UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: JUNE 30, 2006
----------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-19598-D
VYTA CORP
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(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Exact name of registrant as specified in
its charter
Nevada 84-0992908
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(State of other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
370 Seventeenth Street, Suite 3640
Denver, Colorado 80202
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(Address and zip code of principal executive office)
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(Former address of principal executive office)
Registrant's telephone number, including area code: (303) 592-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class) Name of Each
Exchange On Which
Registered
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Common Stock, NASDAQ:BB
$0.0001 Par Value Berlin Exchange
Frankfurt Exchange
Munich Exchange
Xetra Stock Exchange
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III or this Form 10-KSB or any amendment
hereto. [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of the close of trading on October 11, 2006 there were 22,643,512 shares
outstanding, 13,713,341 of which were held by non-affiliates. The aggregate
market value of the common shares held by non-affiliates, based on the average
closing bid and asked prices on October 11, 2006, was approximately $5,622,470.
The registrant's revenue for the fiscal year ended June 30, 2006 was $0.
Transitional Small Business Disclosure Yes No X
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TABLE OF CONTENTS
PAGE NUMBER
PART I
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ITEM 1 Description of Business 1
ITEM 2 Description of Property 11
ITEM 3 Legal Proceedings 11
ITEM 4 Submission of Matters to A Vote of
Security Holders 12
PART II
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ITEM 5 Market For Common Equity, Related
Stockholder Matters 13
ITEM 6 Management's Discussion and Analysis 14
ITEM 7 Financial Statements 19
ITEM 8 Changes In and Disagreements with
Accountants and Financial
Disclosure 17
ITEM 8A Controls and Procedures 20
ITEM 8B Other Information 20
PART III
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ITEM 9 Directors and Executive Officers of
the Company 20
ITEM 10 Executive Compensation 23
ITEM 11 Security Ownership of Certain
Beneficial Owners and Management
and Related Stockholder Matters 26
ITEM 12 Certain Relationships and Related
Transactions 27
PART IIV
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ITEM 13 Exhibits 28
ITEM 14 Principal Accountant Fees and
Services 29
Signatures 30
PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
Vyta Corp (the "Company") (formerly known as NanoPierce Technologies, Inc.)
is a Nevada corporation that was incorporated on June 22, 1996, as Sunlight
Systems, Ltd. From June 22, 1996 through November 1996 the Company engaged in
limited activities as a dealer and distributor of sun tunnels. This business,
however, was discontinued and substantially all assets were sold in November of
1996. From that time until February 1998, the Company was generally inactive
and reported no significant operating revenues.
Prior to 2004, the Company had primarily been involved in semiconductor
technology. The Company does not plan, at this time, to continue efforts to
manufacture or develop products that utilize the Company's particle technology,
it may however license the technology to others. The Company does continue to
own a minority interest in ExypnoTech, Gmbh ("ExypnoTech"), a company that is
manufacturing and developing inlay components used in the manufacturing of,
among other things, smart labels (often referred to as radio frequency
identification tags or "RFID").
During 2004 and 2005, the Company instituted steps to change the principal
business of the Company from the semiconductor technology industry to the
biotechnology industry. In August 2005, the Company purchased a 50% equity
interest in BioAgra, LLC; a Georgia limited liability company ("BioAgra") (for
more information on BioAgra see "Subsidiaries and Investments").
In January 2006, the Company completed a corporate restructuring consisting
of a private placement of a new series of convertible preferred stock, which
also resulted in a change of who controlled the Company, a reverse stock split
of the common stock, a subsequent increase in the authorized capital, and
changing the Company's name from NanoPierce Technologies, Inc. to Vyta Corp.
SUBSIDIARIES AND INVESTMENTS
BIOAGRA, LLC ("BIOAGRA"). In August 2005, the Company purchased a 50%
equity interest in BioAgra, a Georgia limited liability company for
approximately $905,000 in cash and a note payable of $595,000, which was paid in
full on September 15, 2005. BioAgra is located in Hinesville, Georgia. The
remaining 50% was purchased by Xact Resources International and later assigned
to Justin Holdings, Inc. for the contribution of rights, a license, intellectual
properties, purchase orders and similar items. The Company does not have a
controlling interest in BioAgra and the Company is not obligated to fund losses
beyond its investment. BioAgra holds a license for the production of
AgraStim(TM) (trademark pending) (formerly marketed as YBG-2000). AgraStim is a
natural, all-organic, non-toxic beta glucan feed additive used to replace
artificial antibiotics, currently in use in the animal feed industry. The
license, dated April 18, 2005, has a term expiring
1
October 18, 2024. Under the license BioAgra was granted the right and license
to produce, process, make or otherwise manufacture and sell the licensed
products in the United States. BioAgra has begun to manufacture and market
AgraStim, for sale in the poultry industry.
