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, 2000

[ ] 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. [ ]

     Revenues for most recent fiscal year: $1,261,866

     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 $7,965,000.

     At September  25, 2000,  the issuer had  outstanding  30,605,290  shares of
Common Stock, par value $.005 per share.

     Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

     Vitrix, Inc., a Nevada corporation (the "Company" or "Vitrix"), through its
wholly owned subsidiary,  Vitrix  Incorporated,  an Arizona corporation ("Vitrix
Incorporated"),  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 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, Vitrix Incorporated,  formed on April 26,
1996. Unless the context indicates otherwise,  references to the Company in this
report shall include Vitrix and Vitrix Incorporated.

     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  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 the 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").  The
Exchange  Agreement also provided for the assumption of outstanding  options and
warrants to purchase an  aggregate of  1,086,000  shares of Vitrix  Incorporated
Common Stock, which have been converted into options and warrants to purchase an
aggregate of 2,167,798 shares of Common Stock.  Giving effect to the issuance of

                                       2
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the Shares,  Vitrix  Incorporated  shareholders  hold  approximately  80% of the
outstanding  shares of Common Stock (assuming  conversion 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,  as  Vitrix  Incorporated  is the  controlling  company  after the
transaction.  The  accompanying  financial  statements  of  Vitrix  include  the
accounts of Vitrix  Incorporated for all periods presented,  and the accounts of
Vitrix from April 15, 1999, the effective date of the acquisition.

PRODUCTS AND SERVICES

Vitrix  designs,  develops,  manufacturers  and markets a line of time and labor
management hardware and software products targeting small to mid-sized companies
of  up  to  500  employees.   Our  solutions  are  offered  in  a  client/server
application,  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  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
provide significant savings to its users.

LABOR MANAGEMENT SOLUTIONS

     HOURTRACK 2000

     FUNCTIONALITY.  HourTrack 2000 is an internally developed,  client / server
architecture,  proprietary  software workforce  management solution that tracks,
manages and reports many aspects of employee time. By replacing the  traditional
punch clock with a  fully-automated  system,  we believe this  product  produces
substantial savings for employers.  HourTrack 2000 was released in December 1999
as an upgrade to  HourTrack  98.  Sales of HourTrack 98 sales ceased in February
2000. The primary features of HourTrack 2000 include:

     *    TIME AND ATTENDANCE - HourTrack  2000 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 has functions that enable users to track the
          time employees  spend on specific jobs and tasks.  Reports assist with
          job costing and analysis.

                                       3
<PAGE>
     *    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
          visual interface, allowing administrators to export employee schedules
          into a grid.

     *    STRATEGIC REPORTING - The more than 60 reports included with HourTrack
          2000 enable users to transform raw data into helpful  information  for
          managers and executives to utilize in gaining valuable insight to more
          effectively  manage their  organizations.  Reports can also be used to
          share  information  with third party  applications or service bureaus,
          time  tracking,   benefit  tracking,  job  tracking,   human  resource
          functionality,  employee  scheduling,  messaging,  reporting  and  the
          import/export  of data.  HourTrack  2000  also  automatically  accrues
          vacation, sick and personal time.

     DATA  COLLECTION  OPTIONS.  Our 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:

     *    V-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.

     *    V-BIO TERMINALS - This device  analyzes the biometric  measurements of
          users'  hands to verify  their  identities.  Instead of using a badge,
          employees can clock in and out by placing their hands onto the scanner
          and  awaiting  verification.  This  method  eliminates  losses  due to
          buddy-punching  (the  practice  of  clocking  in or  out  for  another
          employee).

     *    V-MOBILE  DEVICES  - It is often  helpful  to track  the time a mobile
          workforce spends on projects.  V-Mobile devices allow organizations to
          do just that.  Instead of a PC or terminal,  Vitrix's data  collection
          software runs 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,  Dell telephony  server from Vitrix.  This server runs
          Vitrix's software, and allows callers to interact with HourTrack 2000.

     *    EWEBCLOCK - eWebClock partially reduces the users total 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.

                                       4
<PAGE>
     MYVITRIX

     FUNCTIONALITY.  MyVITRIX 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.  MyVITRIX  was released in September  2000.  The main  features of
MyVITRIX include:

     *    HOURTRACK  2000  STRUCTURE - By building on top of the HourTrack  2000
          engine,  MyVITRIX has all of the  functionality  of HourTrack 2000, as
          discussed above.  MyVITRIX 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 - MyVITRIX  allows for  customization  and  flexibility.
          Administrators  and  employees  determine  exactly which data MyVITRIX
          will display for them,  allowing clients to work at optimum efficiency
          in the MyVITRIX environment.  Additionally,  MyVITRIX will work in the
          manner  required  by  clients.  For  example,  clients  with a  mobile
          workforce  have the  ability to access the  MyVITRIX  pages  using any
          Web-enabled cellular phone or PDA device (Palm, Windows CE, etc.).

     *    ANYTIME,  ANYWHERE - Because  MyVITRIX is  delivered  via the Internet
          through  any Web  browser,  it  brings  the world  closer to  Vitrix's
          "anytime,  anywhere"  vision for  performing or  self-servicing  human
          resources  tasks.  Wherever  clients have Internet  access,  they have
          access to MyVITRIX and the  functionality and wealth of information it
          provides.

     *    CUSTOMER  ACCOUNT  SELF-SERVICE - MyVITRIX gives customers 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 MyVITRIX website.

     DATA  COLLECTION  OPTIONS.  The MyVITRIX  solution  collects data using the
TCP/IP Internet protocol. Data can be collected by any of these various methods:

     *    WEB  BROWSER - MyVITRIX  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.

     *    WEB-ENABLED  CELL PHONE OR PDA - A streamlined  version of MyVITRIX 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.

                                       5
<PAGE>
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 that 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.

     We believe there are over 2.4 million  businesses  that fall into the small
to mid-sized  businesses  market  segments.  According  to industry  statistics,
approximately  80% of the  businesses  that fall into these two market  segments
could benefit from the automation of the collection of time and  attendance.  At
an average solution cost of approximately  $5,000, the small to mid-sized market
represents approximately $9.6 billion in potential sales.

     DIRECT  SALES.  Our  sales   representatives   generally  provide  presales
technical and pricing information to potential customers. In addition, from time
to time sales representatives present Vitrix solutions at a customer's facility.

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Marketing materials, sample CDs and technical documents are normally provided by
our inside sales staff to customers who desire to research the best solutions.

     BUSINESS  ALLIANCE AND PARTNER PROGRAM.  Our Business  Alliance and Partner
Program was formed to enhance  sales by creating  partnerships  with leaders and
participants within the following horizontal industries:

          *    Payroll Service Providers;

          *    Software companies;

          *    Systems integrators and consultants;

          *    Human Resource PEO;

          *    Web portals;

          *    SMB Web site companies;

          *    Telecom & ISP companies;

          *    Financial management companies;

          *    Other ASPs.

