-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IUXOgQKRvLv6kQkKCjcWA65nD/wUBM/gy5GzqC9c80gCnqbXssHnufoiY+8UC1EI ZpIuKORhj+mfqRJjXuSJAQ== 0000912057-00-024582.txt : 20000516 0000912057-00-024582.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024582 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITROSEAL INC CENTRAL INDEX KEY: 0000773603 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 112751537 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 002-99110-NY FILM NUMBER: 633360 BUSINESS ADDRESS: STREET 1: 12226 SOUTH 1000 EAST SUITE 9 CITY: DRAPER STATE: UT ZIP: 84020 BUSINESS PHONE: 8015538785 MAIL ADDRESS: STREET 1: 12226 SOUTH 1000 EAST SUITE 9 CITY: DRAPER STATE: UT ZIP: 84020 10QSB 1 FORM 10QSB 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 March 31, 2000 ------------------ [ ] 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: March 31, 2000: Common Stock - 23,146,571 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 --- --- VITRISEAL, INC. TABLE OF CONTENTS
- -------------------------------------------------------------------------------- Page PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements: 3 Balance Sheets as of March 31, 2000 and 4 December 31, 1999 Statements of Operations for the Three Months ended March 31, 2000 and March 31, 1999 5 Statements of Cash Flows for the Three Months ended March 31, 2000 and March 31, 1999 6 Statements of Stockholders' Equity for the Three Months ended March 31, 2000 7 Notes to Financial Statements for the Three Months ended March 31, 2000 and 8 March 31, 1999 Item 2. Management's Discussion and 13 Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION 15 Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 16
- -------------------------------------------------------------------------------- 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The 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 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, 1999 previously filed with the Securities and Exchange Commission. 3 VITRISEAL, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS MARCH 31, 2000 AND DECEMBER 31, 1999
MARCH 31, 2000 DECEMBER 31, 1999 (UNAUDITED) (AUDITED) ------------- ------------- ASSETS CURRENT ASSETS CASH $ 5,086,173 $ 366,566 PREPAID EXPENSES 4,649 26,023 ------------- ------------- TOTAL CURRENT ASSETS 5,090,822 392,589 ADVANCES TO COMPANIES BEING ACQUIRED 749,316 - FURNITURE, FIXTURES AND EQUIPMENT, NET 141,864 64,249 PATENTS, NET OF ACCUMULATED AMORTIZATION OF: 156,859 151,392 03/31/2000 $ 10,388 12/31/1999 $ 9,164 DEFERRED TAX ASSET, NET OF VALUATION ALLOWANCE - - OTHER ASSETS 1,396 946 ------------- ------------- TOTAL ASSETS $ 6,140,257 $ 609,176 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES - ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 235,671 $ 55,207 STOCKHOLDERS' EQUITY COMMON STOCK, PAR VALUE $.001 PER SHARE 23,146 20,839 03/31/00: 100,000,000 shares authorized, 31,361,639 shares issued and 23,146,571 shares outstanding 12/31/99: 100,000,000 shares authorized, 31,361,639 shares issued and 20,839,191 shares outstanding ADDITIONAL PAID-IN CAPITAL 12,525,629 5,799,936 STOCK OPTIONS OUTSTANDING 1,725,000 225,000 DEFERRED COMPENSATION STOCK OPTIONS (1,500,000) - ACCUMULATED DEFICIT DURING THE DEVELOPMENT STAGE (6,869,189) (5,491,806) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 5,904,586 553,969 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,140,257 $ 609,176 ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 4 VITRISEAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 AND FOR THE PERIOD APRIL 16, 1992 (INCEPTION) THROUGH MARCH 31, 2000 UNAUDITED
THREE MONTHS THREE MONTHS APRIL 16, 1992 ENDED MARCH 31, ENDED MARCH 31, (INCEPTION) THROUGH 2000 1999 MARCH 31, 2000 ------------- ------------- -------------- REVENUES LICENSING FEES $ - $ - $ 25,000 EXPENSES RESEARCH AND DEVELOPMENT 136,136 157,518 2,279,615 OPERATING EXPENSES 1,267,860 120,134 4,500,191 INTEREST (INCOME) EXPENSE, NET (26,612) (3,405) 9,318 ------------- ------------- ------------- LOSS BEFORE INCOME TAX BENEFIT (1,377,384) (274,247) (6,764,124) INCOME TAX BENEFIT CURRENT - - - DEFERRED 510,000 104,000 2,310,000 LESS VALUATION ALLOWANCE (510,000) (104,000) (2,310,000) ------------- ------------- ------------- NET (LOSS) $ (1,377,384) $ (274,247) $ (6,764,124) ============= ============= ============= BASIC AND DILUTED LOSS PER SHARE $ (0.06) $ (0.01) $ (0.36) ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 5 VITRISEAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 AND FOR THE PERIOD APRIL 16, 1992 (INCEPTION) THROUGH MARCH 31, 2000 UNAUDITED