In June 2006, BioAgra completed construction of its first production line
and began manufacturing and shipping AgraStim in limited amounts for potential
customers for testing purposes.
BioAgra's management includes, Mr. Bartoletta, President and Manager. Mr.
Metzinger, Vice President and Manager and Ms. Kampmann, Chief Financial Officer.
Mr. Neal Bartoletta has served as the President and a Manager of BioAgra
since December 2004. From 1980 to 1991, Mr. Bartoletta served as the President
of Bart Warehousing Corp in South Kearny, New Jersey. From 1978 to 1999, as the
President of N.J. Bart Corp, Elizabeth, New Jersey. From 1998 to present he has
served as the President of Xact Resource International, Inc. of Boca Raton,
Florida. In 2006, Mr. Bartoletta was appointed the President of Justin Holdings,
Inc. of Boca Raton, Florida. Justin Holdings in the owner of the other 50%
equity interest in BioAgra. Mr. Bartolleta is a graduate of the Academy of
Advanced Traffic. In January 2002, Mr. Bartoletta plead guilty to a felony
violation under 18 USC SEC. 1001 (STATEMENTS OR ENTRIES GENERALLY) AND SEC. 1002
(POSSESSION OF FALSE PAPERS TO DEFRAUD UNITED STATES). Mr. Bartoletta was put on
a three year probation program. He was required to pay civil restitution of
$2,500 and a Special Assessment of $50.00. Mr Bartoletta served the probation
without incident thus terminating the case.
EXYPNOTECH, GMBH ("EXYPNOTECH"). ExypnoTech, which is located in Germany,
was organized in February 2002. ExypnoTech produces inlay components used in the
manufacturing of, among other things, smart labels (often referred to as radio
frequency identification tags or "RFID"). ExypnoTech, in addition to the inlay
components, plans to manufacture and sell other types of RFID components. In
December 2003 ExypnoTech sold a controlling 51% interest in ExypnoTech to
TagStar Systems, GmbH for $98,000 in cash. As a result of this sale, the Company
does not have a controlling interest in ExypnoTech and the Company is only
entitled to 49% of the net income, if any, generated by ExypnoTech, and shares
in 49% of any net losses. The Company is not obligated to fund losses beyond its
investment. ExypnoTech, if able, will pay dividends on an annual basis. The
Company is entitled to 49% of the dividends, if any, paid as a result of any
future profits of ExypnoTech.
ExypnoTech's management is Bernhard Maier, Michael Kober and Peter Hahn.
NANOPIERCE CONNECTION SYSTEMS, INC. ("NANOPIERCE CONNECTION"). NanoPierce
Connection, a wholly-owned Nevada corporation, was located in Colorado Springs,
Colorado. Beginning business in January 2002, NanoPierce Connection was the
center for research and development activities. During the fiscal year ended
June 30, 2006, NanoPierce Connection had no operations. The Company is in the
process of dissolving NanoPierce Connection.
SCIMAXX SOLUTIONS, LLC ("SCIMAXX SOLUTIONS"). On September 15, 2003, the
Company entered into a joint venture with Scimaxx, LLC (Dr. Neuhaus, a director
of the Company is a part owner of Scimaxx, LLC - See Item 12). The purpose of
the joint venture was to provide the electronics industry with technical
solutions to manufacturing problems based on the need for electrical
connectivity. The Company received a 50% interest in the joint venture in
exchange for a contribution of the equipment owned by NanoPierce Connection. The
Company also granted Scimaxx Solutions a ten-year, non-exclusive, non-royalty
bearing worldwide license to use the Company's intellectual property. In April
2005, Scimaxx Solutions, LLC discontinued operations. The Company and Scimaxx,
LLC intend to terminate Scimaxx Solutions, at which time the license will
terminate. The Company is not obligated to fund losses beyond its investment.
2
EXYPNOTECH, LLC ("EXYPNOTECH, LLC"). On June 18, 2004, the Company
organized ExypnoTech, LLC as a wholly-owned subsidiary to market, primarily in
the United States of America, the RFID components manufactured by ExypnoTech,
GmbH, in Germany. During the fiscal year ended June 30, 2006, ExypnoTech, LLC
did not have active operations. The Company is in the process dissolving
ExypnoTech, LLC.
THE NCS(TM) TECHNOLOGY
NCS(TM) is a method where metallized, hard, microscopic particles are
deposited onto one of two contact surfaces, through electrolytic or electro-less
plating methods or other methods. When the two surfaces are pressed together,
the conductive particles penetrate the second contact surface and create an
electrical connection. Bonding of the contact surfaces can be achieved using
nonconductive adhesives or ultrasonic welding.
The Company has extended NCS to permit the direct attachment of
semiconductor chips to a substrate, a process called WaferPierce(TM).
WaferPierce is comprised of two parts: (1) the electroless application of NCS
to the contact pads of chips while still in wafer form; and (2) a proprietary
chip attachment process in which chips are bonded to a substrate face down using
the core NCS method.
