<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission File No. 02-99110
--------
VITRISEAL, INC.
------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 91-1499978
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
12226 South 1000 East, Suite 9
Draper, Utah 84020
--------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 553-8785
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 Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
September 30, 1999: Common Stock - 20,839,190 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained
in Item 6 of this Report.
Transitional Small Business Issuer Format Yes No X
--- ---
<PAGE>
VITRISEAL, INC.
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
Balance Sheets as of September 30, 1999 and 4
December 31, 1998
Statements of Operations for the Three Month and Nine Month 5
Periods ended September 30, 1999 and September 30, 1998, and from
Inception through September 30, 1999
Statements of Cash Flows for the Three Month and Nine Month 6
Periods ended September 30, 1999 and September 30, 1998, and from
Inception through September 30, 1999
Notes to Financial Statements for the Three Month and 7
Nine Month Periods ended September 30, 1999 and September 30, 1998,
and from Inception through September 30, 1999
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
- -----------------------------------------------------------------------------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Consolidated Financial Statements of the Company required to be
filed with this Form 10-QSB Quarterly Report were prepared by management and
commence on the following page, together with related Notes. In the opinion
of management, these Consolidated Financial Statements fairly present the
financial condition of the Company, but should be read in conjunction with
the Financial Statements of the Company for the year ended December 31, 1998
filed with the Securities and Exchange Commission.
3
<PAGE>
VITRISEAL, INC.
(FORMERLY AXR DEVELOPMENT CORPORATION, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 167,182 $ 28,900
Advances to related parties 500,000 0
------------ -----------
Total Current Assets 667,182 28,900
------------ -----------
Property and equipment, net 55,306 45,598
Patents, net of accumulated amortization of: 199,400 171,633
09/30/1999 $7,839.56
12/31/1998 $4,214.45
Deferred tax asset, net of valuation allowance 0 0
Other assets 2,270 946
------------ -----------
TOTAL ASSETS $ 924,158 $ 247,077
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable and accrued expenses $ 51,853 $ 32,744
Stockholders' Equity
Common stock, par value $.001 per share 20,839 20,293
09/30/99: 100,000,000 shares authorized, 31,361,639
shares issued and 20,839,190 shares outstanding
12/31/98: 100,000,000 shares authorized, 30,815,138
shares issued and 20,292,689 shares outstanding
Additional paid-in capital 5,954,286 4,091,482
Accumulated deficit during the development stage (4,974,195) (3,897,442)
Deferred compensation - stock options (128,625) 0
------------ -----------
Total stockholders' equity 872,305 214,333
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 924,158 $ 247,077
============ ============
</TABLE>
4
The accompanying notes are an integral part of these financial statements
<PAGE>
VITRISEAL, INC.
(FORMERLY AXR DEVELOPMENT CORPORATION, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Three-month and Nine-month Periods Ended September 30, 1999 and
September 30, 1998 and For the Period April 16, 1992 (Inception) through
September 30, 1999
Unaudited
<TABLE>
<CAPTION>
April 16, 1992
(Inception)
Three Months Three Months Nine Months Nine Months through
Ended September Ended September Ended September Ended September September 30,
30, 1999 30, 1998 30, 1999 30, 1998 1999
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES
Licensing fees $ - $ - $ - $ - $ 25,000
EXPENSES
Research and Development 225,280 158,124 622,943 376,099 2,113,321
Operating expenses 124,788 156,783 467,705 475,325 2,844,695
Interest expense, net (3,795) 7,857 (13,895) 23,044 41,178
---------- ------------ ------------ ------------ ------------
Loss before income tax benefit (346,273) (322,764) 1,076,753 (874,468) (4,974,194)
Income tax benefit
Current - - - - -
Deferred 128,000 119,000 400,000 327,000 1,517,000
Less valuation allowance (128,000) (119,000) (400,000) (327,000) (1,517,000)
---------- ------------ ------------ ------------ ------------
Net (loss) $ (346,273) $ (322,764) $ (1,076,753) $ (874,468) $ (4,974,194)
---------- ------------ ------------ ------------ ------------
Basic and diluted loss per share $ 0.2 $ 0.2 $ 0.5 $ 0.5 $ 0.26
---------- ------------ ------------ ------------ ------------
</TABLE>
5
The accompanying notes are an integral part of these financial statements
<PAGE>
VITRISEAL, INC.
