SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 15, 1999
FBR CAPITAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 33-58694 13-3465289
- ---------------------------- ----------- -------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
20 East University, Suite 304, Tempe, Arizona 85281
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 967-5800
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The financial statements and schedules for Vitrix Incorporated which
were previously omitted from the Form 8-K filed on April 30, 1999 are
included herewith commencing on page F-1.
(b) Pro Forma Financial Information
See (a) above
(c) Exhibits
None
2
<PAGE>
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 hereunto duly authorized.
FBR CAPITAL CORPORATION
Date: June 29, 1999 By /s/ Philip R. Shumway
-------------------------------------
Philip R. Shumway
President and Chief Executive Officer
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Vitrix Incorporated
Phoenix, Arizona
We have audited the accompanying balance sheet of Vitrix Incorporated as of June
30, 1998, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended June 30, 1997 and 1998. The
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statement presentation.
We believe that our audits provide 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 Vitrix Incorporated as of June
30, 1998, and the results of its operations and its cash flows for the years
ended June 30, 1997 and 1998, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Los Angeles, California
May 24, 1999
F-1
<PAGE>
VITRIX INCORPORATED
BALANCE SHEETS
ASSETS
JUNE 30, MARCH 31,
1998 1999
--------- ---------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 96,775 $ 254,903
Accounts receivable - trade, net (Note 1) 35,167 40,193
Inventory (Note 1) 17,045 28,537
Prepaid expenses and other current assets 3,114 11,714
--------- ---------
TOTAL CURRENT ASSETS 152,101 335,347
PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 2) 34,347 53,420
--------- ---------
TOTAL ASSETS $ 186,448 $ 388,767
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3) $ -- $ 6,953
Accounts payable 41,100 64,273
Accrued liabilities 51,042 24,116
--------- ---------
TOTAL CURRENT LIABILITIES 92,142 95,342
LONG-TERM DEBT, LESS CURRENT PORTION;
RELATED PARTY IN 1998 (NOTE 3) 200,000 14,282
--------- ---------
TOTAL LIABILITIES 292,142 109,624
--------- ---------
COMMITMENTS: (NOTE 5) -- --
STOCKHOLDERS' EQUITY (DEFICIT): (NOTE 6)
Common stock, no par value, 10,000,000
shares authorized, 7,020,000 and 9,314,445
shares issued and outstanding, respectively 358,745 814,233
Contributed capital 136,876 136,876
Accumulated deficit (601,315) (671,966)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (105,694) 279,143
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 186,448 $ 388,767
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-2
<PAGE>
VITRIX INCORPORATED
STATEMENTS OF OPERATIONS
NINE MONTHS
YEARS ENDED JUNE 30, ENDED MARCH 31,
--------------------- ---------------------
1998 1997 1999 1998
--------- --------- --------- ---------
(UNAUDITED)
REVENUES:
Product sales $ 267,697 $ 56,579 $ 515,352 $ 171,851
Services revenue 1,980 6,719 15,549 73
--------- --------- --------- ---------
TOTAL REVENUES 269,677 63,298 530,901 171,924
COST OF REVENUES 95,884 39,708 164,838 64,985
--------- --------- --------- ---------
GROSS PROFIT 173,793 23,590 366,063 106,939
--------- --------- --------- ---------
COSTS AND EXPENSES:
Sales and marketing 206,214 93,877 170,630 159,660
Research and development 117,515 106,506 140,375 88,438
General and administrative 105,073 65,663 106,102 71,085
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 428,802 266,046 417,107 319,183
--------- --------- --------- ---------
NET LOSS FROM OPERATIONS (255,009) (242,456) (51,044) (212,244)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (35,543) (34,647) (22,782) (27,104)
Interest income 6,293 4,205 3,175 6,009
--------- --------- --------- ---------
(29,250) (30,442) (19,607) (21,095)
--------- --------- --------- ---------
NET LOSS $(284,259) $(272,898) $ (70,651) $(233,339)
========= ========= ========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-3
<PAGE>
VITRIX INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK CONTRIBUTED ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 4,000,000 $ 400 $ -- $ (44,158) $ (43,758)
Sale of common stock
net of costs of $45,080 480,000 254,920 -- -- 254,920
Net loss -- -- -- (272,898) (272,898)
--------- --------- --------- --------- ---------
Balance at June 30, 1997 4,480,000 255,320 -- (317,056) (61,736)
Issuance of common stock
to employees and directors 240,000 2,225 -- -- 2,225
Sale of common stock 2,300,000 101,200 -- -- 101,200
Forgiveness of related party
debt and interest -- -- 136,876 -- 136,876
Net loss -- -- -- (284,259) (284,259)
--------- --------- --------- --------- ---------
Balance at June 30, 1998 7,020,000 358,745 136,876 (601,315) (105,694)
Conversion of related party
debt and interest (Unaudited) 1,363,000 264,570 -- -- 264,570
Sale of common stock
net of costs of $9,063