The Company currently holds 13 Patents with the U.S. Patent and Trademark
Office. Further, the Company has filed several patent applications both in the
United States and internationally in order to continue to protect its
intellectual property. To reduce expenses, during the fiscal years ended June
30, 2006 and 2005, the Company abandoned several of its patent applications. The
Company also holds several trademarks with the U.S. Patent and Trademark Office,
in connection with the Company's name, logo and services.
BUSINESS STRATEGY
The Company, through its joint venture, BioAgra and its investment in
ExypnoTech, is targeting the following business activities:
1. BETA GLUCAN ADDITIVE. AgraStim, manufactured by BioAgra, is a
beta glucan feed additive produced from spent yeast. The additive is a
combination of bioactive nutrients and B-glucans that are extracted
from the cell walls of the yeast using steam injection and a
centrifuging extraction process. The beta glucan additive is an all
natural, organic compound that has been proven to stimulate immune
systems, thereby eliminating the usage of antibiotics and growth
hormone supplements in animal, poultry and other feeds. AgraStim is
designed to achieve two purposes. For example, in the poultry
industry, the first is to enhance the avian immune system to fight
bacterial and viral infections more effectively and efficiently, and
secondly, to promote accelerated growth. Currently, animals in the
cattle, poultry, swine, equine, and shrimp industries are fed
artificial antibiotics, in order to prevent the spread of bacterial
and viral infections and steroids to promote growth. Initially,
BioAgra has been targeting customers in the poultry processing
industry.
Currently, governments are urging, if not, directing producers to
remove artificial antibiotics from the human food chain supply to
reduce the development in humans of increasingly powerful and virulent
strains of antibiotic resistant bacteria, which makes treatment for
illnesses and diseases more difficult and expensive. In addition, food
service providers are demanding natural, organic, antibiotic free
foods.
3
2. RFID COMPONENTS. RFID components, manufactured by ExypnoTech, are
used to identify objects, by short-range radio over a few millimeters
to distances as great as a meter. RFID inlays consist of a small
transponder chip bonded onto a metal foil antenna on an exceptionally
thin and small plastic or paper sheet. NCS can be used to provide the
connection between the transponder chip and the antenna. In addition,
NCS can be used to connect the chip to the chip module in contact
smart cards or the chip module to the antenna in the case of
contactless smart cards. ExypnoTech currently offers RFID components
using the Company's intellectual property, relating to ultrasonic
bonding.
RESEARCH AND DEVELOPMENT
The Company's research and development activities were formerly conducted
through NanoPierce Connection, with additional activities occurring at
ExypnoTech. During the fiscal years ended June 30, 2006 and 2005, the Company
did not incur expenses related to research and development.
The Company does anticipate that a substantial level of research and
development activities will occur at BioAgra.
COMPETITION
Competition, at present, for beta glucan products in the market targeted by
BioAgra is limited. The United States and many other countries in the world are
in the process of eliminating or plan to eliminate the usage of antibiotics in
the feed of animals in the human food chain supply. There are a limited number
of alternatives to antibiotics. Such alternatives include organic acids, plant
extracts (ex. oregano oil), and mannoproteins. These alternatives have not
experienced a great success rate.
Other potential competitors include those already producing beta glucan for
human consumption. This type of "purified" beta glucan is considered too
expensive to use in markets other than for direct human consumption. Other
competitors are those producing beta glucan with a 60% or less bioactivity level
for the markets addressed by BioAgra. Based upon data provided to the Company
beta glucan having less than 80% bioactivity is not effective in the markets
chosen by BioAgra. BioAgra intends to produce an 80% pure beta glucan.
Competition will also consist of established producers of artificial
antibiotic growth promotion products. These are large companies with vast
resources allocated to the protection of the brand recognition and market share
of their products.
SOURCES OF RAW MATERIALS
Production of the beta glucan additive requires spent brewer's, baker's,
distiller's or ethanol refiner's yeast. Arrangements are being made with
commercial firms that produce and distribute these types of yeast. There is an
adequate supply of these raw materials for the foreseeable future for BioAgra's
activities.
CUSTOMERS
BioAgra is in the initial stages of marketing and contacting potential
customers of its product, AgraStim. Initial customers are expected to be
poultry
4
producers located in the United States and abroad and feed milling and mixing
companies.
GOVERNMENT REGULATION
The Company believes that it is in compliance with all federal and state
laws and regulations governing its limited operations. Further, the Company
believes that it is in compliance with all German laws and regulations governing
its limited operations in Germany. Compliance with federal and state
environmental laws and regulations did not have a material effect on the
Company's capital expenditures, earnings or competitive position during the
fiscal year ended June 30, 2006.
To the knowledge of the Company, the AgraStim beta glucan product planned
to be produced by BioAgra is not subject to the regulations of either the U.S.
