10KSB: Optional form for annual and transition reports of small business issuers [Section 13 or 15(d), not S-B Item 405]
Published on January 13, 2009
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
x ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE
REQUIRED)
For the
fiscal year ended September 30,
2008
o TRANSACTION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED)
For the
transaction period from ________ to ________
Commission
File number 0-25541
VISUALANT,
INCORPORATED
(Name of
small business issuer in its charter)
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Nevada
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91-1948357
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(State
or other jurisdiction of incorporation
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(I.R.S.
Employer
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or
organization)
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Identification
No.)
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500
Union Street, Suite 406
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Seattle,
Washington
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98101
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer's
telephone number, including area code
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206-903-1351
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Securities
registered pursuant to Section 12 (b) of the Exchange Act:
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Common
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OTCBB
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(Title
of each class)
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(Name
of each exchange on which
registered)
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Securities
registered pursuant to Section 12 (g) of the Exchange Act:
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None
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(Title
of Class)
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Check
whether the Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
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(1)
Yes x
No o
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(2)
Yes x
No o
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Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No x
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State
issuer’s revenues for its most recent fiscal year:
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$ -0-
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1
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of a
specific date within the past 60 days.
As of
December 30, 2008, based upon the last reported trade on December 30, 2008, the
aggregate market value of the voting and non-voting common equity held by
non-affiliates (for this purpose, all outstanding and issued common stock minus
stock held by the officers, directors and known holders of 10% or more of the
Company’s common stock) was $755,197.
(ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Not
applicable
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date.
As of
January 13, 2009, the Company had 27,742,901 shares of common stock
issued
DOCUMENTS
INCORPORATED BY REFERENCE
Exhibits
incorporated by reference are referred to under Part IV
Transitional
Small Business Disclosure Format (Check one):
Yes o
No x
2
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TABLE OF
CONTENTS
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Page
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PART
1
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ITEM
1.
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Description
of Business
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4
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ITEM
2.
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Description
of Property
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7
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ITEM
3.
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Legal
Proceedings
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8
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ITEM
4.
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Submission
of Matters to Vote of Securities Holders
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8
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PART
II
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ITEM
5.
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Market
for Common Equity and Related Stockholder Matters
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8
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ITEM
6.
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Management’s
Discussion and Analysis or Plan of Operations
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8
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ITEM
7.
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Financial
Statements
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11
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ITEM
8.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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11
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ITEM
8A.
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Controls
and Procedures
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11
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ITEM
8B.
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Other
Information
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12
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PART
III
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ITEM
9.
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Directors,
Executive Officers, Promoters, and Control Persons; Compliance with
Section 16(a) of the Exchange Act
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12
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ITEM
10.
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Executive
Compensation
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14
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ITEM
11.
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Security
Ownership of Certain Beneficial Owners and Management
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17
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ITEM
12.
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Certain
Relationships and Related Transactions
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18
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PART
IV
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ITEM
13.
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Exhibits
and Reports on Form 8-K
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19
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ITEM
14.
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Principal
Accountant Fees and Services
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21
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SIGNATURES
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21
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3
PART
I
ITEM 1. DESCRIPTION
OF BUSINESS
History
and Organization
Visualant,
Incorporated (formerly Starberrys Corporation), a Nevada corporation (the
"Company"), was incorporated on October 8, 1998. The Company has
no subsidiaries or affiliated companies. The Company's executive
offices are located in Seattle, Washington.
The
Company's Articles of Incorporation currently provide that the Company is
authorized to issue 200,000,000 shares of Common Stock, par value $0.001 per
share, and 50,000,000 Preferred Shares. As at September 30, 2008
there were 18,353,891 Common Shares and no Preferred Shares
outstanding. As of the date of this annual report on Form 10-KSB,
9,389,010 additional shares have been issued for conversion of debt and payment
for services, resulting in 27,742,901 shares of common stock issued and
outstanding.
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, by the payment 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 (“eVision”) and Ken Turpin (founder / inventor) 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.
The Company was unsuccessful in raising the financing to complete this
acquisition and negotiations were terminated.
The
Company signed a Letter of Intent on 19 January 2003 with Malaremastarnas
Riksforening, the owner of all the shares of Skandinaviska Farinstituter AB
("SCI" or the Scandinavian Color Institute) which owns both the color notation
system Natural Color Systems ("NCS") and the Scandinavian Color School,
outlining the general terms of a proposed acquisition by the Company of all of
the shares of SCI. NCS is the leading color notation system in Europe
and is also highly regarded around the world. It is the national
standard for color in Sweden, Norway, Spain and South Africa. On
April 9, 2003 the Company signed a Definitive Purchase Agreement to complete the
acquisition, subject to certain conditions, of all the shares of SCI for a price
of SEK 35,000,000. Subsequent to June 30, 2003 that Agreement was
amended to change the Closing Date from August 31, 2003 to November 30,
2003. However, the Company was unsuccessful in raising the financing
to complete this acquisition, and negotiations were terminated.
On June
16, 2004, the Company entered into a research and development contract with
eVision 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 are then matched against existing
databases to detect and identify crime, forgery, counterfeiting and other
frauds. It is the intent of the Company to develop this technology to
provide a new, accurate and fast detection tool for critical applications such
as national security, forgery/fraud prevention, brand protection, and product
tampering. As of the time of this filing, no commercial products have
been developed using this technology and no significant progress has been made
in such development. On February 22, 2006, the Company terminated its
contract with eVision in order to concentrate its resources on its primary
research and development relationship with RatLab LLC.
For more
information on RatLab LLC, please see ITEM 6, MANAGEMENT’S PLAN OF
OPERATION.
The
Company changed its name to Visualant, Incorporated on August 18,
2004.
The
Company has no revenue to date from its operations, and its ability to effect
its plans for the future will depend on the availability of
financing. Such financing will be required to enable the Company to
develop its technology. The Company anticipates obtaining such funds
from its officers and directors, financial institutions or by way of the sale of
its capital stock through private offerings. However, there can be no
assurance that the Company will be successful in obtaining additional capital
from the sale of its capital stock, or in otherwise raising substantial
capital.
4
ITEM 1. DESCRIPTION
OF BUSINESS -
continued
History and Organization - continued
During
the fiscal year ended September 30, 2008, the Company filed with the SEC various
documents such as Forms 10-KSB, 10-QSB and 8-K. The Company does not
intend to distribute an annual report to its shareholders for the fiscal year
ended September 30, 2008.
The
shareholders may read and copy any materials filed by the Company with the SEC
at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.,
20549. The shareholders may obtain information on the operations of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information which the Company has filed
electronically with the SEC, by accessing the website using the following
address: http://www.sec.gov. The
Company is prepared to distribute, upon request from shareholders, any of the
material previously filed with the SEC. The Company also has a
website at www.visualant.net
from which additional information about the Company can be
obtained.
Special
Note Regarding Forward-Looking Statements
This Form
10-KSB contains forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These statements
relate to future events or the Company’s future financial performance. In
some cases, the reader can identify forward-looking statements by terminology
such as "may", "will", "should", "expects", "plans", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of these
terms or other comparable terminology. 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 or its 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 the Company believes that the
expectations reflected in the forward-looking statements are reasonable, it
cannot guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law, including the
securities laws of the United States, the Company does not intend to update any
of the forward-looking statements to conform these statements to actual
results.
The
Company’s financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles. In this annual report, unless otherwise specified, all
dollar amounts are expressed in United States Dollars.
RISK
FACTORS
There are
certain inherent risks which will have an effect on the Company’s development in
the future and some of these risk factors are noted below but are not all
encompassing since there may be others unknown to management at the present time
which might have an impact in the future on the development of the
Company.
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1.
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The
Company is uncertain if it will be able to obtain additional capital
necessary to continue development of its
technology.
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The
Company has incurred a cumulative net loss for the period from October 8, 1998
(date of inception) to September 30, 2008 of $6,674,748. As
a result of these losses and negative cash flows from operations, the Company’s
ability to continue operations will be dependent upon the availability of
capital from outside sources unless and until it achieves
profitability.
5
ITEM 1. DESCRIPTION
OF BUSINESS -
continued
RISK FACTORS -
continued
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2.
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Whether
the Company will continue to be a going
concern
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The
Company’s auditors’ concern in the audit opinion with regard to the Company’s
financial statements as at September 30, 2008 as to whether the Company will be
able to raise sufficient funds to complete its objectives indicates that the
Company might not be able to continue as a going concern. Without
adequate future financing, the Company might cease to operate and the existing
shareholders and any future shareholders will lose their entire
investment.
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3.
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Some
of the present shareholders have acquired shares at extremely low
prices
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Some of
the present shareholders have acquired shares at prices as low
as $0.001 per share, whereas other shareholders have purchased their
shares at prices ranging from $0.25 to $0.75 per share.
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4.
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Future
issuance of stock options, warrants and/or rights will have a diluting
factor on existing and future
shareholders
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The grant
and exercise of stock options, warrants or rights to be issued in the future
will likely result in a dilution of the value of the Company’s common shares for
all shareholders. The Company has established a Combined Incentive
and Non-Qualified Stock Option Plan and may in the future issue further stock
options to officers, directors and consultants which will dilute the interest of
the existing and future shareholders. Moreover, the Company may seek
authorization to increase the number of its authorized shares and sell
additional securities and/or rights to purchase such securities at any time in
the future. Dilution of the value of the common shares will likely
result from such sales.
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5.
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The
Company does not expect to declare or pay any
dividends
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The
Company has not declared or paid any dividends on its common stock since its
inception, and it does not anticipate paying any such dividends for the
foreseeable future.
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6.
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Conflict
of interest
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Some of
the Directors of the Company are also directors and officers of other companies,
and conflicts of interest may arise between their duties as directors of the
Company and as directors and officers of other companies.
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7.
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Concentration
of ownership by management.
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The
management of the Company and their immediate family members, either directly or
indirectly, own or control 4,581,875 shares as of the filing
date. Even though this represents only 16.5% of the issued and
outstanding shares, it might be difficult for any one shareholder to solicit
sufficient votes to replace the existing management. Therefore, any
given shareholder may never have a voice in the direction of the
Company.
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8.