     Our partnership  programs are divided into four (4)  categories:  strategic
partners, technology partners, distribution partners, and alliance partners.

     *    Strategic  Partners are companies who are leaders in their  industries
          and  markets.  Our  Strategic  Partners  and  Vitrix,   together  make
          significant   legal   commitments   relating   to  sales,   marketing,
          technology, and distribution. Both partners invest significant capital
          and  human  resources  in order to meet  customer  needs,  and  expand
          markets and revenue by leveraging each other's resources.

     *    Distribution  Partners are companies who distribute and re-sell Vitrix
          software  and  hardware  solutions to their  customers  via  marketing
          efforts  and the  Distribution  Partner's  sales  force.  Distribution
          Partners also include our new ASP offerings that afford private label,
          co-branded or Vitrix-branded solutions for labor management.

     *    Technology  Partners are the firms who either  supply  Vitrix with the
          technology,  or the  technology  delivery  support  services we use to
          build and deliver our  offerings.  Technology  Partners also encompass
          firms who  license and use Vitrix  technology  to embed or wrap around
          their own offerings via our Software Development Kit.

     *    Alliance Partners are  organizations  that wish to have a relationship
          with Vitrix that is primarily  oriented  toward  selling and marketing
          activities. The Alliance Partner program is simple,  non-exclusive and
          intended to provide  mutually  beneficial  referral fee  revenue.  The
          Alliance Partner Program benefits both partners by lending each others
          name to an effort,  creating  and giving  support,  typically  through
          cross pollination of sales and marketing staffs.

                                       7
<PAGE>
MANUFACTURING AND SOURCES OF SUPPLY

     The  duplication  of Vitrix  software is done with our own  equipment.  The
printing of documentation is 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  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
2000 and 1999,  research and  development  expenses  were $570,856 and $232,250,
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.

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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
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,
Stromberg and 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,  2000,  we employed  twenty-seven  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. We have an additional  1,000 square
feet of office space in Tempe,  Arizona that is being subleased to a tenant on a
month-to-month basis. Our rental expense for these facilities in fiscal 2000 was
approximately  $105,000.  We consider our present  facilities to be adequate for
our current  requirements  and that additional space will be available as needed
in the future.

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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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     There were no matters  submitted to a vote of our  shareholders  during the
fiscal quarter ended June 30, 2000.

                                     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
"VTTX." 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 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

                                   FISCAL 1999

           Period                               High            Low
           ------                               ----            ---

       First quarter                            $0.44          $0.19
       Second quarter                            0.38           0.13
       Third quarter                             0.69           0.38
       Fourth quarter                            0.58           0.39

     As of September 25, 2000,  there were 225 holders 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.

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

RESULTS OF OPERATIONS

     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.  The  accompanying
financial  statements of Vitrix include the accounts of Vitrix  Incorporated for
all periods  presented,  and the  accounts of Vitrix  from April 15,  1999,  the
effective date of the Acquisition.

                         SELECTED FINANCIAL INFORMATION

                                                        Years Ended June 30,
                                                     --------------------------
                                                        2000             1999
                                                     ----------        --------
Total Revenues                                       $1,261,866        $743,954
Costs of Revenues                                       485,971         249,309
Gross Profit                                            775,895         494,645
Sales and Marketing Expense                             740,332         288,559
Research and Development Expense                        570,856         232,250
General and Administrative Expense                      583,059         226,749
Net Loss                                             (1,098,219)       (269,302)
Basic Loss per Share                                      (0.04)          (0.02)

COMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2000 AND JUNE 30, 1999

     REVENUES.  Revenue for the fiscal year ended June 30, 2000 (the  "reporting
period"), rose 70% to $1,261,866, compared to revenue of $743,954 for the fiscal
year ended June 30, 1999 (the "comparable period").  This growth was principally
the result of increased  customer demand for the Company's product solutions and
the hiring of additional  salespersons to meet that demand, which resulted in an
increase in sales  volume.  The increase in sales volume was  generated  through
increased product and service revenue.

     PRODUCT  SALES.  Product  sales for the reporting  period  increased 48% to
$1,080,388,  compared to revenue of $730,641 in the comparable  period.  Product
revenue growth was principally the result of increased customer demand.  Product
revenue  growth in fiscal 2000 was driven by sales of the Company's  products to
new customers as well as sales into the Company's existing customer base. Demand
from  both new and  existing  customers  was  driven  by new  product  additions
delivered in fiscal 2000, including, specifically, the introduction of HourTrack
2000.

     SERVICE REVENUE.  Service revenue for the reporting period was $181,478, or
14% of  revenue,  compared  to  revenue  of  $13,313,  or 2% of  revenue  in the
comparable period. The increase was principally the result of the formation of a

                                       11
<PAGE>
professional services group during the reporting period formed as a 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.

     GROSS  PROFIT.  Gross  profit as a  percentage  of revenues  was 62% in the
reporting period and 67% in the comparable period. Gross profit on product sales
in the reporting  period was 63% compared to 67% 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 51% in the reporting
period and was not applicable in the comparable period as no costs were assigned
to cost of services due to the minimal service revenue in such period.

     EXPENSES.  Sales and marketing expenses were $740,332,  or 59% of revenues,
in the reporting  period and  $288,559,  or 39% of revenues,  in the  comparable
period.  The increase in sales and  marketing  expense in the current  period is
primarily due to increased  labor costs  resulting from the hiring of additional
salespeople  and sales and marketing  management  personnel along with increased
advertising and promotional expenses.

     Research and development expenses were $570,856, or 45% of revenues, in the
reporting period and $232,250, or 31% of revenues, in the comparable period. The
increase  in  research  and  development  expenses  in the  reporting  period is
attributable to increased  labor costs as a result of the Company's  development
of  its  application   service   provider  (ASP)  product   MyVITRIX,   and  the
client/server product HourTrack 2000.

     General and administrative  expenses were $583,059,  or 46% of revenues, in
the reporting period and $226,749, or 30% of revenues, in the comparable period.
The  increase in general and  administrative  expenses in the current  period is
primarily attributable to management personnel that were in place for the entire
duration of the reporting period and only a portion of the comparable period.

     Other income (expense) was $20,133 in the reporting period and $(16,389) in
the comparable period. The change from a net other expense to a net other income
is attributable  to a reduction in interest  expense as result of the conversion
of debt to equity  during  fiscal 1999 and an  increase  in  interest  income in
fiscal 2000  resulting  from an increase in cash  balances due to the raising of
additional equity  investments.  See "Item 12 Certain  Relationships and Related
Transactions."