Food and Drug Administration ("FDA") or the U.S. Department of Agriculture
("USDA") because it is considered to satisfy the criteria set forth for products
"generally regarded as safe" ("GRAS"). BioAgra has applied for official GRAS
designation with the FDA, which it anticipates to receive.
EMPLOYEES
On June 30, 2006, the Company and its subsidiaries had two employees. Mr.
Metzinger and Ms. Kampmann, key officers of the Company and the only two
employees of the Company, have signed employment agreements with the Company.
(See- ITEM 9- "Directors and Officers of the Company") None of the Company's
employees are represented by a labor union or are subject to a collective
bargaining agreement. The Company believes that its relations with its
employees are excellent.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Our future results may be affected by various risks and uncertainties
including the following:
WE HAVE A HISTORY OF LOSSES
Developing our particle technology and its applications has been and we
expect will continue to be expensive. Our operating expenses have consistently
exceeded our revenues. We reported a net loss of $2,407,821, $997,616, and
$1,558,083 for the fiscal years ended June 30, 2006, 2005 and 2004,
respectively.
WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN
Our independent registered public accounting firm's report on our
consolidated financial statements as of June 30, 2006, and for each of the years
in the two year period then ended, includes an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. If we are
unable to secure significant additional financing, and/or generate cash flows
from our equity investments we may be obligated to seek protection under the
bankruptcy laws, and our shareholders may lose their investment.
OUR JOINT VENTURE INVESTMENTS COULD BE ADVERSELY AFFECTED BY OUR LACK OF
SOLE-DECISION-MAKING AUTHORITY, OUR RELIANCE ON CO-VENTURERS' FINANCIAL
CONDITION AND DISPUTES BETWEEN OUR CO-VENTURERS AND US
Our primary business is our 50% interest in BioAgra, LLC and our 49%
interest in Exypnotech. Investments in joint ventures may involve risks not
present were a third party not involved, including the possibility that our
co-venturer Justin
5
Holdings, Inc. (as assignee of Xact Resources International which assigned its
interest in BioAgra in February 2006) with respect to BioAgra, LLC and TagStar
Systems, GmbH with respect to Exypnotech (each of which an entity over which we
have no control) might become bankrupt, fail to fund their share of required
capital contributions or fail to perform their responsibilities under our
agreements with them. Our co-venturers also may have economic or other business
interests or goals that are inconsistent with our business interests or goals,
and may be in a position to make decisions or to take actions that are contrary
to our preferences, policies, or objectives. We do not have decision-making
control regarding either the BioAgra or the Exypnotech joint ventures. With
respect to BioAgra, in which we have a 50% interest, we have the potential risk
of impasses on decisions, such as the use and enforcement of the license to
produce AgraStim held by BioAgra or a sale of the joint venture, because neither
we nor Justin Holdings, Inc. have control over the joint venture. In the
Exypnotech joint venture, in which we have a minority interest, decisions may be
made or actions taken contrary to our objections. Disputes between us and our
co-venturers may result in litigation or arbitration that would increase our
expenses and prevent our officers and/or directors from focusing their time and
effort exclusively on our business. Consequently, actions by or disputes with
our co-venturers might result in subjecting properties owned by the joint
ventures to additional risk. In addition, we may in certain circumstances be
liable for the actions of our co-venturers.
LICENSE TO AGRASTIM IS LIMITED
BioAgra has a license agreement with Progressive Bioactives, Inc. for
AgraStim, the license is limited in geographic area and function. Under the
license, BioAgra was granted the right and license to produce, process, make or
otherwise manufacture and sell the licensed products in the United States and
holds a right of first refusal to build and operate any new plant intended to
manufacture the licensed product in the United States. The license is also
limited in function to the consumption of animal products, which limits
BioAgra's ability to expand into new areas, such as the production of beta
glucan for human consumption.
BIOAGRA MAY LOSE THE LICENSE TO AGRASTIM OR HAVE ITS RIGHTS UNDER THE
LICENSE LIMITED IF IT FAILS TO SATISFY THE MINIMUM PRODUCTION STANDARDS REQUIRED
BY THE LICENSE
The license requires BioAgra to meet certain minimum production standards,
which will begin on the first year anniversary after BioAgra produces its first
successful batch of the licensed product, which yields a sufficient quantity of
product made available for sale. If BioAgra fails to satisfy the minimum
production standards provided in the license, BioAgra may lose its right of
first refusal to build and operate any new manufacturing plants in the United
States, and may be deemed in material breach of the license causing the licensor
to terminate the license.
