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 quarterly period ended December 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to _______________
Commission File number 33-58694
VITRIX, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 13-3465289
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
51 West Third Street, Suite 310, Tempe, Arizona 85281
-----------------------------------------------------
(Address of principal executive offices)
(480) 967-5800
---------------------------
(Issuer's telephone number)
20 East University, Suite 304, Tempe, Arizona 85281
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At February 11, 2000, the issuer had
outstanding 25,441,031 shares of Common Stock, par value $.005 per share.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS.
VITRIX, INC.
BALANCE SHEETS
1999 1999
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 352,019 $ 376,365
Accounts receivable - trade, net 89,930 42,596
Inventory 104,508 28,397
Prepaid expenses and other current assets 78,829 10,591
----------- -----------
TOTAL CURRENT ASSETS 625,286 457,949
PROPERTY AND EQUIPMENT, NET 107,050 60,865
----------- -----------
TOTAL ASSETS $ 732,336 $ 518,814
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 36,985 $ 28,848
Accounts payable 140,486 146,084
Accrued liabilities 93,645 64,125
Deferred revenue 40,837 13,235
----------- -----------
TOTAL CURRENT LIABILITIES 311,953 252,292
LONG-TERM DEBT, LESS CURRENT PORTION 34,302 14,466
----------- -----------
TOTAL LIABILITIES 346,255 266,758
----------- -----------
COMMITMENTS: -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 10,000,000
shares authorized, 0 and 10,000,000 shares
issued and outstanding -- 100,000
Common stock, $.005 par value, 50,000,000
shares authorized, 25,441,031 and 13,241,031
shares issued and outstanding 127,205 66,205
Contributed capital 1,544,293 956,468
Accumulated deficit (1,285,417) (870,617)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 386,081 252,056
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 732,336 $ 518,814
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
2
<PAGE>
VITRIX, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 332,094 $ 217,898 $ 531,385 $ 338,261
Services revenue 29,112 28,811 32,490 33,311
------------ ------------ ------------ ------------
TOTAL REVENUES 361,206 246,709 563,875 371,572
COST OF REVENUES 142,122 79,282 207,684 116,612
------------ ------------ ------------ ------------
GROSS PROFIT 219,084 167,427 356,191 254,960
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Sales and marketing 188,480 78,224 285,522 122,453
Research and development 105,621 52,507 207,505 87,496
General and administrative 156,331 29,765 282,803 66,081
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 450,432 160,496 775,830 276,030
------------ ------------ ------------ ------------
NET LOSS FROM OPERATIONS (231,348) 6,931 (419,639) (21,070)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (2,018) (8,250) (4,126) (15,833)
Interest income 5,745 871 8,965 1,904
------------ ------------ ------------ ------------
3,727 (7,379) 4,839 (13,929)
------------ ------------ ------------ ------------
NET LOSS $ (227,621) $ (448) $ (414,800) $ (34,999)
============ ============ ============ ============
BASIC LOSS PER SHARE $ (0.01) $ (0.00) $ (0.02) $ (0.00)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 25,312,770 14,012,820 24,329,074 14,012,820
============ ============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
3
<PAGE>
VITRIX, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999 AND
THE SIX MONTH PERIOD ENDED DECEMBER 31,1999 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- ------------------------ Contributed Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 7,536,681 75,367 6,476,139 32,381 387,873 (601,315) (105,694)
Conversion of related party
debt and interest 1,463,319 14,633 1,257,404 6,287 243,650 -- 264,570
Sale of stock, net of
costs of $9,063 1,000,000 10,000 859,283 4,296 176,622 -- 190,918
Merger with Vitrix Incorporated 4,648,205 23,241 148,323 171,564
Net loss -- -- -- (269,302) (269,302)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 10,000,000 $ 100,000 13,241,031 $ 66,205 $ 956,468 $ (870,617) $ 252,056
Issuance of stock options -- -- -- -- 12,000 -- 12,000
Sale of common stock, Net of costs -- -- 2,000,000 10,000 486,825 -- 496,825
Issuance of common stock for services -- -- 200,000 1,000 39,000 -- 40,000
Preferred stock conversion (10,000,000) (100,000) 10,000,000 50,000 50,000 --
Net loss -- -- -- -- -- (414,800) (414,800)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 -- $ -- 25,441,031 $ 127,205 $ 1,544,293 $(1,285,417) $ 386,081
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
4
<PAGE>
VITRIX, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
---------------------
1999 1998
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net Loss $(414,800) $ (34,999)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 17,321 12,715
Common stock and stocks options issued for services 52,000 --
Changes in Assets and Liabilities:
Accounts receivable-trade (47,334) 703
Inventory (76,111) (2,471)
Prepaid expenses and other current assets (68,238) --
Accounts payable (5,598) 5,385
Accrued liabilities 29,520 37,219
Deferred revenue 27,602 --
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (485,638) 18,552
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (30,737) (2,060)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (30,737) (2,060)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital leases (4,796) (1,294)
Proceeds from issuance of stock 496,825 --
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 492,029 (1,294)
--------- ---------
Net change in cash and cash equivalents (24,346) 15,198
Cash and cash equivalents at beginning of period 376,365 96,775
--------- ---------
Cash and cash equivalents at end of period $ 352,019 $ 111,973
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,663 $ 833
========= =========
Income taxes paid $ -- $ --
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and stock
options for services $ 52,000 $ --
========= =========
Assets acquired by entering into
capital leases $ 32,769 $ 24,049
========= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
5
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Vitrix, Inc. ("Vitrix" or the
"Company") have been prepared in accordance with generally accepted accounting
principles ("GAAP"), pursuant to the rules and regulations of the Securities and
Exchange Commission, and are unaudited. Accordingly, they do not include all the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the results for the interim
periods presented have been made. The results for the six month period ended
December 31, 1999, may not be indicative of the results for the entire year.
