0000950147-01-501652.txt : 20011009 0000950147-01-501652.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950147-01-501652 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITRIX INC /NV/ CENTRAL INDEX KEY: 0000836937 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133465289 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-10320 FILM NUMBER: 1748344 BUSINESS ADDRESS: STREET 1: 51 WEST THIRD STREET STREET 2: SUITE 301 CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6029675800 MAIL ADDRESS: STREET 1: 20 EAST UNIVERSITY STREET 2: SUITE 304 CITY: TEMPE STATE: AZ ZIP: 85281 FORMER COMPANY: FORMER CONFORMED NAME: BARRIE RICHARD FRAGRANCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FBR CAPITAL CORP /NV/ DATE OF NAME CHANGE: 19960930 10KSB 1 e-7499.txt ANNUAL REPORT FOR YEAR ENDED 06/30/2001 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 2001 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to _________ Commission File Number 33-58694 VITRIX, INC. (Name of small business issuer 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) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.005 par value Check whether the issuer: (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The issuer's revenues for the fiscal year ended June 30, 2001 were $4,077,736. The aggregate market value of the voting stock (based on the closing price on that date) held by non-affiliates of the Registrant as of September 25, 2000 was approximately $400,000. At September 20, 2001, the issuer had outstanding 6,295,828 shares of Common Stock, par value $.005 per share. Transitional Small Business Disclosure Format: Yes [ ] No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Vitrix, Inc., a Nevada corporation (the "Company" or "Vitrix"), through its wholly owned subsidiary, Time America, Inc.(formerly known as Vitrix Incorporated), an Arizona corporation ("Time America"), designs, develops, manufactures and markets a line of time and labor management hardware and software products. Our products are designed to improve productivity by automating time and attendance, workforce scheduling and management of labor resources. We target our product solutions at small to mid-sized companies of up to 2,000 employees, and the solutions are offered in a client/server application, PC-based application or in a 100% Web-based application service provider ("ASP") model. Vitrix was incorporated as Richard Barrie Fragrances, Inc. in the State of Nevada on June 6, 1988, for the original purpose of developing, manufacturing and marketing fragrances, cosmetics, skin treatment and personal care products sold primarily through department and specialty stores and drugstores. On July 1, 1996, following the Asset Sale (discussed below) and approval of our stockholders, we changed our name from "Richard Barrie Fragrances, Inc." to "FBR Capital Corporation." On October 7, 1999, we changed our name again from "FBR Capital Corporation" to "Vitrix, Inc." As of the date of this report, we conduct our operations through our subsidiary, Time America, formed on April 26, 1996. Unless the context indicates otherwise, references to the Company in this report shall include Vitrix and Time America. Effective June 30, 1996, Vitrix sold substantially all of its properties and rights (the "Asset Sale") to Parlux Fragrances, Inc. During the period from the Asset Sale to April 1999, Vitrix's operations were limited to conducting administrative activities and discussions with third parties regarding possible business combinations. On April 15, 1999, Vitrix acquired the outstanding capital stock of Vitrix Incorporated (name was later changed to Time America, Inc. in April 2001) pursuant to the terms of an Exchange Agreement, dated as of such date, by and among Vitrix, Vitrix Incorporated and certain of the Vitrix Incorporated shareholders who agreed to participate in the transaction (the "Acquisition"). Under the terms of the Exchange Agreement, each outstanding share of Vitrix Incorporated common stock, no par value per share ("Vitrix Incorporated Common Stock"), was converted into a combination of .9225 shares of Vitrix common stock, $.005 par value per share ("Common Stock"), and 1.0736 shares of Series B Convertible Preferred Stock, $.01 par value per share, of Vitrix ("Preferred Stock"). Each share of Preferred Stock was automatically converted into one share of Common Stock on October 7, 1999, when Vitrix amended it Articles of Incorporation to increase its authorized capital to 50,000,000 shares so that the conversion could be completed. The aggregate consideration paid in the Acquisition was 8,592,826 shares of Common Stock and 10,000,000 shares of Preferred Stock (the "Shares"). Giving effect to the issuance of the Shares, Vitrix Incorporated shareholders held approximately 80% of the outstanding shares of Common Stock (assuming conversion 2 of the Preferred Stock into Common Stock and excluding outstanding options and warrants) immediately subsequent to the Acquisition and the shareholders of Vitrix existing prior to the Exchange Agreement owned the remaining 20% of such Vitrix shares. Although Vitrix became the parent company of Vitrix Incorporated following the consummation of the transaction, the acquisition was accounted for as a recapitalization of Vitrix Incorporated and the purchase of Vitrix by Vitrix Incorporated, since Vitrix Incorporated became the controlling company after the transaction. On March 28, 2001, the Company completed a merger with Time America, Inc., which was accounted for as a pooling of interests. Pursuant to the terms of the Merger Agreement, Time America, Inc. merged with and into Vitrix Incorporated, with Vitrix Incorporated continuing as the surviving corporation. In connection with the merger, Vitrix's shareholders approved a proposal effecting a 1-for-10 reverse stock split, which was effective on April 5, 2001. Vitrix acquired all of the outstanding shares of Time America, Inc. through the issuance of 3,147,914 shares (on a post reverse stock split basis) of Vitrix common stock, which amount represents approximately fifty percent (50%) of Vitrix's outstanding common stock after giving effect to the share issuance. The accompanying financial statements of Vitrix, Inc. for the fiscal year ended June 30, 2001, are based on the assumption that the companies were combined for the full fiscal year, and the financial statements for the fiscal year ended June 30, 2000, have been restated to give effect to the combination. PRODUCTS AND SERVICES Vitrix designs, develops, manufactures and markets a line of time and labor management hardware and software products targeting small, mid-sized, and enterprise level companies. Our solutions are offered in a client/server application, PC-based, or in a 100% Web-based ASP model. Our products are internally developed, proprietary software applications that maintain and automate the process of collecting time sheet information, provide automated interfaces to most popular payroll software and provide reports to help companies track and analyze how their employees spend their time. Our products also automatically accrue vacation, sick and personal time, and effectively replace the traditional punch clock with a fully automated system designed to improve workforce productivity and provide significant savings to its users. LABOR MANAGEMENT SOLUTIONS CLIENT/SERVER APPLICATION -------------------------------------------------------------------------------- HOURTRACK 2000 HourTrack 2000 is a powerful work force management solution that combines state-of-the-art "Client/Server" software with a wide range of data collection hardware to automate the process of tracking, managing, auditing, and reporting the many aspects of employee time and attendance. By replacing traditional punch 3 clocks and paper time sheets with a fully automated system, HourTrack 2000 has been shown to produce substantial savings for companies of all sizes and genres. The primary features of HourTrack 2000 include: * TIME AND ATTENDANCE - HourTrack 2000's open architecture is easily customized to conform to an organization's unique set of payroll policies and concerns. * LEAVE MANAGEMENT - Leave records for vacation, sick and personal time are maintained by HourTrack 2000. It also tracks hours that are specific to a certain organization (i.e. PTO, jury duty, training, etc.), and automates benefit accruals by using a company's policies to calculate how much benefit time an employee has earned. * JOB AND TASK TRACKING - In addition to tracking total time spent on the job, HourTrack 2000 enables employers to track the time employees spend on specific jobs and tasks. Powerful reporting assists companies with job costing, analysis and billing. * WORKFORCE SCHEDULING - HourTrack 2000's scheduling features help manage payroll costs and productivity concerns by minimizing the likelihood of expensive overstaffing and the negative effects of understaffing. Schedule creation is performed with the assistance of a unique visual interface, allowing administrators to view employee's schedules in a convenient calendar format. * STRATEGIC REPORTING - Hour Track 2000 also features over 60 standard reports. These reports allow users to transform raw data into helpful information that allows managers and executives to gain valuable insight and more effectively manage their organizations. Reports can also be used to share information such as time tracking, benefit usage, job costing, human resource functionality and employee scheduling with third-party applications and/or service bureaus. PC-BASED PRODUCTS -------------------------------------------------------------------------------- TA50 TA50 is a simple to use yet powerful time and attendance solution designed for companies with fewer than 200 employees that allows clients to automate their company's timekeeping and attendance tracking with built-in setup wizards and simplified daily operations. The main features of TA50 include: 4 * EASE OF USE - TA50 is a user-friendly menu-driven solution that uses color-coded screens to simplify its use. All processes are clearly marked and follow a common operating theme throughout. * TIME AND ATTENDANCE - TA50's tools relieve payroll staff of time consuming, stressful procedures such as manual review and calculation of time cards by automating calculating employee time and wages. * WORKFORCE SCHEDULING - TA50's scheduling features help manage payroll costs and productivity concerns by minimizing the likelihood of expensive overstaffing and the negative effects of understaffing. * STRATEGIC REPORTING - TA50 includes over 80 standard reports. This reporting feature, which is also included in the Company's TA100 and Genesis Pro products, allows users to transform raw data into helpful information that allows managers and executives to gain valuable insight and more effectively manage their organizations. TA100 The TA100 time and attendance solution, designed for companies with fewer than 500 employees, automatically calculates employee time and wages using a client's specific payroll policies. An optional feature of the TA100 solution includes a Bell Control Module that allows a client to define bell-ringing schedules and prompt terminals to activate a user supplied bell, alarm, or other audible signaling device. The main features of TA100 include: * TIME AND ATTENDANCE - TA100 is easily customized to conform to an organization's unique set of payroll policies and concerns. * POLICY MANAGEMENT - Rounding rules can be setup around start/stop times or the actual punch time to avoid overpaying employees. Overtime can be paid on a weekly, bi-weekly, or semi-monthly basis. * WORKFORCE SCHEDULING - This feature has the same functionality as the Company's TA50 and Genesis Pro products. * STRATEGIC REPORTING - TA100 includes over 100 standard reports. Reports can also be used to share information such as time tracking, benefit usage, job costing, human resource functionality and employee scheduling with third-party applications and/or service bureaus. GENESIS PRO Genesis Pro is an enterprise level software that helps clients optimize productivity and better manage their bottom line by automating not only time and attendance, but job costing, benefit administration, employee review processing, access control, bell ringing, and data collection needs. The main features of Genesis Pro include: 5 * TIME AND ATTENDANCE - Genesis Pro is easily customized to conform to an organization's unique set of payroll policies and concerns. * LEAVE MANAGEMENT - Leave records for vacation, sick and personal time are maintained by Genesis Pro. It also tracks hours that are specific to a certain organization (i.e. PTO, jury duty, training, etc.), and automates benefit accruals by using a company's policies to calculate how much benefit time an employee has earned. * JOB AND TASK TRACKING - In addition to tracking total time spent on the job, Genesis Pro enables employers to track the time employees spend on specific jobs and tasks. Powerful reporting assists with job costing, analysis and billing. * WORKFORCE SCHEDULING - This feature has the same functionality as the Company's TA50 and TA100 products. * STRATEGIC REPORTING - Genesis Pro includes over 140 standard reports. Reports can also be used to share information such as time tracking, benefit usage, job costing, human resource functionality and employee scheduling with third-party applications and/or service bureaus. 