LIQUIDITY AND CAPITAL RESOURCES

     Working  capital as of June 30, 2000 was $547,162,  as compared to $205,657
at June 30, 1999. Cash and cash  equivalents at those dates amounted to $620,765
and $376,365, respectively.

     OPERATIONS.  Net cash used by  operations  increased to  $1,116,673  in the
reporting  period,  compared  to net cash used by  operations  of $87,624 in the
comparable  period.  The increase in net cash used by  operations  was primarily
attributable to increases in the net loss,  accounts  receivable,  inventory and
accrued  liabilities and deferred  revenue.  It is the Company's  policy to bill
maintenance  contracts  at the  contract  start date and  professional  services
accompanying  product  sales  when the  product is  invoiced.  The  Company  has
experienced  growth  in  deferred  maintenance  revenues  as the  result  of the
expansion of the installed base and the level of  maintenance  contracts sold to
that installed  base in fiscal 2000. In fiscal 2000, the Company  experienced an
increase in deferred professional services revenue as a result of an increase in
the level of professional services accompanying new sales.

                                       12
<PAGE>
     INVESTMENT  ACTIVITIES.  The Company used $99,875 and $26,472,  to purchase
property  and  equipment  in fiscal  2000 and  1999,  respectively.  During  the
reporting period,  the Company acquired cash of approximately  $207,000 with its
acquisition of Vitrix Incorporated.

     FINANCING  ACTIVITIES.  The Company  raised  approximately  $1,475,000  and
$190,000  in  aggregate  proceeds  from the  issuance  of  Common  Stock and the
exercise  of  common  stock  options  and  warrants  in  fiscal  2000 and  1999,
respectively.

     At August 31, 2000, the Company's  working capital and funds generated from
operations  are  sufficient to fund the Company's  operations for the next three
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 year ended June 30, 2000.

     The Company has on-going  discussions with various  financial sources in an
effort to raise  additional  capital.  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.

RECENT ACCOUNTING PRONOUNCEMENTS

     Statement  of  Financial  Accounting  Standards  No. 133,  "Accounting  for
Certain  Derivative  Instruments  and Certain  Hedging  Activities"  (SFAS 133),
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other  contracts,
(collectively referred to as derivatives) and for hedging activities.  Statement
of Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging  Activities - Deferral of the effective  date of FASB  Statement No.
133 - an amendment of FASB Statement No. 133 ("SFAS 133"),  defers the effective
date of SFAS 133 to be effective for financial  statements ending after June 15,
2000.  Adoption  of SFAS 133 does not have a  material  effect,  if any,  on the
Company's financial position or results of operations.

     In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue  Recognition  in Financial  Statements"  ("SAB 101").  SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial statements
no later than the quarter  ending  September  30,  2000.  The  Company  does not
believe  that  the  adoption  of SAB 101  will  have a  material  affect  on the
Company's financial results.

     In  March  2000,   the   Financial   Accounting   Standards   Board  issued
Interpretation No. 44 ("FIN 44") Accounting for Certain  Transactions  Involving
Stock  Compensation,  an  Interpretation of APB Opinion No. 25. FIN 44 clarifies
the  application  of  Opinion  No. 25 for (a) the  definition  of  employee  for
purposes of applying Opinion No. 25, (b) the criteria for determining  whether a
plan qualifies as a  non-compensatory  plan, (c) the accounting  consequences of
various  modifications to the terms of a previously fixed stock option or award,
and (d) the  accounting  for an  exchange  of  stock  compensation  awards  in a
business combination.  FIN 44 is effective July 2, 2000, but certain conclusions
cover specific  events that occur after either December 15, 1998, or January 12,
2000.  The Company  believes  that the impact of FIN 44 will not have a material
effect on the Company's financial position.

                                       13
<PAGE>
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 strategy, 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

     Balance Sheet                                                          F-2

     Statements of Operations                                               F-3

     Statements of Changes in Stockholders' Equity (Deficit)                F-4

     Statements of Cash Flows                                               F-5

     Notes to Financial Statements                                          F-6

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     NONE

                                       14
<PAGE>
                                    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 50, 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., an Arizona-based software development company
that provides  directly  infrastructure  management tools to clients with Novell
and  Microsoft  platforms.  In  addition,  Mr.  Bednarik  has  served in various
executive management  capacities,  including Chief Executive Officer,  President
and Executive  Vice  President,  with such firms as Idea  Corporation,  Decision
Data, Alcatel Information Systems and ITT Corporation.

     CRAIG J.  SMITH.  Mr.  Smith,  age 30,  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,  served as an Audit  Manager of Semple & Cooper
LLP.  Mr. Smith  earned a Bachelor of Science  degree in finance and  accounting
from Mankato State  University-Minnesota  in 1992 and is completing his MBA from
Arizona State University.

     TODD P. BELFER. Mr. Belfer, age 32, has served as a director of the Company
since March 1999, and as Chairman of the Board of Directors of Vitrix 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.

     BAHAN SADEGH.  Mr. Sadegh, age 27, has served as a director of Vitrix since
1996. Mr. Sadegh  co-founded  Vitrix in 1996, and has served as Chief Technology
Officer  of  Vitrix  since  its  founding.  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.

     HAMID SHOJAEE. Mr. Shojaee, age 27, has served as a director of the Company
since April 1996. Mr. Shojaee co-founded Vitrix in 1996, served as its President
and Chief  Executive  Officer  from June 1998  until  March  1999.  Mr.  Shojaee
currently  serves as  Information  Technology  Director for Vitrix.  Mr. Shojaee
formerly owned and operated Power  Computing  Solutions,  a computer  consultant
business,  from August 1993 until December 1995. Mr. Shojaee served as a network
administrator for International  Business Machines Corporation from January 1992
until December 1993. Mr. Shojaee is a Microsoft Certified Systems Engineer,  and
attended Arizona State University.

                                       15
<PAGE>
     MICHAEL A. WOLF.  Mr. Wolf, age 48, has served as a director of the Company
since March 1999,  and as a director  of Vitrix  Incorporated,  since June 1997.
From March 1999 to November  1999, Mr. Wolf also served as Chairman of the Board
of the Company.  From November 1999 to February  2000, Mr. Wolf acted as Interim
Chief Executive Office of the Company.  Mr. Wolf co-founded  VIASOFT in November
1984, served as its Executive Vice-President and Chief Technology Officer and as
a director  from which he retired in August  1997.  Mr.  Wolf is a member of the
Board of  Directors  of the  Arizona  Software  and  Internet  Association,  the
Advisory  Committee of the Arizona Angels  Investor  Network,  and serves on the
Boards or Advisory  Boards of several other  technology-related  companies.  Mr.
Wolf earned a Bachelor of Science in  Quantitative  Systems from  Arizona  State
University.