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Key-man
insurance
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The
Company carries no key-man insurance. In the event that any of the
Company’s senior executive officers departed the Company or passed away, the
Company may not have the available funds to attract an individual of similar
experience. Management is considering obtaining key-man insurance
once it has sufficient funds to do so.
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9.
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Limited
full time employees
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The only
employee who worked full time for the Company was its Chief Executive Officer
and President, Bradley E. Sparks. The other directors will devote
time to the activities of the Company as required from time to
time. At the present time, other than Mr. Sparks, the Company has no
full-time employees.
6
ITEM 1. DESCRIPTION
OF BUSINESS -
continued
RISK
FACTORS - continued
|
10.
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Trading
in the Company’s stock is restricted by the SEC’s Penny Stock Regulations
which limit a stockholder’s ability to buy and sell the Company’s
shares.
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The SEC
has adopted regulations which generally define "penny stock" to be any equity
security that has a market price (as defined) less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain
exceptions. Under the penny stock rules, additional sales practice
requirements are imposed on broker-dealers who sell to persons other than
established customers and "accredited investors." The term
"accredited investor" refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the SEC which provides information
about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the
penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from these rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for the stock
that is subject to broker-dealers to trade in the Company’s
securities. The penny stock rules may discourage investor interest in
and limit the marketability of, the Company’s common stock.
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11.
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Recently
Enacted and Proposed Regulatory
Changes
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Recently
enacted and proposed changes in the laws and regulations affecting public
companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules
proposed by the SEC and NASDAQ could cause the Company to incur increased costs
as it evaluates the implications of new rules and responds to new
requirements. The new rules will make it more difficult for the
Company to obtain certain types of insurance, including directors and officers
liability insurance, and the Company may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these events could also make it more
difficult for the Company to attract and retain qualified persons to serve on
the Company's board of directors, or as executive officers. The
Company is presently evaluating and monitoring developments with respect to
these new and proposed rules, and it cannot predict or estimate the amount of
the additional costs it may incur or the timing of such costs.
ITEM 2. DESCRIPTION
OF PROPERTY
Offices
The
Company's executive offices are located at 500 Union Street, Suite 406, Seattle,
Washington, USA, 98101. The office is located in premises which are also used by
the Chairman of the Board of the Company for other business interests. The
Company pays rent of $400.00 per month for using this office.
Other
Property
The only
property owned by the Company is its intellectual property. During
2007, the Company filed additional patents covering work that the RatLab
performed. The patents focus on using photonics to establish a unique
identifier for objects, on communicating that identifier, and on comparing it
against a template. The Company has received notification from the
U.S. Patent and Trademark Office that the original patent filed was
denied. It was determined by the Company that it was not economically
feasible to contest the finding. As of the report date, the Company
has not received any notification from the U.S. Patent and Trademark Office as
to whether any of the patents filed in 2007 will be granted.
7
ITEM 3. LEGAL
PROCEEDINGS
There are
no legal proceedings to which the Company is a party or to which its property is
subject, nor to the best of management's knowledge are any material legal
proceedings contemplated.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
The last
annual shareholders' meeting was held on August 7, 2002. No matters
have been submitted to a vote of securities holders in the most recent fiscal
year.
PART
II
ITEM 5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The
Company’s common stock currently is quoted on the OTCBB. During the
past year, however, there has been a very limited trading market for the
Company's common stock. Since its inception, the Company has not paid
any dividends on its common stock, and the Company does not anticipate that it
will pay dividends in the foreseeable future. As at September 30, 2008 the
Company had 18,353,891 shares of common stock issued and outstanding held
by 99 active shareholders of record. In addition, the Company
had outstanding options to purchase 1,485,000 shares of common stock at exercise
prices ranging from $0.10 to $0.75 per share.
ITEM 6. MANAGEMENT'S
PLAN OF OPERATION
Overview
The
Company was incorporated on October 8, 1998 under the laws of the State of
Nevada. The Company's Articles of Incorporation currently provide
that the Company is authorized to issue 200,000,000 shares of Common Stock, par
value $0.001 per share, and 50,000,000 shares of Preferred Stock with such terms
as will be specified by the Board of Directors at the time it acts to create a
specific series of the Preferred Stock to be issued. As at September 30,
2008 there were 18,353,891 Common Shares and no Preferred Shares
outstanding.
On June
16, 2004, the Company entered into a contract with eVision Technologies
Corporation for the development of its color technology providing 3D
spectral-based pattern file creation and matching. Color pattern
files can be created from any object. 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 has the potential to provide a new, accurate and fast detection
tool for critical applications such as national security, forgery/fraud
prevention, process control, quality monitoring, brand protection, and product
tampering. Although progress has been made towards such development, the company
has no current commercial product. On February 22, 2006, the Company
terminated its contract with eVision in order to concentrate its resources on
its primary research and development relationship with RatLab LLC.
On December 16, 2005 the Company
entered into a research and development contract with RatLab LLC, a
privately-owned research laboratory in Seattle, Washington. On March
15, 2006, the contract was extended for Phase 1 and 2 research. Under
the contract, RatLab performed research and development using the Company’s
existing intellectual property, as well as newly developed research and
technologies in order to assist the Company with the commercialization of its
core technologies in the areas of brand and forgery protection, homeland
security, medical diagnostics, and color-based file creation and
matching. As of July 12, 2007, this Research and Development Contract
under which RATLab LLC had been providing research and development services to
the Company was suspended due to lack of funding, and Dr. Thomas Furness,
President of RATLab LLC, resigned as Senior Scientific Advisor to the Company on
August 8, 2007. As of September 30, 2008, the Company owes RATLab LLC
and Dr. Furness approximately $65,000 and $36,000, respectively, for past
services. Amounts owed are planned to be paid when funds are
available and when additional services, including delivery of additional
prototypes and transfer of source documentation regarding intellectual property,
are provided.
8
ITEM 6. MANAGEMENT'S
PLAN OF OPERATION -
continued
Overview - continued
In May
2007, the Company entered into a Letter of Intent with RATLab LLC pursuant to
which the Company proposed to acquire RATLab LLC as part of a share exchange
transaction. The parties, however, had not entered into a Share
Exchange Agreement as of June 30, 2007, the date the Letter of Intent
expired.
During
2007, the Company filed additional patents covering work that the RatLab
performed. The patents focus on using photonics to establish a unique
identifier for objects, on communicating that identifier, and on comparing it
against a template. During the year, the Company received
notification from the U.S. Patent and Trademark Office that the original patent
filed was denied. It was determined by the Company that it was not
economically feasible to contest the finding. As of the report date,
the Company has not received any notification from the U.S. Patent and Trademark
Office as to whether any of the other patents applied for will be
granted.
RatLab
LLC is a research laboratory formed primarily by Dr. Thomas Furness, founder and
former director of the Human Interface Technology Lab (HitLab) at the University
of Washington, and one of the leading researchers in the world in the area of
human interface technology. Dr. Furness also is the founder of the
Virtual World Consortium, an organization of more than fifty leading technology
companies and enterprises dedicated to sharing and advancing research in many
scientific research areas important to the Company. RatLab LLC also
employs other leading scientists and research associates in the areas of
computer science, imaging technology, and light sensing technology, who have
been part of the team conducting research on behalf of the Company.
The
Company intends to position its technology as 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.
On April
17, 2008 the Company announced the formation of a majority owned Japanese
subsidiary, Visualant Kabushiki Kaisha (“KK”) headquartered in Tokyo,
Japan. The Chairman of Visualant KK is Dr. Masahiro Kawahata, who
also serves as a member of the Board of Directors for Visualant,
Inc. For 100,000 shares of its common stock, Visualant, Inc. plans to
purchase 66% of an existing entity of which Dr. Kawahata and Ron Erickson
previously owned, and of which they will continue to own, 17% each. As of
September 30, 2008, the purchase of the existing entity shares has not closed
and the 100,000 Visualant shares have been issued, but still remain in the
custody of the Company. The closing is expected to occur within the first
half of calendar year 2009. Visualant KK was formed to facilitate the
development of business relationships with Japanese license partners and to help
build strong relationships between Visualant and the Japanese
marketplace. The Company sees the expansion of Visualant into the
Japanese market place as a key strategic move which will allow it to closely
align with manufacturers and systems suppliers who can integrate the Visualant
technology into solutions for their global customer base.
Liquidity
and Capital Resources
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
further develop its spectral signature technology and continue its
operations. The Company intends to raise further funds through
private placements of the Company's common stock and through short term
borrowing. The financing activities of the Company are current and
ongoing, and it will expand and accelerate its development 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 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
$42,000 per month, and the Company does not have sufficient funds to cover
existing operations. The Company needs to raise additional
funds in order to continue its existing operations, to resume its research and
development activities, and 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 year,
operating funds were advanced to the Company by its Chairman, Ronald P. Erickson
and salaries were deferred. If the Company is successful in raising
additional funds, the Company’s research and development efforts will continue
and expand, and overdue accounts payable will be satisfied.
During the first quarter 2009, the
Company converted $482,095 of its outstanding indebtedness and accrued interest
owed to Coventry Capital into 3,213,967 shares of the
Company’s common stock. Also occurring in the first quarter of 2009, in
satisfaction of outstanding matters with the RatLab LLC, a total of 1,850,000
shares of the Company’s common stock was issued, subject to certain
restrictions, to current and former RatLab LLC employees and consultants, in
settlement of outstanding matters with the RatLab LLC.
9
ITEM 6. MANAGEMENT'S
PLAN OF OPERATION -
continued
Results of
Operations
The
Company has had no revenues from operations since its inception.
Plan of
Operation.
The
Company is a development stage company engaged in the business of
commercializing products and services based upon our spectral signature
technology as reflected in our recently filed patent
applications. These patent applications pertain to the use of
controlled illumination with specific bands of electromagnetic radiation,
detection of returned electromagnetic radiation and data management in an
innovative manner enabling our devices to establish a unique spectral
signature for both individual and classes of items. The unique
spectral signature data can potentially be used in a variety of applications in
areas such as brand protection, forgery detection, homeland security, medical
diagnostics, quality control, fluids monitoring, metal stress analysis, and many
others. As of September 30, 2008, the Company has six
utility patent applications with the U.S. Patent Office.
