of $3,250 per month as the monthly
salary to be paid to the CFO.
47
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION - continued
(2) Consulting fees of $15,420 per month are paid to the CEO of the
Company, Ralph Brier. The consulting fees increased from $9,000 per
month to $15,420 per month in June 2005.
(3) 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.
(4) Legal fees are estimated based on the business transacted 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.
(5) Relates to photocopying, faxing and courier, in addition to
miscellaneous expenses incurred by the directors. The estimate of
these charges is approximately $750 per month for 12 months. Printing
costs of $3,000 are included in this amount.
(6) Rent expenses are payable at $200 per month for 12 months.
(7) Research and development is paid to Kenneth Turpin at a rate of
$18,600 Canadian ($15,500 US) per month for twelve months.
(8) The estimate of telephone expenses to conduct Company business is
approximately $300 per month for 12 months.
(9) 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.
(10) 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.
(11) 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 all
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 leased premises at Suite 406, 500 Union
Street, Seattle, Washington, for $200 per month.
At present, the directors devote time to the affairs of the Company as required.
There are no plans to hire any additional employees at this time. The Company
will continue to use the services of consultants in the furtherance of the
Company's goals.
48
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION - continued
The following table sets forth the estimated costs and expenses, other than
underwriting discounts (if any), payable by the Company in connection with the
offering of the securities being registered.
SEC registration fee........................................ $ 1,295
Printing expenses........................................... $ 1,000
Transfer Agent and registrar fee............................ $ 2,000
Legal fees and expenses..................................... $ 25,000
Accounting fees and expenses................................ $ 4,000
EDGAR filing fees........................................... $ 3,000
---------
Total.................................................. $36,295
RECENT SALES OF UNREGISTERED SECURITIES
In July 2003, the Company issued 150,000 shares of its common stock to Glencoe
Capital, Inc., a British Columbia corporation, as payment of a loan fee in
connection with a loan made by Glencoe Capital, Inc. to the Company in the
amount of $500,000. These shares were issued in reliance upon Section 4(2) of
the Securities Act of 1933 (the "Securities Act").
In July 2003, the Company also issued 25,700 shares of its common stock to Lars
Gunnar Karlero in exchange for and in satisfaction of outstanding debt of the
Company owed to Mr. Karlero. The debt was converted into equity at a rate of
$0.50 per share. These shares were issued in reliance upon Section 4(2) of the
Securities Act.
During 2004, the Company issued a total of 2,809,502 shares of its common stock
to various creditors in settlement and satisfaction of outstanding debts of the
Company. The debt was converted into equity at a rate of $0.50 per share. These
shares were issued in reliance upon Section 4(2) of the Securities Act.
During 2003 and 2004, the Company undertook several private placements of its
common stock, all pursuant to and in reliance upon exemptions from registration
under Rule 506 of Regulation D and Regulation S. The offering price for the
stock ranged from $0.50 to $0.75 per share, the Company received gross proceeds
in the aggregate amount of $680,000 from these offerings, and resulted in the
issuance of a total of 1,100,000 shares of the Company's common stock.
During 2005, the Company undertook a private placement of its common stock,
pursuant to and in reliance upon exemptions from registration under Rule 506 of
Regulation D and Regulation S. The offering price for the stock was $0.75 per
share, the Company received gross proceeds in the aggregate amount of $1,140,000
from this offering, and resulted in the issuance of a total of 1,519,999 shares
of the Company's common stock.
49
EXHIBITS
The following exhibits are filed as part of this Registration Statement pursuant
to Item 601 of Regulation S-B. All exhibits have been included unless otherwise
noted as being incorporated herein by reference.
(a) Exhibits
3.1 Articles of Incorporation incorporated herein by reference to the Company's
Registration Statement on Form 10-KSB filed on March 9, 1999.
3.2 Bylaws incorporated herein by reference to the Company's Registration
Statement on Form 10-KSB filed on March 9, 1999.
4.1 2005 Combined Incentive and Non-Qualified Stock Option Plan of the Company,
filed as an exhibit to the Company's Registration Statement on Form SB-2 filed
on August 1, 2005, File No. 333-127100, and incorporated herein by reference.
10.1 Intellectual Property Agreement dated June 16, 2004 between the Company and
Kenneth Turpin, filed as an exhibit to the Company's Registration Statement on
Form SB-2 filed on August 1, 2005, File No. 333-127100, and incorporated herein
by reference.
10.2 Independent Contractor Agreement dated June 16, 2004 between the Company
and eVision Technologies Inc. to provide research and development services with
respect to the Company's color technology, filed as an exhibit to the Company's
Registration Statement on Form SB-2 filed on August 1, 2005, File No.
333-127100, and incorporated herein by reference.
10.3 Worldwide Licensing Agreement dated April 21, 2005 between the Company and
eVision Technologies Inc. granting the Company exclusive rights to the CBN
coding system, filed as an exhibit to the Company's Registration Statement on
Form SB-2 filed on August 1, 2005, File No. 333-127100, and incorporated herein
by reference.
10.4 Letter Agreement dated August 26, 2004 between the Company and Ralph Brier,
CEO, regarding CEO compensation package, filed as an exhibit to the Company's
Registration Statement on Form SB-2 filed on August 1, 2005, File No.
333-127100, and incorporated herein by reference.
10.5 Letter Agreement dated August 28, 2005 between the Company and Jerry
Goldberg regarding CFO compensation package.
23.1 Consent of independent accountants to incorporation of auditor's report
dated December 20, 2004 in the SB-2 Registration Statement, filed as an exhibit
to the Company's Registration Statement on Form SB-2 filed on August 1, 2005,
File No. 333-127100, and incorporated herein by reference.
99.1 List of names of selling shareholders and respective number of shares
owned.
50
EXHIBITS - continued
(b) Reports on Form 8-K
(i) Form 8-K filed on February 5, 2004 and incorporated herein by reference,
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 and incorporated herein by reference,
announcing the Intellectual Property Agreement between Kenneth Turpin and the
Company signed on June 16, 2004. Also included in that Form 8-K were the
resignations of Hans Nasholm as a 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 8-K also announced that the name of the Company was changed to
Visualant, Incorporated and was registered with the Secretary of State of
Nevada.
(iii) Form 8-K filed on September 2, 2005 and incorporated herein by reference,
announcing the resignation of Mary Hethey as Chief Financial Officer, Chief
Accounting Officer and Secretary of the Company, and announcing the appointment
of Jerry D. Goldberg as the new Chief Financial Officer, Treasurer and Secretary
of the Company.
(iv) Form 8-K filed on September 15, 2005 and incorporated herein by reference,
announcing the resignation of Terry McKay as a director of the Company.
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
51
UNDERTAKINGS - continued
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Amendment No. 2 to the Form SB-2
Registration Statement and has caused this Amended Registration Statement to be
signed on its behalf by the undersigned duly authorized officer of the Company
in the city of Seattle, State of Washington, on November 4, 2005.
Registrant: VISUALANT, INCORPORATED
By: /s/ Ralph Brier
--------------------
Ralph Brier
Title: Chief Executive Officer, President and Director
In accordance with the requirements of the Securities Act of 1933, this amended
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Jerry D. Goldberg Date: November 4, 2005
- ----------------------------------
By: Jerry D. Goldberg
Title: Chief Financial Officer and
Secretary-Treasurer
/s/ Ronald P. Erickson Date: November 4, 2005
- ----------------------------------
By: Ronald P. Erickson
Title: Chairman of the Board and Director
52