THREE MONTHS THREE MONTHS APRIL 16, 1992 ENDED MARCH 31, ENDED MARCH 31, (INCEPTION) THROUGH 2000 1999 MARCH 31, 2000 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (1,377,384) $ (274,247) $ (6,764,124) Adjustments to reconcile net (loss) to net cash used by operating activities: Depreciation and amortization 5,814 4,367 52,007 Abandonment of patents pending - - 50,627 Stock options outstanding - - 225,000 Expenses paid by related party - - 169,000 Changes in current assets and liabilities: Other assets (228,392) - (255,362) Accounts payable and accrued expenses 187,376 20,031 242,584 ------------ ------------ ------------ NET CASH (USED) BY OPERATING ACTIVITIES (1,412,586) (249,849) (6,280,268) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (82,206) (2,300) (183,483) Patent costs (6,689) (5,632) (217,873) ------------ ------------ ------------ NET CASH (USED) BY INVESTING ACTIVITIES (88,895) (7,932) (401,356) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on note payable - - 450,000 Advances from related parties (6,912) (331,000) 2,743,797 Proceeds from issuance of common stock 6,728,000 1,540,000 9,540,000 Repurchases of common stock - - (538,000) Capital contributions - - 72,000 ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 6,721,088 1,209,000 12,267,797 ------------ ------------ ------------ NET INCREASE IN CASH 5,219,607 951,219 5,586,173 CASH AT BEGINNING OF PERIOD 366,566 28,900 - ------------ ------------ ------------ CASH AT END OF PERIOD $ 5,586,173 $ 980,119 $ 5,586,173 ------------ ------------ ------------ 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 $ 2,919,709 ============ ============ ============ Merger with AXR Development Corporation, Inc. $ - $ 105,066 $ 105,066 ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 6 VITRISEAL, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY For the Three-month Period Ended March 31, 2000 and For the Period April 16, 1992 (Inception) through March 31, 2000 UNAUDITED
COMMON STOCK ADDITIONAL ---------------------------- PAID-IN SHARES AMOUNT CAPITAL ----------- --------- ------------- Net loss for the period April 16, 1992 (inception) through December 31, 1997 - $ - $ - ----------- --------- ------------- BALANCE -- DECEMBER 31, 1997 6,043,150 6,043 1,831,629 Common stock issued at $10.00 per share for cash 18,000 18 179,982 Common stock issued at $6.85 per share to settle advances from related parties 214,231 214 1,466,823 Common stock issued on conversion of note payable 150,000 150 521,850 Net loss - - - ----------- --------- ------------- BALANCE -- DECEMBER 31, 1998 6,425,381 6,425 4,000,284 Common stock issued at $10.00 per share for cash 154,000 154 1,539,846 Common stock issued at $6.00 per share to settle advances from related parties 28,167 28 168,972 Effect of merger with AXR Development Corporation, Inc. 14,231,643 14,232 90,834 Stock options granted - - - Net loss - - - ----------- --------- ------------- BALANCE -- DECEMBER 31, 1999 20,839,191 20,839 5,799,936 Common stock issued at $3.08 per share for cash 2,021,666 2,022 6,225,978 Common stock issued at $1.75 per share to settle advances from related parties 285,714 285 499,715 Stock options granted - - - Net loss - - - Rounding difference - - - ----------- --------- ------------- BALANCE -- MARCH 31, 2000 23,146,571 $ 23,146 $ 12,525,629 =========== ========= ============= ACCUMULATED DEFERRED DEFICIT STOCK COMPENSATION DURING OPTIONS STOCK DEVELOPMENT OUTSTANDING OPTIONS STAGE TOTAL ------------ ------------- ------------ ------------- Net loss for the period April 16, 1992 (inception) through December 31, 1997 $ - $ - $(2,583,878) $(2,583,878) ------------ ------------- ------------ ------------- BALANCE -- DECEMBER 31, 1997 - - (2,583,878) (746,206) Common stock issued at $10.00 per share for cash - - - 180,000 Common stock issued at $6.85 per share to settle advances from related parties - - - 1,467,037 Common stock issued on conversion of note payable - - - 522,000 Net loss - - (1,208,498) (1,208,498) ------------ ------------- ------------ ------------- BALANCE -- DECEMBER 31, 1998 - - (3,792,376) 214,333 Common stock issued at $10.00 per share for cash - - - 1,540,000 Common stock issued at $6.00 per share to settle advances from related parties - - - 169,000 Effect of merger with AXR Development Corporation, Inc. - - (105,066) - Stock options granted 225,000 - - 225,000 Net loss - - (1,594,364) (1,594,364) ------------ ------------- ------------ ------------- BALANCE -- DECEMBER 31, 1999 225,000 - (5,491,806) 553,969 Common stock issued at $3.08 per share for cash - - - 6,228,000 Common stock issued at $1.75 per share to settle advances from related parties - - - 500,000 Stock options granted 1,500,000 (1,500,000) - - Net loss - - (1,377,384) (1,377,384) Rounding difference - - 1 1 ------------ ------------- ------------ ------------- BALANCE -- MARCH 31, 2000 $ 1,725,000 $(1,500,000) $(6,869,189) $ 5,904,586 ============ ============= ============ =============