     LISE M.  LAMBERT.  Ms.  Lambert,  age 43, has  served as a director  of the
Company  since April 1999 and as  director of Vitrix  since  January  1998.  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
Bachelor  of Arts  degrees  in  education  and  music,  and a Masters  degree in
deafness and audiology from Smith College.

     WILLIAM K.  SWARTZ.  Mr.  Swartz,  age 44, has  served as  director  of the
Company since January  2000.  Since 1982,  Mr. Swartz has served as President of
Swartz  &  Associates,  Inc.,  an  executive  recruiting  firm  engaged  in  the
recruiting of executives  for major  software,  internet and computer  companies
such as Vstore, herebid.com, Visitalk and MyGeek.com.

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, 2000.

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,  2000,  1999
and 1998.

                                       16
<PAGE>
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                    LONG TERM COMPENSATION
                                                                                    ----------------------
                                                   ANNUAL COMPENSATION                      AWARDS
                                         -----------------------------------------  ----------------------
          NAME AND                                                   OTHER ANNUAL   SECURITIES UNDERLYING
   PRINCIPAL POSITION(1)        YEAR     SALARY($)     BONUS($)    COMPENSATION($)     OPTIONS/SARS (#)
   ---------------------        ----     ---------     --------    ---------------     ----------------
<S>                             <C>       <C>           <C>        <C>               <C>
Thomas S. Bednarik(2)           2000      $39,531       $5,000           -0-             1,000,000(2)
   President and                1999          N/A          N/A           N/A                   N/A
   Chief Executive Officer      1998          N/A          N/A           N/A                   N/A

Philip R. Shumway(3)            2000      $68,939          N/A           N/A                   N/A
   President and                1999      $31,439          N/A           N/A               758,528(4)
   Chief Executive Officer      1998          N/A          N/A           N/A                   N/A
</TABLE>

----------
(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 an entire  year 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  1,000,000  shares of the  Company's  Common  Stock at a per share
     exercise price of $0.94.

(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 380,000 shares of Common Stock of Vitrix which
     were  converted  to options to purchase  758,528  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 120,000 of such options.

                                       17
<PAGE>
     The following table sets forth information  concerning individual grants of
stock options made to the Named  Officers  during the fiscal year ended June 30,
2000.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                     INDIVIDUAL GRANTS
                      -------------------------------------------------------    POTENTIAL REALIZED VALUE
                      NUMBER OF        % OF TOTAL                               AT ASSUMED RATES OF ANNUAL
                      SECURITIES      OPTIONS/SARS                              STOCK PRICE APPRECIATION
                      UNDERLYING       GRANTED TO                                  FOR OPTION TERM (2)
     NAME AND        OPTIONS/SARS     EMPLOYEES IN     EXERCISE    EXPIRATION   ------------------------
PRINCIPAL POSITION   GRANTED (#)(1)    FISCAL YEAR   PRICE ($/SH)    DATE        5% ($)         10% ($)
------------------   --------------    -----------   ------------    ----        ------         -------
<S>                 <C>              <C>            <C>           <C>          <C>            <C>
Thomas S. Bednarik     1,000,000           31%          $0.94       02/2010     $590,000      $1,500,000
President and Chief
Executive Officer
</TABLE>

----------
(1)  In connection with Mr. Bednarik's  employment with Vitrix, Mr. Bednarik was
     granted options to purchase 1,000,000 shares of the Company's Common Stock.
     The options may be exercised for 25% of the underlying  stock  beginning on
     February  17,  2001,  and  25%  on  each  additional  one-year  anniversary
     thereafter.

(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  optionholder's  continued  employment
     through the vesting  period.  The amounts  reflected  in this table may not
     necessarily be achieved.

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. 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 a $5,000 cash bonus during the fiscal year ended June 30,
2000.

     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.

                                       18
<PAGE>
     Effective October 31, 1999, Mr. Philip R. Shumway resigned as the Company's
President and Chief Executive Officer. In connection with such resignation,  the
Company and Mr. Shumway entered into a Severance  Agreement and General Release,
dated as of October 25, 1999 (the "Severance Agreement).  Under the terms of the
Severance  Agreement,  the parties agreed to terminate Mr. Shumway's  Employment
Agreement,  effective  October 31, 1999. In addition,  in consideration  for Mr.
Shumway's  release of any potential  claims  against the Company,  its officers,
directors,  stockholders, agents and certain other parties, the company paid Mr.
Shumway a  severance  payment of  approximately  $35,000  and $3,846 for accrued
vacation  time.  The  Company  also  agreed to keep in force  medical and dental
benefits until the earlier of the remaining term of his Employment  Agreement or
the date Mr. Shumway  receives  comparable  benefits in connection  with any new
employment  obtained by Mr. Shumway.  The Severance Agreement also provided that
Mr. Shumway could keep 120,000 options.  Conversely,  Mr. Shumway has agreed not
to  compete  with  the  Company  for a period  of one year  from the date of the
Agreement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information,  as of August 31, 2000,
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.


                                               SHARES BENEFICIALLY OWNED (1)
NAME AND ADDRESS OF                         ----------------------------------
BENEFICIAL OWNER (2)                          NUMBER                   PERCENT
--------------------                          ------                   -------
Thomas S. Bednarik                            187,500 (3)                  *
Michael A. Wolf                             1,026,433 (4)                 3.3
Todd P. Belfer                              4,438,506 (5)                14.5
Lise M. Lambert                               501,624 (6)                 1.6
William K. Swartz                                  --                      --
Bahan Sadegh                                1,625,702 (7)                 5.3
Hamid Shojaee                               5,456,446                    17.8
Craig J. Smith                                 59,942 (8)                  *
Circle F Ventures                           4,425,000 (9)                13.8
All directors and Named
 Officers as a group                       13,296,153                    42.6

----------
*    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 30,605,290 shares of Common Stock outstanding as
     of September 25, 2000.

(2)  The address of each of the beneficial  owners is c/o Vitrix,  Inc., 51 West
     Third  Street,  Suite  310,  Tempe,  Arizona  85281,  except  for  Circle F
     Ventures,  whose  address  is  17797  North  Perimeter  Drive,  Suite  105,
     Scottsdale, Arizona 85255.

                                       19
<PAGE>
(3)  Includes  62,500 shares of Common Stock  issuable upon exercise of warrants
     issued in the Company's February 2000 private placement.

(4)  Includes  (i)  159,690   shares  of  Common  Stock  which  are  subject  to
     unexercised  options that were  exercisable on September 1, 2000, or within
     60 days  thereafter,  and (ii) 54,000 shares of Common Stock  issuable upon
     exercise of warrants issued in the Company's October 1999 and February 2000
     private placements.