These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999.
NAME CHANGE:
The Company changed its name from FBR Capital Corporation to Vitrix, Inc.
pursuant to approval by a vote of the Company's shareholders at its annual
meeting held on October 7, 1999.
COMMITMENTS:
During the quarter ended December 31, 1999, the Company entered into a lease for
office space in Tempe, Arizona under a non-cancelable operating lease agreement
which expires December 31, 2004. The Company also leases office space in Tempe,
Arizona under a non-cancelable operating lease agreement which expires in May
2001.
Future minimum lease payments due under the operating lease agreements are as
follows:
Year Ending
Year December 31,
---- ---------
2000 $ 162,700
2001 147,000
2002 135,600
2003 141,300
2004 145,500
---------
$ 732,100
=========
LOSS PER SHARE:
Basic loss per share of common stock was computed by dividing the net loss by
the weighted average number of shares outstanding of common and preferred stock.
The common and preferred stock amounts in the accompanying financial statements
have been restated to give effect to the exchange ratio established in the
Exchange Agreement, dated April 15, 1999, between FBR Capital Corporation and
Vitrix Incorporated. The preferred stock has been included in the calculation
for all periods presented due to its automatic conversion into common stock at
such time as the Company had sufficient authorized common stock to issue the
common shares. In October 1999, the Company amended its Articles of
Incorporation to increase the number of authorized common stock to 50,000,000,
resulting in the automatic conversion of the preferred stock to shares of common
stock.
6
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE (CONTINUED):
Diluted earnings per share are computed based on the weighted average number of
shares of common stock and dilutive securities outstanding during the period.
Dilutive securities are options and warrants that are freely exercisable into
common stock at less than the prevailing market price. Dilutive securities are
not included in the weighted average number of shares when inclusion would
increase the earnings per share or decrease the loss per share.
STOCKHOLDERS' EQUITY:
During the quarter ended December 31, 1999, the Company completed a private
placement of $200,000 of common stock and common stock warrants. The securities
were issued under an Agreement with one institutional investor and certain
members of the Company's Board of Directors and officers. The offering consisted
of 800,000 shares of common stock and warrants to purchase an aggregate of
400,000 shares of common stock. The warrants are exercisable at $.35 per share
for a period of three years.
SUBSEQUENT EVENTS:
On February 8, 2000, the Company completed a private placement of $946,500 of
common stock and common stock warrants. The offering consisted of 4,732,500
shares of common stock and warrants to purchase an aggregate of 2,366,250 shares
of common stock. The warrants are exercisable at $.28 per share for a period of
three years.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES. Revenue for six month period ended December 31, 1999 (the
"reporting period"), rose 52% to $563,875, compared to revenue of $371,572 for
the six month period ended December 31, 1998 (the "comparable period"). This
growth was principally the result of an increased customer demand for the
Company's software and hardware solutions, which resulted in an increase in
sales volume.
GROSS PROFIT. Gross profit as a percentage of revenue was 63% in the
reporting period, compared to 69% in the comparable period. The decrease in
gross profit as a percentage of revenue was primarily attributable to an
increase in the proportion of bundled software and hardware solutions sales to
software-only solutions sales. The average gross profit per unit sold on
software and hardware units is lower than the average gross profit margin on
software-only solutions.