100% WEB-BASED ASP PRODUCT -------------------------------------------------------------------------------- NETtime NETtime is a 100% Web-based service deliverable to clients through the application service provider (ASP) model. It delivers the functionality of HourTrack 2000, its client/ server predecessor, through Web distribution. NETtime was released in September 2000. The main features of NETtime include: * HOURTRACK 2000 STRUCTURE - By building on top of the HourTrack 2000 engine, NETtime has all of the functionality of HourTrack 2000. NETtime was introduced with a robust feature-set in the areas of time and attendance, leave management, job and task tracking, employee scheduling and data analysis. * CUSTOMIZATION - NETtime allows for customization and flexibility. Administrators and employees determine exactly which data NETtime will display for them, allowing clients to work at optimum efficiency in the NETtime environment. Additionally, NETtime will work in the manner required by clients. For example, clients with a mobile workforce have the ability to access the NETtime pages using any Web-enabled cellular phone or PDA device (Palm, Windows CE, etc.). * ANYTIME, ANYWHERE - Because NETtime is delivered via the Internet through any Web browser, it brings the user closer to Vitrix's "anytime, anywhere" vision for performing or self-servicing human 6 resources tasks. Wherever clients have Internet access, they have access to NETtime and the functionality and wealth of information it provides. * CUSTOMER ACCOUNT SELF-SERVICE - NETtime gives users the ability to view their account status online. They can even order additional Vitrix products, obtain system help, or contact a support representative directly from the NETtime website. DATA COLLECTION OPTIONS Our time and attendance product solutions include hardware for collecting employees' clock in and out times. Set forth below are the various hardware devices designed to meet the challenges of a diverse set of work environments: * BADGE TERMINALS - These badge readers are well suited for a wide variety of environments, from doctors' offices to manufacturing plants. Employees clock in and out by simply sliding a badge through a scanner. * HAND PUNCH BIOMETRIC TERMINALS - This device analyzes the biometric measurements of a user's hand to verify their identity. Instead of using a badge, an employee clocks in and out by placing his or her hand onto the scanner and awaiting verification. This method eliminates losses due to buddy-punching (the practice of clocking in or out for another employee). * MOBILE DEVICES - It is often helpful to track the time a mobile workforce spends on projects. Instead of a PC or terminal, our data collection software runs HourTrack 2000 on a palm-sized device operating under the Windows CE terminal. * TELEPUNCH - The TelePunch solution allows employees to clock in and out for the day, for jobs, or for departments using any touch-tone telephone. Clients who purchase this solution receive a pre-configured, telephony server from Vitrix. This server runs Vitrix's software, and allows callers to interact with HourTrack 2000 from a remote location. * EWEBCLOCK - eWebClock partially reduces a user's total time and attendance product investment, by utilizing the Internet to collect employee clock in and out times. By simply logging on to a Web page (via the local network or the World Wide Web), employees can clock in and out. * PC TIME CLOCK - Vitrix's most straightforward solution, PC Time Clock, allows employees to clock in and out on a Windows-based computer. This is generally beneficial in office environments where employees each have access to their own desktop computer. * WEB BROWSER - NETtime delivers its ultimate user experience to clients accessing the service through a standard Web browser. The full range of actions (clocking in and out, transferring jobs and departments, etc.) and information (hours worked, schedules, status board, etc.) are available. 7 * WEB-ENABLED CELL PHONE OR PDA - A streamlined version of NETtime is available to clients accessing the service through a text-only browser, such as those operating on cell phones and PDAs. Essential services such as clocking in and out are available. * TCP/IP-ENABLED HARDWARE - Customers may utilize TCP/IP-enabled hardware devices, such as badge readers, to collect clock in and out data from their employees. SERVICES AND SUPPORT We maintain a professional service and technical support organization, which provides a suite of maintenance and professional services. These services are designed to support Vitrix customers throughout the life cycle of our products. The professional services include implementation, training, technical and business technical consulting. Maintenance service options are delivered through Vitrix's centralized support operation or through local service personnel. Our educational services offer a full range of curriculums, which are delivered through local training at our Tempe, Arizona headquarters or via computer-based training courses. When necessary, we also may provide software customization services to meet any unique customer requirements. MARKETING AND SALES We market and sell our products to small and mid-sized companies in markets in the United States and foreign countries through our Business Alliance and Partner Program, as well as directly to end users. End users include companies in the manufacturing and service industries, and in the public and private sectors. We believe the market for time and labor management products consists of the following three (3) business segments: * SMALL BUSINESSES. This segment is comprised of companies with fewer than 20 employees and only a single administrator who performs time sheet edits and prepares employee hours for payroll. * MID-SIZED BUSINESSES. This segment is comprised of companies with 20 to 500 employees. These companies normally have two (2) or more administrators who perform time sheet edits and prepare employee hours from a single office. In many cases multiple stations are necessary for clocking in and out, however, all data is administered from a central location. * ENTERPRISE BUSINESSES. Enterprise businesses generally have over 500 employees with multiple satellite offices, each of which have one (1) or more administrators. Payrolls are performed at a central or headquarter office. An enterprise customer is analogous to a collection of mid-sized businesses requiring a central location to collect and store data. 8 MANUFACTURING AND SOURCES OF SUPPLY The duplication of Vitrix software is done with our own equipment. The printing of documentation is primarily outsourced to suppliers. Although most of the parts and components included within our products are available from multiple suppliers, certain parts and components are purchased from single suppliers. We have chosen to source these items from single suppliers because we believe that the supplier chosen is able to consistently provide us with the highest quality product at a competitive price on a timely basis. While to date we have been able to obtain adequate supplies of these parts and components, the inability to transition to alternate supply sources on a timely basis if required in the future, could result in delays or reductions in product shipments, which could have a material adverse effect on our operating results. PRODUCT DEVELOPMENT Our product development efforts are focused on enhancing and increasing the performance of our existing products and developing new products. During fiscal 2001 and 2000, research and development expenses were $1,159,666 and $1,220,174, respectively. The Company intends to continue to commit resources to enhance and extend our product lines and develop interfaces to third party products. Although we are continually seeking to further enhance our product offerings and to develop new products, there can be no assurance that these efforts will succeed, or that, if successful, such product enhancements or new products will achieve widespread market acceptance, or that our competitors will not develop and market products which are superior to our products or achieve greater market acceptance. We also depend upon the reliability and viability of a variety of software development tools owned by third parties to develop our products. If these tools are inadequate or not properly supported, our ability to release competitive products in a timely manner could be adversely impacted. PROPRIETARY RIGHTS We rely on a combination of trademarks, trade secret law and contracts to protect our proprietary technology. We generally provide software products to end-users under non-exclusive shrink-wrap licenses or under signed licenses, both of which may be terminated by Vitrix if the end user breaches the terms of the license. These licenses generally require that the software be used only internally subject to certain limitations, such as the number of employees, simultaneous users, computer model and serial number, features and/or terminals for which the end user has paid the required license fee. We authorize our resellers to sublicense software products to end users under similar terms. In certain circumstances, we also make master software licenses available to end users which permit either a specified limited number of copies or an unlimited number of copies of the software to be made for internal use. Some customers license software products under individually negotiated terms. Despite these precautions, it may be possible to copy or otherwise obtain and use our products or technology without authorization. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. COMPETITION We provide time and attendance, data collection and labor management solutions that enable businesses to optimize their labor resources. The labor management industry is highly competitive. Competition is increasing as 9 businesses in related industries, such as human resources management, payroll processing and enterprise resource planning ("ERP") enter the time and attendance market. Advances in software development tools have accelerated the software development process and, therefore, enable competitors to penetrate our markets. Although we believe we have certain technological and other advantages over our current competitors, maintaining those advantages will require continued investment by the Company in research and development and marketing and sales initiatives. There can be no assurance that we will have sufficient resources to make such investments or to achieve the technological advances necessary to maintain our competitive advantages. Increased competition could adversely affect our operating results through price reductions and/or loss of market share. We compete primarily on the basis of price/performance, quality, reliability and customer service. In the time and attendance market, we compete against firms that sell automated time and attendance products to many industries, against firms that focus on specific industries, and against firms selling related products, such as payroll processing, human resources management, or ERP systems. Many of our competitors, such as Kronos Corporation and Tyco/Simplex, are substantially larger and have access to significantly greater financial resources than the Company. Competitive market conditions could have a material adverse effect on our business, financial condition and results of operations. EMPLOYEES As of June 30, 2001, we employed thirty-four individuals. None of our employees are represented by a union or other collective bargaining agreement, and we consider our relations with our employees to be good. We have encountered intense competition for experienced technical personnel for product development, technical support and sales and expect such competition to continue in the future. Any inability to attract and retain a sufficient number of qualified technical personnel could adversely affect our ability to produce, support and sell products in a timely manner. ITEM 2. PROPERTIES. We lease approximately 9,000 square feet in Tempe, Arizona under a lease agreement, which commenced in November 1999. Our rental expense for this facility in fiscal 2001 was approximately $205,000. We consider our present facilities to be adequate for our current requirements and that additional space will be available as needed in the future. ITEM 3. LEGAL PROCEEDINGS. We are from time to time involved in legal proceedings arising from the normal course of business. As of the date of this report, we were not currently involved in any legal proceedings. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of our shareholders during the fiscal quarter ended June 30, 2001. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the NASD's over-the-counter market on the electronic bulletin board (the "OTC Bulletin Board") under the symbol "VRXI." The quoted prices reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not represent actual transactions. Set forth below are the high and low sales prices of the Common Stock for the periods indicated as reported by the OTC Bulletin Board: FISCAL 2001 PERIOD HIGH LOW ------ ----- ----- First quarter $0.66 $0.28 Second quarter 0.50 0.08 Third quarter 0.16 0.06 Fourth quarter 0.48 0.06 FISCAL 2000 PERIOD HIGH LOW ------ ----- ----- First quarter $0.69 $0.38 Second quarter 0.38 0.22 Third quarter 3.25 0.22 Fourth quarter 0.94 0.28 Effective prior to the opening of the market for trading on April 5, 2001, the Company effected a 1-for10 reverse split of its common stock As of September 25, 2000, there were approximately 250 holders of record of the Company's Common Stock. The Company has never paid any cash dividends, and the present policy of the Company is to retain earnings for use in its business. 11 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. The following selected financial information is derived from the Company's historical financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein and the "Forward-Looking Statements" explanation included herein. On March 28, 2001, the Company completed a merger with Time America, Inc., which was accounted for as a pooling of interests. Pursuant to the terms of the Merger Agreement, Time America, Inc. merged with and into the Company's wholly-owned subsidiary, Vitrix Incorporated, with Vitrix Incorporated continuing as the surviving corporation. The accompanying consolidated financial statements of Vitrix, Inc. for the fiscal year ended June 30, 2001, are based on the assumption that the companies were combined for the full fiscal year, and the financial statements for the fiscal year ended June 30, 2000, have been restated to give effect to the combination. SELECTED FINANCIAL INFORMATION Years Ended June 30, --------------------------- 2001 2000 ---------- ---------- Total Revenues $4,077,736 $3,913,579 Costs of Revenues 2,069,740 1,800,065 Gross Profit 2,007,996 2,113,514 Sales and Marketing Expense 1,060,316 1,118,987 Research and Development Expense 1,159,666 1,220,174 General and Administrative Expense 1,168,276 1,095,352 Net Loss 1,565,510 1,329,069 Basic Loss per Share 0.25 0.23 COMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2001 AND JUNE 30, 2000 REVENUES. Revenue for the fiscal year ended June 30, 2001 (the "reporting period"), rose 4% to $4,077,736, compared to revenue of $3,913,579 for the fiscal year ended June 30, 2000 (the "comparable period"). This growth was principally the result of increased customer demand for the Company's professional services, which resulted in an increase in sales volume for services revenue. PRODUCT SALES. Product sales for the reporting period decreased 3% to $3,348,185 in the reporting period, compared to revenue of $3,460,134 in the comparable period. The decline in product revenue was principally the result of decreased customer demand. SERVICE REVENUE. Service revenue for the reporting period increased 61% to $729,551 in the reporting period, compared to revenue of $453,445 in the comparable period. The increase was principally the result of an increased demand by our customers needing professional services. The increase in demand is primarily attributable to the introduction of new products that are more sophisticated and robust. 