IF AGRASTIM DOES NOT SATISFY CERTAIN GOVERNMENTAL REGULATIONS, BIOAGRA MAY
BE UNABLE TO OBTAIN REGULATORY APPROVAL OR MAY BE REQUIRED TO OBTAIN MULTIPLE
LICENSES TO SELL AGRASTIM
BioAgra is in the process of applying for a "generally recognized as safe"
(GRAS) designation from the U.S. Food and Drug Administration for the AgraStim
beta-glucan product to be produced by BioAgra. A GRAS designation would exempt
AgraStim from the regulations of the U.S. Department of Agriculture and the U.S.
Department of Agriculture and would permit the sale of AgraStim anywhere in the
United States without obtaining a license. BioAgra believes that it will
receive GRAS designation for AgraStim based, in part, upon the fact that the
GRAS
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designation has been given to other products whose main ingredients are also
based upon all organic, natural, non-toxic substances such as the yeast from
which beta-glucan is derived. If a GRAS designation is not obtained, AgraStim
would be required to be sold as a food additive by obtaining a license to sell
from each individual state in which sales would occur. At this time, BioAgra
has applied and obtained licenses from the States of Georgia and North Carolina
and is preparing licenses in other states. There is no assurance that BioAgra
will be able to successfully obtain or maintain licenses in all states in which
sales are expected to be made or that the costs of obtaining and maintaining
these licenses will not limit BioAgra's ability to sell AgraStim.
OPERATIONS OF BIOAGRA MAY BE DELAYED OR COST MORE THAN WE ANTICIPATE
It was previously anticipated that the plant would commence operations in
January 2006, however operations did not commence until June 2006. There can be
no assurances that there will not be further delays in operations, including the
time before we are able start operating on a full-scale capacity or that the
average cost to operate the plant will not be higher than anticipated.
WE CANNOT GUARANTEE THE QUALITY, PERFORMANCE OR RELIABILITY OF BIOAGRA'S
PRODUCTS
We have no prior experience in taking AgraStim or any other product to the
manufacturing or production stage. We are relying upon the skill and experience
of BioAgra's managers and our co-joint venturer to timely and cost effectively
manufacture AgraStim. We expect that the customers of BioAgra will demand
quality, performance and reliability. We cannot assure you that we or our
co-joint venturer will be able to meet the quality control standards that may be
established by the poultry industry within which we are currently concentrating
our business activities. BioAgra intends to assure their customers that
AgraStim will contain at least 80% pure beta glucan.
THERE MAY BE INSUFFICIENT DEMAND FOR AGRASTIM
The market acceptance of fairly new products and technologies, including
AgraStim, is subject to a number of factors, including the ability of the
product to meet potential customers' needs more effectively or more efficiently
than current products. Antibiotics and growth hormone supplements are widely
used in animal, poultry and other feeds. BioAgra must convince their potential
customers that their beta-glucan product is safe and effective as a feed
additive and can be manufactured efficiently and cost-effectively before the
poultry industry, or other animal producers will be willing to use their product
rather than existing products such as antibiotics and growth hormone
supplements. To create this consumer demand, BioAgra will have to successfully
market and sell their product. Even after these efforts, their beta-glucan
product may not be viewed by consumers as an improvement over existing products
and may not achieve commercial acceptance.
WE MAY BE UNABLE TO MEET OUR ONGOING NEEDS FOR ADDITIONAL CAPITAL
We cannot accurately predict how much funding we will need to implement our
strategic business plan or to continue operations. Our future capital
requirements, the likelihood that we can obtain money and the terms of any
financing will be influenced by many different factors, including:
- our revenues and the revenues of our joint venture;
- the status of competing products in the marketplace;
7
- our performance in the marketplace;
- our overall financial condition;
- our business prospects;
- the perception of our growth potential by the public, including
potential lenders;
- our ability to enter into joint venture or licensing
relationships to achieve a market presence; and
- the progress of BioAgra in developing, marketing and selling
AgraStrim.
If we cannot obtain adequate financing or if the terms on which we are able
to acquire financing are unfavorable, our business and financial condition could
be negatively affected. We may have to delay, scale back or eliminate some or
all of our development and marketing programs, if any. We may also have to go
to third parties to seek financing, and in exchange, we may have to give up
rights to some of our technologies, patents, patent applications, potential
products or other assets.
WE MAY BE UNABLE TO HIRE AND RETAIN KEY PERSONNEL
Our future success depends on our ability to attract qualified personnel.
We may be unable to attract or retain these necessary personnel. If we fail to
attract or retain skilled employees, or if a key employee fails to perform in
his or her current position, we may be unable to bring AgraStim to the
marketplace and to generate sufficient revenues to offset our operating costs.
WE MAY BE UNABLE TO OBTAIN AND RETAIN APPROPRIATE PATENT, COPYRIGHT AND
TRADEMARK PROTECTION OF OUR PRODUCTS OR MANUFACTURING PROCESS
We protect our intellectual property rights through patents, trademarks,
trade names, trade secrets and a variety of other measures. However, these
measures may be inadequate to protect our intellectual property or other
proprietary information.