(Unaudited) 931,445 190,918 -- -- 190,918
Net loss (Unaudited) -- -- -- (70,651) (70,651)
--------- --------- --------- --------- ---------
Balance at March 31, 1999 (Unaudited) 9,314,445 $ 814,233 $ 136,876 $(671,966) $ 279,143
========= ========= ========= ========= =========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
F-4
<PAGE>
VITRIX INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED JUNE 30, ENDED MARCH 31,
---------------------- ----------------------
1998 1997 1999 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(284,259) $(272,898) $ (70,651) $(233,339)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation 20,367 13,137 20,701 15,141
Accrued interest converted to equity 26,876 -- 64,570 --
Changes in Assets and Liabilities:
Accounts receivable-trade (5,213) (29,953) (5,026) (1,776)
Inventory 7,426 (5,973) (11,492) 12,273
Prepaid expenses and other current assets (3,114) -- (8,600) --
Accounts payable 13,854 24,345 23,173 3,671
Accrued liabilities 7,627 36,625 (26,926) 20,003
--------- --------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES (216,436) (234,717) (14,251) (184,027)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,607) (31,078) (15,725) (5,097)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to related parties -- 210,000 -- --
Repayment of capital leases -- -- (2,814) --
Proceeds from issuance of stock 103,425 254,920 190,918 --
--------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 103,425 464,920 188,104 --
--------- --------- --------- ---------
Net change in cash and cash equivalents (123,618) 199,125 158,128 (189,124)
Cash and cash equivalents at beginning of period 220,393 21,268 96,775 220,393
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 96,775 $ 220,393 $ 254,903 $ 31,269
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,710 $ 300 $ 2,541 $ 2,110
========= ========= ========= =========
Income taxes paid $ -- $ -- $ -- $ --
========= ========= ========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired by entering into capital leases $ -- $ -- $ 24,049 $ --
========= ========= ========= =========
Conversion of related party notes and accrued
interest to equity $ 136,876 $ -- $ 264,570 $ --
========= ========= ========= =========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
F-5
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES:
- --------------------------------------------------------------------------------
NATURE OF BUSINESS:
Vitrix Incorporated (the "Company"), an Arizona corporation formed on April 26,
1996, develops time and labor management solutions that help its customers
improve productivity by automating data collection, staff scheduling and
management of labor resources. Its proprietary software applications are
targeted to small to mid-size companies and are sold via the Internet from the
Vitrix Online Store, resellers and directly through Vitrix's sales
representatives.
INTERIM FINANCIAL INFORMATION:
The interim financial statements for the nine month periods ended March 31, 1999
and 1998 are unaudited. In the opinion of management, such statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair representation of the results of the interim period. The results of
operations for the nine month period March 31, 1999 are not necessarily
indicative of the results for the entire year.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents are considered to be all highly liquid investments
purchased with an initial maturity of three (3) months or less.
ACCOUNTS RECEIVABLE - TRADE:
The Company provides for potentially uncollectible accounts receivable by use of
the allowance method. The allowance is provided based upon a review of the
individual accounts outstanding, and the Company's prior history of
uncollectible accounts receivable. As of June 30, 1998 a provision for
uncollectible accounts has been established in the amount of $7,706. Management
believes all receivables are fully collectible as of March 31, 1999.
Accordingly, no provision for uncollectible accounts has been made.
INVENTORY:
Inventory is stated at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets. The average
lives range from three to five years. Maintenance and repairs that neither
materially add to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Betterments or renewals are capitalized when
incurred. Depreciation expense was $20,367 and $13,137, respectively, for the
years ended June 30, 1998 and 1997, and $20,701 and $15,141, respectively, for
the nine months ended March 31, 1999 and 1998 (unaudited).
F-6
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (CONTINUED):
The Company is the lessee of computer equipment, with an original cost of
approximately $24,000, under two (2) capital lease agreements expiring through
November 2001. The assets and liabilities under the capital lease agreements are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the assets. The assets are being depreciated over their estimated
productive lives. Depreciation of the assets under the capital lease agreements
is included in depreciation expense as noted above.