The accompanying notes are an integral part of these financial statements. 7 VITRISEAL, INC. Notes to the Financial Statements For the Three Months Ended March 31, 2000 and March 31, 1999. 1. NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION NATURE OF BUSINESS VitriSeal, Inc. (the "Company") owns the right to a process called "VitriSeal," which is based on inorganic silicate chemistry that produces a waterborne corrosion-protective coating for metal surfaces. The Company is in the research and development stage with respect to its application to particular industries. The Company is classified as a development stage enterprise under accounting principles generally accepted in the United States ("GAAP"), and has not commenced its planned principal operations to generate revenues. AGREEMENTS WITH THERMOFLOW AND LIQUITEK With an intent to diversify its operations, the Company has engaged in due diligence proceedings over the past quarter toward the acquisition of two related companies, Thermoflow Corporation and Liquitek Corporation. See Note 6 for additional information. REORGANIZATION In March, 1999, the Company completed a reverse acquisition with a publicly traded company; such merger is hereinafter referred to as the "Reorganization." 8 1. NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION (continued) BASIS OF PRESENTATION The Company has prepared its financial statements for the quarters ended March 31, 2000 and 1999 without audit by the Company's independent auditors. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company as of March 31, 2000, for the quarters ended March 31, 2000 and 1999, and for the period from inception (April 16, 1992) through March 31, 2000 have been made. Such adjustments consist only of normal recurring adjustments. Certain note disclosures normally included in the Company's annual financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-KSB annual report for 1999 filed with the Securities and Exchange Commission. The results of operations for the quarter ended March 31, 2000 is not necessarily indicative of the results to be expected for the full year. RECLASSIFICATIONS Certain amounts in the 1999 financials statements have been reclassified to conform to the 2000 presentation. 2. STOCK OPTIONS On May 12, 1999, the Company 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 grant date. As of May 11, 2000, the Company had not adopted a formal stock option plan. During 1999 and quarter ended March 31, 2000, no options were exercised, forfeited or expired. On January 11, 2000, the Company authorized non-statutory options for certain individuals contingent upon the closing of the Thermoflow and Liquitek acquisitions. Effective February 1, 2000, the Company granted options for 500,000 shares to Paul Kokx, a new employee. See notes 4 and 6 for additional information. At March 31, 2000, there were 1,725,000 options outstanding. 3. INCOME TAXES The Company files its income tax returns using the cash basis of accounting. For the period April 16, 1992 (inception) through March 31, 2000, the Company is considered a start-up entity 9 3. INCOME TAXES (continued) for federal and state income tax purposes. As a result, research/development and start-up expenses are capitalized for tax purposes while such costs are expensed as incurred for financial reporting purposes. This is the only significant temporary difference at March 31, 2000. The reported income tax benefit differs from the amount that would result from applying the federal statutory rate to the pre-tax loss because of the state income tax effect at a rate of approximately 5%. 4. COMMITMENTS AND CONTINGENCIES EMPLOYMENT, RESEARCH AND CONSULTING CONTRACTS The Company has agreed to allocate a portion of its revenues from all sources to a deferred compensation plan. The terms of such deferred compensation plan are set forth below under "Royalty Agreements." Effective February 1, 2000, the Company entered into an employment agreement (the "Agreement") with Paul Kokx ("Kokx") to hire Kokx as executive vice-president at a minimum annual salary of $175,000 plus certain benefits. The Agreement prohibits Kokx from competing with the Company in any country where the Company has protected business interests for the period beginning February 1, 2000 and ending two years after the termination of his employment. Unless the Agreement is terminated early, the employment of Kokx will continue until January 31, 2004. The Company has granted Kokx a non-statutory option to purchase 500,000 shares of its common stock at $2.00 per share. The grant date closing market price of the Company's stock approximated $5.00 per share. Such option expires on January 31, 2010 and, except as described in the following paragraph, vests as follows:
Number of Shares ---------------- December 31, 2000 50,000 December 31, 2001 100,000 December 31, 2002 150,000 December 31, 2003 200,000