(5)  Includes  129,700 shares of Common Stock issuable upon exercise of warrants
     issued in the Company's October 1999 and February 2000 private placements.

(6)  Includes  (i)  159,690   shares  of  Common  Stock  which  are  subject  to
     unexercised  options that were  exercisable on September 1, 2000, or within
     60 days  thereafter,  and (ii) 23,200 shares of Common Stock  issuable upon
     exercise  of  warrants  issued  in  the  Company's   October  1999  private
     placement.

(7)  Includes  9,600 shares of Common Stock  issuable  upon exercise of warrants
     issued in the Company's October 1999 private placement.

(8)  Includes (i) 29,942 shares of Common Stock which are subject to unexercised
     options  that were  exercisable  on  September  1, 2000,  or within 60 days
     thereafter,  and (ii) 10,000 shares of Common Stock  issuable upon exercise
     of warrants issued in the Company's October 1999 private placement.

(9)  Includes  1,475,000  shares of  Common  Stock  issuable  upon  exercise  of
     warrants  issued in the  Company's  October 1999 and February  2000 private
     placements.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     During  1996,  the Company  entered  into a debt  financing  agreement  for
$310,000 with T.P.B.  Investment  Limited  Partnership  (TPB), which is owned by
Todd P. Belfer, a member of the Company's Board of Directors.  On June 20, 1998,
TPB  converted  debt of  $110,000,  together  with accrued  interest  thereon of
approximately $27,000, to contributed capital.

     On March 3, 1999, TPB agreed to convert the remaining principal  ($200,000)
and accrued interest ($64,570) outstanding on its notes into 2,720,723 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  below are included as part of this
          Form 10-KSB.

     (b)  Reports on Form 8-K.

     There were no Current  Reports on Form 8-K during the fiscal  quarter ended
June 30, 2000.

                                       20
<PAGE>
                                   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.

Dated: September 28, 2000               /s/ Thomas S. Bednarik
                                        ------------------------------------
                                        Thomas S. Bednarik, President and
                                        Chief Executive Officer

     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 and in his 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, 2000
----------------------      (Principal Executive Officer)
Thomas S. Bednarik

/s/ Craig J. Smith          Chief Financial Officer           September 28, 2000
----------------------      (Principal Financial Officer)
Craig J. Smith

/s/ Todd P. Belfer          Chairman of the Board             September 28, 2000
----------------------
Todd P. Belfer

/s/ Michael A. Wolf         Director                          September 28, 2000
----------------------
Michael A. Wolf

/s/ Lise M. Lambert         Director                          September 28, 2000
----------------------
Lise M. Lambert

/s/ Bahan Sadegh            Director                          September 28, 2000
----------------------
Bahan Sadegh

/s/ Hamid Shojaee           Director                          September 28, 2000
----------------------
Hamid Shojaee

/s/ William K. Swartz       Director                          September 28, 2000
----------------------
William K. Swartz

                                       21
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT                                                                    BY REFERENCE    NO. IN
NUMBER                            DESCRIPTION                              FROM DOCUMENT  DOCUMENT
------                            -----------                                --------     --------
<S>         <C>                                                              <C>          <C>
  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

  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           10.2.1

  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
</TABLE>
                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                                           BY REFERENCE
EXHIBIT                                                                        FROM       NO. IN
NUMBER                            DESCRIPTION                                DOCUMENT    DOCUMENT
------                            -----------                                --------    --------
<S>         <C>                                                              <C>         <C>
  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,  beween  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

  27        Financial Data Schedule                                          Filed herewith
</TABLE>

----------
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.

                                       23
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To The Stockholders and Board of Directors of Vitrix, Inc.

We have audited the accompanying  consolidated  balance sheet of Vitrix, Inc. as
of June 30, 2000, and the related consolidated statements of operations, changes
in  stockholders'  equity  (deficit) and cash flows for the years ended June 30,
2000 and 1999. 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
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Vitrix,  Inc. as of
June 30,  2000,  and the  results of its  operations,  changes in  stockholders'
equity (deficit), and its cash flows for the years ended June 30, 2000 and 1999,
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/ BDO Seidman, LLP

Los Angeles, California
August 15, 2000

                                      F-1
<PAGE>
                                  VITRIX, INC.
                                  BALANCE SHEET
                                  JUNE 30, 2000


                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents (Note 1)                                $   620,765
  Accounts receivable - trade, net (Note 1)                             229,717
  Inventory (Note 1)                                                     91,204
  Prepaid expenses and other current assets                              38,182
                                                                    -----------
      TOTAL CURRENT ASSETS                                              979,868


PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 2)                             168,779
                                                                    -----------

      TOTAL ASSETS                                                  $ 1,148,647
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt (Note 3)                        $    46,303
  Accounts payable                                                       88,953
  Accrued liabilities                                                   145,143
  Deferred revenue (Note 1)                                             152,307
                                                                    -----------

    TOTAL CURRENT LIABILITIES                                           432,706

LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 3)                            34,231
                                                                    -----------

      TOTAL LIABILITIES                                                 466,937
                                                                    -----------

COMMITMENTS: (NOTE 5)                                                        --

STOCKHOLDERS' EQUITY: (NOTE 6)
  Common stock, $.005 par value, 50,000,000 shares
    authorized, 30,508,218 shares issued and outstanding                152,541
  Contributed capital                                                 2,498,005
  Accumulated deficit                                                (1,968,836)
                                                                    -----------
      TOTAL STOCKHOLDERS' EQUITY                                        681,710
                                                                    -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $ 1,148,647
                                                                    ===========

                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                      F-2
<PAGE>
                                  VITRIX, INC.
                            STATEMENTS OF OPERATIONS


                                                       YEARS ENDED JUNE 30,
                                                   -----------------------------
                                                       2000            1999
                                                   ------------    ------------
Revenues:
  Product sales                                     $ 1,080,388     $   730,641
  Services revenue                                      181,478          13,313
                                                    -----------     -----------

       TOTAL REVENUES                                 1,261,866         743,954
                                                    -----------     -----------
COST OF REVENUES:
  Product                                               397,742         249,309
  Services                                               88,229              --
                                                    -----------     -----------

       TOTAL COST OF REVENUES                           485,971         249,309
                                                    -----------     -----------

GROSS PROFIT                                            775,895         494,645
                                                    -----------     -----------
COSTS AND EXPENSES:
  Sales and marketing                                   740,332         288,559
  Research and development                              570,856         232,250
  General and administrative                            583,059         226,749
                                                    -----------     -----------

       TOTAL COSTS AND EXPENSES                       1,894,247         747,558
                                                    -----------     -----------

NET LOSS FROM OPERATIONS                             (1,118,352)       (252,913)
                                                    -----------     -----------
OTHER INCOME (EXPENSE):
  Interest expense                                      (11,155)        (24,112)
  Interest income                                        31,288           7,723
                                                    -----------     -----------