EXPENSES. Sales and marketing expenses were $285,522, or 51% of revenues,
in the reporting period, compared to $122,453, or 33% of revenues, in the
comparable period. The increase in sales and marketing expense is attributable
to increased labor costs resulting from the hiring of additional sales and
marketing personnel and increased advertising and promotional expense.
Research and development expenses were $207,505, or 37% of revenues, in the
reporting period, compared to $87,496, or 24% of revenues, in the comparable
period. The increase in research and development expense is attributable to
increased labor costs as a result of the Company's commitment to develop new
products and enhance existing products.
General and administrative expenses were $282,803, or 50% of revenues, in
the reporting period, compared to $66,081, or 18% of revenues, in the comparable
period. The increase in general and administrative expenses is primarily
attributable to the hiring of additional management personnel and additional
expenses incurred as a result of the Company being a public reporting company.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES. Revenue for the three month period ended December 31, 1999 (the
"reporting quarter"), rose 46% to $361,206, compared to revenue of $246,709 for
the three month period ended December 31, 1998 (the "comparable quarter"). This
growth was principally the result of an increased customer demand for the
Company's software and hardware solutions, which resulted in an increase in
sales volume.
GROSS PROFIT. Gross profit as a percentage of revenue was 61% in the
reporting quarter, compared to 68% in the comparable quarter. The decrease in
gross profit as a percentage of revenues was primarily attributable to an
increase in the proportion of bundled software and hardware solutions sales to
software-only solutions sales. The average gross profit per unit sold on
software and hardware units is lower than the average gross profit margin on
software-only solutions.
8
<PAGE>
EXPENSES. Sales and marketing expenses were $188,480, or 52% of revenues,
in the reporting quarter, compared to $78,224, or 32% of revenues, in the
comparable quarter. The increase in sales and marketing expense is attributable
to increased labor costs resulting from the hiring of additional sales and
marketing personnel and increased advertising and promotional expense.
Research and development expenses were $105,621, or 29% of revenues, in the
reporting quarter, compared to $52,507, or 21% of revenues, in the comparable
quarter. The increase in research and development expense is attributable to
increased labor costs as a result of the Company's commitment to develop new
products and enhance existing products.
General and administrative expenses were $156,331, or 43% of revenues, in
the reporting quarter, compared to $29,765, or 12% of revenues, in the
comparable quarter. The increase in general and administrative expenses is
primarily attributable to the hiring of additional management personnel and
additional expenses incurred as a result of the Company being a public reporting
company.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of December 31, 1999 was $313,333, compared to $24,839
at December 31, 1998. Cash and cash equivalents at those dates amounted to
$352,019 and $111,973, respectively.
OPERATIONS. Net cash used by operations increased to $485,638 in the
reporting period, compared to net cash provided by operations of $18,552 in the
comparable period. The decrease was primarily attributable to an increase in the
net loss, accounts receivable, inventory and prepaid expenses.
INVESTMENT ACTIVITIES. For the reporting period, the Company used $30,737
to purchase property and equipment, compared to $2,060 of property and equipment
purchases in the comparable period.
FINANCING ACTIVITIES. Net cash provided by financing activities increased
to $492,029 in the reporting period, compared to net cash used by financing
activities of $1,294 in the comparable period. The increase was primarily due to
the Company raising $496,825 through a private placement of common stock and
common stock warrants in the reporting period.
The Company believes that, with its current working capital and funds
generated through its recently completed private placements, along with the cash
flow from operations, it will have sufficient working capital to address the
anticipated growth of demand and market for its products for the next 12 months.
The Company may, however, seek to obtain additional capital through a line of
credit at a financial institution or through additional debt or equity offerings
during this time period. The raising of additional capital in public markets
will primarily be dependent upon prevailing market conditions and the demand for
the Company's products and services. No assurance can be given that the Company
will be able to raise additional capital, or that such capital, if available,
will be on acceptable terms.
9
<PAGE>
YEAR 2000 COMPLIANCE
The Company has reviewed its computer systems to identify those areas that
could be adversely affected by the Year 2000 ("Y2K") issue. The Y2K issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. The Company has determined that all of its
information systems are Y2K compliant. The compliance effort to date has
resulted in immaterial cost to the Company. Although the Company expects that
any future expenditures made in connection with Y2K conversions will not be
material, the Company may experience material unanticipated problems and costs
caused by undetected errors or defects in its systems.
The Company believes that some of its customers may be impacted by the Y2K
problem, which could in turn negatively impact the Company's sales efforts with
respect to such customers and the Company's results of operations.