The
Company purchases its research and development services from outside third party
sources. On March 15, 2006, the Company entered into a research and
development contract with RATLab LLC, a privately-owned research laboratory in
Seattle, Washington. Under the contract, RATLab performs research and
development using the Company’s existing intellectual property, as well as newly
developed research and technologies in order to assist the Company with the
commercialization of its core spectral signature technologies. During
the three and twelve-month periods ended September 30, 2008, the Company made no
payments for research and development fees to RATLab LLC. RATLab LLC
is a research laboratory formed primarily by Dr. Thomas Furness, founder and
former director of the Human Interface Technology Lab (HIT Lab) at the
University of Washington, and one of the leading researchers in the world in the
area of human interface technology. RATLab LLC also employs other
leading scientists and research associates in the areas of computer science,
imaging technology, and light sensing technology, who are part of the team
conducting research on behalf of the Company.
The
Company’s research and development activities under its Research and Development
Contract with RATLab LLC, however, were suspended on July 12, 2007 due to lack
of funds. During the three and twelve-month periods ended September
30, 2008, the Company made no payments for research and development fees to
RATLab LLC. Developmental activities, however, will resume with the RATLab
under the terms of the new licensing agreement with the RatLab, which are
set forth below.
On August 20, 2008, the Company entered
into a letter of intent with the RatLab LLC. The purpose of the
agreement contemplated by the letter of the intent was to achieve resolution of
the relationship between the RatLab LLC and the Company and provide a means for
a mutually beneficial on-going relationship. On October 23, 2008, the
Company and the RatLab LLC entered into definitive agreements which provide for
a non-commercial non-exclusive license of the Company’s technology to the
RatLab LLC for the purpose of continuing research and development with a license
back to the Company for enhancements that are developed. Further, an
exclusive license was entered into between the Company and the RatLab LLC for
four fields of use: medical, agricultural, environmental and
jewelry. This exclusive license provides for certain performance
milestones, a market-rate royalty to the Company and an equity participation in
an entity to be formed by the RatLab LLC to commercialize the Company’s
technology in the enumerated fields of use.
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 secure customers for its
spectral signature technology and to capitalize upon the potential business
opportunities in the areas of national security, document forgery/fraud, brand
protection, label fraud and product tampering. However, the
broad scope of the applications covered by the Company’s patent applications may
result in new opportunities surfacing from customers desiring prototypes
designed to satisfy their specific technology needs. As of September
30, 2008, the Company had no customers.
The
Company has developed prototypes which capture the spectral signatures of items
and manage the data gathered. These prototypes are being shown to
potential customers and funding sources to demonstrate the potential and
capabilities of our devices. It is envisioned that once the Company
has secured a customer or customers, it will collaborate with the customer to
develop devices and specific applications of the Company’s technology that are
designed to address the customer’s unique concerns. The Company will
then hire new personnel sufficient to fulfill its development obligations under
any contract entered into. In lieu of such hiring, the Company may
contract with certain research organizations to perform development activities
on behalf of the Company.
Through
the formation and development of its Japanese division, the Company plans to
facilitate the development of business relationships with Japanese license
partners and to help build strong relationships between Visualant and the
Japanese marketplace. The Company sees the expansion of Visualant
into the Japanese market place as a key strategic move which will allow it to
closely align with manufacturers and systems suppliers who can integrate the
Visualant technology into their product offerings.
10
ITEM 6. MANAGEMENT'S
PLAN OF OPERATION -
continued
Plan of Operation - continued
This
Report on Form 10-KSB contains certain forward-looking statements that are based
on current expectations. When used in this discussion, the words
"believe", "anticipates", "expects" and similar expressions are intended to
identify forward-looking statements. Such statements
are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected, and
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. The
Company may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to develop and
market its products; the market may not accept the Company’s future products;
the Company may not be able to retain existing key management personnel; and
there may be other material adverse changes in the Company’s operations or
business. Assumptions relating to budgeting, marketing, and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing
or other budgets, which may in turn affect the Company’s financial position and
results of operations. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers
are also urged to carefully review and consider the other risk factors relating
to the Company and the various disclosures made by the Company that
attempt to advise interested parties of factors which affect the
Company's business, in the Company’s Annual Report on Form 10-KSB for the year
ended September 30, 2007 as well as in the Company's periodic reports on Forms
10-QSB and 8-K filed with the Securities and Exchange Commission
(the "SEC"). The Company's financial statements are stated
in United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
ITEM 7. FINANCIAL
STATEMENTS
The
financial statements of the Company are included following the signature page to
this Form 10-KSB.
ITEM 8. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The
reports of the Company’s independent accountants, Madsen & Associates, CPA's
Inc., for the financial statements as of September 30, 2007 and 2008 are
included herein. To the Company’s knowledge, there are no disputes
with our auditors.
ITEM
8A. CONTROLS AND PROCEDURES
(a)
Evaluation of
Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer, after evaluating
the effectiveness of the Company’s controls and procedures (as defined in the
Securities Act of 1934 Rule 13a-15(e) or Rule 15d-15(e)) as of the end of the
period covered by this report, have concluded that the Company’s disclosure
controls and procedures are effective to give reasonable assurance that the
information required to be disclosed in reports that the Company files under the
Exchange Act is recorded, processed, summarized and reported as and when
required.
11
ITEM 8A. CONTROLS AND
PROCEDURES -
continued
(b)
Changes in Internal
Control Over Financial Reporting
There
were no significant changes in the Company’s internal control over financial
reporting that occurred during the Company’s last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company’s disclosure controls and procedures subsequent to the Evaluation Date,
nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions.
ITEM
8B. OTHER INFORMATION
There is
no additional information that was not disclosed by the Company through 8K
filings throughout the fiscal year.
PART
III
ITEM 9. DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16 (a) OF THE EXCHANGE ACT
The
following table sets forth as of September 30, 2008, the name, age, and
position of each executive officer and director and the term of office of each
director of the Company.
|
Name
|
Age
|
Position
Held
|
Term
as Director
Since
|
|||
|
Ronald
P. Erickson
|
64
|
Chairman
of the Board and Director
|
April
24, 2003
|
|||
|
Bradley
E. Sparks
|
61
|
Chief
Executive Officer, President and Director
|
November
10, 2006
|
|||
|
Jon
Pepper
|
58
|
Director
|
April
19, 2006
|
|||
|
Dr.
Masahiro Kawahata
|
70
|
Director
|
April
19, 2006
|
|||
|
Marco
Hegyi
|
51
|
Director
|
February
14,
2008
|
Each
director 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, subject
to removal by the Company's shareholders. Each officer serves, at the pleasure
of the Board of Directors, for a term of one year and until his successor is
elected at the Annual General Meeting of the Board of Directors.
Set forth
below is certain biographical information regarding each of the Company's
executive officers and directors.
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 a
co-founder of Blue Frog Mobile, a Seattle mobile media entertainment
company. Mr. Erickson was formerly 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 US $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.
JON
PEPPER is the co-founder of Pepcom, an industry leader in producing
press-only technology showcase events around the country. Prior to
that, Pepper started the DigitalFocus newsletter, a ground-breaking newsletter
on digital imaging that was distributed to industry leaders and opinion makers
worldwide. Mr. Pepper has been closely involved with the high
technology revolution since the beginning of the personal computer
era. He was a well-regarded former journalist and columnist, and his
work on technology subjects appeared in The New York Times, Fortune, PC
Magazine, Men’s Journal, Working Woman, PC Week, Popular Science, and
many other well known publications. Mr. Pepper was educated at Union
College in Schenectady, New York and the Royal Academy of Fine Arts in
Copenhagen.
DR.
MASAHIRO KAWAHATA is the former Director
of the Fujitsu Research Institute. Dr. Kawahata has taught at Tokai University,
is a Consulting Professor at Stanford University, Provost’s Distinguished
Professor at the University of Southern California and Visiting Professor at the
University of Washington. He is known in Japan as “the father of
multimedia” for his work as National Program Director in developing the
nationwide fiber optic network. Early in 2005, the U.S. government
officially acknowledged him as “Non-U.S. Scientist of Extraordinary Ability.” He
has served as a Director of numerous technology companies, and has received
several prestigious awards in the United States and Japan.
12
ITEM 9. DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16 (a) OF THE EXCHANGE ACT -
continued
BRADLEY E. SPARKS currently
serves as the Chief Executive Officer, President and a Director of Visualant,
Inc. Before joining Visualant, he was the Chief Financial Officer of
WatchGuard Technologies, Inc. from 2005-2006. Before joining WatchGuard,
he was the founder
and managing director of Sunburst Growth Ventures, LLC, a private investment
firm specializing in emerging-growth companies. Previously, he founded
Pointer Communications and served as Chief Financial Officer for several
telecommunications companies, including eSpire Communications, Inc., Digex,
Inc., Omnipoint Corporation, and WAM!NET. He also served as Vice President
and Treasurer of MCI Communications from 1988-1993 and as Vice President and
Controller from 1993-1995. Before his tenure at MCI, Mr. Sparks held
various financial management positions at Ryder System, Inc. Mr. Sparks
currently serves on the Board of Directors of software company iCIMS. Mr.
Sparks graduated from the United States Military Academy at West Point and is a
former Army Captain in the Signal Corps. He has an MS in Management from the
Sloan School of Management at MIT and is a licensed CPA in Florida.
MARCO HEGYI currently provides
growth management advisory services to companies of all sizes and works at the
board of directors, CEO and senior management levels to form and deploy
technology-based growth strategies. Previously, Mr. Hegyi worked at
Yahoo, where he served as Senior Director, Global Product Management/Search
Marketing. Prior to Yahoo, Mr. Hegyi was at Microsoft, leading program
management for Microsoft Windows and Office beta releases aimed at software
developers in the Platform, Products and Services Division. While at Microsoft,
he formed new service concepts and created operating programs to extend the
depth and breadth of the company’s unparalleled developer eco-system, including
managing offshore, outsource teams in China and India. He was the named inventor
of a filed Microsoft patent for a business process in service delivery. Before
Microsoft, Mr. Hegyi served in a number of senior management and board positions
with technology companies, where he led strategic growth and facilitated company
mergers and acquisitions. Mr. Hegyi began his career as a system software
engineer developing operating systems and communication protocols.