(FORMERLY AXR DEVELOPMENT CORPORATION, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 30, 1998 AND FOR THE PERIOD APRIL 16, 1992
(INCEPTION) THROUGH SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
April 16, 1992
(Inception)
Three Months Three Months Nine Months Nine Months through
Ended September Ended September Ended September Ended September September 30,
30, 1999 30, 1998 30, 1999 30, 1998 1999
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (346,273) $ (322,764) $ (1,076,753) $ (874,468) $ (4,974,194)
Adjustments to reconcile net (loss)
to net cash used by operating
activities:
Depreciation and amortization 4,963 2,528 16,274 7,280 46,980
Stock options 12,863 - 25,725 - 25,725
Changes in current assets and
liabilities:
Other assets (1,324) - (1,324) - (2,270)
Accounts payable and accrued
expenses (94,075) (10,285) 19,109 12,630 51,852
----------- ----------- ------------ ---------- ------------
NET CASH (USED) BY OPERATING ACTIVITIES (423,846) (330,521) (1,016,969) (854,558) (4,851,907)
----------- ----------- ------------ ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (3,912) (10,206) (22,357) (15,717) (94,448)
Patent costs (2,924) (4,151) (31,392) (39,950) (207,239)
----------- ----------- ------------ ---------- ------------
NET CASH (USED) BY INVESTING ACTIVITIES (6,836) (14,357) (53,749) (55,667) (301,687)
----------- ----------- ------------ ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note payable - - - - 450,000
Advances from related parties - 292,042 (331,000) 836,806 2,419,709
Proceeds from issuance of common stock - - 1,540,000 - 2,917,067
Repurchases of common stock - - - - (538,000)
Capital contributions - 7,875 - 23,625 72,000
----------- ----------- ------------ ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 299,917 1,209,000 860,431 5,320,776
----------- ----------- ------------ ---------- ------------
NET INCREASE (DECREASE) IN CASH (430,682) (44,961) 138,282 (49,794) 167,182
CASH AT BEGINNING OF PERIOD 597,864 49,013 28,900 53,846 -
----------- ----------- ------------ ---------- ------------
CASH AT END OF PERIOD $ 167,182 $ 4,052 $ 167,182 $ 4,052 $ 167,182
----------- ----------- ------------ ---------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Non-cash transactions:
Conversion of note payable to
common stock $ - $ - $ - $ - $ 450,000
=========== =========== ============ ========== ============
Conversion of interest payable to
common stock $ - $ - $ - $ - $ 72,000
=========== =========== ============ ========== ============
Conversion of advances from related
parties to common stock $ - $ - $ 169,000 $ 358,750 $ 2,919,709
=========== =========== ============ ========== ============
</TABLE>
6
The accompanying notes are an integral part of these financial statements
<PAGE>
VITRISEAL, INC.
Notes to the Financial Statements
For the Three Month and Nine Month Periods Ended September 30, 1999,
September 30, 1998, and for the Period April 16, 1992 (Inception) through
September 30, 1999.
1. BASIS OF PRESENTATION
In the opinion of management, the unaudited financial statements
reflect all normally recurring adjustments necessary to fairly present the
Company's financial position and results of operations for the periods
indicated.
The accompanying interim financial statements should be read in
conjunction with the audited financial statements and related notes for
Dancor, Inc. for the period ended December 31, 1998, included in the
Company's Form 8-K, as amended, which was filed with the Securities and
Exchange Commission on December 15, 1998. Certain information and footnote
disclosures normally included in the Company's annual financial statements
have been omitted from the quarterly financial statements based upon
Securities and Exchange Commission rules and regulations.
Net loss per common share was computed based on the net loss divided
by the weighted average number of common shares outstanding during the
periods presented. For this purpose, as well as for the Balance Sheet
reporting of shares outstanding, we have reported as though all Dancor shares
had been converted to VitriSeal shares in accordance with the Reorganization
discussed in Note 2 below. At the time of filing these statements, there were
982,578 shares held by Dancor investors for which conversion consents had not
been received. This represents 5.0% of the shares held by Dancor investors.
The assumption of full conversion in the presentation does not materially
alter any of the financial results. Moreover, this treatment is consistent
with the concept of using all "potential common stock" for the calculation of
earnings/loss per share.