Accelerated vesting is available based on executed wheel-coating process license agreements and royalty revenue received by the Company under such agreements. Any unvested options immediately vest and become exercisable upon a change in control of the Company. ROYALTY AGREEMENTS In February, 1997, the Company entered into separate royalty agreements with Dennis Repp ("Repp") and Daniel Corbin ("Corbin") whereby Repp and Corbin each receive a 2% royalty on all revenues or other proceeds earned by the Company resulting from the VitriSeal process, including licensing fees. 10 4. COMMITMENTS AND CONTINGENCIES (continued) ROYALTY AGREEMENTS (continued) product and technology sales, royalty income, and asset sales. The royalty agreements provide that such payments will continue until the termination of the recipient's services to the Company in connection with the development and commercialization of the VitriSeal process. Upon the termination of such services, Repp and Corbin and their heirs/successors shall receive post-termination royalties equal to 2% of defined revenues earned by the Company from (1) existing customers at the termination date and (2) prospects who were contacted prior to such date and later became customers of the Company. Such payments will continue until the customers described in the preceding sentence no longer generate any revenue. Repp and Corbin have each provided a covenant not to compete prohibiting them from engaging in any activities that are competitive with or adverse to the Company's business during the term of the royalty agreements. Violation of this covenant will discharge the Company from any future obligation to make royalty payments. In February 1997, the Company also entered into an agreement with Hamlin Jennings, the principal consultant for research and development, identical to those described above. On July 15, 1998, the Jennings royalty agreement was amended to provide for a 3% royalty; all other provisions of such agreement remain in effect. On November 23, 1998, the Company entered into a royalty agreement with Culley W. Davis ("Davis") whereby Davis would receive a 2% royalty on all revenues or other proceeds earned by the Company resulting from the VitriSeal process, including licensing fees, product and technology sales, royalty income, and asset sales. On June 24, 1999, the Davis royalty agreement was mutually canceled as additional consideration for the 164,548 shares of common stock issued in settlement of 1998 and 1999 advances payable to Pinnacle Enterprises, Inc. ("PEI"), a company wholly owned by Davis. 5. GOING CONCERN/LIQUIDITY CONSIDERATIONS As discussed in Note 1, the Company is a development stage enterprise developing a metal coating process known as "VitriSeal." There have been no product sales or significant royalty revenues to date, and management projects that the Company will require significant additional capital to advance the development of its sole product to the point at which it may become commercially viable. However, with the capital raised during the first quarter of 2000 and a March 31, 2000, cash balance in excess of $5.5 million, management believes that the Company will have sufficient cash to meet its obligations for the year ending December 31, 2000. 11 6. PROPOSED ACQUISITIONS On December 30, 1999, the Company entered into a letter of intent (the "LOI") with Thermoflow Corporation ("Thermoflow") and Liquitek Corporation ("Liquitek") to acquire substantially all of the outstanding shares of Thermoflow and Liquitek in exchange for 16,060,000 shares of the Company's common stock. The LOI was subsequently amended to reduce the shares to be exchanged to 15,060,000. The parties intend to execute definitive tax-free reorganization agreements to accomplish these transactions. One of the conditions for closing this acquisition is that the Company receives agreements to participate in such reorganization from the stockholders representing 90% of Liquitek's outstanding shares and at least 80% of Thermoflow's outstanding shares. As of May 11, 2000, this transaction had not closed. On January 11, 2000, in connection with the proposed acquisition, the Company authorized non-statutory options to purchase a total of 775,000 shares of its common stock to the following related parties: Culley Davis (275,000 shares); Bruce Haglund (250,000 shares); and Allen Kirschbaum, a director of Thermoflow (250,000 shares). The granting of such options is contingent upon closing the proposed acquisition. The options, which have an exercise price of $2.00 per share and expire on March 31, 2010, vest when and if the proposed acquisition closes. The closing market price of the Company's common stock on January 11, 2000, approximated $2.30. Under the LOI, the Company is obligated to make certain interest-bearing loans to Thermoflow and Liquitek in an aggregate amount of approximately $2.3 million. The Company intends to finance such loans through the sale of a maximum of $17.5 million of restricted common stock in private placement offerings (less legal fees, finder's fees, and other issuance costs). As of May 11, 2000, the Company