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U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB-A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1999
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 02-99110-NY
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VITRISEAL, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 11-2751537
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
12226 South 1000 East, Suite 9
Draper, Utah 84020
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(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:
March 31, 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
--- ---
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VITRISEAL, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
Balance Sheets as of March 31, 1999 and 4
December 31, 1998
Statements of Operations for the Three Months ended 5
March 31, 1999 and March 31, 1998 and from Inception
Statements of Cash Flows for the Three Months ended March 31, 1999 and March
31, 1998 and from Inception 6
Notes to Financial Statements for the Three Months ended 7
March 31, 1999 and March 31, 1998 and from Inception
Item 2. Management's Discussion and 9
Analysis of 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>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Consolidated Financial Statements of the Company required to be
filed with this 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.
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VITRISEAL, INC.
(FORMERLY AXR DEVELOPMENT CORPORATION, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
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<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
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ASSETS
CURRENT ASSETS
CASH $ 980,119 $ 28,900
ADVANCES TO RELATED PARTIES 500,000 -
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TOTAL CURRENT ASSETS 1,480,119 28,900
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PROPERTY AND EQUIPMENT, NET 44,739 45,598
PATENTS, NET OF ACCUMULATED AMORTIZATION OF: 176,056 171,633
03/31/1999 $5,423
12/31/1998 $4,214
DEFERRED TAX ASSET, NET OF VALUATION ALLOWANCE - -
OTHER ASSETS 946 946
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TOTAL ASSETS $ 1,701,860 $ 247,077
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 52,775 $ 32,744
STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.001 PER SHARE 20,839 20,293
03/31/99: 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 5,799,936 4,091,482
ACCUMULATED DEFICIT DURING THE DEVELOPMENT STAGE (4,171,690) (3,897,442)
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TOTAL STOCKHOLDERS' EQUITY 1,649,085 214,333
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,701,860 $ 247,077
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</TABLE>
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 QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998 AND
FOR THE PERIOD APRIL 16, 1992 (INCEPTION) THROUGH MARCH 31, 1999
UNAUDITED
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<CAPTION>
APRIL 16, 1992
THREE MONTHS ENDED THREE MONTHS ENDED (INCEPTION) THROUGH
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
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<S> <C> <C> <C>
REVENUES
LICENSING FEES $ - $ - $ 25,000
EXPENSES
RESEARCH AND DEVELOPMENT 172,518 106,264 1,662,897
OPERATING EXPENSES 105,134 168,110 2,482,124
INTEREST EXPENSE, NET (3,405) 7,221 51,669
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LOSS BEFORE INCOME TAX BENEFIT (274,247) (281,595) (4,171,690)
INCOME TAX BENEFIT
CURRENT - - -
DEFERRED 104,000 105,000 1,389,000
LESS VALUATION ALLOWANCE (104,000) (105,000) (1,389,000)
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NET (LOSS) $(274,247) $(281,595) $(4,171,690)
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BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.01) $ (0.22)
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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VITRISEAL, INC.
(FORMERLY AXR DEVELOPMENT CORPORATION, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998 AND
FOR THE PERIOD APRIL 16, 1992 (INCEPTION) THROUGH MARCH 31, 1999
UNAUDITED
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<CAPTION>
APRIL 16, 1992
THREE MONTHS ENDED THREE MONTHS ENDED (INCEPTION) THROUGH
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (274,247) $ (281,595) $ (4,171,690)
Adjustments to reconcile net (loss) to net cash used
by operating activities:
Depreciation and amortization 4,367 2,224 35,074
Changes in current assets and liabilities:
Other assets - - (946)
Accounts payable and accrued expenses 20,031 21,713 52,775
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NET CASH (USED) BY OPERATING ACTIVITIES (249,849) (257,658) (4,084,787)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (2,300) (4,057) (74,391)
Patent costs (5,632) (6,677) (181,479)
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NET CASH (USED) BY INVESTING ACTIVITIES (7,932) (10,734) (255,870)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note payable - - 450,000
Advances from related parties (331,000) 253,122 2,419,709
Proceeds from issuance of common stock 1,540,000 - 2,917,067
Repurchases of common stock - - (538,000)
Capital contributions - - 72,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,209,000 253,122 5,320,776
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NET INCREASE (DECREASE) IN CASH 951,219 (15,270) 980,119
CASH AT BEGINNING OF PERIOD 28,900 53,846 -
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CASH AT END OF PERIOD $ 980,119 $ 38,576 $ 980,119
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash transactions:
Conversion of note payable to common stock $ - $ - $ 450,000
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Conversion of interest payable to common stock $ - $ - $ 72,000
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Conversion of advances from related parties to $ 169,000 $ 200,000 $ 2,919,709
common stock ---------- ---------- ------------
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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VITRISEAL, INC.
Notes to the Financial Statements
For the Three Months Ended March 31, 1999, March 31, 1998, and for the Period
July 10, 1985 (inception) through March 31, 1998.
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 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 1,348,869
shares held by Dancor investors for which conversion consents had not been
received. This represents 6.8% 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. There was no other potential common stock during any
of the periods, so basic and diluted loss per share are the same.