                                                         20,133         (16,389)
                                                    -----------     -----------

NET LOSS                                            $(1,098,219)    $  (269,302)
                                                    ===========     ===========

BASIC LOSS PER SHARE (NOTE 1)                       $     (0.04)    $     (0.02)
                                                    ===========     ===========

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING        27,295,777      16,473,873
                                                    ===========     ===========

                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                      F-3
<PAGE>
                                  VITRIX, INC.
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                   FOR THE YEARS ENDED JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                    PREFERRED STOCK            COMMON STOCK
                                -----------------------   ----------------------   CONTRIBUTED   ACCUMULATED
                                   SHARES       AMOUNT      SHARES       AMOUNT      CAPITAL       DEFICIT        TOTAL
                                -----------   ---------   ----------   ---------   -----------   -----------   -----------
<S>                               <C>         <C>          <C>         <C>         <C>            <C>           <C>
Balance at July 1, 1998           7,536,681   $  75,367    6,476,139   $  32,381   $  387,873    $  (601,315) $  (105,694)
 Conversion of related party
  debt and interest               1,463,319      14,633    1,257,404       6,287      243,650             --       264,570
 Sale of  stock, net of
 costs of $9,063                  1,000,000      10,000      859,283       4,296      176,622             --       190,918
 Merger with Vitrix
  Incorporated                           --          --    4,648,205      23,241      148,323             --       171,564
 Net loss                                --          --           --          --           --       (269,302)     (269,302)
                                -----------   ---------   ----------   ---------   ----------    -----------   -----------

Balance at June 30, 1999         10,000,000     100,000   13,241,031      66,205      956,468       (870,617)      252,056
  Issuance of stock options
    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                               --          --           --          --           --     (1,098,219)   (1,098,219)
                                -----------   ---------   ----------   ---------   ----------    -----------   -----------

Balance at June 30, 2000                 --   $      --   30,508,218   $ 152,541   $2,498,005    $(1,968,836)  $   681,710
                                ===========   =========   ==========   =========   ==========    ===========   ===========
</TABLE>

                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                      F-4
<PAGE>
                                  VITRIX, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                  2000               1999
                                                              -----------        -----------
<S>                                                         <C>              <C>
Increase (Decrease) in Cash and Cash Equivalents:
 Cash flows from operating activities:
 Net Loss                                                     $(1,098,219)       $  (269,302)
 Adjustments to reconcile net loss to net
  cash used by operating activities:
  Depreciation                                                     44,106             28,678
  Common stock and stock options issued for services               52,000                 --
  Non-cash interest expense                                            --             64,570
  Accrued interest assumed in merger                                   --            (11,645)
 Changes in Assets and Liabilities:
  Accounts receivable-trade                                      (187,121)            (7,429)
  Inventory                                                       (62,807)           (11,352)
  Prepaid expenses and other current assets                       (27,591)            (7,477)
  Accounts payable                                                (57,131)           100,015
  Accrued liabilities                                              81,018             13,083
  Deferred revenue                                                139,072             13,235
                                                              -----------        -----------
       NET CASH USED BY OPERATING ACTIVITIES                   (1,116,673)           (87,624)
                                                              -----------        -----------
 CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                              (99,875)           (26,472)
  Cash acquired in merger                                              --            207,678
                                                              -----------        -----------
       NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES           (99,875)           181,206
                                                              -----------        -----------
 CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of capital leases                                     (14,925)            (4,910)
  Proceeds from exercise of stock options and warrants             32,548                 --
  Proceeds from issuance of stock                               1,443,325            190,918
                                                              -----------        -----------
       NET CASH PROVIDED BY FINANCING ACTIVITIES                1,460,948            186,008
                                                              -----------        -----------

Net change in cash and cash equivalents                           244,400            279,590

Cash and cash equivalents at beginning of period                  376,365             96,775
                                                              -----------        -----------
Cash and cash equivalents at end of period                    $   620,765        $   376,365
                                                              ===========        ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Interest paid                                                $     8,961        $     3,142
                                                              ===========        ===========
 Income taxes paid                                            $        --        $        --
                                                              ===========        ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
 Assets acquired by entering into capital leases              $    52,145        $    28,724
                                                              ===========        ===========
 Conversion of related party notes and accrued
   interest to equity                                         $        --        $   264,570
                                                              ===========        ===========
 Conversion of preferred stock to common stock                $   100,000        $        --
                                                              ===========        ===========
</TABLE>
                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                      F-5
<PAGE>
                                  VITRIX, INC.
                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                     NOTE 1
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
                             AND USE OF ESTIMATES:
--------------------------------------------------------------------------------

NATURE OF BUSINESS, MERGER AND NAME CHANGE:

Vitrix, Inc., formerly FBR Capital Corporation,  (the Company or VITRIX) through
its  wholly  owned  subsidiary,  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  client/server  application,  or in a 100%  Web-based
Application Service Provider (ASP) product.

On April 15, 1999 Vitrix,  Inc. acquired the outstanding capital stock of Vitrix
Incorporated.  The merger was  consummated  in  accordance  with the terms of an
Exchange  Agreement  dated April 15, 1999,  by and among  Vitrix,  Inc.,  Vitrix
Incorporated and certain of the Vitrix  Incorporated  shareholders who agreed to
participate  in the  merger.  Under the terms of the  Exchange  Agreement,  each
outstanding  share of Vitrix  Incorporated  common  stock was  converted  into a
combination  of .9225 shares of Vitrix,  Inc.  common stock and 1.0736 shares of
Series B Convertible Preferred Stock of Vitrix, Inc. The aggregate consideration
paid in the  merger  was  8,592,826  shares of  Vitrix,  Inc.  common  stock and
10,000,000 shares of Vitrix,  Inc. Preferred Stock (the "Shares").  The Exchange
Agreement also provided for the  assumption of outstanding  options and warrants
to purchase an  aggregate  of  1,086,000  shares of Vitrix  Incorporated  common
stock,  which have been converted into options and warrants to purchase  Vitrix,
Inc. Common Stock, subject to adjustment for the appropriate exchange ratio.

Giving  effect  to  the  issuance  of  the  Shares,   the  Vitrix   Incorporated
shareholders own  approximately  80% of the outstanding  shares of Vitrix,  Inc.
Common Stock (assuming  conversion of the Preferred Stock into Common Stock) and
the prior Vitrix Inc.  shareholders  own the  remaining  20% of the  outstanding
Vitrix, Inc. shares immediately subsequent to the merger.  Although Vitrix, Inc.
is the parent  company of Vitrix  Incorporated  following the  transaction,  the
transaction  was  accounted  for as a  recapitalization  of Vitrix,  Inc.  and a
purchase of Vitrix,  Inc. by Vitrix  Incorporated as Vitrix  Incorporated is the
controlling company after the merger. The accompanying  financial  statements of
Vitrix,  Inc.  include  the  accounts  of Vitrix  Incorporated  for all  periods
presented,  and the accounts of Vitrix,  Inc. from April 15, 1999, the effective
date of the merger.