On
October 8, 2008 the Board elected Mr. Yoshitami Arai to its Board of
Directors. Mr. Arai is a prominent businessman, having served in many
professional and civic capacities in Japan and abroad. He has served
as a Director and Senior Executive of companies as diverse as 7-Eleven, Tokyu
Hotels, Systems International, Catalina Marketing and Sony.
To the
knowledge of management, during the past five years, no present or former
director, executive officer or person nominated to become a director or an
executive officer of the Company:
|
(1)
|
filed
a petition under the federal bankruptcy laws or any state insolvency law,
nor had a receiver, fiscal agent or similar officer appointed by the court
for the business or property of such person, or any partnership in which
he was a general partner at or within two years before the time of such
filings;
|
|
(2)
|
was
convicted in a criminal proceeding or named subject of a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
|
(3)
|
was
the subject of any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining him from or otherwise limiting, the following
activities:
|
|
(i)
|
acting
as a futures commission merchant, introducing broker, commodity trading
advisor, commodity pool operator, floor broker, leverage transaction
merchant, associated person of any of the foregoing, or as an investment
advisor, underwriter, broker or dealer in securities, or as an affiliate
person, director or employee of any investment company, or engaging in or
continuing any conduct or practice in connection with such
activity;
|
|
(ii)
|
engaging
in any type of business practice;
or
|
|
(iii)
|
engaging
in any activities in connection with the purchase or sale of any security
or commodity or in connection with any violation of federal or state
securities laws or federal commodities
laws;
|
|
(4)
|
was
the subject of any order, judgment, or decree, not subsequently reversed,
suspended, or vacated, of any federal or state authority barring,
suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described above under this Item, or
to be associated with persons engaged in any such
activities;
|
|
(5)
|
was
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission to have violated any federal or state
securities law, and the judgment in such civil action or finding by the
Securities and Exchange Commission has not been subsequently reversed,
suspended, or vacated;
|
|
(6)
|
was
found by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
|
13
ITEM 9. DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16 (a) OF THE EXCHANGE ACT -
continued
Audit
Committee Financial Expert
Until
August 2007 when he resigned from the board, William E. Gordon III served
as the Audit Committee chairman. The Company has replaced Mr. Gordon
with Marco Hegyi as audit chair.
Compliance
with Section 16 (a) of the Exchange Act
The
Company knows of no director, officer, beneficial owner of more than ten percent
of any class of equity securities of the registrant registered pursuant to
Section 12 ("Reporting Person") that failed to file any reports required to
be furnished pursuant to Section 16(a). Other than those
disclosed below, the registrant knows of no Reporting Person that failed to file
the required reports during the most recent fiscal year.
The
following table sets forth as at September 30, 2008, the name and position
of each Reporting Person that failed to file on a timely basis any reports
required pursuant to Section 16 (a) during the most recent fiscal
year.
|
Name
|
Position
|
Report
to be Filed
|
||
|
Ron
Erickson
|
Chairman
|
Form
4
|
||
|
Marco
Hegyi
|
Director
|
Form
3
|
||
|
Dr.
Masahiro Kawahata
|
Director
|
Form
3
|
||
|
Jon
Pepper
|
Director
|
Form
3
|
Code
of Ethics
The
Company’s Code of Ethics is attached as Exhibit 14.1 to this Form
10-KSB.
ITEM 10. EXECUTIVE
COMPENSATION
Compensation
Summary for Executive Officers
The
following table sets forth compensation paid or accrued by the Company for the
last two years ended September 30, 2007 and 2008 with regard to individuals who
served as the Principal Executive Officer and for executive officers receiving
compensation in excess of $100,000 during these fiscal periods.
|
Summary
Compensation Table
|
||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(f)
|
(i)
|
(j)
|
|||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
(3)
($)
|
Option
Awards(2)
($)
|
All
other
compensation
($)
|
Total
($)
|
|||||||||||||
|
Ralph
Brier
|
2007
|
20,486 | 36,619 | 46,251 | (1) | 103,356 | ||||||||||||
|
Former
CEO, President and Director
|
||||||||||||||||||
|
Bradley
E. Sparks
|
2007
|
213,333 | 194,106 | -0- | 407,439 | |||||||||||||
|
CEO,
President and Director
|
2008
|
240,000 | 139,786 | -0- | 379,786 | |||||||||||||
14
ITEM 10. EXECUTIVE
COMPENSATION -
continued
Compensation Summary for Executive
Officers -
continued
|
(1)
|
Mr.
Brier resigned as Chief Executive Officer, President and Director on
November 10, 2006 and entered into a Severance and Settlement Agreement
and Release. Salary and amounts owed under the agreement have
been accrued and were converted to common stock as of the date of this
filing.
|
|
(2)
|
Presentation
includes amounts accrued for financial statement purposes under FAS
123R.
|
|
(3)
|
The salary amounts summarized for Bradley E. Sparks are all accrued, but unpaid. |
CEO
Compensation and Termination of Employment Provision
Pursuant
to a letter agreement between us and Mr. Sparks, we agreed to pay
Mr. Sparks an annual base salary of $240,000. We also granted to
Mr. Sparks an option to purchase 1,000,000 shares of our common stock,
which option vests and becomes exercisable during the term of employment in four
equal annual installments of twenty-five percent of the total number of shares
subject to such option, the first installment exercisable on the six month
anniversary (May 10, 2007), with a an additional twenty-five percent of such
Shares becoming exercisable on each of the three successive twelve month periods
following May 10, 2007 If Mr. Sparks is terminated by us
without “Cause” (as such term is defined in the letter agreement) or if
Mr. Sparks terminates his employment with us for “Good Reason” (as such
term is defined in the letter agreement), we will pay severance to
Mr. Sparks equal to 100% of his then-current annualized base salary, paid
out on a pro rata basis over our regular payroll schedule over the year
following the effective date of such termination, and receipt from
Mr. Sparks of an executed copy of our standard form of release. In
addition, pursuant to a change in control severance agreement between us and
Mr. Sparks, if Mr. Sparks is terminated by us within 18 months
following a change in control of Visualant without Cause (as such term is
defined in the change in control agreement) or if Mr. Sparks terminates his
employment with us for “Good Reason” (as such term is defined in the change in
control agreement), he will be entitled to receipt of 100% of his annual base
salary and all of his unvested options will become fully vested and exercisable.
Such amount will be paid in one lump sum not later than seven business days
after our receipt of an executed copy of a severance agreement that includes a
release of claims and a covenant not to sue. In addition, Mr. Sparks will
continue to receive all applicable benefits under our standard benefits plans
currently available to other senior executives, for a period not to exceed 12
months following the effective date of our receipt of his release and, if
Mr. Sparks elects continued group medical insurance coverage pursuant to
COBRA, we will reimburse him for the applicable premiums for himself and his
eligible dependents for the first 12 months of such coverage, up to a maximum of
$10,000.
Outstanding
equity awards
|
Outstanding
Equity Option awards as of September 30, 2008
|
|||||||||||||
|
(a)
|
(b)
|
(c)
|
(e)
|
(f)
|
|||||||||
|
Name
and Principle Position
|
Number
of Securities Underlying Unexercised Options
Exercisable
|
Number
of Securities Underlying Unexercised Options
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
|||||||||
|
Bradley
E. Sparks
|
500,000 | 500,000 | (1) | 0.75 |
Nov.
9, 2011
|
||||||||
| CEO, President and Director | |||||||||||||
|
Ralph
Brier
|
250,000 | (2) | 0 | 0.10 |
Aug.
15, 2009
|
||||||||
|
Former
CEO, President and Director
|
|||||||||||||
|
(1)
|
The
remaining unvested options held by Mr. Sparks become exercisable in two
equal installments of 250,000 shares each effective on the two successive
twelve month periods following May 10,
2008
|
|
(2)
|
On
August 15, 2004 the Company granted stock options to Ralph Brier, its then
President and a Director, of 300,000 common shares at $.10 per share,
which will expire August 15, 2009. On the date of the grant,
the fair market value of the shares was $0.50 per share. Mr.
Brier resigned as an officer and director effective November 10,
2006. As of the date of his resignation, options for 250,000
shares had vested and were not subject to
forfeiture.
|
15
ITEM 10. EXECUTIVE
COMPENSATION - continued
Compensation
Pursuant to Plans
None
Pension
Table
None
Director Compensation
|
Director
Compensation Table
|
||||||||||||||||
|
(a)
|
(c)
|
(d)
|
(g)
|
(j)
|
||||||||||||
|
Name
|
Stock
Awards (1)
($)
|
Option
Awards
($)
|
All
other
compensation
($)
|
Total
(6)
($)
|
||||||||||||
|
Ronald
P. Erickson, Chairman
|
45,000
|
-0-
|
-0-
|
45,000
|
||||||||||||
|
Marco
Hegyi
|
22,500
|
-0-
|
-0-
|
22,500
|
||||||||||||
|
Dr.
Masahiro Kawahata
|
18,000
|
7,051
|
(2)
|
22,500
|
(3)
|
47,551
|
||||||||||
|
Jon
Pepper (5)
|
18,000
|
-0-
|
-0-
|
18,000
|
||||||||||||
|
(1)
|
Directors
other than Bradley E. Sparks, Chief Executive Officer and President,
receive annual common stock grants for their participation on the Board of
Directors; no directors receive fees for board
participation. On December 14, 2007, the board granted Ron
Erickson 500,000 shares of common stock, Dr. Masahiro Kawahata 200,000
shares of common stock, and Jon Pepper 200,000 shares of common
stock. On February 14, 2008, when Marco Hegyi joined the board,
he was granted 200,000 shares of common stock. Amounts shown
reflect the closing stock price on the date the grant became
effective.
|
|
(2)
|
In
June 2005, the Company granted to Dr. Kawahata options for 100,000 shares
of common stock at $0.75 per share; 25,000 of the options
vested immediately with the remainder vesting at the rate of 25,000 each
year thereafter. The final 25,000 unvested options vested on
June 1, 2008. In September 2006, the Company granted Dr.
Kawahata an additional 100,000 shares of common stock at $0.75 per
share. These options are fully
vested.
|
|
(3)
|
Dr.