SOFTWARE DEVELOPMENT COSTS:
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Capitalization of software
development costs begins upon the establishment of technological feasibility of
the product. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs requires considerable judgement
by management with respect to certain external factors including, but not
limited to, anticipated future gross product revenue, estimated economic life,
and changes in software and hardware technology. Amortization of capitalized
software development costs begins when the products are available for general
release to customers and is computed on a product-by-product basis using
straight-line amortization with useful lives of five years or, if less, the
remaining estimated economic life of the product. Amounts related to internal
software development that could be capitalized under this statement were
immaterial.
REVENUE RECOGNITION AND DEFERRED REVENUE:
The Company derives its revenues from the sale of frontline labor management
systems as well as sales of application software, parts and components. The
Company's systems consist of fully integrated software and intelligent data
collection terminals. The Company also derives revenues by providing
maintenance, professional and educational services to its direct customers. The
Company recognizes revenues from sales of its systems, application software,
parts and components at the time of shipment, unless the Company has significant
obligations remaining. When significant obligations remain, revenue is not
recognized until such obligations have been completed or are no longer
significant. The Company recognizes revenues from its sales-type leases of
systems at time of shipment. Service revenues are recognized ratably over the
contractual period or as the services are performed. Service revenue under
long-term contacts has been immaterial through March 31, 1999. Accordingly no
revenue has been deferred under service contracts.
The Company provides installation services and certain warranties to its
customers. It also provides, without additional charge, certain software product
enhancements for customers covered under software maintenance contracts. The
provision for these expenses are made at the time revenues are recognized.
F-7
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES:
Deferred income taxes are provided on an asset and liability method, whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, there is uncertainty of the utilization of the operating
losses in future periods. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
STOCK-BASED COMPENSATION:
The Company has elected to follow Accounting Principles Board Opinion No.25,
"Accounting for Stock Issued to Employees" (APB 25) and the related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
- --------------------------------------------------------------------------------
NOTE 2
PROPERTY AND EQUIPMENT:
- --------------------------------------------------------------------------------
At June 30, 1998 and March 31, 1999, property and equipment consists of:
June 30, March 31,
1998 1999
-------- --------
(unaudited)
Computers and equipment $ 64,488 $102,985
Furniture and fixtures 4,867 6,144
-------- --------
69,355 109,129
Less: accumulated depreciation (35,008) (55,709)
-------- --------
$ 34,347 $ 53,420
======== ========
F-8
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 3
LONG-TERM DEBT
- --------------------------------------------------------------------------------
At June 30, 1998 and March 31, 1999, long-term debt consists of the following:
June 30, March 31,
1998 1999
--------- ---------
(unaudited)
Note payable to related party, interest at 15%,
payable in two installments of $50,000 plus
interest, due December 20, 1999 and June 20,
2000, secured by all assets of the Company. $ 100,000 $ --
Note payable to related party, interest at 15%,
payable in two installments of $50,000 plus
interest, due December 20, 1999 and June 20,
2000, secured by all assets of the Company. 100,000 --
Capital leases payable, interest at rates
ranging from 20% to 24%, payable in monthly
installments of principal and interest,
maturing through November 2001 -- 21,235
--------- ---------
200,000 21,235
Less: current portion -- (6,953)
--------- ---------
Long-term debt $ 200,000 $ 14,282
========= =========
During 1996, the Company entered into a debt financing agreement for $310,000
with T.P.B. Investment Limited Partnership (TPB), which is owned by a member of
the Company's Board of Directors. On June 20, 1998, TPB converted debt of
$110,000, together with accrued interest thereon of approximately $27,000, to
contributed capital.
On March 3, 1999, TPB agreed to convert the remaining principal and accrued
interest outstanding on its notes. The agreement calls for the conversion of the
remaining $200,000 principal and accrued interest of $64,570 in exchange for
1,363,000 shares of the Company's common stock.
As of March 31, 1999 (unaudited) future minimum lease payments due under the
capital lease agreements, are as follows:
Year Ending
March 31,
---------
2000 $ 10,863
2001 10,863
2002 9,519
--------
Total minimum lease payments 31,245
Less: amount representing interest (10,010)
--------
Present value of net minimum lease payments 21,235
Less: current maturities of capital lease obligations (6,953)
--------
Long-term maturities of capital lease obligations $ 14,282
========
F-9
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 4
INCOME TAXES:
- --------------------------------------------------------------------------------
As of June 30, 1998 and March 31, 1999, deferred tax assets consist of the
following:
June 30, March 31,
1998 1999
--------- ---------
(unaudited)
Federal loss carryforwards $ 110,000 $ 135,000
State loss carryforwards 25,000 30,000
--------- ---------
135,000 165,000
Less: valuation allowances (135,000) (165,000)
--------- ---------
$ -- $ --
========= =========
The Company has established a valuation allowance equal to the full amount of
the deferred tax assets primarily because of uncertainty in the utilization of
net operating loss carryforwards.