12 GROSS PROFIT. Gross profit as a percentage of revenues was 49% in the reporting period and 54% in the comparable period. Gross profit on product sales in the reporting period was 54% compared to 59% in the comparable period. The decrease in gross profit percentage was primarily attributable to a change in the mix of product sold. The Company's product revenue in the reporting period was derived from sales of systems in which hardware, which typically generates lower gross profit, represented a higher proportion of product revenues than in the comparable period. Gross profit on service revenues was 26% in the reporting period compared to 19% in the comparable period. The increase was primarily due to a substantial increase in service revenue and providing the services in a more cost efficient manner. EXPENSES. Sales and marketing expenses were $1,060,316, or 26% of revenues, in the reporting period and $1,118,987, or 29% of revenues, in the comparable period. The slight decrease in sales and marketing expense in the current period is primarily due to decreased labor costs. Research and development expenses were $1,159,666, or 28% of revenues, in the reporting period and $1,220,174, or 31% of revenues, in the comparable period. The slight decrease in research and development expense in the current period is primarily due to decreased labor costs. General and administrative expenses were $1,168,276, or 29% of revenues, in the reporting period and $1,095,352, or 28% of revenues, in the comparable period. The increase in general and administrative expenses in the current period is primarily attributable to expenses incurred to complete the merger with Time America, Inc. Other income (expense) was $(102,168) in the reporting period and $(8,070) in the comparable period. The increase in expense is due to a loss in disposal of assets in the current period and additional interest expense incurred as a result of increased borrowing of long-term debt in the current period. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2001, the Company had a working capital deficit of $156,171, as compared to a deficit of $83,165 at June 30, 2000. Cash and cash equivalents at those dates amounted to $177,586 and $636,932, respectively. 13 OPERATIONS. Net cash used by operations decreased to $1,078,195 in the reporting period, compared to net cash used by operations of $1,206,037 in the comparable period. The decrease in net cash used by operations was primarily attributable to increases in non-cash charges for loss on disposal of assets and impairment of asset, and an increase in accounts payable. INVESTMENT ACTIVITIES. The Company used $46,993 and $224,694, to purchase property and equipment in fiscal 2001 and 2000, respectively. FINANCING ACTIVITIES. During the reporting period, the Company received net proceeds from long-term debt in the approximate amount of $560,000 and approximately $133,000 from the exercise of common stock options and warrants. During the comparable period, the Company raised approximately $1,475,000 aggregate proceeds from the issuance of Common Stock and the exercise of common stock options and warrants. At August 31, 2000, the Company anticipates its working capital and funds generated from operations are sufficient to fund the Company's operations for the next six months. In the absence of obtaining additional capital through asset sales, securing a revolving credit facility, debt or equity offerings, or a combination of the foregoing, the Company will be unable to fund its operations and will experience defaults under certain of its contractual agreements, including its lease agreements for its corporate headquarters. These agreements are subject to termination in the event of default. Certain of the parties to these agreements could take legal action against the Company to collect amounts owed to them. Accordingly, the Company's financial condition could require that the Company seek the protection of applicable reorganization laws in order to avoid or delay actions by third parties, which could materially adversely affect, interrupt or cause the cessation of the Company's operations. As a result, the Company's independent certified public accountants have issued a going concern opinion on the financial statements of the Company for the fiscal year ended June 30, 2001. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001 the Financial Accounting Standards Board adopted Opinion No. 141, Business Combinations, and Opinion No. 142, Goodwill and Other Intangibles. The pronouncements provide for the cessation of the pooling method of accounting for business combinations as well as providing that goodwill and other intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. The Company does not expect the adoption of the standards to have a material effect on the financial statements. The effective dates for Financial Accounting Standards Nos. 141 and 142 are July 1, 2001 and for fiscal years beginning after December 15, 2001, respectively. In addition, the Financial Accounting Standards Board has adopted Opinion No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of the standard to have a material effect on the financial statements. 14 INFLATION AND SEASONALITY The Company does not believe that its operations are significantly impacted by inflation. The Company's business is not seasonal in nature. FORWARD-LOOKING INFORMATION This Annual Report on Form 10-KSB contains certain forward-looking statements and information which we believe 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. Examples of uncertainties which could cause such differences include, but are not limited to, the ability of the Company to attract and retain key personnel, especially highly skilled technology personnel, the ability of the Company to secure additional capital to finance its business plan, competition from other companies providing time and labor management hardware and software products, and the Company's reliance on technology and information and telecommunication systems. 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. ITEM 7. FINANCIAL STATEMENTS. The financial statements and schedules are included herewith commencing on page F-1. Independent Auditors' Report F-1 Consolidated Balance Sheet F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Changes in Stockholders' Equity (Deficit) F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 15 To The Stockholders and Board of Directors of Vitrix, Inc. and Subsidiary We have audited the accompanying consolidated balance sheet of Vitrix, Inc. and subsidiary as of June 30, 2001, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for the years ended June 30, 2001 and 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 misstatements. 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 our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above presents fairly, in all material respects, the consolidated financial position of Vitrix, Inc. and subsidiary, as of June 30, 2001, and the consolidated results of its operations, changes in stockholders' equity (deficit), and its cash flows for the years ended June 30, 2001 and 2000, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the consolidated financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. Managements' plans in regard to this matter are also discussed in Note 7. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Semple & Cooper, LLP Phoenix, Arizona September 14, 2001 F-1 VITRIX, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET JUNE 30, 2001 CURRENT ASSETS: Cash and cash equivalents (Note 1) $ 177,586 Accounts receivable - trade, net (Note 1) 506,989 Inventory (Note 1) 247,550 Prepaid expenses and other current assets 42,871 ----------- TOTAL CURRENT ASSETS 974,996 PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 2) 164,622 ----------- TOTAL ASSETS $ 1,139,618 =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt (Note 3) $ 340,577 Accounts payable 431,938 Accrued liabilities 201,403 Deferred revenue (Note 1) 157,249 ----------- TOTAL CURRENT LIABILITIES 1,131,167 LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 3) 487,865 ----------- TOTAL LIABILITIES 1,619,032 ----------- COMMITMENTS: (NOTE 5) -- STOCKHOLDERS' EQUITY (DEFICIT): (NOTE 6) Common stock, $.005 par value, 50,000,000 shares authorized, 6,295,828 shares issued and outstanding 31,479 Contributed capital 5,503,970 Accumulated deficit (6,014,863) ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (479,414) ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,139,618 =========== The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-2 VITRIX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, -------------------------- 2001 2000 ----------- ----------- Revenues: Product sales $ 3,348,185 $ 3,460,134 Services revenue 729,551 453,445 ----------- ----------- TOTAL REVENUES 4,077,736 3,913,579 ----------- ----------- COST OF REVENUES: Product 1,529,766 1,431,187 Services 539,974 368,878 ----------- ----------- TOTAL COST OF REVENUES 2,069,740 1,800,065 ----------- ----------- GROSS PROFIT 2,007,996 2,113,514 ----------- ----------- COSTS AND EXPENSES: Sales and marketing 1,060,316 1,118,987 Research and development 1,159,666 1,220,174 General and administrative 1,168,276 1,095,352 Impairment of asset (Note 2) 83,080 -- ----------- ----------- TOTAL COSTS AND EXPENSES 3,471,338 3,434,513 ----------- ----------- NET LOSS FROM OPERATIONS (1,463,342) (1,320,999) ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (79,598) (39,725) Loss on disposal of fixed assets (62,107) -- Other 26,577 -- Interest income 12,960 31,655 ----------- ----------- (102,168) (8,070) ----------- ----------- NET LOSS $(1,565,510) $(1,329,069) =========== =========== BASIC AND DILUTED LOSS PER SHARE (NOTE 1) $ (0.25) $ (0.23) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,263,920 5,877,492 =========== =========== The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-3 VITRIX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
PREFERRED STOCK COMMON STOCK ------------------------ ------------------------ CONTRIBUTED ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ----------- --------- ---------- ----------- ----------- ----------- ----------- Balance at July 1, 1999, as previously reported 10,000,000 $ 100,000 13,241,031 $ 66,205 $ 956,468 $ (870,617) $ 252,056 Adjustment in connection with pooling of interests -- -- 3,147,914 15,740 2,020,140 (2,249,667) (213,787) Issuance of stock options for services -- -- -- -- 12,000 -- 12,000 Exercise of stock options -- -- 70,000 350 26,375 -- 26,725 Exercise of warrants -- -- 264,687 1,323 4,500 -- 5,823 Sale of common stock and warrants, net of costs -- -- 6,732,500 33,663 1,409,662 -- 1,443,325 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 -- -- -- -- -- (1,329,069) (1,329,069) ----------- --------- ---------- ----------- ----------- ----------- ----------- Balance at June 30, 2000 -- -- 33,656,132 168,281 4,518,145 (4,449,353) 237,073 Exercise of stock options -- -- 97,072 484 10,193 -- 10,677 Exercise of warrants -- -- 873,850 4,370 117,896 -- 122,266 Issuance of warrants for services -- -- -- -- 21,000 -- 21,000 Contribution of debt from a related party -- -- -- -- 695,080 -- 695,080 1-for-10 reverse stock split -- -- (28,331,226) (141,656) 141,656 -- -- Net loss -- -- -- -- -- (1,565,510) (1,565,510) ----------- --------- ---------- ----------- ----------- ----------- ----------- Balance at June 30, 2001 -- $ -- 6,295,828 $ 31,479 $ 5,503,970 $(6,014,863) $ (479,414) =========== ========= ========== =========== =========== =========== ===========
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-4 VITRIX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, --------------------------- 2001 2000 ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Net Loss $(1,565,510) $(1,329,069) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 91,653 71,833 Common stock, stock options, and warrants issued for services 21,000 52,000 Loss on disposal of assets 62,107 -- Impairment of asset 83,080 -- Contribution of related party accounts payable 165,780 -- Changes in Assets and Liabilities: Accounts receivable-trade 9,015 (204,561) Inventory (5,990) (13,491) Prepaid expenses and other current assets 38,749 (52,321) Accounts payable 117,226 (48,387) Accounts payable - related party (131,483) 68,600 Accrued liabilities 54,970 81,961 Deferred revenue (18,792) 167,398 ----------- ----------- NET CASH USED BY OPERATING ACTIVITIES (1,078,195) (1,206,037) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (46,993) (224,694) ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (46,993) (224,694) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 1,204,991 200,000 Repayment of long-term debt (645,000) -- Repayment of capital leases (27,092) (14,925) Proceeds from exercise of stock options and warrants 132,943 32,548 Proceeds from issuance of stock -- 1,443,325 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 665,842 1,660,948 ----------- ----------- Net change in cash and cash equivalents (459,346) 230,217 Cash and cash equivalents at beginning of year 636,932 406,715 ----------- ----------- Cash and cash equivalents at end of year $ 177,586 $ 636,932 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 71,306 $ 37,531 =========== =========== Income taxes paid $ -- $ -- =========== =========== NONCASH INVESTING AND FINANCING ACTIVITIES: Assets acquired by entering into capital leases $ -- $ 52,145 =========== =========== Conversion of related party notes and accrued interest to equity $ 529,300 $ -- =========== ===========
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-5 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES: -------------------------------------------------------------------------------- NATURE OF BUSINESS, MERGER AND NAME CHANGES: Vitrix, Inc. (the Company or Vitrix) through its wholly owned subsidiary, Time America, Inc. (previously known as Vitrix Incorporated), provides Time & Labor Management Solutions. Vitrix products improve productivity by automating Time and Attendance, Workforce Scheduling, and the management of Labor Resources, with features such as employee self-service, data capture technology, time sheet submittal, strategic reporting, and interface tools for payroll, human resources, resource planning, and third party application integration. Vitrix solutions are offered in a PC based application, a client/server application, or in a 100% Web-based Application Service Provider (ASP) product. On March 28, 2001, the Company completed a merger with Time America, Inc. which was accounted for as a pooling of interests. Pursuant to the terms of the Merger Agreement, Time America Inc. merged with and into the Company's wholly owned subsidiary, Vitrix Incorporated, with Vitrix Incorporated continuing as the surviving corporation. In connection with the acquisition, Vitrix's shareholders approved a proposal effecting a 1-for-10 reverse stock split. Vitrix acquired all of the outstanding shares of Time America, Inc. through the issuance of 3,147,914 shares (on a post reverse stock split basis) of Vitrix common stock, which represents approximately fifty percent (50%) of Vitrix's outstanding common stock after giving effect to the share issuance. The accompanying financial statements of Vitrix, Inc. for the fiscal year ended June 30, 2001 are based on the assumption that the companies were combined for the full fiscal year, and the financial statements for the fiscal year ended June 30, 2000 have been restated to give effect to the combination. There were no transactions between Time America, Inc. and the Company prior to combination, and certain reclassifications were made to the Time America, Inc. financial statements to conform to the Company's presentations. Summarized results of operations of the separate companies for the period July 1, 2000 through March 31, 2001, the effective date of the merger, are as follows: TIME VITRIX, INC AMERICA, INC. ----------- ------------- Revenues 1,154,266 2,068,886 ========== ========== Net Loss (1,028,550) (248,523) ========== ========== Following is a reconciliation of the amounts of revenues and net loss previously reported for fiscal year 2000 with restated amounts: YEAR ENDED YEAR ENDED JUNE 30, 2000 JUNE 30, 2000 ------------- ------------- Revenue: Net Loss As previously reported $ 1,261,866 As previously reported $(1,098,219) Time America, Inc. 2,651,713 Time America, Inc. (230,850) ----------- ----------- As restated $ 3,913,579 As restated $(1,329,069) =========== =========== F-6 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES: (CONTINUED) -------------------------------------------------------------------------------- NATURE OF BUSINESS, MERGER AND NAME CHANGES (CONTINUED): On April 17, 2001 Vitrix Incorporated changed its name to Time America, Inc. On October 7, 1999 The Company changed its name from FBR Capital Corporation to Vitrix, Inc. Vitrix, Inc. is a Nevada corporation formed on June 6, 1988. Time America, Inc. is an Arizona corporation formed on April 26, 1996. 