The Company has completed an inquiry of key vendors to assess their Y2K
readiness. Based on this inquiry, the Company is not aware of any problems that
would materially affect its business, results of operations or financial
condition. However, the inability of such vendors to meet Y2K requirements could
materially impact the Company's ability to procure materials from these vendors
and to meet its obligations to supply products to its customers.
The Company has formulated a contingency plan to address the possible
effects of problems encountered as a result of Y2K issues. The Company expects
the costs of this plan to be immaterial. As of the date of this filing, the
Company is not aware of any material Y2K related issues.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements and information which the Company believes are within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The forward - looking statements
contained herein can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates," or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. The Company wishes
to caution the reader that these forward-looking statements that are not
historical facts are only predictions. No assurances can be given that the
future results indicated, whether expressed or implied, will be achieved. While
sometimes presented with numerical specificity, these projections and other
forward-looking statements are based upon a variety of assumptions relating to
the business of the Company, which, although considered reasonable by the
Company, may not be realized. Because of the number and range of assumptions
underlying the Company's projections and forward-looking statements, many of
which are subject to significant uncertainties and contingencies that are beyond
the reasonable control of the Company, some of the assumptions inevitably will
not materialize, and unanticipated events and circumstances may occur subsequent
to the date of this report. These forward-looking statements are based on
current expectations and the Company assumes no obligation to update this
information. Therefore, the actual experience of the Company and the results
achieved during the period covered by any particular projections or
forward-looking statements may differ substantially from those projected.
Consequently, the inclusion of projections and other forward-looking statements
should not be regarded as a representation by the Company or any other person
that these estimates and projections will be realized, and actual results may
vary materially. There can be no assurance that any of these expectations will
be realized or that any of the forward-looking statements contained herein will
prove to be accurate.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is from time to time involved in legal proceedings arising from
the normal course of business. As of the date of this report, the Company is not
currently involved in any legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On October 8, 1999, the Company completed a private placement of $200,000
of common stock and common stock warrants. The securities were issued under an
agreement with one institutional investor and certain Company Insiders. The
offering consisted of 800,000 shares of common stock and warrants to purchase an
aggregate of 400,000 shares of common stock. The warrants are exercisable at
$.35 per share for a period of three years. On February 8, 2000, the Company
completed a private placement of $946,500 of common stock and common stock
warrants. The offering consisted of 4,732,500 shares of common stock and
warrants to purchase an aggregate of 2,366,250 shares of common stock. The
warrants are exercisable at $.28 per share for a period of three years. The
common stock and warrants issued in the private offerings were issued in
reliance on the exemption provided under Section 4(2) of the Securities Act of
1933, as amended, and Regulation D thereunder.
The proceeds from the private offerings are being used for general working
capital needs.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 7, 1999, the Company held its annual meeting of shareholders at
which 13,921,677, or 60% of the 23,241,031 common and preferred shares
outstanding were represented by proxy or in person. The following persons were
elected to the board of directors with shares voted as follows:
Election of Directors For Withheld
- --------------------- --- --------
Michael A. Wolf 13,921,677 --
Todd P. Belfer 13,921,677 --
Lise Lambert 13,921,677 --
Philip R. Shumway 13,921,677 --
Hamid Shojaee 13,921,677 --
Bahan Sadegh 13,921,677 --
At that meeting, the shareholders also approved the proposed amendment to
the Company's Articles of Incorporation to change the Company's name to "Vitrix,
Inc." and to increase the number of authorized shares of common stock from
16,666,667 to 50,000,000 shares. The shareholders also approved the proposal to
adopt the Company's 1999 Equity Compensation Plan. Shareholders voted 13,921,677
shares for approval of the above proposals with no shares withheld or abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed herewith pursuant to Regulation SB:
No exhibits are filed with this report
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended December 31,
1999.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VITRIX, INC.
Dated: February 11, 2000
By /s/ Craig J. Smith
-------------------------------------
Craig J. Smith
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 352,019
<SECURITIES> 0
<RECEIVABLES> 89,930
<ALLOWANCES> 0
<INVENTORY> 104,508
<CURRENT-ASSETS> 625,286
<PP&E> 188,057
<DEPRECIATION> 81,007
<TOTAL-ASSETS> 732,336
<CURRENT-LIABILITIES> 311,953
<BONDS> 0
0
0
<COMMON> 127,205
<OTHER-SE> 1,544,293
<TOTAL-LIABILITY-AND-EQUITY> 732,336
<SALES> 563,875
<TOTAL-REVENUES> 563,875
<CGS> 207,684
<TOTAL-COSTS> 775,830
<OTHER-EXPENSES> (4,839)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,126
<INCOME-PRETAX> (414,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (414,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (414,800)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