As a result of stock ownership changes during 1997 and 1998, the Company's
ability to utilize net operating losses in the future could be limited, in whole
or part, under Internal Revenue Code Section 382. The Company was treated as an
S-Corporation for income tax purposes through May 13, 1997. As of June 30, 1998
and March 31, 1999 the Company's federal net operating loss carryforwards were
approximately $325,000 and $395,000 (unaudited), respectively, and begin
expiring in 2012.
- --------------------------------------------------------------------------------
NOTE 5
COMMITMENTS:
- --------------------------------------------------------------------------------
The Company currently leases office space in Tempe, Arizona under a
non-cancelable operating lease agreement which expires in May 2001. For the
years ended June 30, 1998 and 1997, expense under the aforementioned
non-cancelable operating lease agreements was approximately $20,000 and $16,000,
respectively. For the nine month periods ended March 31, 1999 and 1998, expense
under the aforementioned non-cancelable operating lease agreements was
approximately $24,000 and $15,000(unaudited), respectively.
Future minimum lease payments due under the operating lease agreements are as
follows:
Year Ending
--------------------
June 30, March 31,
-------- --------
(unaudited)
Year
----
1999 $ 35,526 $ --
2000 36,484 36,165
2001 34,249 37,123
2002 -- 9,341
-------- --------
$106,259 $ 82,629
======== ========
F-10
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 6
STOCKHOLDERS' EQUITY:
- --------------------------------------------------------------------------------
STOCK OPTIONS:
During 1996, the Board of Directors authorized the implementation of an equity
incentive plan for certain employees, directors, consultants and independent
contractors. As of March 31, 1999 (unaudited) the Company has reserved an
aggregate of 1,000,000 shares of common stock for distribution under the plan.
The exercise price will be determined by the Board of Directors. Incentive stock
options granted under the plan may be granted to employees only, and may not
have an exercise price less than the fair market value the common stock on the
date of grant. Options may be exercised on a one-for-one basis, with a maximum
term of ten (10) years from the date of grant.
A summary of the activity of the plan follows:
Number of Weighted Average
Options Exercise Price
-------- ---------------
Outstanding at June 30, 1996 -- $ --
Granted 165,000 .215
-------- --------
Outstanding at June 30, 1997 165,000 .215
Granted 20,000 .215
Forfeited -- --
-------- --------
Outstanding at June 30, 1998 185,000 .215
Granted (unaudited) 589,000 .215
Forfeited (unaudited) (60,000) .215
-------- --------
Outstanding at March 31, 1999 (unaudited) 714,000 $ .215
======== ========
Additional information about outstanding options to purchase the Company's
common stock as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted Avg.
Remaining
Number of Contractural Weighted Avg. Number of Weighted Avg.
Exercise Price Shares Life (In Years) Exercise Price Shares Exercise Price
- -------------- --------- --------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.215 714,000 9.70 $.215 298,000 $.215
</TABLE>
The options granted prior to June 30, 1998 were originally issued with an
exercise price of $.625 per share. In March 1999, the options were repriced at
$.215 per share pursuant to a resolution of the Board of Directors. The exercise
price has been retroactively restated in the financial statements.
The stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of grant. In
accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements for the years ended June 30, 1998 and 1997 or for the nine
month periods ended March 31, 1999 and 1998 (unaudited). Had compensation cost
for stock-based compensation been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS 123, the Company's
net loss for the years ended June 30, 1998 and 1997 and the nine month periods
ended March 31, 1999 and 1998 would have been reduced to the pro forma amounts
presented below:
F-11
<PAGE>
VITRIX INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 6
STOCKHOLDERS' EQUITY (CONTINUED):
- --------------------------------------------------------------------------------
STOCK OPTIONS (CONTINUED):
Nine Months
Years Ended June 30, Ended March 31,
------------------------ ------------------------
1998 1997 1999 1998
--------- --------- --------- ---------
(unaudited)
NET LOSS:
As reported $(284,259) $(272,898) $ (70,651) $(233,339)
========= ========= ========= =========
Pro forma $(289,809) $(277,848) $ (90,733) $(238,889)
========= ========= ========= =========
The fair value of option grants is estimated as of the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for all grants, expected life of options of three (3) years,
risk-free interest rates of eight percent (8%), and a zero percent (0%) dividend
yield. The weighted average fair value at date of grant for options granted
during the years ended June 30, 1997 and 1996 approximated $.09 and $.05
(unaudited) for grants during the nine month period ended March 31, 1999.
