Business context and reporting period
This is Visualant, Inc.’s Form 10-K for the fiscal year ended September 30, 2012, filed November 13, 2012—not a standalone fourth-quarter report. The request metadata names USBC, Inc.; that does not match the registrant identified in the filing. Visualant combined TransTech, a security and authentication products distributor, with development and planned commercialization of its patented Spectral Pattern Matching (SPM) technology.
Visualant signed a one-year development agreement and an Asian-territory exclusive license with Sumitomo Precision Products (SPP). SPP invested $2.25 million for shares and paid an initial $1 million license fee. The filing reports no SPM revenue for fiscal 2012; the license fee is recognized over the agreement’s life.
Financial performance and condition
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $7.924 million | $9.136 million |
| Gross profit | $1.580 million; 19.9% margin | $1.566 million; 17.1% margin |
| Operating loss | $2.222 million | $2.259 million |
| Net loss | $2.726 million; $2.732 million attributable to common shareholders | $2.396 million; $2.410 million attributable to common shareholders |
| Operating cash flow | $(58,000) | $(1.312) million |
| Cash at year-end | $1.141 million | $92,000 |
Revenue fell 13.3%, primarily because a large TransTech aerospace customer sale in 2011 did not recur. Gross profit rose slightly despite lower sales, and gross margin improved. The attributable net loss widened by about $322,000, reflecting higher interest expense and a $500,000 warrant-purchase loss, partly offset by a $394,000 gain on debt extinguishment. Fiscal 2012 net loss included $1.302 million of non-cash expenses.
At September 30, 2012, current assets were $2.751 million and current liabilities $5.113 million, a working-capital deficit of approximately $2.36 million. The balance sheet showed $1.636 million of notes payable and other debt, plus $750,000 of convertible notes payable. Almost all stated notes payable and other debt—$1.632 million—was due within one year. Total assets were $5.320 million and stockholders’ equity was $171,000. Financing activities provided $1.207 million, mainly from $2.627 million in common-stock proceeds, offset by debt repayments and the warrant purchase.
Material changes, outlook and risks
- Common shares outstanding increased from 49.1 million at September 30, 2011 to 91.0 million at September 30, 2012; 93.3 million were reported as issued by November 13, 2012. Equity issuance, convertible debt, warrants and options create substantial potential dilution.
- The company demonstrated the Cyclops6 scanner in October 2012 and planned to release a customer Development Kit in 2013. Management described commercialization and customer development as priorities, but gave no quantified revenue or earnings guidance and expected operating losses for the foreseeable future.
- Management said additional financing is needed to fund the business plan and debt repayments; failure to obtain it could require restructuring or divestitures. The auditor’s report and the notes state that recurring losses and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern.
- Management concluded that disclosure controls and internal control over financial reporting were not effective at year-end and identified a material weakness involving audit committee financial expertise and independence. The auditor did not audit internal controls.
- Other notable matters include the $500,000 Gemini warrant repurchase, the extension of convertible debentures’ maturity to September 30, 2013, and the settlement of former CEO Bradley Sparks’s claims using cash and 4.5 million shares. The filing reports no material-pending legal proceeding.
Important facts for investors to verify
- Confirm the issuer identity: the supplied metadata says USBC, Inc., while this filing is for Visualant, Inc. (ticker VSUL).
- Review the full financial statements and debt terms, including near-term maturities, convertible-note conversion adjustments, and the company’s ability to secure additional financing.
- Check subsequent share issuances, conversions, warrants and equity-line availability to assess dilution and liquidity after September 30, 2012.
- Track whether SPP development and licensing translate into commercial products, customers, royalties or SPM revenue; none was reported for fiscal 2012.
- Monitor remediation of the disclosed internal-control weakness and the company’s going-concern status.