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

State issuer’s revenues for its most recent fiscal year:

$           -0-

 

 

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 September 30, 2007, based upon the last reported trade on September 28, 2007, 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 $2,680,563.

 

(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 14, 2008, the Company had 18,053,891 shares of common stock issued and outstanding which includes 1,200,000 shares granted by the board on December 12, 2007 that have not yet been 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

 

TABLE OF CONTENTS

 

		Page
PART 1
ITEM 1.	Description of Business
ITEM 2.	Description of Property
ITEM 3.	Legal Proceedings
ITEM 4.	Submission of Matters to Vote of Securities Holders
PART II
ITEM 5.	Market for Common Equity and Related Stockholder Matters
ITEM 6.	Management’s Discussion and Analysis or Plan of Operations
ITEM 7.	Financial Statements
ITEM 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 8A.	Controls and Procedures
ITEM 8B.	Other Information
PART III
ITEM 9.	Directors, Executive Officers, Promoters, and Control Persons; Compliance with Section 16(a) of the Exchange Act
ITEM 10.	Executive Compensation
ITEM 11.	Security Ownership of Certain Beneficial Owners and Management
ITEM 12.	Certain Relationships and Related Transactions
PART IV
ITEM 13.	Exhibits and Reports on Form 8-K
ITEM 14.	Principal Accountant Fees and Services
	SIGNATURES

 

 

 

 

 

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 and no 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, 2007 there were 16,853,891 Common Shares and no Preferred Shares outstanding.  No additional shares have been issued as of the date of this annual report on Form 10-KSB.  On December 12, 2007, the Board of Directors authorized  the issuance of 1,200,000 shares for payment of services.

 

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 DISCUSSION AND ANALYSIS.

 

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.

 

 

ITEM 1.    DESCRIPTION OF BUSINESS - continued

 

History and Organization - continued

 

During the fiscal year ended September 30, 2007, 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, 2007.

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.

1.	The Company is uncertain if it will be able to obtain additional capital necessary for its development.

 

The Company has incurred a cumulative net loss for the period from October 8, 1998 (date of inception) to September 30, 2007 of $5,678,857.  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.

 

 

 

ITEM 1.    DESCRIPTION OF BUSINESS - continued

 

RISK FACTORS - continued

 

2.	Whether the Company will continue to be a going concern

 

The Company’s auditors’ concern in the audit opinion with regard to the Company’s financial statements as at September 30, 2007 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.

3.	Some of the present shareholders have acquired shares at extremely low prices

Some of the present shareholders have acquired shares at prices ranging from $0.001 to $0.25 per share, whereas other shareholders have purchased their shares at $0.50 and $0.75 per share.

4.	Future issuance of stock options, warrants and/or rights will have a diluting factor on existing and future shareholders

 

The grant and exercise of stock options, warrants or rights to be issued in the future would likely result in a dilution of the value of the Company’s common shares for all shareholders.  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 would likely result from such sales.

5.	The Company does not expect to declare or pay any dividends

The Company has not declared or paid any dividends on its common stock since its inception, and it does not anticipate paying any such dividends for the foreseeable future.

6.	Conflict of interest

Some of the Directors of the Company are also directors and officers of other companies, and conflicts of interest may arise between their duties as directors of the Company and as directors and officers of other companies.

7.	Concentration of ownership by management.

The management of the Company and their immediate family members, either directly or indirectly, own or control 1,961,875 shares.  Even though this represents only 11.6% 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.

 

8.	Key-man insurance

 

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.

 

9.	Limited full time employees

 

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.

 

 

 

ITEM 1.    DESCRIPTION OF BUSINESS - continued

 

RISK FACTORS - continued

 

10.	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.

 

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.

11.	Recently Enacted and Proposed Regulatory Changes

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and NASDAQ could cause the Company to incur increased costs as it evaluates the implications of new rules and responds to new requirements.  The new rules will make it more difficult for the Company to obtain certain types of insurance, including directors and officers liability insurance, and the Company may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  The impact of these events could also make it more difficult for the Company to attract and retain qualified persons to serve on the Company's board of directors, or as executive officers.  The Company is presently evaluating and monitoring developments with respect to these new and proposed rules, and it cannot predict or estimate the amount of the additional costs it may incur or the timing of such costs.

 

 

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.   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 patents will be granted. 

 

 

 

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 meeting was 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, 2007 the Company had 16,853,891 shares of common stock issued and outstanding held by 93 shareholders of record.  In addition, the Company had either committed to or had outstanding options to purchase 1,897,500 shares of common stock at exercise prices ranging from $0.10 to $0.75 per share.

 

 

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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, 2007 there were 16,853,891 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, 2007, 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.  Discussions are in progress to determine the relationship between the Company and the RATLab going forward

 

 

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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.  Further discussions between the two companies on the topic have been put on hold.

 

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 September 20, 2006, the Company signed a Memorandum of Understanding with Branded Asset Management Group LLC to form a joint venture for the purpose of establishing a new anti-counterfeiting standard in a range of branded products and categories.  The Company will own 50% of the joint venture, and will license its technology to the joint venture for use in the development and sale of anti-counterfeit products, systems and processes in certain agreed upon markets.

Branded Asset Management Group LLC (BAM) was founded in 2003 to provide objective counsel, innovation and fulfillment to brand marketers seeking accelerated organic growth.  BAM helps companies optimize the economic value of their brands and related assets through innovation in branding, marketing, product development and security.  BAM is headquartered in New York.  Its principals are former senior executives from the fields of international brand management, marketing innovation, investment banking, telecommunications and biotechnology.

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 $35,000 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 twelve months ended September 30, 2007, the Company obtained funds in the aggregate amount of approximately $135,000 through loans from Coach Capital and Bradley E. Sparks, CEO and President.  The Company borrowed $425,000 from Coventry Capital during the year ended September 30, 2007 under the Convertible Line of Credit.  Approximately $250,000 of the proceeds from the Convertible Line of Credit were used to repay the principal due on the Coach Capital notes payable.  During the year, operating funds were also 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.

 

 

 

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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, 2007, 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, 2007, the Company paid approximately $0 and $251,000 in 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.  Upon receiving additional funding, developmental activities will resume with the either the RATLab or with another outside third party.

The Company initially 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, 2007, 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.

 

 

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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, 2006 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, 2006 and 2007 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.

 

 

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, 2007, 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				Chairman of the Board and Director		April 24, 2003
Bradley E. Sparks				Chief Executive Officer, President and Director		November 10, 2006
Jon Pepper				Director		April 19, 2006
Dr. Masahiro Kawahata				Director		April 19, 2006

 

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 and is qualified.

 

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 whi