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, 2001 a provision for uncollectible accounts has been established in the amount of $55,000. 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. Property and equipment are reviewed each year to determine whether any events or circumstances indicate that the carrying amount of the assets may not be recoverable. Such review includes estimating future cash flows. Property and equipment costs are expensed when determined not realizable. The Company is the lessee of computer equipment, with an original cost of approximately $81,000, under five (5) capital lease agreements expiring through January 2003. 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. F-7 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES: (CONTINUED) -------------------------------------------------------------------------------- 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 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. 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. 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. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash, cash equivalents, accounts receivable, accounts payable, accrued liabilities and current notes payable approximate their fair values because of the short maturity of these instruments. With respect to long-term debt, based on the borrowing rates currently available to the Company for similar bank and equipment loans and capitalized leases, the amounts reported approximate the fair value of the respective financial instruments. F-8 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES: (CONTINUED) -------------------------------------------------------------------------------- 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. Loss per share amounts have been restated to, give retroactive effect to the 1-for-10 reverse stock split. 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. At June 30, 2001 and 2000, options and warrants to purchase 1,231,420 and 773,820 (adjusted for reverse stock split) shares of the Company's common stock were not included in the determination of diluted loss per share as their effect was anti-dilutive. 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." RECENT ACCOUNTING PRONOUNCEMENTS: In June 2001 the Financial Accounting Standards Board adopted Opinion No. 141, Business Combinations, and Opinion No. 142, Goodwill and Other Intangibles. The pronouncements provide for the cessation of the pooling method of accounting for business combinations as well as providing that goodwill and other intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. The Company does not expect the adoption of the standards to have a material effect on the financial statements. The effective dates for Financial Accounting Standards Nos. 141 and 142 are July 1, 2001 and for fiscal years beginning after December 15, 2001, respectively. In addition, the Financial Accounting Standards Board has adopted Opinion No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of the standard to have a material effect on the financial statements. F-9 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 2 PROPERTY AND EQUIPMENT: -------------------------------------------------------------------------------- At June 30, 2001 property and equipment consists of: Computers, software and equipment $ 329,828 Furniture and fixtures 52,097 Leasehold improvements 15,103 --------- 397,028 Less: accumulated depreciation (232,406) --------- $ 164,622 ========= Depreciation expense was $91,653 and $71,833, respectively, for the years ended June 30, 2001 and 2000. During the year ended June 30, 2001, software was deemed to be impaired and written down to fair value. Fair value, which was determined by reference to the present value of the estimated future cash inflows of the software, exceeded its carrying value by $83,080. An impairment loss of that amount has been charged to operations during the year ended June 30, 2001. -------------------------------------------------------------------------------- NOTE 3 LONG-TERM DEBT: -------------------------------------------------------------------------------- At June 30, 2001 long-term debt consists of the following: 10% convertible subordinated promissory note to an individual, see description below. $ 19,500 18% promissory notes to certain third parties, including members of the Company's Board of Directors; interest only payments through November 2001 followed by 12 monthly principal and interest payments of $34,380 through October 2002. Collateralized by all assets of the Company. 375,000 Promissory note to a shareholder, interest at prime plus 1 percent, monthly interest only payments through November 2001 followed by twelve monthly principal and interest payments of approximately $9,000. Due in full in October 2002. 400,000 Capital leases payable, interest at rates ranging from 15% to 24%, payable in monthly installments of principal and interest, maturing through January 2003 33,942 --------- 828,442 Less: current portion (340,577) --------- Long-term debt $ 487,865 ========= F-10 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 3 LONG-TERM DEBT: (CONTINUED) -------------------------------------------------------------------------------- On January 13, 1994, the Company entered into a series of 10% convertible subordinated promissory notes due January 15, 1996 totaling $5,157,750. On June 30, 1996 simultaneous with the closing of an asset sale, FBR completed an exchange offer in the aggregate principal amount of $5,040,750 with certain holders of the notes. On October 21, 1996, FBR completed the extinguishments of $97,500 of the notes in exchange for cash and, common stock warrants. The Company believes the remaining note holder will also accept a settlement of the obligation on terms not requiring the full cash payment of the amount due. As of June 30, 2001, accrued interest on the note was $14,568. On December 31, 2000, a shareholder contributed $529,300 of debt and accrued interest owed to him. In addition, the majority shareholder contributed $165,780 of amounts owed for past due rent obligations. As of June 30, 2001 future minimum payments due under the long-term debt agreements are as follows: YEAR ENDING JUNE 30, ----------- 2002 $ 319,097 2003 475,403 --------- Total $ 794,500 ========= As of June 30, 2001 future minimum lease payments due under the capital lease agreements, are as follows: YEAR ENDING JUNE 30, ----------- 2002 $ 26,316 2003 13,231 --------- Total minimum lease payments 39,547 Less: amount representing interest (5,605) --------- Present value of net minimum lease payments 33,942 Less: current maturities of capital lease obligations (21,480) --------- Long-term maturities of capital lease obligations $ 12,462 ========= F-11 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 4 INCOME TAXES: -------------------------------------------------------------------------------- As of June 30, 2001 deferred tax assets consist of the following: Federal loss carryforwards $ 955,000 State loss carryforwards 240,000 ----------- 1,195,000 Less: valuation allowances (1,195,000) ----------- $ -- =========== 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, 2001 the Company's federal net operating loss carryforwards was approximately $2,975,000 and begins expiring in 2012 through 2021. The Company's tax expense (benefit) differed from the statutory rate primarily due to the $525,000 change in the deferred tax asset valuation allowance from June 30, 2000. -------------------------------------------------------------------------------- NOTE 5 COMMITMENTS: -------------------------------------------------------------------------------- The Company currently leases office space in Tempe, Arizona and office equipment and services under non-cancelable operating lease agreements which expire through June 2005. For the years ended June 30, 2001 and 2000, expense under the aforementioned non-cancelable operating lease agreements was approximately $310,000 and $115,000, respectively. Future minimum lease payments due under the operating lease agreement is as follows: Year Ending June 30, ----------- 2002 $ 250,665 2003 258,622 2004 266,578 2005 145,608 --------- $ 921,473 ========= F-12 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 6 STOCKHOLDERS' EQUITY: -------------------------------------------------------------------------------- SERIES B PREFERRED STOCK: The Series B Preferred Stock automatically converted into common stock on a one-for-one basis on October 7, 1999 when the Company amended its Articles of Incorporation to increase the authorized common stock to 50,000,000 shares. REVERSE STOCK SPLIT: On March 30, 2001 the Company's shareholders approved a 1-for-10 reverse split of the Company's common stock. As a result of the split, the number of common shares outstanding decreased by 28,331,226 and contributed capital was increased by $141,656. All references in the accompanying financial statements to the number of common shares and per-share amounts have been restated to reflect the reverse stock split. STOCK OPTIONS: On July 13, 1999, the Board of Directors authorized the implementation of the 1999 Equity Compensation Plan. The plan allows for the award of incentive stock options, non-statutory stock options or restricted stock awards to certain employees, directors, consultants and independent contractors. The Company has reserved an aggregate of 600,000 shares of common stock for distribution under the plan. 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 of 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 options under the plan and non-statutory options granted outside the plan follows (all amounts and exercise prices adjusted retroactively for the 1-for-10 reverse split): NUMBER OF WEIGHTED AVERAGE OPTIONS EXERCISE PRICE --------- -------------- Outstanding at June 30, 1999 163,001 $ 1.40 Granted 318,323 5.80 Exercised (7,000) 3.80 Forfeited (118,353) 2.30 -------- -------- Outstanding at June 30, 2000 355,971 5.00 Granted 618,557 0.97 Exercised (9,707) 1.10 Forfeited (127,440) 3.78 -------- -------- Outstanding at June 30, 2001 837,381 $ 2.25 ======== ======== F-13 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 6 STOCKHOLDERS' EQUITY (CONTINUED): -------------------------------------------------------------------------------- STOCK OPTIONS (CONTINUED): Additional information about outstanding options to purchase the Company's common stock as of June 30, 2001 is as follows:
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 -------------- ------ --------------- -------------- ------ -------------- $22.50 - $13.10 6,300 7.17 $15.97 2,700 $18.69 $9.40 - $5.60 109,500 8.65 $ 9.14 27,375 $ 9.14 $3.40 - $2.20 159,523 8.99 $ 3.17 27,881 $ 2.44 $1.88 - $1.10 65,500 6.93 $ 1.12 56,646 $ 1.10 $0.41 - $0.40 496,558 9.80 $ 0.40 -- $ --
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, 2001 and 2000. 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, 2001 and 2000 would have been reduced to the pro forma amounts presented below: YEARS ENDED JUNE 30, ------------------------------- 2001 2000 ----------- ----------- Net loss: As reported $(1,565,510) $(1,329,069) =========== =========== Pro forma $(1,655,847) $(1,333,850) =========== =========== LOSS PER SHARE: As reported $ (0.25) $ (0.23) =========== =========== Pro forma $ (0.26) $ (0.23) =========== =========== 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 seven percent (7%), volatility at twenty five percent (25%), 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, 2001 and 2000 approximated $1.50 and $.50, respectively. F-14 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 6 STOCKHOLDERS' EQUITY (CONTINUED): -------------------------------------------------------------------------------- NON-EMPLOYEE STOCK OPTIONS AND WARRANTS: During the year ended June 30, 1998, the Company granted warrants to purchase 62,279 (post-split) shares of the Company's common stock. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $.22 (post-split) per share. During the year ended June 30, 2000 26,469 warrants (post-split) were exercised, generating proceeds of $5,823. During the year ended June 30, 2001 2,595 warrants (post-split) were exercised, generating proceeds of $571. The remaining un-exercised warrants of 33,216 (post -split) expired in June 2001. In connection with its private placements of common stock during the year ended June 30, 2000 the Company issued 366,625 (post-split) common stock warrants. Each warrant entitles the holder to purchase one share of common stock at varying exercise prices depending on the round of funding. The exercise price for the first round of funding is $3.50 (post-split) per share and are exercisable until October 2002. The exercise price for the second round of funding is $2.80 (post-split) per share and are exercisable until February 2003. In October, 2000, the Company entered into a Warrant Exercise Agreement with certain of its warrant holders under which participating holders of the Company's $3.50 per share and $2.80 per share warrants could exercise their warrants for one-half of the exercise price set forth in such warrants. In addition to the reduction in exercise price, each holder who participated in the Warrant Exchange Agreement also received a new warrant agreement under the same terms as the warrant agreement just exercised. In connection with this Warrant Exchange Agreement, the Company received approximately $122,000 from the exercise of warrants to purchase 84,790 (post-split) shares of common stock. During the year ended June 30, 2000 the Company granted 15,000 (post-split) options to an individual for consulting services. The exercise price of the options is $4.50 (post-split) per share and are exercisable through August 2002. The fair value of the options granted was estimated at $11,500 at the date of grant using the Black-Scholes pricing model. As of June 30, 2001 none of the options have been exercised. The Company granted 414 (post-split) options during the year ending June 30, 2000 to an Institution for consulting services in which a member of the Company's Board of Directors is a Principal. The exercise price of the options is $2.90 (post-split) per share and are exercisable through November 2002. The fair value of the options granted was estimated at $500 at the date of grant using the Black-Scholes pricing model. As of June 30, 2000 none of the options have been exercised. During the year ended June 30, 2001 the Company granted 12,000 (post-split) warrants to an entity for consulting services. The exercise price of the warrants ranges from $.90 per share to $4.30 per share (post-split) and are exercisable through March 2006. The fair value was $21,000 at the date of grant, determined based on the value of services performed. As of June 30, 2001 none of the warrants have been exercised. F-15 VITRIX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- NOTE 7 BASIS OF PRESENTATION AND GOING CONCERN: -------------------------------------------------------------------------------- Through June 30, 2001, the Company had sustained recurring losses from operations, and as of August 31, 2001, the Company estimates that its working capital and funds generated from operations are sufficient to fund the Company's operations for the next six months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. During fiscal 2002, the Company expects to meet its working capital and other cash requirements with cash derived from operations, short-term receivables, software license fees, and other financing as required. While the Company believes that it will succeed in attracting additional capital, there can be no assurance that the Company's efforts will be successful. The Company's continued existence is dependent upon its ability to achieve and maintain profitable operations by controlling expenses and obtaining additional business. Management believes that the merger with Time America, Inc. and continued cost controls should improve the Company's financial results in fiscal 2002. However, there can be no assurance that the Company's efforts to achieve and maintain profitable operations will be successful. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. -------------------------------------------------------------------------------- NOTE 8 SUBSEQUENT EVENTS: -------------------------------------------------------------------------------- On September 4, 2001 the Company received $500,000 through a promissory note with a significant shareholder. The promissory note calls for sixty (60) payments of principal and interest in the amount of $6,600 commencing October 1, 2001 followed by a balloon payment of $313,396 due October 2006. The promissory note is collateralized by all assets of the Company. The Company used $375,000 of the proceeds of the promissory note to pay off the outstanding balance of the 18% promissory notes to certain third parties (See Note 3). F-16 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. Information regarding the Company's directors and executive officers is provided below. THOMAS S. BEDNARIK. Mr. Bednarik, age 51, has served as President, Chief Executive Officer and a director of the Company since February 2000. From April 1998 to February 2000, Mr. Bednarik served as Vice President of Sales and Support at NetPro Computing, Inc. Mr. Bednarik has 28 years of executive and sales management experience in the information technology industry and has served in various executive management capacities, including Chief Executive Officer, President and Executive Vice President, with firms such as Idea Corporation, Decision Data, Alcatel Information Systems and ITT Corporation. CRAIG J. SMITH, CPA. Mr. Smith, age 31, has served as the Company's Vice President of Finance and Administration and Chief Financial Officer since April 1999. From 1998 to 1999, Mr. Smith served as Controller of Pacific Numerix Corporation. From 1993 to 1998, he served as an Audit Manager of Semple & Cooper LLP. Mr. Smith earned a masters in business administration from Arizona State University in 2000 and a Bachelor of Science degree in finance and accounting from Minnesota State University-Mankato in 1992. TODD P. BELFER. Mr. Belfer, age 33, has served as a director of the Company since March 1999 and Chairman of the Board of Directors since November 1999. Mr. Belfer also served as Chairman of the Board of Directors of Time America, Inc. (previously Vitrix Incorpated) from April 1996 until March 1999. Mr. Belfer also is currently serving as President and Chairman of the Board of M.D. Labs, Incorporated, a private Arizona-based company, where he has been employed since February 1994. Mr. Belfer also co-founded Employee Solutions, Inc. in May 1990, and served as its Executive Vice-President and as a director from 1991 to 1996. Mr. Belfer earned a Bachelor of Science in Finance and Economics from the University of Arizona in 1989. LISE M. LAMBERT. Ms. Lambert, age 44, has served as a director of the Company since April 1999 and as director of Time America, Inc. (previously Vitrix Incorporated) from January 1998 to March 1999. Ms. Lambert is President of Relevant, Inc., a consulting company that serves the computer software industry. Ms. Lambert has been employed by Relevant, Inc. since 1996. In 1986, Ms. Lambert co-founded Mastersoft, Inc., where she served as Vice-President of Marketing from 1986 to 1990 and Senior Vice-President of Sales from 1990 to 1995. Ms. Lambert has held various sales and management positions, including Product Line Manager at MicroAge, Inc. in Tempe Arizona, and currently serves as director for OutBack Resource Group. Ms. Lambert earned a Bachelor of Arts degrees in education and music, and a Masters degree in deafness and audiology from Smith College. 16 ROBERT W. ZIMMERMAN. Mr. Zimmerman, age 49, has served as a director of the Company since March 2001. Mr. Zimmerman is a co-managing shareholder and attorney for Mallery & Zimmerman, S.C., a general practice law firm based in Wisconsin. Mr. Zimmerman graduated from Marquette University in 1974 with majors in Accounting and Finance and from Marquette University Law School in 1977. After law school Mr. Zimmerman worked in the Milwaukee office of Arthur Andersen & Co. in the tax department and received his Wisconsin CPA certificate. BAHAN SADEGH. Mr. Sadegh, age 28, co-founded Time America, Inc. (previously Vitrix Incorporated) in 1996, and has served as Chief Technology Officer of Vitrix since April 1999 and as a director of Vitrix from April 1999 to March 2001. Mr. Sadegh also served as a director of Time America, Inc. (previously Vitrix Incorporated) from April 1996 to March 1999. Mr. Sadegh served as an engineer consultant for Brouwer, Palmer and Associates from 1992 until 1995. Mr. Sadegh is completing a degree in mathematics and business administration at Arizona State University. JAMES MARTIN. Mr. Martin, age 38, has served as Vice President of Sales for the Company since March, 2001. Mr. Martin co-founded Time America, Inc. (merged with Vitrix in March 2001) in 1988 and served as Vice President of Sales from October 1999 to March 2001. Mr. Martin graduated from DeVry Institute in 1985. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers, as well as persons beneficially owning more than 10% of the Company's outstanding Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") within specified time periods. Such officers, directors and shareholders are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of such forms received by it, or written representations from certain reporting persons, the Company believes that all Section 16(a) filing requirements applicable to its officers, directors and 10% shareholders were complied with during the fiscal year ended June 30, 2001. ITEM 10. EXECUTIVE COMPENSATION. The following table summarizes all compensation to the Company's Chief Executive Officer and to the Company's other most highly compensated executive officers other than the Chief Executive Officer whose total annual salary and bonus exceeded $100,000 (collectively, the "Named Officers"), for services rendered to the Company for each of the fiscal years ended June 30, 2001, 2000 and 1999. 17 SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------------- ---------------------- AWARDS ---------------------- NAME AND OTHER ANNUAL SECURITIES UNDERLYING PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS (#) --------------------- ---- --------- -------- --------------- ---------------- Thomas S. Bednarik(2) 2001 $118,750 $12,704 -0- 325,000(2) President and 2000 $39,531 $5,000 -0- 100,000(2) Chief Executive Officer 1999 N/A N/A N/A N/A Philip R. Shumway(3) 2001 N/A N/A N/A N/A President and 2000 $68,939 N/A N/A N/A Chief Executive Officer 1999 $31,439 N/A N/A 75,853(4)
---------- (1) No other executive officer of the Company received compensation in excess of $100,000 for the periods presented. (2) Mr. Bednarik was appointed President and Chief Executive Officer of the Company effective February 17, 2000. Had Mr. Bednarik been with the Company for the entire fiscal year 2000 his annual base salary would have been $115,000. Pursuant to the terms of a letter agreement, dated February 17, 2000, between Mr. Bednarik and the Company, Mr. Bednarik was granted options to purchase 100,000 shares of the Company's Common Stock at a per share exercise price of $9.40. Pursuant to the terms of an Incentive Stock Option Agreement dated August 22, 2000, Mr. Bednarik was granted options to purchase 100,000 shares of the Company's Common Stock at a per share exercise price of $3.40. Pursuant to the terms of a Nonstatutory Stock Option Agreement dated April 17, 2001, Mr. Bednarik was granted options to purchase 225,000 shares of the Company's Common Stock at a per share exercise price of $0.40. (3) Mr. Shumway resigned as President and Chief Executive Officer of the Company effective October 31, 1999. Mr. Shumway's annual salary was $100,000. The salary amount for Mr. Shumway reflects salary received for the period July 1, 1999 through March 8, 2000. In accordance with the terms of a Severance Agreement and General Release, dated October 25, 1999, Mr. Shumway was paid severance pay from November 1, 1999 to March 8, 2000. (4) Pursuant to the terms of his Employment Agreement with Vitrix, Mr. Shumway received options to purchase 38,000 shares of Common Stock of Vitrix which were converted to options to purchase 75,853 shares of Company Common Stock in connection with the consummation of the transactions contemplated by that certain Exchange Agreement, dated April 15, 1999, by and among the Company, Vitrix Incorporated and the shareholders signatory thereto. In accordance with the terms of a Severance Agreement and General Release, dated October 25,1999, between the Company and Mr. Shumway, Mr. Shumway agreed to forfeit all but 12,000 of such options. 18 The following table sets forth information concerning individual grants of stock options made to the Named Officers during the fiscal year ended June 30, 2001. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ----------------------------------------------------------------------------- POTENTIAL REALIZED VALUE AT ASSUMED RATES OF NUMBER OF % OF TOTAL ANNUAL STOCK PRICE SECURITIES OPTIONS/SARS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM (2) NAME AND OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------- PRINCIPAL POSITION GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($) ------------------ -------------- ----------- ------ ---- -------- -------- Thomas S. Bednarik, 100,000 16% $3.40 08/2010 $215,000 $540,000 President and Chief 225,000 36% $0.40 04/2011 $ 55,000 $145,000 Executive Officer
---------- (1) Pursuant to the terms of an Incentive Stock Option Agreement dated August 22, 2000, Mr. Bednarik was granted options to purchase 100,000 shares of the Company's Common Stock at a per share exercise price of $3.40. Pursuant to the terms of a Nonstatutory Stock Option Agreement dated April 17, 2001, Mr. Bednarik was granted options to purchase 225,000 shares of the Company's Common Stock at a per share exercise price of $0.40. (2) Amounts represent hypothetical gains that could be achieved for the options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% or 10% compounded annually from the date the options were granted to their expiration date and are not presented to forecast possible future appreciation, if any, in the price of the Common Stock. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock, overall stock market conditions, as well as the option holder's continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved. 19 OPTION EXERCISE There were no option exercises by the Named Officers during the fiscal year ended June 30, 2000. EMPLOYMENT AGREEMENTS As of February 15, 2000, the Board of Directors approved the terms of Mr. Bednarik's at-will employment with the Company for services as its President and Chief Executive Officer. Under the terms of a letter agreement, dated as of February 17, 2000, Mr. Bednarik receives a base salary of $115,000, which was adjusted to $130,000 effective April 2001. Mr. Bednarik is also entitled to receive quarterly and annual bonus payments payable in cash based on the Company's achievement of certain revenue targets for such periods. Mr. Bednarik received cash bonuses in the amounts of $12,704 and $5,000 during the fiscal years ended June 30, 2001 and 2000, respectively. Mr. Bednarik is also entitled to participate in the Company's medical and dental plans, with the Company paying 50% of the cost of the medical coverage for Mr. Bednarik's family. Under the terms of the letter agreement, a portion of Mr. Bednarik's unvested options become immediately vested in the event he is terminated without cause (as defined in his Option Agreement with the Company). In the event the Company is acquired or merged into another company, any unvested options will become automatically vested. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information, as of August 31, 2001, concerning the beneficial ownership of shares of Common Stock of the Company by (i) each person known by the Company to beneficially own more than 5% of the Company's Common Stock; (ii) each Director; (iii) each of the Named Officers; and (iv) all Directors and executive officers of the Company as a group. To the knowledge of the Company, all persons listed in the table have sole voting and investment power with respect to their shares, except to the extent that authority is shared with their respective spouse under applicable law. 20 SHARES BENEFICIALLY OWNED (1) NAME AND ADDRESS OF ----------------------------- BENEFICIAL OWNER(2) NUMBER PERCENT ------------------- --------- ------- Thomas S. Bednarik 75,000(3) 1.2 Todd P. Belfer 451,823(4) 7.2 Lise M. Lambert 62,483(5) 1.0 Robert W. Zimmerman 80,175 1.3 Craig J. Smith 11,994(6) * All directors and Named Officers as a group 646,475 10.7 Joseph L. Simek 3,060,627 48.6 Hamid Shojaee 545,645 8.7 ---------- * Less than 1%. (1) A person is deemed to be the beneficial owner of securities that can be acquired within 60 days from the date set forth above through the exercise of any option, warrant or right. Shares of Common Stock subject to options, warrants or rights that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the percentage of the person holding such options, warrants or rights, but are not deemed outstanding for computing the percentage of any other person. The amounts and percentages are based upon 6,295,828 shares of Common Stock outstanding as of September 1, 2001. (2) The address of each of the beneficial owners is c/o Vitrix, Inc., 51 West Third Street, Suite 310, Tempe, Arizona 85281 (3) Includes (i) 50,000 shares of Common Stock which are subject to unexercised options that were exercisable on September 1, 2001, or within 60 days thereafter, and (ii) 6,250 shares of Common Stock issuable upon exercise of warrants issued in the Company's February 2000 private placement. (4) Includes (i) 10,000 shares of Common Stock which are subject to unexercised options that were exercisable on September 1, 2000, or within 60 days thereafter, and (ii) 9,220 shares of Common Stock issuable upon exercise of warrants issued in the Company's October 1999 and February 2000 private placements. (5) Includes (i) 25,969 shares of Common Stock which are subject to unexercised options that were exercisable on September 1, 2000, or within 60 days thereafter, and (ii) 2,320 shares of Common Stock issuable upon exercise of warrants issued in the Company's October 1999 placement. (6) Includes (i) 8,994 shares of Common Stock which are subject to unexercised options that were exercisable on September 1, 2000, or within 60 days thereafter, and (ii) 1,000 shares of Common Stock issuable upon exercise of warrants issued in the Company's October 1999 private placement. 