Kawahata serves as Senior Scientific Advisor to the Company and received
$2,500 per month in consulting fees for his services through June 30,
2008.
|
|
(5)
|
In
June 2006, the Company granted to Jon Pepper options for 35,000 shares of
common stock at $0.75 per share, which options are fully vested and expire
June 15, 2011
|
|
(6)
|
Amounts
due have been accrued but not paid as of the date of this
filing.
|
16
ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of the date of the filing of this Form 10K-SB, the
name and address and the number of shares of the Company's common stock, with a
par value of $0.001 per share, held of record or beneficially by each person who
held of record, or was known by the Company to own beneficially, more than 5% of
the issued and outstanding shares of the Company's common stock, and the name
and shareholdings of each director and of all officers and directors as a
group.
|
Name
and Address
of
Beneficial
Owner
|
Nature
of
Ownership(1)
|
Amount
of
Beneficial
Ownership
|
Percent
of
Class
|
|||
|
Coventry
Capital, LLC
320-1100
Melville Street
Vancouver,
British Columbia
Canada
|
Direct
|
3,413,967
|
12.3%
|
|||
|
DIRECTORS
and OFFICERS:
|
||||||
|
Ronald
P. Erickson
c/o
500 Union Street, Suite 406
Seattle,
WA 98101
|
Direct
|
1,620,000(2)(6)(7)
|
5.8%
|
|||
|
Bradley
E. Sparks
c/o
500 Union Street, Suite 406
Seattle,
WA 98101
|
Direct
|
500,000(3)
|
1.8%
|
|||
|
Dr.
Masahiro Kawahata
Tokyo,
Japan
|
Direct
|
651,875(4)(6)(7)
|
2.3%
|
|||
|
Jon
Pepper
c/o
500 Union Street, Suite 406
Seattle,
WA 98101
|
Direct
|
285,000(5)(6)(7)
|
1.0%
|
|||
|
Marco
Hegyi
c/o
500 union Street; Suite 406
Seattle,
WA 98101
|
Direct
|
250,000(6)(7)
|
0.9%
|
|||
|
Yoshitami
Arai
Tokyo,
Japan
|
Direct
|
100,000(7)
|
0.4%
|
|||
|
All
Directors and Officers as a Group (6 persons)
|
3,406,875
|
12.3%
|
|
(1)
|
All
shares owned directly are owned beneficially and of record, and such
shareholder has sole voting, investment and dispositive power, unless
otherwise noted.
|
|
(2)
|
In
addition to these shares, Mr. Erickson’s adult children own 1,300,000
shares. Mr. Erickson disclaims any beneficial ownership or
control of such shares. One million common shares are held by
Juliz I Limited Partnership, a family limited
partnership.
|
|
(3)
|
Stock
options for 1,000,000 shares of common stock at $0.75 per share of which
500,000 shares are available for exercise within 60 days. The
options expire on November 10,
2011.
|
|
(4)
|
This
figure includes stock options for vested stock options for 100,000 shares
of common stock exercisable at $0.75 per share on or before June 15,
2011. In addition to these shares, Dr. Kawahata’s adult child
owns 10,000 shares. Dr. Kawahata disclaims any beneficial
ownership or control of such
shares.
|
|
(5)
|
Vested
stock options for 35,000 shares of common stock exercisable at $0.75 per
share expiring on June 15, 2011.
|
|
(6)
|
On
December 14, 2007, the board granted Ron Erickson 500,000 shares of common
stock, Dr. Masahiro Kawahata 200,000 shares of common stock, and Jon
Pepper 200,000 shares of common stock. On February 14, 2008,
Marco Hegyi was granted 200,000 shares of common stock upon joining the
board.
|
|
(7)
|
On
October 8, 2008, the board granted to Ron Erickson 500,000 shares of
common stock, Dr. Masahiro Kawahata 300,000 shares of common stock, and
John Pepper, Marco Hegyi and Yoshitami Arai 50,000 shares of common
stock. The shares of common stock were issued for past services
performed and board participation.
|
17
ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with Management and Others
Except as
indicated below, there were no material transactions, or series of similar
transactions, during the Company’s last two fiscal years ended September 30,
2008, or any currently proposed transactions, or series of similar transactions,
to which the Company was or is to be a party, in which the amount involved
exceeds $30,000,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 any class of the Company's common stock, or any member of the immediate
family of any of the foregoing persons, has an interest.
On August
20, 2008, the Company entered into a letter of intent with the RatLab
LLC. The purpose of the agreement contemplated by the letter of the
intent was to achieve resolution of the relationship between the RatLab LLC and
the Company and provide a means for a mutually beneficial on-going
relationship. On October 23, 2008, the Company and the RatLab LLC
entered into definitive agreements which provide for a non-commercial
non-exclusive license of the Company’s technology to the RatLab LLC for the
purpose of continuing research and development with a license back to the
Company for enhancements that are developed. Further, an exclusive
license was entered into between the Company and the RatLab LLC for four fields
of use: medical, agricultural, environmental and
jewelry. This exclusive license provides for certain performance
milestones, a market-rate royalty to the Company and an equity participation in
an entity to be formed by the RatLab LLC to commercialize the Company’s
technology in the enumerated fields of use. Officers and employees of
RATLab LLC own collectively 6.7% of the outstanding common stock of Visualant,
Inc. as of the date of this filing.
In
February 2007, the Company entered into a demand note with CEO and President,
Bradley E. Sparks totaling $50,000 plus loan fees of $750. As of
September 30, 2008, the outstanding notes payable totaled $50,750 consisting of
the note payable to Sparks. Interest expense accrues on the notes at
a rate of 18% per annum and interest on late interest payments accrues at a rate
of 30% per year. Accrued interest on the notes payable is recorded in
the balance sheet in accrued expenses and other liabilities.
During
the 2007 fiscal year, Mr. Erickson advanced $49,256 of cash and incurred $549 of
expense in behalf of Visualant. During the 2008 fiscal year, Mr.
Erickson advanced $44,900.00 of cash and incurred
$107.46 of expense in
behalf of Visualant. .In addition, an affiliate of Mr. Erickson’s
Juliz I Limited
Partnership, loaned the Company $12,000 on December 10, 2008.
18
PART IV
ITEM 13. EXHIBITS
AND REPORTS ON FORM 8-K
|
(a)
(1)
|
Financial
Statements.
|
The
following financial statements are included in this report:
|
Title
of Document
|
Page
|
|
|
Report
of Madsen & Associates, Certified Public Accountants
|
22
|
|
|
Balance
Sheet as at September 30, 2008
|
23
|
|
|
Statements
of Operations for the Years ended September 30, 2008 and 2007 and the
period from October 8, 1998 (inception) to September 30,
2008.
|
24
|
|
|
Statement
of Changes in Stockholders' Equity from inception through the Year
Ended September 30, 2008.
|
25
|
|
|
Statement
of Cash Flows for the Years Ended September 30, 2008 and 2007 and the
period from October 8, 1998 (inception) to September 30,
2008.
|
26
|
|
|
Notes
to the Financial Statements
|
27
|
|
(a)
(2)
|
Financial
Statement Schedules
|
The
following financial statement schedules are included as part of this
report:
None.
|
(a)
(3)
|
Exhibits
|
The
exhibits required to be filed herewith by Item 601 of Regulation S-B, as
described in the following index of exhibits, are attached hereto unless
otherwise indicated as being incorporated herein by reference, as
follows:
|
3.1
|
Amended
and Restated Articles of Incorporation, filed as an exhibit to the
Company’s annual report on Form 10-KSB filed on February 9, 2006, and
incorporated herein by reference.
|
|
3.2
|
Bylaws
incorporated herein by reference to the Company's Registration Statement
on Form 10-SB filed on March 11,
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.
|
19
ITEM 13. EXHIBITS
AND REPORTS ON FORM 8-K -
continued
|
(a)
(3)
|
Exhibits -
continued
|
|
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, filed as an exhibit to Post-Effective
Amendment No. 1 to the Company’s Registration Statement on Form SB-2 filed
on December 12, 2005, File No. 333-127100, and incorporated herein by
reference.
|
|
14.1
|
Code
of Ethics for Employees and Directors, filed as an exhibit to Form 10-KSB
filed on January 16, 2007, and incorporated herein by
reference.
|
(b) Reports
on Form 8-K
|
(i)
|
Form
8-K filed on September 21, 2006 and incorporated herein by reference,
announcing the resignation of Robert Dougherty as a director of the
Company.
|
|
(ii)
|
Form
8-K filed on October 10, 2006 and incorporated herein by reference,
announcing the Company’s signing of a Memorandum of Understanding with
Branded Asset Management Group LLC to form a joint
venture.
|
|
(iii)
|
Form
8-K filed on November 15, 2006 and incorporated herein by reference,
announcing the resignation of Ralph Brier as Chief Executive Officer,
President, and a director of the Company, and announcing the appointment
of Bradley Sparks as the new Chief Executive Officer and President as well
as a director of the Company.
|
|
(iv)
|
Form
8-K filed on January 3, 2007 and incorporated herein by reference,
announcing the resignation of Jerry Goldberg as Chief Financial Officer,
Secretary and Treasurer of the Company, and announcing the appointment of
Bradley Sparks as the Chief Financial Officer, Secretary and Treasurer of
the Company.
|
|
(v)
|
Form
8-K filed April 16, 2007 and incorporated herein by reference, announcing
the selection of Kaufman Bros., L.P. (KBRO) to act as Visualant’s
exclusive financial advisor and placement agent to assist the Company with
execution of strategic business and corporate development
strategies.
|
|
(vi)
|
Form
8-K filed May 9, 2007 and incorporated herein by reference
announcing securing a $3 million convertible line of credit with Coventry
Capital LLC., a Delaware investment banking
firm.
|
|
(vii)
|
Form
8-K filed May 15, 2007 and incorporated herein by reference
announcing the completion by the product team has of an
enhanced prototype utilizing the core Visualant patent-pending
technology. The enhanced prototype, named Cyclops™, applies the
Company’s spectral data-based security and quality control
solution. A number of potential marketplace applications are
now being tested in the Company’s
laboratory.
|
|
(viii)
|
Form
8-K filed May 23, 2007 and incorporated herein by reference
announcing letter of intent between Visualant and The RATLab pursuant to
which the Company intends to acquire all of the outstanding stock of The
RATLab in exchange for four million shares of common stock of the
Company. Upon closing of the acquisition, Dr. Furness will
become a member of the Company’s Board of Directors, and Dr. Schowengerdt
will become the Company’s Chief Technology
Officer.
|
|
(ix)
|
Form
8-K filed August 10, 2007 and incorporated herein by reference
announces that Effective August 8, 2007 William E. Gordon,
III resigned from the Board of Directors. Mr. Gordon’s
resignation is not related to any disagreement with the Company or with
the Company’s operations, policies or
practices.
|
20
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit
Fees
The
aggregate fees billed by the independent accountants for the last two fiscal
years for professional services for the audit of the Company’s annual financial
statements and the review included in the Company’s Form 10-QSB and services
that are normally provided by the accountants in connection with statutory and
regulatory filings or engagements for those fiscal years were
$7,400.