has received gross proceeds of approximately $6.2 million from such offerings, advanced a total of $500,000 to Thermoflow and Liquitek, and paid approximately $782,000 in fees related to the offerings, including approximately $469,000 paid to related parties. The Company borrowed the $500,000 advanced to Thermoflow and Liquitek from Culley Davis and PEI. On January 11, 2000, the Board of Directors authorized the Company to issue 285,715 shares of its common stock to Culley Davis as consideration for such borrowing and forgiveness of the debt. 7. LOSS PER SHARE Loss per common and common equivalent share is based on the weighted average number of shares of common stock and potential common stock (as retroactively adjusted for the effect of the Reorganization) outstanding during the period in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Because the Company has experienced losses from inception, the stock options described in Note 2 are antidilutive. The weighted average number of common shares outstanding for the indicated periods is approximately as follows: Quarter ended March 31, 2000 22,196,000 Quarter ended March 31, 1999 19,784,000 Period from April 16, 1992 (inception) through March 31, 2000 18,669,000
12 Item 2. Plan of Operation. REORGANIZATION On March 18, 1999, we acquired Dancor, Inc., a development stage company incorporated in Delaware on April 16, 1992, in a "reverse acquisition" accomplished through a tax-free, stock-for-stock reorganization. At the time of the acquisition, we were a dormant entity with no assets, and had no significant operations during 1997 or 1998, and no revenues since 1989. The reverse acquisition was the result of an Agreement and Plan of Reorganization (the "Plan") structured to result in the acquisition by VitriSeal of all of the issued and outstanding shares of restricted common stock of Dancor. Under the terms of the Plan, the former stockholders of Dancor received three shares of VitriSeal common stock for each one share of Dancor common stock owned and acquired approximately 95% of the issued and outstanding common stock of VitriSeal. PLAN OF OPERATION. Our operations currently focus on the VitriSeal process, a patented process based on inorganic silicate chemistry that makes bright, clear, corrosion-protective coatings on metal surfaces at a lower cost than other clear coatings. VitriSeal, a waterborne coating, has little or no organic vapor emissions and creates minimal waste during the normal process operation. We believe that existing products in the market are inferior in terms of performance, cost, and environmental impacts, giving VitriSeal a significant competitive advantage. Our long-term goal is to exploit the VitriSeal technology through licensing, joint venture agreements, and sales to strategically selected manufacturers. We believe there is a large, growing market for our proprietary silicate product. The focus of current efforts for the VitriSeal process is to establish a pilot production facility wherein automotive wheels and other aluminum products would be coated. Toward this end, we have entered into an agreement with an automotive after-market wheel manufacturer that is a leading producer of bright, polished aluminum wheels. The agreement calls for cooperative development of the application of the VitriSeal process to coating wheels and for licensing the technology to the manufacturer once it is proven. We are working with the manufacturer and an independent engineering consulting firm on the mechanics of the production line. We believe that this engineering work will lead to a commercially viable application process featuring uniform quality of the product and competitive economics. After proving the pilot line operations, we plan to make the process available to other wheel manufacturers and explore the viability of coating other aluminum products. Because of the improvements and refinements in the VitriSeal process resulting from our on-going laboratory research, we are preparing to file additional patent applications that would include both process and state-of-matter claims that will incorporate what has been learned during the research process. 13 ACQUISITIONS OF THERMOFLOW AND LIQUITEK On December 30, 1999, we entered into a letter of intent ("LOI") for the acquisition of two companies: Thermoflow Corporation, a Nevada corporation with offices in Las Vegas, Nevada ("Thermoflow"), and Liquitek Corporation, a Nevada corporation with offices in Knoxville, Tennessee ("Liquitek"). We intend to acquire all of the shares of stock of both Thermoflow and Liquitek. Under a subsequent revision of the LOI, we plan to issue 10,060,000 shares of VitriSeal for all of the shares of Thermoflow and 5,000,000 shares for all of the shares of Liquitek. Both companies will then be wholly-owned subsidiaries of VitriSeal. Thermoflow owns and operates a proprietary antifreeze recycling facility in Las