21 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On March 3, 1999, T.P.B. Investment Limited Partnership (TPB), which is owned by Todd P. Belfer, a member of the Company's Board of Directors, agreed to convert the remaining principal ($200,000) and accrued interest ($64,570) outstanding under certain notes of the Company payable t o TPB into 272,072 shares of the Company's Common Stock and Preferred Stock. The shares of Preferred Stock were subsequently converted into Common Stock on October 7, 1999, when the Company amended its Articles of Incorporation. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. The exhibits as indexed immediately following the signature page of this Report are included as part of this Form 10-KSB. (b) Reports on Form 8-K. The Company filed the following reports on Form 8-K during the fiscal quarter ended June 30, 2001: (1) Form 8-K filed on April 13, 2001, to report the merger with Time America, Inc. (2) Form 8-K filed on June 6, 2001, to report the engagement of Semple and Cooper, LLP as the Company's auditors for the fiscal year ended June 30, 2001, and the dismissal of BDO Seidman, LLP. (3) Form 8-K/A filed on June 12, 2001, amending the 8-K filed on April 13, 2001 and including the required financial statements and pro forma financial information for Time America, Inc. 22 SIGNATURES In accordance with Section 13 or 15(d) 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. /s/ THOMAS S. BEDNARIK ------------------------------------------------- Thomas S. Bednarik, President and Chief Executive Officer (Principal Executive Officer) Dated: September 28, 2001 In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas S. Bednarik and Craig J. Smith, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstititon for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-KSB Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. SIGNATURES TITLE DATE ---------- ----- ---- /s/ THOMAS S. BEDNARIK President, CEO and Director September 28, 2001 --------------------------- (Principal Executive Officer) Thomas S. Bednarik /s/ CRAIG J. SMITH Chief Financial Officer September 28, 2001 --------------------------- (Principal Financial Officer) Craig J. Smith /s/ TODD P. BELFER Chairman of the Board September 28, 2001 --------------------------- Todd P. Belfer /s/ LISE M. LAMBERT Director September 28, 2001 --------------------------- Lise M. Lambert /s/ ROBERT W. ZIMMERMAN Director September 28, 2001 --------------------------- Robert W. Zimmerman 23 EXHIBIT INDEX
BY REFERENCE EXHIBIT FROM NO. IN NUMBER DESCRIPTION DOCUMENT DOCUMENT ------ ----------- -------- -------- 3.1 Registrant's Articles of Incorporation A 3.1 3.1.1 Registrant's Amendment to its Articles of Incorporation, dated November 7, 1988 A 3.1.1 3.1.2 Registrant's Amendment to its Articles of Incorporation, dated June 25, 1991 B 3.1.2 3.1.3 Registrant's Certificate of Reverse Stock Split, dated February 15, 1994 C 3.1.3 3.1.4 Registrant's Certificate of Designation of Series A Preferred Stock, dated June 27, 1996 D 3.1.4 3.1.5 Registrant's Amendment to Articles of Incorporation, dated June 25, 1996 D 3.15 3.1.6 Registrant's Certificate of Designation of Series B Preferred Stock, dated March 31, 1999 I 3.1.6 3.1.7 Registrant's Amendment to Articles of Incorporation, dated October 7, 1999. J 3.1 3.2 Amended Bylaws of the Registrant C 3.2 4.1 Registrant's Form of Common Stock Certificate A 4.1 4.6 Registrant's Form of 10% Convertible Subordinated Promissory Note issued to purchasers of the Registrant's securities in a private placement of the Registrant's securities which closed on December 14, 1993 and January 13, 1994 E 4.7 4.7 Registrant's Form of Warrant to purchase shares of Registrant's Common Stock at an exercise price of $.90 per share dated February 3, 1994 E 4.8 4.7.1 Schedule of omitted documents in the form of Exhibit 4.7, including material detail in which such documents differ from Exhibit 4.7. E 4.8.1
BY REFERENCE EXHIBIT FROM NO. IN NUMBER DESCRIPTION DOCUMENT DOCUMENT ------ ----------- -------- -------- 10.1 Stock Option Agreement, dated September 20, 1993, between Registrant and Patrick McEnany E 10.17 10.1.1 Amendment to Stock Option Agreement, dated February 21, 1995, between Registrant and Patrick McEnany G -- 10.2 Asset Purchase Agreement between the Company and Parlux Fragrances, Inc., dated January 31, 1996 F 10.17 10.3 Registration Rights Agreement between the Company and Parlux Fragrances, Inc., dated June 28, 1996 F 10.18 10.4 Exchange Agreement, dated April 15, 1999, between the Company, Vitrix Incorporated ("Vitrix") and the shareholders of Vitrix signatory thereto H 2 10.5 Employment Agreement, dated February 16, 1999, between Vitrix and Philip R. Shumway I 10.6 10.6 1999 Equity Compensation Plan I 10.7 10.7.1 Lease Agreement, dated September 3, 1999, between LAFP Phoenix, Inc., as lessor, and the Registrant, as lessee. J 10.1 10.7.2 First Amendment to Office Lease Agreement, dated March 28, 2000, between LAFP Phoenix, Inc., as lessor and the Registrant, as lessee. K 10.1 10.8 Securities Purchase Agreement, dated September 21, 1999, between Circle F Ventures, LLC and the Registrant. J 10.2 10.9 Severance Agreement and General Release, dated October 25, 1999, between Philip R. Shumway and the Registrant. J 10.3
BY REFERENCE EXHIBIT FROM NO. IN NUMBER DESCRIPTION DOCUMENT DOCUMENT ------ ----------- -------- -------- 10.10 Merger Agreement, dated March 28, 2001 by and among Vitrix, Inc., Vitrix Incorporated, and Time America, Inc. L 2.1 10.11 Press release issued April 2, 2001, announcing completion of the acquisition of Time America, Inc. L 99.1 10.12 Letter from BDO Seidman, LLP, dated June 4, 2001, regarding its concurrence or disagreement with the statements made by the registrant in the current report concerning the resignation or dismissal as the registrants principal accountant. M 16 10.13 Promissory Note agreement dated September 4, 2001 between Vitrix, Inc. and Frances L. Simek Filed herewith -- 10.14 Security agreement dated September 4, 2001 between Vitrix, Inc. and Frances L. Simek Filed herewith -- 10.15 Warrant to purchase common stock agreement dated September 4, 2001 between Vitrix, Inc. and Frances L. Simek Filed herewith --
---------- A. Form S-18 Registration Statement No. 33-25704-NY. B. Form 10-K Annual Report of the Registrant for the fiscal year ended June 30, 1991. C. Form 10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 1994. D. Form 8-K Current Report reporting event on June 28, 1996. E. Form 10-QSB Quarterly Report of the Registrant for the fiscal quarter ended December 31, 1993. F. Form 10-QSB Quarterly Report of the Registrant for the fiscal quarter ended December 31, 1995. G. Form 10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 1996. H. Form 8-K Current Report reporting event on April 15, 1999. I. Form 10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 1999. J. Form 10-QSB Quarterly Report of the Registrant for the fiscal quarter ended September 30, 1999. K. Form 10-QSB Quarterly Report of the Registrant for the fiscal quarter ended March 31, 2000. L. Form 8-K Current Report reporting event on April 13, 2001. M. Form 8-K Current Report reporting event on June 6, 2001. EX-10.13 3 ex1013.txt PROMISSORY NOTE DTD. 09/04/2001 Exhibit 10.13 THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND, EXCEPT AS STATED IN THE NOTE AND WARRANT PURCHASE AGREEMENT DATED SEPTEMBER 4, 2001, PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR REGULATION A NOTIFICATION UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. $500,000.00 SEPTEMBER 4, 2001 TEMPE, ARIZONA PROMISSORY NOTE FOR VALUE RECEIVED, Vitrix, Inc., a Nevada corporation (the "COMPANY"), hereby promises to pay to the order of Frances L. Simek ("HOLDER"), or Holder's registered assigns, the principal sum of Five Hundred Thousand Dollars ($500,000.00) or, if less, the aggregate unpaid principal amount this Note on the Maturity Date (as defined herein); together with interest on any and all principal amounts remaining unpaid hereunder from time to time outstanding from the date hereof until payment in full. 1. NOTE PURCHASE AGREEMENT. This Note has been issued to Holder by the Company pursuant to the Note and Warrant Purchase Agreement dated of even date herewith (the "NOTE PURCHASE AGREEMENT"), between the Company and the Holder. Capitalized terms used herein but not herein defined shall have the meanings ascribed thereto in the Note Purchase Agreement, unless the context otherwise requires. 2. INTEREST. Interest on the outstanding principal balance of this Note shall be payable in arrears on the first day of each month commencing October 1, 2001 (and on the first day of each month thereafter), and on the Maturity Date to the extent accrued and unpaid. Except as otherwise provided below, interest will accrue on the then unpaid principal balance of this Note outstanding during any month, or partial month, at the rate of ten percent (10.0%) per annum, calculated on the basis of the actual number of days elapsed and on the basis of a 360 day year. Except as provided herein or in the Note Purchase Agreement, all accrued interest on this Note shall be paid at Maturity. If the Company shall default in the payment of the principal of or interest on this Note, the Company shall on demand from time to time pay interest (i) on the amount of such defaulted principal and, (ii) to the extent permitted by law, on the amount of such defaulted interest up to the date of actual payment of such defaulted principal and interest amounts (as well as before judgment), at a rate per annum equal to two percent (2%) in excess of the rate otherwise applicable to such obligations. (b) The principal balance outstanding hereunder shall be payable in sixty (60) monthly principal and interest installments of $6,600.00 commencing on October 1, 2001, and on each month thereafter until September 1, 2006. The remaining principal balance of $313,396.14 shall be due and payable on the Maturity Date (as defined below). 3. PREPAYMENT. This Note may be prepaid at any time without penalty. Any prepayment hereunder shall be credited first upon interest accrued and the remainder, if any, upon the outstanding principal amount of this Note. 4. PAYMENT ON MATURITY DATE. The date (the "MATURITY DATE") upon which this Note matures and the principal hereof and all interest accrued hereon become due shall be October 1, 2006. 5. PAYMENTS. (a) All payments of principal and interest due in respect of this Note shall be made without deduction, defense, set off or counterclaim, in lawful money of the United States of America, and in same day funds and delivered to the Holder by wire transfer to a bank account of Holder, as specified by Holder from time to time, or at such other place as shall be designated by notice for such purpose in accordance with the terms of the Note Purchase Agreement. (b) Principal payments due in respect of this Note shall be payable in sixty (60) monthly installments payable on the first day of each calendar month commencing on October 1, 2001, and on the first day of each month thereafter until the September 1, 2006. If a payment date is not a Business Day, then any such payment due under this Note shall be made on the next succeeding Business Day. 6. NOTE. This Note is secured by all of the Company's assets, which security interest is evidenced by the Security Agreement, and is entitled to the benefits of such Security Agreement. 7. EVENTS OF DEFAULT. If any event of default set forth below ("EVENT OF DEFAULT") occurs, the entire unpaid principal balance and accrued interest payable hereunder shall automatically become immediately due and payable without presentment, demand or notice of any kind, all of which are hereby expressly waived by the Company: (a) If default shall be made in the due and punctual payment of any principal of or premium (if any) on, the Note when and as the same shall become due and payable, whether at maturity or a date fixed for prepayment or by declaration or otherwise, which default is not cured within fifteen (15) days; or 2 (b) If default shall be made in the due and punctual payment of any interest on the Note when and as such interest shall become due and payable, and such default shall have continued for a period of fifteen (15) days; or (c) If any representation or warranty made or deemed to be made by or on behalf of the Company in the Note Purchase Agreement or this Note or in any certificate, statement, report or other instrument delivered under or pursuant to any term hereof or thereof shall prove to have been untrue or incorrect in any material respect as of the date of this Note or as of the Closing Date, or if any statement, report, certificate, financial statement or financial schedule or other writing or instrument prepared or purporting to be prepared by the Company or any officer of the Company that is hereafter furnished or delivered in connection with or under or pursuant to or contemplated by this Note to Buyer shall prove to be untrue or incorrect in any material respect as of the date it was made, furnished or delivered; or (d) If the validity or enforceability of this Note shall be contested by either the Company or any security holder of the Company or any action, suit or proceeding is commenced that alleges or contends that this Note is no longer in full force or effect or is null and void or the Company denies that it has any further liability or obligation under this Note; or (e) If the Company shall (i) file a petition seeking relief for itself under Title 11 of the United States Code, as now constituted or hereafter amended, or file an answer consenting to, admitting the material allegations of, or otherwise not controverting, or fail timely to controvert, a petition filed against it seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or (ii) file such a petition or answer with respect to relief under the provisions of any