(2) Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of the Company’s financial statements and are
not reported under Item 9 (e)(1) of Schedule 14A was NIL.
(3) Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountants for tax compliance, tax advice,
and tax planning was NIL.
(4) All Other
Fees
During
the last two fiscal years there were no other fees charged by the principal
accountants other than those disclosed in (1) and (2) above.
(5) Audit Committee’s
Pre-approval Policies and Procedures
At the
present time, there are not sufficient directors, officers and employees
involved with the Company to make any pre-approval policies
meaningful. Once the Company has elected more directors and appointed
directors and non-directors to the Audit Committee it will have meetings and
function in a meaningful manner.
(6) Audit hours
incurred
The
principal accountants spent approximately 50 percent of the total hours expended
on auditing the Company’s financial statements for the most recent fiscal
year. The hours were about equal to the hours spent by the Company’s
internal accountant.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
VISUALANT,
INCORPORATED
|
|||
|
(the
"Registrant")
|
|||
|
Date:
January 13, 2009
|
By:
|
/s/ Bradley
E. Sparks
|
|
|
Bradley
E. Sparks
|
|||
|
Chief
Executive Officer and President
|
|||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Date:
January 13, 2009
|
By:
|
/s/ Ronald
P. Erickson
|
|
|
Ronald
P. Erickson
|
|||
|
Chairman
of the Board and Director
|
|||
|
Date:
January 13, 2009
|
By:
|
/s/ Bradley
E. Sparks
|
|
|
Bradley
E. Sparks
|
|||
|
Chief
Financial Officer and Secretary-Treasurer
|
|||
21
|
MADSEN & ASSOCIATES, CPA’s
INC.
Certified
Public Accountants and Business Consultants
|
684
East Vine St. #3
Murray,
Utah 84107
Telephone
801-268-2632
|
Board of
Directors
Visualant
Incorporated
Seattle,
Washington
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have
audited the accompanying balance sheet of Visualant Incorporated (development
stage company) at September 30, 2008 and the related statements of
operations, stockholders' equity, and cash flows for the years ended September
30, 2008 and 2007 and the period October 8, 1998
(date of inception) to September 30, 2008. 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
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those 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 includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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, 2008 and the results of operations, and cash
flows for the years ended September 30, 2008 and 2007 and the period October 8,
1998 (date of inception) to September 30, 2008 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 will need additional
working capital for its planned activity and to service its debt, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in the notes to the financial
statements. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/
Madsen & Associates, CPA’s Inc.
Salt Lake
City, Utah,
January
13, 2009
22
|
VISUALANT,
INCORPORATED
|
|||||||||
|
(Development
Stage Company)
|
|||||||||
|
BALANCE
SHEET
|
|||||||||
|
September
30, 2008
|
|||||||||
|
September 30,
2008
|
September 30,
2007
|
||||||||
|
ASSETS
|
|||||||||
|
CURRENT
ASSETS
|
|||||||||
|
Cash
|
$ | 255 | $ | 91 | |||||
|
Prepaid
Expenses
|
1,766 | 5,537 | |||||||
|
Deferred
Financing Costs, net
|
- | 83,156 | |||||||
|
TOTAL
ASSETS
|
$ | 2,021 | $ | 88,784 | |||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||||
|
CURRENT
LIABILITIES
|
|||||||||
|
Notes
payable
|
$ | 50,750 | $ | 50,750 | |||||
|
Accrued
expenses and other liabilities
|
615,224 | 297,842 | |||||||
|
Accounts
payable
|
1,045,341 | 793,185 | |||||||
|
Total
Current Liabilities
|
1,711,315 | 1,141,777 | |||||||
|
Long
Term Notes Payable
|
425,340 | 425,340 | |||||||
|
Total
Liabilities
|
2,136,655 | 1,567,117 | |||||||
|
Commitments
and Contingencies
|
- | - | |||||||
|
STOCKHOLDERS'
DEFICIT
|
|||||||||
|
Preferred
stock - $0.001 par value, 50,000,000 shares authorized, no shares issued
and outstanding
|
|||||||||
|
Common
stock - $0.001 par value, 100,000,000 shares authorized, 18,353,891 and
16,853,891 shares issued and outstanding
|
18,354 | 16,854 | |||||||
|
Additional
paid in capital
|
4,521,760 | 4,234,495 | |||||||
|
Deficit
accumulated during the development stage
|
(6,674,748 | ) | (5,729,682 | ) | |||||
|
Total
Stockholders' Equity (Deficiency)
|
(2,134,634 | ) | (1,478,333 | ) | |||||
|
TOTAL
LIABILITIES & EQUITY
|
$ | 2,021 | $ | 88,784 | |||||
|
The
accompanying notes are an integral part of these financial
statements
|
|||||||||
23
|
VISUALANT,
INCORPORATED
|
||||||||||||
|
(Development
Stage Company)
|
||||||||||||
|
STATEMENTS
OF OPERATIONS
|
||||||||||||
|
Periods
Ended September 30, 2008 and 2007 and the Period
|
||||||||||||
|
October
8,1998 (Date of Inception) to September 30, 2008
|
||||||||||||
|
Year
Ended September 30, 2007
|
Year
Ended September 30, 2008
|
Period
from Inception from October 8, 1998 to September 30, 2008
|
||||||||||
|
Revenues
|
$ | - | $ | - | $ | - | ||||||
|
Expenses
|
||||||||||||
|
Research
and development
|
550,008 | - | 1,237,417 | |||||||||
|
Administrative
|
1,015,513 | 791,962 | 3,989,289 | |||||||||
|
Total
Operating Expense
|
1,565,521 | 791,962 | 5,226,706 | |||||||||
|
Loss
from Operations
|
(1,565,521 | ) | (791,962 | ) | (5,226,706 | ) | ||||||
|
Other
Income (Expense)
|
||||||||||||
|
Settlement
of debt
|
- | - | 43,400 | |||||||||
|
Interest
expense
|
(69,472 | ) | (153,104 | ) | (337,115 | ) | ||||||
|
Loss
of deposit
|
- | - | (1,154,327 | ) | ||||||||
|
Net
Loss
|
$ | (1,634,993 | ) | $ | (945,066 | ) | $ | (6,674,748 | ) | |||
|
Net
Loss Applicable to Common Stockholders
|
||||||||||||
|
Basic
and diluted
|
$ | (0.10 | ) | $ | (0.05 | ) | ||||||
|
Weighted
Average Shares used in computing basic
|
||||||||||||
|
and
diluted net loss per share
|
16,667,453 | 18,029,095 | ||||||||||
|
The
accompanying notes are an integral part of these financial
statements
|
||||||||||||
24
|
VISUALANT
INCORPORATED
|
||||||||||||||||
|
(Development
Stage Company)
|
||||||||||||||||
|
STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY
|
||||||||||||||||
|
For
the Period October 8, 1998 (Date of Inception)
|
||||||||||||||||
|
to
September 30, 2008
|
||||||||||||||||
|
Capital
in
|
||||||||||||||||
|
Common
Stock
|
Excess
of
|
Accumulated
|
||||||||||||||
|
Shares
|
Amount
|
Par
Value
|
Deficit
|
|||||||||||||
|
Balance October 8, 1998
(date of inception)
|
- | $ | - | $ | - | $ | - | |||||||||
|
Issuance
of common stock for cash at $.002 - November 20, 1998
|
4,500,000 | 4,500 | 4,500 | - | ||||||||||||
|
Issuance
of common stock for cash at $.01 - November 25, 1998
|
6,000,000 | 6,000 | 54,000 | - | ||||||||||||
|
Issuance
of common stock for cash at $.25 - December 4, 1998
|
35,000 | 35 | 8,715 | - | ||||||||||||
|
Capital
contributions - expenses
|
- | - | 3,650 | - | ||||||||||||
|
Net
operating loss for the period October 8, 1998 to September 30,
1999
|
- | - | - | (27,748 | ) | |||||||||||
|
Capital
contributions - expenses
|
- | - | 3,650 | - | ||||||||||||
|
Net
operating loss for the year ended September 30, 2000
|
- | - | - | (64,537 | ) | |||||||||||
|
Capital
contributions - expenses
|
- | - | 3,650 | - | ||||||||||||
|
Net
operating loss for the year ended September 30, 2001
|
- | - | - | (7,585 | ) | |||||||||||
|
Issuance
of common stock for cash at $.50 - July 5, 2002
|
26,200 | 26 | 13,116 | - | ||||||||||||
|
Net
operating loss for the year ended September 30, 2002
|
- | - | - | (113,475 | ) | |||||||||||
|
Issuance
of common stock for cash at $.50 - July 2003
|
100,000 | 100 | 49,900 | - | ||||||||||||
|
Issuance
of common stock for services at $.001- June 2003
|
150,000 | 150 | - | - | ||||||||||||
|
Issuance
of common stock as payment of debt at $.50 - July 2003
|
184,848 | 185 | 92,239 | - | ||||||||||||
|
Refund
and return of common shares at $.50 - August 2003
|
(26,200 | ) | (26 | (13,074 | ) | - | ||||||||||
|
Issuance
of common stock for cash at $.75 - September 2003
|
520,000 | 520 | 389,480 | - | ||||||||||||
|
Net
operating loss for the year ended September 30, 2003
|
- | - | - | (1,819,398 | ) | |||||||||||
|
Balance
September 30, 2003
|
11,489,848 | 11,490 | 609,826 | (2,032,743 | ) | |||||||||||
|
Issuance
of common stock for cash at $.50 - net of issuance costs - Aug
2004
|
200,000 | 200 | 89,800 | - | ||||||||||||
|
Compensation
- incentive stock options
|
- | - | 24,000 | |||||||||||||
|
Net
operating loss for the year ended September 30, 2004
|
- | - | - | (161,267 | ) | |||||||||||
|
Balance
September 30, 2004
|
11,689,848 | 11,690 | 723,626 | (2,194,010 | ) | |||||||||||
|
Issuance
of common stock for cash at $.50 - October to December
2004
|
424,000 | 424 | 211,576 | - | ||||||||||||
|
Issuance
of common stock for debt at $.50 -
|
2,665,502 | 2,665 | 1,330,086 | - | ||||||||||||
|
Issuance
of common stock for license at $.75 - April 2005
|
10,000 | 10 | 7,490 | |||||||||||||
|
Issuance
of common stock for cash at $.75 - May and June 2005
|
1,269,999 | 1,270 | 951,230 | - | ||||||||||||
|
Issuance
of common stock for services at $.75 - August 2005
|
77,875 | 78 | 58,328 | - | ||||||||||||
|
Issuance
of common stock for cash at $.75 - August 2005
|
170,000 | 170 | 127,330 | - | ||||||||||||
|
Compensation
- incentive stock options
|
- | - | 24,000 | - | ||||||||||||
|
Net
operating loss for the year ended ended September 30, 2005
|