2. REORGANIZATION
On March 18, 1999, approximately 85% of the outstanding common stock
of Dancor, Inc., a development stage company incorporated in Delaware on
April 16, 1992, was acquired by VitriSeal, Inc. in a "reverse acquisition"
accomplished through a tax-free, stock-for-stock reorganization. At March 18,
1999, VitriSeal, Inc. was a dormant entity with no assets, no significant
operations during 1997 or 1998, and no revenues since 1989.
On December 23, 1998, VitriSeal and Dancor entered into an Agreement
and Plan of Reorganization (the "Plan") structured to result in the
acquisition by VitriSeal of at least 80% of the issued and outstanding shares
of restricted common stock of Dancor. Such transaction is hereinafter
referred to as the "Reorganization." The Reorganization is intended to
qualify as a tax-free transaction under Section 368 (a)(1)(B) of the 1986
Internal Revenue Code, as amended. Under the terms of the Plan, the former
stockholders of Dancor (1) received three shares of VitriSeal for each one
share of Dancor owned and (2) will ultimately acquire approximately 95% of
the issued and outstanding common stock of VitriSeal, if all of Dancor's
stockholders execute the Plan. As of August 19, 1999, the former stockholders
7
<PAGE>
of Dancor owned approximately 90% of the 20.8 million post-Reorganization
shares of VitriSeal's issued and outstanding common stock. Such shares are
restricted securities under Federal Securities laws, and will become
available for sale (under certain conditions, and subject to statutory
limitations) in approximately March 2000.
Management has accounted for the Reorganization as a capital stock
transaction (as opposed to a "business combination," as that term is defined
by GAAP). Accordingly, the Reorganization is reported in these statements as
a recapitalization of the Company, with Dancor considered the acquirer for
accounting purposes (a "reverse acquisition"). Through its former
stockholders, Dancor is deemed the acquirer for accounting purposes because
of (a) its majority ownership of VitriSeal, (b) its representation on
VitriSeal's board of directors, and (c) executive management positions held
by former officers of Dancor.
There are certain restrictions on the sale or other transfer of the
Company's common stock issued under the Plan. Such stock, generally referred
to as "Rule 144 stock," was not registered under the Securities Act of 1933,
as amended ("the Act"), in reliance upon an exemption from its requirements.
Each exchanging shareholder agreed to (1) acquire such stock for his/her own
account and (2) hold the stock for investment purposes only. In addition, the
stock certificates are required to contain a legend (a) documenting these
restrictions and (b) requiring a legal opinion that any proposed sale is
exempt from registration under the Act.
VitriSeal's common stock trades on the OTC Bulletin Board of the
National Association of Securities Dealers under the symbol "VTSL".
3. ADVANCES TO RELATED PARTIES-SUBSEQUENT EVENTS
Subsequent to the end of the third quarter, on October 19, 1999,
Culley W. Davis, Chief Executive Officer and the Chairman of the Board of the
Company, repaid a $500,000 advance received from the Company earlier in the
year.
4. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
During the quarter ended September 30, 1999, there were no sales of
new-issue common stock. For the nine-month period ended September 30, 1999,
there were sales of new-issue common stock in the amount of 462,000
(post-split) shares for which $1,540,000 was paid in.
5. DESCRIPTION OF SECURITIES
The Company has one class of securities authorized, consisting of
100,000,000 shares of $.001 par value common voting stock. The holders of the
Company's Common Stock are entitled to one vote per share on each matter
submitted to a vote at a meeting of stockholders. The shares of Common Stock
carry cumulative voting rights in the election of directors.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption rights and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of Common
8
<PAGE>
Stock are entitled to share equally in corporate assets after satisfaction of
all liabilities. All shares of the Common Stock now outstanding are fully
paid and non-assessable.
On May 12, 1999, VitriSeal granted non-statutory options to purchase
1,225,000 post-Reorganization shares of its Common Stock to certain
employees, directors, and outside consultants at an exercise price of $1.75
per share. Such options, which expire on June 30, 2009, became exercisable on
the date of grant. Management has accounted for these options in these third
quarter statements in accordance with APB #25. VitriSeal has not adopted a
stock option plan beyond these specific options.