other now existing or future applicable bankruptcy, insolvency, or other similar law of the United States of America, or State thereof, or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or an arrangement, composition, extension or adjustment with its creditors; or (f) If an order for relief shall be entered against the Company under Title 11 of the United States Code, as now constituted or hereafter amended, which order is not stayed; or upon the entry of an order, judgment or decree by operation of law, or by a court having jurisdiction in the premises which is not stayed, adjudging it a bankrupt or insolvent under, or ordering relief against it under, or approving as properly filed a petition seeking relief against it under, the provisions of any other now existing or future applicable bankruptcy, insolvency or other similar law of the United States of America or any State thereof, or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or any arrangement, composition, extension or adjustment with creditors, or appointing a receiver, liquidator, assignee, sequestrator, trustee or custodian of the Company or any Subsidiary or any substantial part of its property, or ordering the reorganization, winding-up or liquidation of its affairs or upon the expiration of thirty (30) days after the filing of any involuntary petition against it seeking any of the relief specified in paragraph (e) or this paragraph (f) without the petition being dismissed prior to that time; or 3 (g) If the Company shall (i) make a general assignment for the benefit of its creditors, (ii) consent to the appointment of or taking possession by a receiver, liquidator, assignee, sequestrator, trustee or custodian of the Company of all or a substantial part of its property, or (iii) admit its insolvency or inability to pay its debts generally as such debts become due, or (iv) fail generally to pay its debts as such debts become due, or (v) take any action (or if such action is taken by its directors or stockholders) looking to the dissolution or liquidation of the Company; or (h) If a final judgment for the payment of money in excess of $100,000 shall be rendered by a court of record against the Company and the Company or shall not (i) within 30 days from the date of entry thereof, discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof, and (ii) if execution of such judgment shall be stayed, within such period of 30 days or such longer period during which the execution of such judgment shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal, or, after the expiration of any such stay or the denial of such appeal, forthwith discharge the same or provide for its discharge. 8. ENFORCEMENT. If any one or more Events of Default shall have occurred, the Holder may proceed to protect and enforce the rights of the Holder by suit in equity or action at law or the employment of any other available right or remedy, as the Holder shall deem most effective to protect and enforce any such rights. The Company promises to pay all costs and expenses, including reasonable attorneys' fees and expenses, incurred in the collection and enforcement of this Note. The Company and endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind (except such notices as may be required under the Note Purchase Agreement) and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. 9. WAIVERS AND AMENDMENTS. The Note Purchase Agreement and this Note may be amended only with the written consent of the Holder. 10. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the internal laws (but not the law of choice of laws) of the State of Arizona. 4 IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year first written above. VITRIX, INC. By: /s/ Thomas S. Bednarik ------------------------------------------ Name: Thomas S. Bednarik Title: President & Chief Executive Officer 5 EX-10.14 4 ex1014.txt SECURITY AGREEMENT DTD. 09/04/2001 Exhibit 10.14 SECURITY AGREEMENT THIS SECURITY AGREEMENT is made and executed as of the 4th day of September, 2001, by and between VITRIX, INC., a Nevada corporation (hereinafter called "Debtor") and Frances L. Simek (hereinafter called "Secured Party"). Capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in that certain Note Purchase Agreement, dated as of September 4, 2001 (the "Note Purchase Agreement"). WITNESSETH: In order to secure the due and timely payment of all of the Secured Indebtedness (as hereinafter defined), including the due and timely performance by Debtor of all of the covenants, agreements and undertakings of Debtor made herein, Debtor hereby grants to Secured Party a continuous and continuing security interest in and to all of the following: (a) All Accounts (as defined in Article 9 of the Arizona Uniform Commercial Code), accounts receivable, reimbursements, notes receivable, contracts, contract rights, chattel paper, documents and instruments arising out of the sale of goods or services rendered and any and all agreements for the sale of goods or products or furnishing of services by Debtor; (b) All Inventory (as defined in Article 9 of the Arizona Uniform Commercial Code) presently owned and which may be hereafter acquired (howsoever and whensoever acquired) by Debtor and wheresoever located; (c) All Equipment (as defined in Article 9 of the Arizona Uniform Commercial Code) presently owned and which may be hereafter acquired (howsoever and whensoever acquired) by Debtor and wheresoever located, together with any and all additions and accessions thereto and all Equipment acquired by replacement or substitution; (d) All General Intangibles and Contract Rights (as defined in Article 9 of the Arizona Uniform Commercial Code) howsoever and whensoever acquired and including, without limitation, all books, records, ledgers, journals, files and other memoranda relating in any manner to any of the Secured Indebtedness (as hereinafter defined), all patents, copyrights, trademarks, shoprights, manuals, warranties, literature of any sort relating to maintenance, operation, repair or preservation of any Inventory or Equipment, all rights of recovery of Debtor against others for or on account of damage, destruction or injury to or conversion of any Inventory or Equipment of Debtor; (e) All Chattel Paper, Instruments (including but not limited to securities), Documents of Title (as such terms are defined in Article 9 of the Arizona Uniform Commercial Code) negotiable documents and securities presently owned and which may be hereafter acquired (howsoever and whensoever acquired) by Debtor and wheresoever located, provided, however, that the securities held by Debtor and representing an equity interest in Intelogistics Corp. shall be excluded from this Security Agreement; and (f) All proceeds and products of the Collateral and all replacements, additions, substitutions and appurtenances therefor. (All of the foregoing being referred to herein collectively as the "Collateral.") ARTICLE I SECURED INDEBTEDNESS 1.1 This Security Agreement is made to provide collateral and security for the payment and performance by Debtor of all of the following: (a) Debtor's Note, dated as of even date herewith, issued pursuant to the Note Purchase Agreement, payable to the order of Secured Party with interest and with a final maturity date of October 1, 2006, together with any and all extensions, renewals, modifications, substitutions and changes in form thereof (collectively, the "Note"); (b) The amount of all reasonable expenditures made and obligations incurred by Secured Party in attempting to remedy any material default on the part of Debtor in respect of this Security Agreement or the Note; (c) The amount of all expenditures made and obligations incurred by Secured Party in attempting to collect any Secured Indebtedness or to enforce any right or remedy for realizing upon any Collateral for any Secured Indebtedness; and (d) Interest on all amounts expended by Secured Party for any of the purposes specified in (b) and (c) next hereinabove at an annual rate of interest equal to 18% per annum. (All of the foregoing is referred to herein as the "Secured Indebtedness".) ARTICLE II REPRESENTATIONS Debtor represents to Secured Party as follows: 2.1 Debtor is duly organized and existing under the laws of the State of Nevada. 2.2 The execution, delivery and performance of this Security Agreement are within Debtor's corporate powers, have been duly authorized and are not in contravention of law applicable to Debtor or the powers of Debtor's charter, 2 bylaws or other incorporation papers or of any indenture agreement or undertaking to which Debtor is a party or by which it is bound. 2.3 Debtor is the owner of the Collateral and has good right and authority to grant a security interest in the Collateral. 2.4 There are no presently outstanding liens, security interests or encumbrances in or on the Collateral or the proceeds, nor any financing statements covering the Collateral or the proceeds thereof, except for the security interest granted in this Security Agreement and the financing statements executed pursuant hereto. 2.5 The address of Debtor's place of business is correctly set forth at the beginning of this Security Agreement. ARTICLE III COVENANTS So long as the Secured Indebtedness or any part thereof remains unpaid, Debtor, for itself, its successors and assigns, covenants and agrees with Secured Party, its successors and assigns, as follows: 3.1 Debtor shall make prompt payment, as the same becomes due, of all the Secured Indebtedness in accordance with the terms and provisions of the agreements evidencing such Indebtedness. 3.2 Debtor shall maintain its corporate existence and pay all necessary corporate franchise and license taxes, fees and charges. 3.3 Debtor shall pay all reasonable expenses and reimburse Secured Party for any reasonable expenditures, including reasonable attorneys' fees and legal expenses, in connection with Secured Party's exercise of any of its rights and remedies under Article IV or Secured Party's protection of the Collateral and its security interest therein. 3.4 Debtor shall at all times keep accurate and complete records of the Collateral and its proceeds. 3.5 Debtor agrees to execute such documents and perform all acts and things which Secured Party may deem necessary to perfect and continue to perfect the security interest created by this Security Agreement, to protect the Collateral and to enforce the security interest, including the execution and filing of financing statements, which appointment as attorney-in-fact is irrevocable and coupled with an interest. 3.6 Notwithstanding the security interest in proceeds granted herein, Debtor shall not sell, lend, rent, lease or otherwise dispose of the equipment forming a part of the Collateral, except for dispositions made in the ordinary 3 course of business consistent with past practice, or any interest therein, and Debtor shall keep such Collateral free from unpaid charges, including taxes, and from liens, encumbrances and security interests other than that of Secured Party and will warrant and defend the Collateral against the claims and demands of all other persons, except the holders of the security interests described herein. 3.7 Debtor shall pay before delinquency all taxes and assessments upon the Collateral or for its use or operation. 3.8 Debtor shall insure the Collateral constituting Goods (as defined in Article 9 of the Arizona Uniform Commercial Code) with companies acceptable to Secured Party against such casualties and in such amounts as Secured Party shall require. 3.9 The Collateral constituting Goods will be properly maintained in good condition and will not be misused or abused, wasted or allowed to deteriorate, except for the ordinary wear and tear of its intended primary use. 3.10 If Debtor shall default in paying when due any tax, assessment or charge levied upon the Collateral or any part thereof or if Debtor fails to maintain the Collateral as above provided, Secured Party may at its option and without waiver of any right hereunder, pay such tax, assessment or charge, or take whatever action is necessary to maintain the Collateral and in each such case the amount paid in respect thereof shall be payable to Secured Party forthwith with interest at 18% per annum until paid and shall become part of the indebtedness secured by this Security Agreement. 3.11 The equipment forming a part of the Collateral will be used in the business of Debtor and shall remain in Debtor's possession or control at all times. 3.12 Debtor shall provided notice to Secured Party within ten days after changing the address of its principal place of business. 3.13 If the Collateral is evidenced by promissory notes, trade acceptances or other instruments for the payment of money, Debtor will, at the request of Secured Party, immediately deliver them to Secured Party, appropriately endorsed to Secured Party's order, Debtor waives presentment, demand, notice of dishonor, protest and notice of protest. 4 ARTICLE IV ASSIGNMENT OF PAYMENTS; CERTAIN POWERS OF SECURED PARTY Debtor hereby authorizes and directs each issuer and each account debtor and each other person or entity obligated to make payment in respect of any of the intangible property constituting Collateral (each issuer and each such account debtor and other person or entity being herein called a "Collateral Obligor") to pay over to Secured Party (on behalf of all of the holders of the Notes), its officers, agents or assigns, upon demand by Secured Party, all or any part of the Collateral without making any inquiries as to the status or balance of the Secured Indebtedness and without any notice to or further consent of Debtor. To facilitate the rights of Secured Party hereunder, Debtor hereby authorizes Secured Party, its officers, employees, agents or assigns upon the occurrence of a default hereunder, and at any time thereafter: (a) to notify Collateral Obligors of the security interest in the respective Collateral created hereunder and to collect all or any part of the Collateral without further notice to or further consent by Debtor, and Debtor hereby constitutes and appoints Secured Party the true and lawful attorney of Debtor (such agency being coupled with an interest), irrevocably, with power of substitution, in the name of Debtor or in its own name or otherwise, to take any of the actions described in the following clauses (b), (c), (d), (e) and (f); (b) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all amounts which may be or become due or payable under the Collateral and to settle and/or adjust all disputes and/or claims directly with any Collateral Obligor and to compromise, extend the time for payment arrange for payment in installments, otherwise modify the terms of, or release, any of the Collateral, on such terms and conditions as Secured Party may determine (without thereby incurring responsibility to or discharging or otherwise affecting the liability of Debtor to Secured Party under this Security Agreement or otherwise); (c) to direct delivery of, receive, open and dispose of all mail addressed to Debtor and to execute, sign, endorse, transfer and deliver (in the name of Debtor or in its own name or otherwise) any and all receipts or other orders for the payment of money drawn on the Collateral and all notes, acceptances, commercial paper, drafts, checks, money orders and other instruments given in payment or in part payment thereof and all invoices, freight and express bills and bills of lading, storage receipts, warehouse receipts and other instruments and documents in respect of any of the Collateral and any other documents necessary to evidence, perfect and realize upon the security interests and obligations of this Security Agreement; (d) in its discretion to file any claim or take any other action or proceeding which Secured Party may deem necessary or appropriate to protect and preserve the rights, titles and interests of Secured Party hereunder; (e) to sign the name of Debtor to financing statements, drafts against Collateral Obligors, assignments or verifications of any of the Collateral and notices to Collateral Obligors. 