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. Vitrix
Incorporated 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.

                                      F-6
<PAGE>
                                  VITRIX, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 1
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
                        AND USE OF ESTIMATES: (CONTINUED)
--------------------------------------------------------------------------------

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,  2000  a  provision  for
uncollectible accounts has been established in the amount of $25,000.

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.  Depreciation
expense was $44,106 and $28,678, respectively, for the years ended June 30, 2000
and 1999.

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.

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.

                                      F-7
<PAGE>
                                  VITRIX, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 1
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
                        AND USE OF ESTIMATES: (CONTINUED)
--------------------------------------------------------------------------------

REVENUE RECOGNITION AND DEFERRED REVENUE:

The Company  derives its revenues  from the sale of frontline  labor  management
systems as well as sales of  application  software,  parts and  components.  The
Company's  systems consist of fully  integrated  software and  intelligent  data
collection   terminals.   The  Company  also   derives   revenues  by  providing
maintenance,  professional and educational services to its direct customers. The
Company  recognizes  revenues from sales of its systems,  application  software,
parts and components at the time of shipment, unless the Company has significant
obligations  remaining.  When  significant  obligations  remain,  revenue is not
recognized  until  such  obligations  have  been  completed  or  are  no  longer
significant.  The Company  recognizes  revenues  from its  sales-type  leases of
systems at time of shipment.  Service  revenues are recognized  ratably over the
contractual period or as the services are performed.

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 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.

LOSS PER SHARE:

Basic loss per share of common  stock was  computed by dividing  the net loss by
the weighted average number of shares outstanding of common and preferred stock.
The preferred  stock was included in the  calculation as of June 30, 1999 due to
its  automatic  conversion  into common  stock once the  Company had  sufficient
authorized common stock to issue the shares. (See Note 6)

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, 2000
and 1999, options and warrants to purchase 7,738,202 and 2,278,298 shares of the
Company's  common stock were not included in the  determination  of diluted loss
per share as their effect was anti-dilutive.

                                      F-8
<PAGE>
                                  VITRIX, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 1
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS
                        AND USE OF ESTIMATES: (CONTINUED)
--------------------------------------------------------------------------------

STOCK-BASED COMPENSATION:

The Company has elected to follow  Accounting  Principles  Board Opinion  No.25,
"Accounting   for  Stock  Issued  to   Employees"   (APB  25)  and  the  related
interpretations  in accounting  for its employee  stock  options.  Under APB 25,
because the  exercise  price of  employee  stock  options  equals or exceeds the
market  price of the  underlying  stock on the date of  grant,  no  compensation
expense is recorded.  The Company has adopted the disclosure-only  provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."

--------------------------------------------------------------------------------
                                     NOTE 2
                             PROPERTY AND EQUIPMENT:
--------------------------------------------------------------------------------

At June 30, 2000 property and equipment consists of:

     Computers and  equipment                                    $ 224,087
     Furniture and fixtures                                         37,381
     Leasehold improvements                                         15,103
                                                                 ---------
                                                                   276,571
     Less: accumulated depreciation                               (107,792)
                                                                 ---------

                                                                 $ 168,779
                                                                 =========

--------------------------------------------------------------------------------
                                     NOTE 3
                                 LONG-TERM DEBT:
--------------------------------------------------------------------------------

At June 30, 2000 long-term debt consists of the following:

     10% convertible subordinated promissory note to an
       individual, currently in default, see description
       below.                                                    $  19,500

     Capital leases payable, interest at rates ranging from
       15% to 24%, payable in monthly installments of principal
       and interest, maturing through January 2003                  61,034
                                                                 ---------

                                                                    80,534
     Less: current portion                                         (46,303)
                                                                 ---------

     Long-term debt                                              $  34,231
                                                                 =========

During 1996,  Vitrix entered into a debt  financing  agreement for $310,000 with
T.P.B.  Investment Limited  Partnership (TPB), which is owned by a member of the
Company's Board of Directors.  On June 20, 1998, TPB converted debt of $110,000,
together with accrued interest thereon of approximately  $27,000, to contributed
capital.

                                       F-9
<PAGE>
                                  VITRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 3
                           LONG-TERM DEBT: (CONTINUED)
--------------------------------------------------------------------------------

On March 3, 1999,  TPB agreed to convert  the  remaining  principal  and accrued
interest outstanding on its notes. The agreement calls for the conversion of the
remaining  $200,000  principal  and accrued  interest of $64,570 in exchange for
2,720,723 shares of the Company's common and preferred stock.

On January 13, 1994, FBR 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  (Note 6). 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, 2000, accrued interest on the note was $14,568.

On April 14, 1999 the Company  entered into an agreement  with an institution in
which the Company has the right to demand the  institution  to purchase  100,000
shares of the  Company's  common stock at $.35 per share in order to satisfy the
convertible  note's  outstanding  principal  and interest  due.  This  agreement
expires on January 31, 2001 or the date the note is satisfied in full.

As of June 30, 2000 future  minimum  lease  payments due under the capital lease
agreements, are as follows:

                    YEAR ENDING
                     JUNE 30,
                     --------
                       2001                                       $ 36,082
                       2002                                         26,069
                       2003                                         13,231
                                                                  --------

     Total minimum lease payments                                   75,382
     Less:  amount representing interest                           (14,348)
                                                                  --------
     Present value of net minimum lease payments                    61,034
     Less: current maturities of capital lease obligations         (26,803)
                                                                  --------
       Long-term maturities of capital lease obligations          $ 34,231
                                                                  ========

--------------------------------------------------------------------------------
                                     NOTE 4
                                  INCOME TAXES:
--------------------------------------------------------------------------------

As of June 30, 2000 deferred tax assets consist of the following:

     Federal loss carryforwards                                  $ 540,000
     State loss carryforwards                                      130,000
                                                                 ---------
                                                                   670,000
     Less:  valuation allowances                                  (670,000)
                                                                 ---------

                                                                 $      --
                                                                 =========

                                      F-10
<PAGE>
                                  VITRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 4
                            INCOME TAXES: (CONTINUED)
--------------------------------------------------------------------------------

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, 2000
the  Company's  federal  net  operating  loss  carryforwards  was  approximately
$1,525,000 and begins expiring in 2012 through 2020.

The Company's tax expense  (benefit)  differed from the statutory rate primarily
due to the $435,000  change in the deferred tax asset  valuation  allowance from
June 30, 1999.