6. YEAR 2000 MATTERS
Many computerized systems use only two digits to represent the year
in date fields; such systems may be unable to accurately process dates ending
in the year 2000 and thereafter. The effects of this problem will vary from
system to system, and may adversely affect the Company's operations and its
ability to prepare financial statements. The Company has no custom developed
computer systems subject to these potential problems. It has communicated
with third party vendors of packaged software to determine their compliance
with the Year 2000 issue and has been advised that none of the systems in use
is likely to experience Year 2000 problems. However, the Company cannot
provide absolute assurance that the systems of third parties will be in full
compliance by the turn of the century. The failure of third party vendors to
complete compliance with the Year 2000 issue in an appropriate timeframe
could have a material adverse effect on the Company's ability to perform
essential business tasks, which could then have a material adverse effect on
the Company's business.
Item 2. Management's Discussion and Analysis or Plan of Operation.
PLAN OF OPERATION
The Company has not generated any revenues from operations during
the last two calendar years and for the next 12 months, its plan is to
actively continue research and development of VitriSeal(TM).
The Company was founded in 1992 and owns the rights for a series of
patented processes called VitriSeal(TM). The process is based on inorganic
silicate chemistry that makes bright, clear, corrosion-protective coatings on
metal surfaces at a fraction of the cost of other clear coatings. In
addition, as a waterborne coating, VitriSeal(TM) has little to no organic
vapor emissions and creates minimal waste during the normal process
operation. The Company believes that existing products in the market are
inferior in terms of performance, cost, and environmental impacts, giving
VitriSeal(TM) a significant competitive advantage.
The Company's long-term goal is to exploit the VitriSeal(TM)
technology through licensing, joint venture agreements, and sales to
strategically selected manufacturers. The Company believes there is a large,
growing market for its proprietary silicate product.
9
<PAGE>
The focus of current efforts is to establish a pilot plant with an
automotive, after-market wheel manufacturer. The manufacturer is one of the
leading producers of bright, polished aluminum wheels, and the Company
entered into a license agreement with the manufacturer. The Company has
contributed $50,000 for the purchase of equipment for the pilot line, which
is being built in space that the manufacturer has dedicated in a new
facility. The Company is working together with the manufacturer on the line
mechanics and the line is anticipated to be completed before the end of the
year. The Company believes that the engineering being done in connection with
the pilot operation should enable the Company to automate the application
process, reduce labor costs, ensure uniformity, and result in a commercially
viable facility. After successful pilot line operations, the Company plans to
make the product available to other wheel companies before expanding into
other aluminum products.
RESEARCH AND DEVELOPMENT.
Because of the improvements and refinements in the VitriSeal(TM)
process resulting from our on-going laboratory research, the Company is
preparing to file additional patent applications that would include both
process and stateofmatter claims that would incorporate what has been learned
during the research process.
During the next 12 months, the Company anticipates spending
approximately $800,000 to $1 million on the research and development matters
outlined in this filing.
EMPLOYEES.
The Company anticipates hiring two to four new employees during the
next 12 months to assist in overseeing the development of the pilot plant and
automated coating line.
LIQUIDITY.
During the next 12 months, the Company will need significant working
capital to fund its marketing efforts and to manufacture product. The Company
intends to obtain working capital from the sale of its common stock to
private investors. The Company believes it will need to raise between
$500,000 to $1 million to cover its working capital needs for the next 12
months.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
10
<PAGE>
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable.
Item 5. Other Information.
None: not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
Number
(a) Exhibits.*
None.
(b) Reports on Form 8-K.
None.
* A summary of any Exhibit is modified in its entirety by
reference to the actual Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VITRISEAL, INC.
Date: 11/12/99 BY: /s/ DANIEL CORBIN
--------------------------
President and Director
Date: 11/12/99 BY: /s/ JOHN W. NAGEL
--------------------------
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR VITRISEAL, INC., A DEVELOPMENT STAGE
COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 167,182
<SECURITIES> 0
<RECEIVABLES> 500,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 667,182
<PP&E> 94,448<F1>
<DEPRECIATION> 39,142
<TOTAL-ASSETS> 924,158
<CURRENT-LIABILITIES> 57,853
<BONDS> 0
0
0
<COMMON> 20,839
<OTHER-SE> 851,466
<TOTAL-LIABILITY-AND-EQUITY> 924,158
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 350,068<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,795)
<INCOME-PRETAX> (346,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (346,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (346,273)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>GROSS INVESTMENT IN PP&E, i.e., BEFORE DEPRECIATION DEDUCTION
<F2>OPERATING EXPENSE 124,788; R&D 225,280
</FN>
</TABLE>