Vegas, Nevada with a three million gallon per year capacity. Thermoflow receives waste antifreeze and produces fully reformulated antifreeze indistinguishable from antifreeze made from virgin materials. The process is able to recover 100% of the waste materials for reuse. Thermoflow was recently awarded a U.S. General Services Administration contract permitting it to receive waste antifreeze and provide recycled, reformulated antifreeze to all U.S. federal government agencies. The Thermoflow technology is capable of economically treating/recycling many other contaminated liquids, including wastewater. Thermoflow has licensed the technology to Liquitek under an exclusive license agreement. Liquitek refined the Thermoflow technology and has licensed and leased an oily wastewater treatment system to the largest recycler in Hawaii. Liquitek, in conjunction with Thermoflow, developed a proprietary system for recycling car wash wastewater and installed its first system in Hiroshima, Japan. Liquitek has also secured a 20,000 square foot facility in Oak Ridge, Tennessee, under an 18-year lease agreement. The Tennessee facility is expected to be used to build a three to six million gallon antifreeze recycling operation, similar to Thermoflow's Las Vegas operation, by year-end 2000. Liquitek's business plan includes designing and manufacturing advanced wastewater treatment systems, as well as systems for profitably recycling other contaminated liquids, such as antifreeze, for domestic and international customers. Pursuant to the terms of the LOI, in January 2000 we advanced Thermoflow $300,000 and Liquitek $200,000. We are obligated to raise an additional $1,300,000 of working capital for Thermoflow and $450,000 for Liquitek as a condition to completing the acquisitions. The proceeds of the January 2000 Common Stock Offering (see below) will enable us to complete the funding of the obligations required by the LOI and consummate the acquisitions. Through the acquisition of Thermoflow and Liquitek, we intend to own and operate regional facilities for recycling antifreeze and treating oily wastewater, license and lease systems to domestic oily wastewater treatment providers, and design and build both types of facilities for international markets. Our primary focus for Thermoflow and Liquitek will be to develop and commercialize high-performance liquid recycling technologies. 14 LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 2000, we undertook a private offering, the "January 2000 Common Stock Offering," of up to 2,500,000 restricted shares of our common stock at a price of at least $3.00 per share. The offering was made pursuant to a claimed exemption under Rule 506 of Regulation D of the Securities Act of 1933 based upon our offering of the securities to only "accredited investors," all of whom were provided a Private Placement Memorandum which included financial information. No general solicitation of investors was undertaken, and all investors were required to verify investment intent. The January 2000 Common Stock Offering was fully subscribed. Additionally, we undertook another private offering, the "February 2000 Common Stock Offering," of up to 2,500,000 restricted shares of our common stock at a price of at least $4.00 per share. The offering was made pursuant to a claimed exemption under Rule 506 of Regulation D of the Securities Act of 1933 based upon our offering of the securities to only "accredited investors," all of whom were provided a Private Placement Memorandum which included financial information. No general solicitation of investors was undertaken, and all investors were required to verify investment intent. The February 2000 Common Stock Offering has not yet been completed. Both of the offerings in 2000 were undertaken in anticipation of the acquisitions we expect to be completing within the next several months. We anticipate that proceeds received from the January and February 2000 Common Stock Offerings will provide sufficient working capital for us to continue with VitriSeal research and development, complete the acquisitions of Thermoflow and Liquitek, and continue operations through 2000. 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. 15 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: 5/12/00 BY: /s/ Culley W. Davis -------------------------------- Chief Executive Officer Date: 5/12/00 BY: /s/ John W. Nagel -------------------------------- Chief Financial Officer 16 EX-27 2 EXHIBIT 27
5 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. 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 5,586,173 0 0 0 0 5,090,822 183,483 41,619 6,140,257 235,671 0 0 0 23,146 5,881,440 6,140,257 0 0 0 0 1,403,996 0 (26,612) (1,377,384) 0 (1,377,384) 0 0 0 (1,377,384) (0.06) (0.06) GROSS INVESTMENT IN PP&E, I.E., BEFORE DEPRECIATION DEDUCTION OPERATING EXPENSE 1,267,860; R&D 136,136
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