--------------------------------------------------------------------------------
                                     NOTE 5
                                  COMMITMENTS:
--------------------------------------------------------------------------------

The Company currently leases office space in Tempe, Arizona at two (2) locations
under  non-cancelable  operating lease  agreements which expire through December
2004.  For  the  years  ended  June  30,  2000  and  1999,   expense  under  the
aforementioned  non-cancelable  operating  lease  agreements  was  approximately
$105,000 and $35,000, respectively.

Future  minimum  lease  payments due under the operating  lease  agreement is as
follows:

                                                    YEAR ENDING
                     YEAR                             JUNE 30,
                     ----                             --------
                     2001                           $  225,080
                     2002                              214,822
                     2003                              222,779
                     2004                              230,735
                     2005                              117,072
                                                    ----------

                                                    $1,010,488
                                                    ==========

--------------------------------------------------------------------------------
                                     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.

                                      F-11
<PAGE>
                                  VITRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 6
                        STOCKHOLDERS' EQUITY: (CONTINUED)
--------------------------------------------------------------------------------

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 3,000,000 shares of common stock for distribution under
the plan.  The Company  plans on  increasing  the number of  reserved  shares to
6,000,000,  pending shareholder approval.  The exercise price will be determined
by the Board of Directors. Incentive stock options granted under the plan may be
granted to employees only, and may not have an exercise price less than the fair
market value the common stock on the date of grant.  Options may be exercised on
a  one-for-one  basis,  with a maximum  term of ten (10)  years from the date of
grant.

Pursuant to the Exchange  Agreement,  the outstanding options of Vitrix prior to
the merger were converted  into options to purchase  common stock of the Company
at the exchange ratio (1.9961 to 1) established in the Exchange  Agreement.  The
table below combines the option  activity of FBR and Vitrix based on post-merger
number of options.

A summary of the activity of the plan follows:

                                                 NUMBER OF      WEIGHTED AVERAGE
                                                  OPTIONS        EXERCISE PRICE
                                                  -------        --------------

     Outstanding at June 30, 1998                  454,284           $ 0.22
     Granted                                     1,295,489             0.11
     Forfeited                                    (119,768)            0.11
                                                ----------           ------

     Outstanding at June 30, 1999                1,630,005             0.14
     Granted                                     3,183,231             0.58
     Exercised                                     (70,000)            0.38
     Forfeited                                  (1,183,528)            0.23
                                                ----------           ------

     Outstanding at June 30, 2000                3,559,708           $ 0.50
                                                ==========           ======

Additional  information  about  outstanding  options to purchase  the  Company's
common stock as of June 30, 2000 is as follows:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                     ------------------------------------------   --------------------------
                                 WEIGHTED AVG.
                                  REMAINING
                     NUMBER OF   CONTRACTURAL    WEIGHTED AVG.    NUMBER OF    WEIGHTED AVG.
     EXERCISE PRICE   SHARES    LIFE (IN YEARS)  EXERCISE PRICE    SHARES     EXERCISE PRICE
     --------------   ------    ---------------  --------------    ------     --------------
<S>                  <C>              <C>            <C>           <C>            <C>
     $2.25 - $1.81      23,000        5.44           $ 2.10         15,000        $ 2.25
     $1.31 - $ .75   1,140,000        9.65           $ 0.95             --            --
     $ .59 - $ .28   1,120,231        9.81           $ 0.40             --            --
     $ .22 - $ .11   1,276,477        8.14           $ 0.14        784,712        $ 0.11
</TABLE>

                                      F-12
<PAGE>
                                  VITRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 6
                        STOCKHOLDERS' EQUITY: (CONTINUED)
--------------------------------------------------------------------------------

STOCK OPTIONS (CONTINUED):

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,  2000  and  1999.  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 and loss per share for the years ended June 30, 2000 and
1999 would have been increased to the pro forma amounts presented below:

                                                YEARS ENDED JUNE 30,
                                         ---------------------------------
                                             2000                  1999
                                         -----------           -----------
     NET LOSS:
       As reported                       $(1,098,219)          $  (269,302)
                                         ===========           ===========
       Pro forma                         $(1,103,000)          $  (282,157)
                                         ===========           ===========
     LOSS PER SHARE:
       As reported                       $      (.04)          $      (.02)
                                         ===========           ===========
       Pro forma                         $      (.04)          $      (.02)
                                         ===========           ===========

The fair value of option  grants is estimated as of the date of grant  utilizing
the  Black-Scholes  option-pricing  model with the  following  weighted  average
assumptions  for all  grants,  expected  life of  options  of three  (3)  years,
risk-free interest rates of eight percent (8%), volatility at zero percent (0%),
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,  2000 and 1999
approximated $.03.

NON-EMPLOYEE STOCK OPTIONS AND WARRANTS:

During the year ended June 30, 1998,  the Company  granted  warrants to purchase
622,793 (post-merger figures) shares of the Company's common stock. Each warrant
entitles the holder to purchase  one share of common stock at an exercise  price
of $.022 per share.  During the year ended June 30, 2000 264,687  warrants  were
exercised, generating proceeds of $5,823. The warrants expire in June 2001.

In connection with its private  placements of common stock during the year ended
June 30, 2000 the Company issued 3,666,250  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 $.35 per share  and are  exercisable  until  October  2002.  The
exercise  price  for the  second  round of  funding  is $.28 per  share  and are
exercisable  until  February 2003. As of June 30, 2000 none of the warrants have
been exercised.

During the year ended June 30, 2000 the Company  granted  150,000  options to an
individual  for consulting  services.  The exercise price of the options is $.45
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, 2000 none of the options have been exercised.

                                      F-13
<PAGE>
                                  VITRIX, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)

--------------------------------------------------------------------------------
                                     NOTE 6
                        STOCKHOLDERS' EQUITY: (CONTINUED)
--------------------------------------------------------------------------------

NON-EMPLOYEE STOCK OPTIONS AND WARRANTS: (CONTINUED)

The Company  granted  4,138  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 $.29 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.

--------------------------------------------------------------------------------
                                     NOTE 7
                    BASIS OF PRESENTATION AND GOING CONCERN:
--------------------------------------------------------------------------------

Through  June  30,  2000,  the  Company  had  sustained  recurring  losses  from
operations,  and as of August 31,  2000,  the  Company  estimates  its'  working
capital and funds generated from operations are sufficient to fund the Company's
operations for the next three months.  These conditions raise  substantial doubt
about the ability of the Company to continue as a going  concern.  During fiscal
2001,  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.  The  Company  has  on-going
discussions  with  various  financial  sources in an effort to raise  additional
capital.  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 creation and marketing of new
products and continued cost control  should improve the Company's  profitability
in fiscal 2001. 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.

                                      F-14