- TRADE SECRETS MAY BECOME KNOWN BY THIRD PARTIES. Our trade
secrets or proprietary information may become known or be
independently developed by competitors.
- RIGHTS TO PATENTS AND TRADE SECRETS MAY BE INVALIDATED. Disputes
may arise with third parties over the ownership of our intellectual
property rights. Our patents may be invalidated, circumvented or
challenged, and the rights granted under those patents that provide us
with a competitive advantage may be nullified.
- PROBLEMS WITH FUTURE PATENT APPLICATIONS. Our pending or future
patent applications may not be approved, or the scope of the granted
patent may be less than the coverage sought.
- INFRINGEMENT CLAIMS BY THIRD PARTIES. Infringement, invalidity,
right to use or ownership claims by third parties or claims for
indemnification may be asserted by third parties in the future. If any
claims or actions are asserted against us, we can attempt to obtain a
license for that third
8
party's intellectual property rights. However, the third party may not
provide a license under reasonable terms, or may not provide us with a
license at all.
- THIRD PARTIES MAY DEVELOP SIMILAR PRODUCTS OR MANUFACTURING
PROCESS. Competitors may develop similar products, duplicate our
products or may design around the patents that are owned by us.
Competitors may develop a similar manufacturing process, duplicate our
manufacturing process or may design around any patents that are owned
by us in relation to the manufacturing process.
- LAWS IN OTHER COUNTRIES MAY INSUFFICIENTLY PROTECT INTELLECTUAL
PROPERTY RIGHTS ABROAD. Foreign intellectual property laws may not
adequately protect our intellectual property rights abroad. Our
failure to protect these rights could adversely affect our business
and financial condition.
- LITIGATION MAY BE REQUIRED TO PROTECT INTELLECTUAL PROPERTY
RIGHTS. Litigation may be necessary to protect our intellectual
property rights and trade secrets, to determine the validity of and
scope of the rights of third parties or to defend against claims of
infringement or invalidity by third parties. This litigation could be
expensive, would divert resources and management's time from our sales
and marketing efforts, and could have a materially adverse effect on
our business, financial condition and results of operations and on our
ability to enter into joint ventures or partnerships with others.
ECONOMIC FACTORS OUTSIDE OUR CONTROL MAY HAVE AN ADVERSE AFFECT ON
BIOAGRA'S REVENUES AND OUR INCOME
Our income may be impacted by economic factors that are beyond our control
such as fluctuations in price of poultry feed, outbreaks of poultry diseases,
and demand for poultry products. Because Bio Agra's initial focus for AgraStim
is the poultry industry, the poultry industry will be a significant component of
their revenues. Rising poultry feed prices, increase production costs of
commercial poultry producers may cause them to reduce production, which, in
turn, could adversely impact BioAgra's revenues. An outbreak of disease, such
as avian influenza, could result in increased government regulation of the
poultry industry, a serious drop in demand for poultry products, and adverse
publicity materially affecting the poultry industry for a significant period of
time, which could adversely impact BioAgra's business, revenues, prospects,
financial condition, and results of operation. In general, reduced demand for
poultry products could adversely impact BioAgra's revenues and therefore our
income.
THE MARKET FOR FEED ADDITIVES IS COMPETITIVE
The feed additive market is competitive. BioAgra will compete with
producers of artificial antibiotic and growth hormone products, many of which
are large companies with vast resources allocated to the protection of brand
recognition and market share of their products. BioAgra may also compete with
companies producing beta-glucan for other purposes, and companies that produce
existing alternatives to antibiotic and growth hormone products, such as organic
acids, plant extracts, and mannoproteins. BioAgra is disadvantaged competing
against some of these competitors in several different areas, including:
- financial resources;
- manufacturing capabilities;
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- diversity of revenue sources and business opportunities;
- personnel and human resources; and
- research and development capabilities.
Larger companies have long term advantages over BioAgra in research and new
product development and have a greater ability to withstand periodic downturns
in the feed additive market because they have diverse product lines that can
provide revenue even when there is a downturn in the feed additive market.
IF BIOAGRA WAS UNABLE TO USE THEIR MANUFACTURING FACILITY, THEY MAY NOT BE
ABLE TO MANUFACTURE AGRASTIM FOR AN EXTENDED PERIOD OF TIME
BioAgra manufactures at a single location in Georgia with a single
production line. Manufacturing products at a single site presents risks because
a disaster, such as a fire or hurricane, may interrupt our manufacturing
capability. In such an event, they will have to resort to alternative sources
of manufacturing that could increase their costs as well as result in
significant delays. Any increase in costs, slowdowns or shutdowns could have a
material adverse affect on our future business, financial condition and results
of operations.