- | - | - | (868,643 | ) | |||||||||||
|
Balance
September 30, 2005
|
16,307,224 | $ | 16,307 | $ | 3,433,666 | $ | (3,062,653 | ) | ||||||||
|
Issuance
of common stock for cash at $0.75 - October 2005 to
|
146,667 | 147 | 109,853 | - | ||||||||||||
|
Sep-06
|
||||||||||||||||
|
Issuance
of common stock for services at $.75 - May 2006
|
50,000 | 50 | 37,450 | - | ||||||||||||
|
Compensation
- incentive stock options
|
- | - | 24,000 | - | ||||||||||||
|
Net
operating loss for the year ended ended September 30, 2006
|
- | - | - | (1,032,036 | ) | |||||||||||
|
Balance
September 30, 2006
|
16,503,891 | $ | 16,504 | $ | 3,604,969 | $ | (4,094,689 | ) | ||||||||
|
Issuance
of common stock for services
|
150,000 | 150 | 74,850 | - | ||||||||||||
|
Issuance
of common stock for deferred financing total
|
200,000 | 200 | 95,800 | - | ||||||||||||
|
Issuance
of options for services
|
228,152 | |||||||||||||||
|
Stock
compensation expense
|
- | - | 230,724 | - | ||||||||||||
|
Net
operating loss for the year ended September 30, 2007
|
- | - | - | (1,634,993 | ) | |||||||||||
|
Balance
September 30, 2007
|
16,853,891 | $ | 16,854 | $ | 4,234,495 | $ | (5,729,682 | ) | ||||||||
|
Issuance
of stock for services
|
1,500,000 | 1,500 | $ | 139,000 | ||||||||||||
|
Stock
compensation expense
|
148,265 | |||||||||||||||
|
Net
operating loss for the period ended March 31, 2008
|
(945,066 | ) | ||||||||||||||
|
Balance
at September 30, 2008
|
18,353,891 | 18,354 | 4,521,760 | (6,674,748 | ) | |||||||||||
|
The
accompanying notes are an integral part of these financial
statements
|
||||||||||||||||
25
|
VISUALANT,
INCORPORATED
|
||||||||||||
|
(Development
Stage Company)
|
||||||||||||
|
STATEMENT
OF CASH FLOWS
|
||||||||||||
|
For
the periods ended September 30, 2008 and 2007 and the
Period
|
||||||||||||
|
October
8, 1998 (Date of Inception) to September 30, 2008
|
||||||||||||
|
October
8, 1998 to
|
||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
||||||||||
|
2008
|
2007
|
2008
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
loss
|
$ | (945,066 | ) | $ | (1,634,993 | ) | $ | (6,674,748 | ) | |||
|
Reconciliation
of net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation,
amortization and tangible and intangible asset impairments
|
- | 19,808 | ||||||||||
|
Issuance
of capital stock for services
|
140,500 | 75,000 | 298,456 | |||||||||
|
Stock
based compensation
|
139,786 | 230,724 | 442,510 | |||||||||
|
Stock
options issued for services
|
8,479 | 228,152 | 236,631 | |||||||||
|
Amortization
of deferred financing costs
|
83,156 | 12,844 | 96,000 | |||||||||
|
Loss
of deposit
|
- | 1,154,327 | ||||||||||
|
Capital
contributions - expenses
|
- | - | 10,950 | |||||||||
|
Increase
(decrease) in cash resulting from changes in assets and
liabilities:
|
||||||||||||
|
Prepaid
expenses
|
3,771 | (5,537 | ) | (1,766 | ) | |||||||
|
Accounts
payable and accrued expenses
|
569,538 | 776,356 | 3,085,740 | |||||||||
|
Net
Cash Provided By (Used in) Operating Activities
|
164 | (317,454 | ) | (1,332,092 | ) | |||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Purchase
of property and equipment
|
- | - | (12,308 | ) | ||||||||
|
Purchase
of investment - deposit
|
- | - | (1,154,327 | ) | ||||||||
|
Net
Cash Used in Investing Activities
|
- | - | (1,166,635 | ) | ||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Proceeds
from issuance of common stock
|
- | - | 2,022,892 | |||||||||
|
Proceeds
from issuance of convertible debt
|
- | 425,340 | 425,340 | |||||||||
|
Repayment
of notes payable
|
- | (250,201 | ) | (250,201 | ) | |||||||
|
Proceeds
from issuance of notes payable -related party
|
- | - | - | |||||||||
|
Proceeds
from issuance of notes payable
|
- | 135,246 | 300,951 | |||||||||
|
Net
Cash Provided by Financing Activities
|
- | 310,385 | 2,498,982 | |||||||||
|
Net
Changes in Cash
|
164 | (7,069 | ) | 255 | ||||||||
|
Cash
at Beginning of Period
|
91 | 7,160 | - | |||||||||
|
Cash
at End of Period
|
$ | 255 | $ | 91 | $ | 255 | ||||||
|
Supplemental
disclosure of cash flow information
|
||||||||||||
|
Cash
paid during the period for interest
|
- | 35,139 | 141,413 | |||||||||
|
The
accompanying notes are an integral part of these financial
statements
|
|
|||||||||||
26
VISUALANT
INCORPORATED
(Development
Stage Company)
NOTES
TO FINANCIAL STATEMENTS
September
30, 2008
|
1.
|
ORGANIZATION
|
The
Company was incorporated under the laws of the State of Nevada on October 8,
1998 with the name of “Cigar King Corporation” with authorized common stock of
200,000,000 shares at $.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 $.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 has not started any operations and is in the development
stage.
|
2.
|
GOING
CONCERN
|
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. We have incurred net losses of approximately
$950,000 and
$1.6 million for the years ended September 30, 2008 and 2007, respectively. Our
current liabilities exceeded our current assets by approximately $1.7 million as
of September 30, 2008. Our net cash provided by operating
activities approximated $164 for the year ended September 30, 2008.
As of
September 30, 2008, the Company had minimal cash. The Company is
considered illiquid as this cash is not considered sufficient to fund the
recurring operating and associated financing costs. The Company needs to raise
additional funding to continue its operations. However, there can be
no assurance that financing or additional funding will be available to the
Company on favorable terms or at all. If the Company raises additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities may result in dilution to existing stockholders.
We
anticipate that we will generate significant losses from operations for the
foreseeable future. As of September 30, 2008, our accumulated deficit was $6,674,748. We
have limited capital resources, and operations to date have been funded with the
proceeds from private equity and debt financings. These conditions raise
substantial doubt about our ability to continue as a going concern. The audit
report prepared by our independent registered public accounting firm relating to
our financial statements for the year ended September 30, 2008 includes an
explanatory paragraph expressing the substantial doubt about our ability to
continue as a going concern.
Continuation
of the company as a going concern is dependant upon obtaining additional working
capital and the management of the Company has developed a strategy, which it
believes will accomplish this objective through additional equity funding,
payment of debt by the issuance of common stock, and advances of short term debt
by officers and directors, which will enable the Company to continue to conduct
operations. The financial statements do not include any adjustments
that might be necessary if we are unable to continue as a going
concern.
27
VISUALANT INCORPORATED
(
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
September
30, 2008
|
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Accounting
Principles
The
Company’s financial statements and accompanying notes are prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles in the United States of America.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Estimates are used in accounting for revenue
recognition, reserves for doubtful accounts, product returns, obsolete and
excess inventory, warranties, valuation allowances on deferred tax assets and
purchase price allocations. Actual results could differ from those
estimates.
Foreign
Currency Translation
Parts of
the transactions of the Company were completed in Canadian
dollars. Foreign currency transaction gains and losses are a result
of the effect of exchange rate changes on transactions denominated in currencies
other than the functional currency. Gains and losses on those foreign currency
transactions are included in determining net income or loss for the period in
which exchange rates change. US dollars are considered to be
the functional currency.
Financial
Instruments
The
carrying amounts of financial instruments, including cash and accounts payable,
are considered by management to be their estimated fair values due their short
term maturities.
Financial
and Concentration 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 expense, 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.
28
VISUALANT
INCORPORATED
(Development
Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
September
30, 2008
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -
continued
|
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with purchased maturities of
three months or less to be cash equivalents.
Dividend
Policy
The
Company has not adopted a policy regarding payment of dividends
Accounting
for Income Taxes
In June
2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,
Accounting for Income Taxes,” which clarifies the accounting for uncertainty in
income taxes. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The interpretation
requires that we recognize in the financial statements, the impact of a tax
position, if that position is more likely than not of being sustained on audit,
based on the technical merits of the position. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods and disclosure. The provisions of FIN 48 are effective beginning January
1, 2007 with the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings. The Company adopted FIN
48 effective January 1, 2007 and there was no impact on the Company’s financial
statements.