5 Secured Party hereby agrees that any action taken by a Secured Party hereunder shall be taken on behalf of all Holders of the Notes and any amounts collected shall be paid over to each Holder in accordance with the terms of the Note and the Note Purchase Agreement. Unless and until a default hereunder shall have occurred, Debtor shall be entitled, except as herein provided and subject to the terms of any other loan document, receive and retain all distributions on the Collateral or any part thereof. The powers conferred on Secured Party pursuant to this Article IV are conferred solely to protect Secured Party's interest in the Collateral and shall not impose any duty or obligation on Secured Party to perform any of the powers herein conferred. ARTICLE V REMEDIES IN EVENT OF DEFAULT 5.1 The term "default" as used in this Security Agreement shall mean the occurrence of any event of default as defined in the Note or the occurrence of any of the following events: (a) The failure of Debtor to make due and punctual payment of the Secured Indebtedness secured hereby, principal or interest, or any part thereof, as the same shall become due and payable, whether at the scheduled due date, maturity or when accelerated pursuant to any power to accelerate held by Secured Party. (b) The failure of Debtor punctually and properly to observe, keep or perform any covenant, agreement or condition relating to the Secured Indebtedness or herein required to be observed, kept or performed, if such failure continues for thirty (30) days after written notice and demand by Secured Party for the performance of such covenant, agreement or condition. (c) Any material representation made in this Security Agreement shall prove to be untrue. (d) Debtor declares itself insolvent or is determined to be insolvent by a court of competent jurisdiction, or makes an assignment for the benefit of creditors. (e) A receiver is appointed for all or substantially all of the properties of Debtor or of the Collateral or any part thereof. (f) Debtor is adjudicated a bankrupt or requests, either by way of petition or answer, that Debtor be adjudicated a bankrupt or that Debtor be allowed or granted any composition, rearrangement, extension, 6 reorganization or other relief under any bankruptcy law or under any other law for the relief of debtors now or hereafter existing. (g) The dissolution or other termination of Debtor. 5.2 Upon the occurrence of a default, Secured Party shall have the option, with or without notice, of declaring all the Secured Indebtedness in its entirety to be immediately due and payable. 5.3 Upon the occurrence of a default, Secured Party may exercise its right of enforcement under the Uniform Commercial Code in force in the State of Arizona at the date of this Security Agreement. In conjunction with, addition to or substitution for those rights and remedies: (a) Secured Party may enter upon Debtor's premises to take possession of, assemble and collect the Collateral or to render it unusable; and (b) Secured Party may require Debtor to assemble the Collateral and make it available at a place Secured Party designates which is mutually convenient to allow Secured Party to take possession or dispose of the Collateral; and (c) Secured Party may waive any default or remedy any default in any reasonable manner without waiving the default remedied and without waiving any other prior or subsequent default; and (d) Written notice mailed to Debtor at its address set forth at the beginning of this Security Agreement ten (10) days prior to the date of public sale of the Collateral or prior to the date after which private sale of the Collateral will be made shall constitute reasonable notice. 5.4 Also upon the occurrence of a default, Secured Party may at any time, whether before or after any revocation of such power and authority or the maturity of any of the Secured Indebtedness, (i) notify any parties obligated on any of the Accounts, notes receivable, contracts or General Intangibles to make payment to Secured Party of any amounts due or to become due thereunder and enforce collection of any such Accounts, notes receivable, contracts or General Intangibles by suit or otherwise and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations thereunder or evidenced thereby; (ii) Debtor will, at its own expense, notify any parties obligated on any of the Accounts, notes receivable, contracts or General Intangibles to make payment to the Secured Party of any amounts due or to become due thereunder; and (iii) Secured Party is authorized to endorse, in the name of Debtor, any item howsoever received by Secured Party, representing any payment on or other proceeds of any of the Collateral. In each instance in which Secured Party may elect hereunder to effect direct collection of any one or more Accounts, notes receivable, contracts or General Intangibles, Secured Party is also entitled to take possession of all books and records of Debtor relating to the Debtor's Accounts, notes receivable, contracts or General Intangibles and Debtor will not in any manner take or suffer any action to be taken to hinder, delay or interfere with the Secured Party's attempts to effect collection. 7 5.5 In addition to the above, Secured Party shall have and may exercise all other rights conferred by law or under this Security Agreement and may resort to any remedy existing at law or in equity for the collection of the Secured Indebtedness and for the enforcement of the covenants and agreements contained herein and the resort to any remedy shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies. 5.6 The rights granted hereunder are cumulative of any and all other security now or hereafter held by Secured Party or other holder for payment of the Secured Indebtedness and Secured Party may resort to any security now or hereafter existing for the payment of such indebtedness in such portions and in such order as may seem best to Secured Party in its sole and uncontrolled discretion. No failure on the part of Secured Party to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof nor shall any single or partial exercise by Secured Party of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any right, power or remedy. ARTICLE VI MISCELLANEOUS 6.1 When all of the Secured Indebtedness has been paid in full and all obligations and liabilities of Debtor hereunder shall have been performed and discharged, then and in that case only the security interests evidenced hereby or provided for herein shall terminate and shall be released at the expense of Debtor and the Collateral then held as such by Secured Party shall become free and clear of such security interests. In such event Secured Party shall execute such instruments, including, but not limited to, Termination Statements, necessary to give effect to this Section 6.1. 6.2 No modification or waiver of any provision of this Security Agreement nor consent to any departure by Debtor therefrom shall in any event be effective unless the same shall be in writing and signed by Secured Party and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to nor demand on Debtor in any case shall of itself entitle Debtor to any other or further notice or demand in similar or other circumstances. 6.3 Secured Party may enter upon Debtor's premises at any reasonable time to inspect the Collateral and Debtor's books and records pertaining to the Collateral or its proceeds and Debtor shall assist Secured Party in whatever way necessary to make any such inspection. 6.4 Secured Party may at any time notify the account debtors or obligors of any accounts, chattel paper, negotiable instruments or other evidences of indebtedness remitted by Debtor to Secured Party as proceeds to pay Secured Party directly. 6.5 Secured Party may, by any employee or employees Secured Party may designate, execute, sign, endorse, transfer or deliver in the name of Debtor, notes, checks, drafts or other instruments, for the payment of money and receipts, certificates of origin, applications for certificates of title or any 8 other documents necessary to evidence, perfect and realize upon the security interests and obligations of this Security Agreement. 6.6 Secured Party may assign this Security Agreement so that the assignee shall be entitled to the rights and remedies of Secured Party hereunder and in the event of such assignment, Debtor will assert no claims or defenses it may have against the assignee except those granted in this Security Agreement. 6.7 All notices and communications provided for herein shall be delivered or mailed, registered or certified, postage prepaid, addressed to the parties hereto at their addresses set forth at the beginning of this Security Agreement, or such other address as any party hereto shall hereafter designate by written notice to the other party. 6.8 A determination that any provision of this Security Agreement is unenforceable or invalid shall not affect the validity or enforceability of any other provision. 6.9 Unless the context clearly indicates otherwise, "Debtor" and "Secured Party" as used in this Security Agreement include the respective successors and assigns of those parties. 6.10 The law governing this Security Agreement shall be that of the State of Arizona in force at the date of this Security Agreement. IN WITNESS WHEREOF, this Security Agreement has been duly executed as of the date first above written. VITRIX, INC. By: /s/ Thomas S. Bednarik ---------------------------------------- Thomas S. Bednarik Chief Executive Officer INVESTOR By: /s/ Frances L. Simek ---------------------------------------- Frances L. Simek 9 EX-10.15 5 ex-1015.txt WARRANT TO PURCHASE COMMON STOCK AGREE Exhibit 10.15 THIS SECURITY AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR THE SHARES ISSUABLE HEREUNDER MAY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT AND SUCH LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM. VITRIX, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for value received, Frances L. Simek (the "Holder") is entitled to subscribe for and purchase up to Sixty two thousand nine hundred fifty eight (62,958) shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock (as defined below) of VITRIX, INC. a Nevada corporation (the "Company"), at the Warrant Price (as defined in Section 2 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized common stock, $.005 par value, and any stock into or for which such Common Stock may hereafter be converted or exchanged. 1. TERM OF WARRANT. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during the period beginning on the date hereof and ending on the fifth (5th) anniversary of the date hereof. 2. WARRANT PRICE. The exercise price of this Warrant is 25/100 DOLLARS ($0.25) per share (the "Warrant Price"). 3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT; EXERCISE. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased either (i) by cash, cashier's check or wire transfer, or (ii) by cancellation by the Holder of indebtedness of the Company to the Holder. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder hereof or the designee of the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder hereof or the designee of the Holder hereof within 15-days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder hereof within such 15-day period. 4. STOCK FULLY PAID; RESERVATION OF SHARES. All Common Stock that may be issued upon the exercise of this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, the full number of shares of Common Stock then deliverable upon exercise of this Warrant. 5. FRACTIONAL SHARES. In the sole discretion of the Company, instead of any fraction of a share which would otherwise be issuable upon exercise of the Warrant, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock (as reasonably determined by the Board of Directors of the Company), at the close of business on the date of exercise. 6. COMPLIANCE WITH THE ACT. The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Act or any state securities laws. 7. NO TRANSFER OF WARRANT. This Warrant and the rights, interests and benefits hereof, may not be sold, transferred, pledged, assigned, conveyed or otherwise disposed of by the Holder, except by will or the laws of descent and distribution or with the consent of the Company, which consent shall not be unreasonably withheld. Any purported sale, transfer, pledge, assignment, conveyance or other attempt to dispose of this Warrant, or the rights, interests or benefits hereof, other than as provided above, is null and void. 8. NOTICE TO HOLDER. This Warrant is issued pursuant to the Note and Warrant Purchase Agreement dated as of even date herewith between the Company and the purchaser named therein. The Warrant is referred to in said Note and Warrant Purchase Agreement, by the terms of which agreement the Holder hereof, by his acceptance hereof, agrees to be bound, in each case to the extent provided in said agreement. 9. MISCELLANEOUS. (a) NO RIGHTS AS SHAREHOLDER. No Holder of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of stock to par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. 2 (b) REPLACEMENT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement, or bond reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder's expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) NOTICE. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given when delivered or telecopied or, if mailed, when mailed, if sent registered or certified, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Arizona without regard to conflicts of law principles. IN WITNESS WHEREOF, this Warrant is executed as of the 4th day of September, 2001. VITRIX, INC., a Nevada corporation By: /s/ Thomas S. Bednarik --------------------------------------- Thomas S. Bednarik Chief Executive Officer 3 EXHIBIT A NOTICE OF EXERCISE TO: VITRIX, INC. 1. The undersigned hereby elects to purchase ____________ shares of Common Stock of VITRIX, INC. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full in accordance with the provisions of the following section of the attached Warrant: ___ Section 3(i) ___ Section 3(ii) 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: (Name) (Address) 3. The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned will not offer, sell or otherwise dispose of any such shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities law. ------------------------------------------- Signature