BIOAGRA'S USE OF A SINGLE MANUFACTURING FACILITY MAY RESTRICT THEIR ABILITY
TO ATTRACT CUSTOMERS
Poultry farms require a steady source of feed additives. BioAgra's use of
a single manufacturing plant and a single production line may restrict their
ability to attract large customers who require certainty in the production
process. If BioAgra is successful, they expect to expand manufacturing
operations, but there is no assurance that BioAgra will have the financial
resources required to expand their production facilities.
MANUFACTURING CAPACITY RESTRAINTS AND LIMITED EXPERIENCE MAY HAVE AN
ADVERSE AFFECT ON BIOAGRA
BioAgra has limited manufacturing capacity and experience. We may
encounter some difficulties, such as significant unexpected costs and delays, in
scaling up the manufacturing operations of BioAgra to produce quantities
required for us to achieve profitability. The failure to scale-up manufacturing
operations in a timely and cost-effective way may adversely affect our income.
We believe that BioAgra has adequate capacity to meet anticipated demand for
2006. However, in the event the demand for AgraStim rapidly increases or spikes
in a certain period, BioAgra may not have the manufacturing ability to fulfill
demand, either in their our own facilities or through agreements with third
parties. This lack of manufacturing capacity may materially affect BioAgra's
and our reputation, prospects, revenue, income and results of operation.
REPLACING BIOAGRA'S SOLE SOURCE OF SUPPLIERS FOR KEY MATERIALS COULD RESULT
IN UNEXPECTED DELAYS AND EXPENSES
BioAgra obtains some key materials and services for AgraStim from sole source
suppliers, primarily with respect to spent yeast. All of these materials are
commercially available elsewhere. If these materials or services were no longer
available at a reasonable cost from existing suppliers, BioAgra would need to
purchase substitute materials from new suppliers. If BioAgra needed to locate a
new supplier, the substitute or replacement materials may need to be tested for
equivalency. The process of locating a new supplier and any testing of
materials,
10
if necessary, may cause a delay in production of the product and may cause
BioAgra to incur additional expense.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE
We have never paid cash dividends on our common stock. We do not expect to
pay cash dividends on our common stock at any time in the foreseeable future.
The future payment of dividends directly depends upon our future earnings,
capital requirements, financial requirements and other factors that our board of
directors will consider. Since we do not anticipate paying cash dividends on
our common stock, return on your investment, if any, will depend solely on an
increase, if any, in the market value of our common stock.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located at 370 17th Street, Suite
3640, Denver, Colorado 80202. The Company moved into its current office space
on June 27, 2001 and currently has a 5-year lease on the property, expiring in
December 2011. The base rent is $3,109 per month plus certain occupancy costs
with the base rent increasing each year of the lease.
BioAgra is located at 103 Technology Drive, Hinesville, Georgia 31313.
BioAgra has leased the facility from the Liberty County Industrial Authority,
pursuant to an Industrial Lease Agreement, dated March 1, 2005 for a period of
10 years. At the expiration of the lease term, BioAgra has the option to
purchase the leased premises (real estate and improvements) for $500,000. The
facility is approximately 30,000 square feet which consists of both office space
and a production area and a research and development laboratory. The facility
is located on approximately 7.29 acres.
ITEM 3. LEGAL PROCEEDINGS
HARVEST COURT LITIGATION
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company, Mr. Metzinger, Ms. Kampmann,
Dr. Neuhaus, Dr. Shaw and a number of unrelated third parties. The
counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the
Supreme Court of the State of New York, County of New York. The suit alleges
that the Company breached an October 20, 2000 Stock Purchase Agreement, by not
issuing 370,945 free trading shares of the Company's common stock in connection
with the reset provisions of the Purchase Agreement due on the second reset date
and approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York
11
issued a preliminary injunction ordering the Company to reserve and not transfer
the shares allegedly due to Harvest Court, LLC. The Company has filed
counterclaims seeking various forms of relief against Harvest Court, LLC.
DEPOSITORY TRUST LAWSUIT
In May 2004, the Company filed suit against the Depository Trust and
Clearing Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the
National Securities Clearing Corporation ("NSCC") in the Second Judicial
District Court of the County of Washoe, State of Nevada. The suit alleges
multiple claims under the Nevada Revised Statutes 90.570, 90.580, 90.660 and
598A.060 and on other legal bases. The complaint alleges, among other things,
that the DTCC, DTC and NSCC acted in concert to operate the "Stock Borrow
Program," originally created to address short term delivery failures by sellers
of securities in the stock market. According to the complaint, the DTCC, NSCC
and DTC conspired to maintain significant open fail deliver positions of
millions of shares of the Company's common stock for extended periods of time by
using the Stock Borrow Program to cover these open and unsettled positions. The
Company was seeking damages in the amount of $25,000,000 and treble damages. On
April 27, 2005, the court granted a motion to dismiss the lawsuit. The Company
has filed an appeal to overturn the motion to dismiss the lawsuit.