Stock-based
Compensation
For
fiscal year 2007, we adopted SFAS No. 123R, “Accounting for Stock-Based
Compensation,” which establishes accounting and reporting standards for
stock-based employee and director compensation plans. SFAS No 123R
requires the recognition of compensation cost using a fair value based method
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period
Basic
and Diluted Net Income (Loss) Per Share
Net loss
per common share excludes any dilutive effects of options, warrants and
convertible securities. Net earnings (loss) per share is computed
using the weighted-average number of outstanding common shares and common stock
equivalent shares during the applicable period. Common stock equivalent shares,
which include options warrants and convertible securities, are excluded
from the computation if their effect is anti-dilutive. There were no dilutive
instruments for the year ended September 30, 2007.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements but does not require any new fair value measurements.
29
VISUALANT
INCORPORATED
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
September
30, 2008
|
3.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -
continued
|
SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. We see no
impact of SFAS 157 on the financial statements.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities,
(“SFAS 159”). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007. We have not yet determined the impact
of adopting SFAS 159 on our financial position.
|
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 illumination and detection of
electromagnetic energy, typically in the visible and near-visible portions of
the electromagnetic spectrum, using specialized illumination and sensing systems
and spatial analysis software modeling which allow for pattern
recognition. This technology involves specialized and proprietary
information and trade secrets, which the Company considers to be among its most
sensitive, confidential, and proprietary information.
|
5.
|
NOTES
PAYABLE
|
During
the year ended September 30, 2006, the Company entered into agreements with
Coach Capital, LLC for three demand notes payable to Coach Capital, LLC totaling
$165,705 including related loan fees for purposes of financing ongoing
operations.
During
the first quarter of 2007, the Company entered into an additional demand note
with Coach Capital, LLC totaling $56,016 including loan
fees. In February 2007, the Company entered into a demand note
with CEO and President, Bradley E. Sparks totaling $50,000 plus loan fees of
$750. In addition, the Company entered into another demand note with Coach
Capital, LLC during the quarter totaling $28,480 including loan fees.
During the third quarter, all of the notes and interest payable to Coach
Capital, LLC were paid in full with funds borrowed under the Company’s new
convertible line of credit (see Note 6). As of September 30, 2007,
the outstanding notes payable totaled $50,750 consisting of the note payable to
Sparks. Interest expense accrues on all of the notes at a rate of 18%
per annum. Accrued interest on the notes payable is recorded in the
balance sheet in accrued expenses and other liabilities.
Any
delays in repayment of the principal and accrued interest on the notes payable
upon demand will result in a penalty interest rate of 30% per
annum.
|
6.
|
LINE
OF CREDIT
|
On May 7,
2007, the Company entered into a Convertible Line of Credit Agreement with
Coventry Capital LLC., a Delaware company, pursuant to which Coventry Capital
will provide the Company with a convertible line of credit of up to $1
million. The line of credit may be increased
up to $3 million in the event the Company achieves certain performance
criteria. The borrowed funds will bear interest at the rate of 10%
per annum, and are due in full on May 7, 2010. Coventry Capital,
however, has the right to convert all or part of the indebtedness into common
stock of the Company at a fixed conversion rate of $0.50 per
share. As of September 30, 2008 the principal balance outstanding on
this convertible line of credit was $425,340. The Company currently
is unable to borrow any additional funds under this line of credit due to its
failure to meet certain financial covenants or conditions required by Coventry
Capital. The Company has attributed no value to the conversion
rights. The total outstanding with Coventry $482,095, was converted
into 3,213,967 shares of common stock at $0.15 per share during first quarter
2009.
In
connection with the Coventry Capital convertible line of credit, the Company
issued 200,000 shares of common stock to the placement agent for arranging the
financing in 2007. The $96,000 value of the common stock upon
issuance was recorded as deferred financing costs and has been fully
amortized as of September 30, 2008.
|
7.
|
COMMON
CAPITAL STOCK
|
During
the second quarter of fiscal year 2007, the Company issued 150,000 common shares
in satisfaction of $75,000 owed for legal services. During the third
quarter of fiscal year 2007, the Company issued 200,000 common shares as a fee
to the placement agent for the Coventry Capital Convertible Line of Credit
Agreement described in Note 6. No stock was issued in the fourth
quarter of fiscal year 2007.
During fiscal year 2008, the Company issued 1,500,000 common shares
to its board of directors and to consultants in recognition of past
services.
During
the first quarter of fiscal year 2009, the company issued 6,039,010 shares of
common stock in satisfaction of $906,823 of outstanding indebtedness, including
the debt due to Coventry Capital, 950,000 shares of common stock as grants to
directors, 550,000 shares of common stock as grants to consultants, and
1,850,000 shares in resolution of certain outstanding matters with the RatLab
LLC.
30
VISUALANT INCORPORATED
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
September
30, 2008
|
8.
|
STOCK
OPTIONS
|
Description of Stock Option
Plan
In 2005,
our Board of Directors adopted a combined incentive and nonqualified stock
option plan for our employees and consultants (“2005 Stock Option
Plan”). On October 9, 2006 the Board of Directors authorized an
increase in shares available for grant from 2 million to 4 million, subject to
stockholder approval.
Determining Fair Value Under
SFAS No. 123R
Effective
October 1, 2006, we began recording compensation expense associated with stock
options and other equity-based compensation in accordance with SFAS No. 123
(revised 2004), “Share-Based Payment”. We adopted FAS 123(R) using the modified
prospective method. Share-based compensation recognized in fiscal
2007 as a result of the adoption of SFAS No. 123R use the
Black-Scholes-Merton option valuation model for estimating fair value of stock
options granted under our plan. We amortize the fair value of stock options on a
ratable basis over the requisite service periods, which are generally the
vesting periods. The expected life of awards granted represents the period of
time that they are expected to be outstanding. We estimate the
volatility of our common stock based on the historical volatility of our own
common stock over the most recent period corresponding with the estimated
expected life of the award. We base the risk-free interest rate used in the
Black-Scholes-Merton option valuation model on the implied yield currently
available on U.S. Treasury zero-coupon issues with an equivalent remaining term
equal to the expected life of the award. We have not paid any cash dividends on
our common stock and do not anticipate paying any cash dividends in the
foreseeable future. Consequently, we use an expected dividend yield of zero in
the Black-Scholes-Merton option valuation model. In accordance with
SFAS No. 123R, we adjust share-based compensation for changes to the
estimate of expected equity award forfeitures based on actual forfeiture
experience. The effect of adjusting the forfeiture rate for all expense
amortization after October 1, 2006 is recognized in the period the
forfeiture estimate is changed.
There
were no options issued during fiscal year 2008.
Stock Option
Activity
A summary
of activity relating to our stock option plan is as follows:
|
Options
|
Weighted-
Average
Exercise Price
|
Weighted-
Average
Remaining
Contractual Term
|
||||||||||
|
Outstanding
as of September 30, 2007
|
1,897,500
|
|||||||||||
|
Granted
|
-
|
|||||||||||
|
Exercised
|
-
|
|||||||||||
|
Expired
|
(412,500
|
)
|
||||||||||
|
Forfeited
|
-
|
|
||||||||||
|
Outstanding
as of September 30, 2008
|
1,485,000
|
$
|
0.60
|
2.91
|
||||||||
Total
compensation cost recognized for fair value options issued to employees and
directors was approximately $231,000 and $147,000 for the years ended September
30, 2007 and 2008, respectively.
Options
have also been granted to consultants for services. Total cost
recognized for the fair value of options issued for services was approximately
$228,000 and $1,500 for the years ended September 30, 2007 and 2008,
respectively.
31
VISUALANT INCORPORATED
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
September
30, 2008
|
9.
|
SIGNIFICANT
TRANSACTIONS WITH RELATED PARTIES
|
See Note
5 for discussion of notes payable issued to the Company’s CEO and President
during the quarter ended March 31, 2007. During the 2007 fiscal year,
Mr. Erickson advanced $49,256 of cash and incurred $549 of expense in behalf of
Visualant. During the 2008 fiscal year, Mr. Erickson advanced $44,900 of
cash and incurred $107 of expense in behalf of Visualant. In addition, an
affiliate of Mr. Erickson’s Juliz 1 Limited Partnership, loaned the Company
$12,000 on December 10, 2008. In addition to the note payable transaction,
Mr. Sparks has advanced $15,000 of cash and incurred $10,800 of expense in
behalf of the Company. Other than the note payable, all amounts are
recorded in the accounts payable balance. See Item 11 for stock and
vested option ownership detail for Mr Erickson, Mr. Sparks and the three other
members of the Board of Directors for the Company. As of the
filing date for this report, the directors and officers of the Company and their
immediate families beneficially own an aggregate 4,581,875 shares of common
stock or 16.5% of the Company.
|
10.
|
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 Farginstituter 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.
|
11.
|
SUBSEQUENT
EVENTS
|
On August
20, 2008, the Company entered into a letter of intent with the RatLab
LLC. The purpose of the agreement contemplated by the letter of the
intent was to achieve resolution of the relationship between the RatLab LLC and
the Company and provide a means for a mutually beneficial on-going
relationship. On October 23, 2008, the Company and the RatLab LLC
entered into definitive agreements which provide for a
non-commercial non-exclusive license of the Company’s technology to
the RatLab LLC for the purpose of continuing research and development with a
license back to the Company for enhancements that are
developed. Further, an exclusive license was entered into between the
Company and the RatLab LLC for four fields of use: medical,
agricultural, environmental and jewelry. This exclusive license
provides for certain performance milestones, a market-rate royalty to the
Company and an equity participation in an entity to be formed by the RatLab LLC
to commercialize the Company’s technology in the enumerated fields of
use. Finally, in satisfaction of outstanding matters, a total of
1,850,000 shares of the Company’s common stock was issued, subject to certain
restrictions, to current and former RatLab LLC employees and
consultants.
During
first quarter of 2009, the Company converted $906,822.68 of its outstanding
indebtedness into 6,039,010 shares of the Company’s common stock.
On
October 8, 2008 the board of directors granted Ron Erickson 500,000 shares of
common stock, Lynn Felsinger 300,000 shares of common stock, Dr. Masahiro
Kawahata 300,000 shares of common stock, and Jon Pepper, Marco Hegyi, and
Yoshitami Arai 50,000 shares of common stock. The shares of common
stock were issued for past services performed and board
grants.
32