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." At
March 18, 1999, VitriSeal, Inc. was a dormant entity with no assets at that
date nor significant operations during 1997 or 1998. It had not had any
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 May 31, 1999, the former stockholders of Dancor owned
approximately 88% of the 20.8 million post-Reorganization shares of
VitriSeal's issued and outstanding common stock. Such shares are restricted
securities under Federal law, and will become
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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.
With the Reorganization having been consummated during the quarter for
which these statements have been prepared, the historical statements, i.e.,
the December 31, 1998 balance sheet and the statements of operations and cash
flows for the quarter ending March 31, 1998 and for the inception-to-date
period, as well as the current quarter statements present the collective
results for Dancor and VitriSeal. Since the Reorganization is not a business
combination, pro forma financial information otherwise required by the rules
and regulations of the Securities and Exchange Commission has not been
presented.
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
The $500,000 amount shown on the March 31, 1999, Balance Sheet as
"Advances to Related Parties" was repaid to the Company by the end of the
second quarter, 1999.
4. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Prior to the Reorganization and during the quarter ended March 31, 1999,
there were sales of Dancor 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
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subject to redemption rights and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of Common
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 will adopt accounting policies for these stock
options during the preparation of VitriSeal's unaudited financial statements
for the quarter ending June 30, 1999. 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. The Company's plan of operation for the next 12
months is to actively continue research and development of VitroSeal-TM-.
The Company has developed, tested, and patented a proprietary
coating technology which it calls Vitroseal-TM-, "The Optimal Clear Coating
Process." The technology could represent a major breakthrough in the
industrial coatings market. Key benefits of Vitroseal-TM- include:
EXCEPTIONAL COATING PERFORMANCE:
excellent surface adhesion,
optimal hardness (4H pencil hardness),
excellent brightness (water white),
excellent film flexibility,
versatile applicability to a wide variety of metals,
chip resistance,
low film weight,
corrosion resistant,
high dielectric strength, and
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thermal cycling resistance.
LOW COST:
raw material costs at 80% less than conventional coatings,
heat cure compatible with existing equipment,
no environmental control costs, and
fast cure to full hardness for faster manufacturing
production lines.
ENVIRONMENTAL COMPLIANCE:
waterborne,
no volatile organic compounds (VOCs),
no isocyanates,
no lead,
no chromates,
no cadmium,
no chlorine or chloro-compounds, and
no formaldehyde.
During the past two years, the Company has spent millions of dollars
on research and development of the characteristics, qualities, and uses of
its Vitroseal-TM- technology and its others products and processes.
The Company intends to engage in licensing, joint ventures, and the
sale of rights to strategically selected coatings manufacturers. The Company
plans to earn a reputation in the coatings industry for excellent clear
coating technology, aggressive technology development, strong legal support,
and savvy business management. Through development of these qualities, the
Company believes it will be in position to directly license its technology to
leading manufacturers in the coatings industry.
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 $1 and
$1.3 million to cover its working capital needs through the end of the year.
Research and Development.
- -------------------------
The Company will be heavily engaged in research and development during
1999 and anticipates spending approximately $800,000 to $1 million on research
and development during 1999.
Employees.
- ----------
The Company has also previously hired the personnel it believes is
necessary for its research and development, accordingly, the Company does not
anticipate any material changes in the number of its employees through 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
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.
During the first quarter of 1999, VitriSeal and Dancor, Inc.
executed an Agreement and Plan of Reorganization, whereby VitriSeal, Inc.
acquired a controlling interest in Dancor, Inc. and Dancor, Inc. became a
majority owned subsidiary of VitriSeal. (See the 8-K Current Report dated
December 15, 1998, as amended, which has been previously filed with the
Securities and Exchange Commission and which is incorporated herein by
reference.)
Subsequent to the end of the first quarter on May 3, 1999, the Company
dismissed its former principal accountants, Jones Jensen & Company and engaged
Squar, Milner & Reehl, LLP as its principal accountant. (See the 8-K Current
Report dated May 7, 1999, which has been previously filed with the Securities
and Exchange Commission and which is incorporated herein by reference.)
Item 6. Exhibits and Reports on Form 8-K.
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Exhibit
(a) Exhibits.* Number
None.
(b) Reports on Form 8-K.
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Change of Auditors filed on May 6, 1999.
* A summary of any Exhibit is modified in its entirety by reference
to the actual Exhibit.
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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: 7/22/99 BY: /s/ Daniel Corbin
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President and Director
Date: 7/22/99 BY: /s/ John W. Nagel
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Chief Financial Officer
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<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> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 980,119
<SECURITIES> 0
<RECEIVABLES> 500,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,480,119
<PP&E> 74,391<F1>
<DEPRECIATION> 29,652
<TOTAL-ASSETS> 1,701,860
<CURRENT-LIABILITIES> 52,775
<BONDS> 0
0
0
<COMMON> 20,839
<OTHER-SE> 1,628,246
<TOTAL-LIABILITY-AND-EQUITY> 1,701,860
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 270,842<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,405
<INCOME-PRETAX> (274,247)
<INCOME-TAX> 0
<INCOME-CONTINUING> (274,247)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,247)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1>GROSS INVESTMENT IN PP&E, I.E. BEFORE DEPRECIATION DEDUCTION
<F2>OPERATING EXPENSE 105,134; R&D 172,518
</FN>
</TABLE>