WARRANTS:
During the year ended June 30, 1998, the Company granted warrants to purchase
312,000 shares of the Company's common stock. Each warrant entitles the holder
to purchase one share of common stock at an exercise price of $.044 per share.
The warrants expire in June 2001. The warrants were issued to certain existing
shareholders to prevent dilution in connection with the sale of 2,300,000 shares
of the Company's common stock to one of the Company's officers in June 1998.
- --------------------------------------------------------------------------------
NOTE 7
YEAR 2000 ISSUE: (UNAUDITED)
- --------------------------------------------------------------------------------
Like other companies, Vitrix Incorporated could be adversely affected if the
computer systems we, our suppliers, or our customers use do not properly process
and calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment, elevators, etc. At this time, because of the complexities
involved in the issue, management cannot provide assurances that the Year 2000
issue will not have an impact on the Company's operations.
- --------------------------------------------------------------------------------
NOTE 8
SUBSEQUENT EVENTS (UNAUDITED):
- --------------------------------------------------------------------------------
On April 15, 1999, the Company entered into an Exchange Agreement with FBR
Capital Corporation (FBR) in which each share of Vitrix common stock was
converted into the right to receive a combination of .9224 shares of FBR common
stock and 1.0736 shares of Series B Convertible Preferred Stock of FBR. Each
share of FBR Preferred Stock is automatically convertible into one share of FBR
Common Stock at such time as FBR has the authorized capital to issue such
shares. The aggregate consideration paid in the Acquisition was 7,747,084 shares
of FBR common stock and 9,016,988.18 shares of Preferred Stock. The Exchange
Agreement also provided for the assumption of outstanding options and warrants
to purchase an aggregate of 1,122,000 shares of Vitrix common stock, which will
be converted into options and warrants to purchase FBR Common Stock, subject to
adjustment for the appropriate exchange ratio.
F-12
<PAGE>
FBR CAPITAL CORPORATION
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
The following unaudited pro forma condensed consolidated financial statements
give effect to the merger of FBR Capital Corporation (FBR) and Vitrix
Incorporated (Vitrix) pursuant to the Exchange Agreement between the parties,
and are based on the estimates and assumptions set forth herein and in the notes
to such statements. This pro forma information has been prepared utilizing the
historical financial statements and notes thereto, which are incorporated by
reference herein. The pro forma financial data does not propose to be indicative
of the results which actually would have been obtained had the transaction been
effected on the dates indicated or of the results which may occur in the future.
The pro forma financial information is based on the purchase method of
accounting. As Vitrix is the controlling company after the merger, the merger
was accounted for as a reverse merger with Vitrix as the accounting acquirer.
There were no pro forma adjustments required in this merger. The pro forma
unaudited condensed consolidated statements of operations assume the merger took
place on the first day of the period presented, while the pro forma unaudited
condensed consolidated balance sheet assumes the merger took place on the
balance sheet date.
Effective April 15, 1999, FBR acquired the outstanding capital stock of Vitrix.
The acquisition was consummated in accordance with the terms of an Exchange
Agreement, dated April 15, 1999, by and among FBR, Vitrix and certain of the
Vitrix shareholders who agreed to participate in the merger.
Under the terms of the Exchange Agreement, upon consummation of the merger each
outstanding share of Vitrix common stock was converted into the right to receive
a combination of .9224 shares of FBR common stock and 1.0736 shares of Series B
Convertible Preferred Stock of FBR. Each share of FBR Preferred Stock is
automatically convertible into one share of FBR Common Stock at such time as FBR
has the authorized capital to issue such shares. The aggregate consideration
paid in the merger was 8,592,826 shares of FBR common stock and 10,000,000
shares of Preferred Stock (the "Shares"). The Exchange Agreement also provided
for the assumption of outstanding options and warrants to purchase an aggregate
of 1,122,000 shares of Vitrix common stock, which have been converted into
options and warrants to purchase FBR Common Stock, subject to adjustment for the
appropriate exchange ratio.
Giving effect to the issuance of the Shares, the participating Vitrix
shareholders own approximately 80% of the outstanding shares of FBR Common
Stock (assuming conversion of the Preferred Stock into FBR Common Stock) and the
prior FBR shareholders own the remaining 20% of the outstanding FBR shares.
F-13
<PAGE>
FBR CAPITAL CORPORATION
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, 1999
Pro Forma Financial Information:
The following represents a pro forma condensed consolidated balance sheet as of
March 31, 1999 assuming the Company's merger with Vitrix Incorporated was
consummated as of that date.
ASSETS
FBR Pro Forma
Capital Vitrix Consolidated
Corporation Incorporated Amounts
-------- -------- --------
Current Assets:
Cash and cash equivalents $262,207 $254,903 $517,110
Investments 1,827 -- 1,827
Accounts receivable - trade -- 40,193 40,193
Inventory -- 28,537 28,537
Other current assets 3,563 11,714 15,277
-------- -------- --------
Total Current Assets 267,597 335,347 602,944
Property and equipment, net -- 53,420 53,420
-------- -------- --------
Total Assets $267,597 $388,767 $656,364
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 19,500 $ 6,953 $ 26,453
Accounts payable 7,776 64,273 72,049
Accrued liabilities 11,645 24,116 35,761
-------- -------- --------
Total Current Liabilities 38,921 95,342 134,263
-------- -------- --------
Long-term debt, less current portion -- 14,282 14,282
-------- -------- --------
Stockholders' Equity 228,676 279,143 507,819
-------- -------- --------
Total Liabilities and
Stockholders' Equity $267,597 $388,767 $656,364
======== ======== ========
F-14
<PAGE>
FBR CAPITAL CORPORATION
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Year Ended June 30, 1998
Pro Forma Financial Information:
The following represents a pro forma condensed consolidated statement of
operations for the year ending June 30, 1998, assuming the Company's merger with
Vitrix Incorporated was consummated as of July 1, 1997.
FBR Pro Forma
Capital Vitirx Consolidated
Corporation Incorporated Amounts
------------ ------------ ------------
Revenues $ -- $ 269,677 $ 269,677
Cost of Revenues -- 95,884 95,884
------------ ------------ ------------
Gross Profit -- 173,793 173,793
------------ ------------ ------------
Costs and Expenses:
Sales and marketing -- 206,214 206,214
Research and development -- 117,515 117,515
General and administrative 122,268 105,073 227,341
------------ ------------ ------------
Total Costs and Expenses 122,268 428,802 551,070
------------ ------------ ------------
Net Loss from Operations (122,268) (255,009) (377,277)
Other Income (Expense): 15,630 (29,250) (13,620)
------------ ------------ ------------
Net Loss $ (106,638) $ (284,259) $ (390,897)
============ ============ ============
Basic and Diluted Loss per Share $ (0.02) $ (0.02)
============ ============
Weighted Average Number of
Shares Outstanding (1) 4,648,198 23,241,024
============ ============
(1) To give effect to the issuance of 18,592,826 shares in connection with the
merger
F-15
<PAGE>
FBR CAPITAL CORPORATION
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Nine Month Period Ended March 31, 1999
Pro Forma Financial Information:
The following represents a pro forma condensed consolidated statement of
operations for the nine month period ended March 31, 1999, assuming the
Company's merger with Vitrix Incorporated was consummated as of July 1, 1998.
FBR Pro Forma
Capital Vitirx Consolidated
Corporation Incorporated Amounts
------------ ------------ ------------
Revenues $ -- $ 530,901 $ 530,901
Cost of Revenues -- 164,838 164,838
------------ ------------ ------------
Gross Profit -- 366,063 366,063
------------ ------------ ------------
Costs and Expenses:
Sales and marketing -- 170,630 170,630
Research and development -- 140,375 140,375
General and administrative 77,254 106,102 183,356
------------ ------------ ------------
Total Costs and Expenses 77,254 417,107 494,361
------------ ------------ ------------
Net Loss from Operations (77,254) (51,044) (128,298)
Loss on sale of investment (216,259) -- (216,259)
Other Income (Expense): 6,910 (19,607) (12,697)
------------ ------------ ------------
Net Loss $ (286,603) $ (70,651) $ (357,254)
============ ============ ============
Basic and Diluted Loss per Share $ (0.06) $ (0.02)
============ ============
Weighted Average Number of Shares
Outstanding (1) 4,648,198 23,241,024
============ ============
(1) To give effect to the issuance of 18,592,826 shares in connection with the
merger
F-16