The Company intends to vigorously prosecute all litigation and does not
believe the outcome of the litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
OTHER LITIGATION
Other than the above mentioned lawsuits, to the knowledge of the management
of the Company, there are no material legal proceedings pending or threatened
(other than routine litigation incidental to business) to which the Company (or
any officer, director, affiliate of beneficial owner of more than 5% of the
Company's voting securities) is party, or to which property of the Company is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of security holders during the period covered by
this report.
In January 2006, without the calling of a formal shareholder's meeting and
by written consent pursuant to the provisions of Title 7, Chapter 78, Section
320 of the Nevada Revised Statutes the following actions were approved, by a
majority of the Company's shareholders:
- a reverse 1 for 20 split of the Company's equity;
- the amending and restatement of the Company's Articles of
Incorporation to increase the authorized capital of the Company from
10,000,000 post-split shares to 200,000,000 shares; and
- the change of the name of the Company from NanoPierce
Technologies, Inc. to Vyta Corp.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is presently quoted on the over-the-counter
bulletin board maintained by the National Association of Securities Dealers,
Inc. (the "NASD") under the symbol "VYTC" The common stock of the Company is
also traded on the Berlin Exchange, the Frankfurt Exchange, the Munich Exchange
and the Xetra Exchange.
The following table sets forth the range of high and low quotations for the
common stock of each full quarterly period during the fiscal year or equivalent
period for the fiscal periods indicated below. The quotations were obtained
from information published by the NASD and reflect interdealer prices, without
retail mark-up, markdown or commission and may not necessarily represent actual
transactions.
2005 FISCAL YEAR HIGH LOW
------------------ ----- -----
September 30, 2004 $2.40 $4.20
December 31, 2004 3.40 5.00
March 31, 2005 2.20 6.20
June 30, 2005 2.00 3.00
2006 FISCAL YEAR
------------------
September 30, 2005 1.80 1.60
December 31, 2005 1.20 1.20
March 31, 2006 1.05 1.05
June 30, 2006 0.84 0.75
As of June 30, 2006, there were approximately 335 holders of record of the
Company's common stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its common stock in the past
and does not anticipate paying any dividends in the foreseeable future.
Earnings, if any, are expected to be retained to fund future operations of the
Company. There can be no assurance that the Company will pay dividends at any
time in the future.
RECENT SALES OF UNREGISTERED SECURITIES
Unregistered sales for the three years ended June 30, 2004, 2005 and 2006
are set forth below.
NUMBER OF
DATE TITLE SHARES HOLDER CONSIDERATION
7/21/2003 Common Stock 38,462 Neptune Investments $100,000
7/22/2003 Common Stock 5,000 Gary Thompson Outstanding Invoice
7/22/2003 Common Stock 5,000 Charles Lowe Outstanding Invoice
1/16/2004 Common Stock 829 Patricia Schonebaum Cashless Exercise of Warrant
2/2/2004 Common Stock 895 Vail Valley Emergency Physicians Cashless Exercise of Warrant
13
NUMBER OF
DATE TITLE SHARES HOLDER CONSIDERATION
2/26/2004 Common Stock 7,530 Hamilton Fund, LLC Cashless Exercise of Warrant
6/27/2005 Common Stock 50,000 Lyons Capital Consulting Agreement
Exemption From Registration Claimed
The above issuance by the Company of its unregistered securities was made
by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). The entities/individuals that purchased the unregistered
securities were known to the Company and its management, through pre-existing
business relationships. The entities/individuals were provided access to all
material information which they requested, and all information necessary to
verify such information and was afforded access to management of the Company in
connection with the issuance. The holder of the unregistered securities
acquired such securities for investment and not with a view toward distribution,
acknowledging such intent to the Company. All certificates or agreements
representing such securities that were issued contained restrictive legends,
prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise
exempt from registration under the Act in any further resale or disposition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements contained in this Form 10-KSB contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve risks and uncertainties that could cause actual results to
differ materially from the results, financial or otherwise, or other
expectations described in such forward-looking statements. Any forward-looking
statement or statements speak only as of the date on which such statements were
made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statements are made or reflect the occurrence of unanticipated events.
Therefore, forward-looking statements should not be relied upon as prediction of
actual future results.
Our independent registered public accounting firm's report on the Company's
consolidated financial statements as of June 30, 2006, and for each of the years
in the two-year period then ended, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to the factors
prompting the explanatory paragraph are discussed below and also in Note 2 to
Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
During the years ended June 30, 2006 and 2005, the Company did not
have any revenues from operations.
The Company recognized $72,307 in interest income during the fiscal year
ended June 30, 2006 compared to $17,672 during the fiscal year ended June 30,
2005. The increase of $54,635 is due primarily to the interest earned on loans
to the Company's equity investee, BioAgra.
General and administrative expenses during the fiscal year ended June 30,
2006 were $893,061 compared to $872,203 for the fiscal year ended June 30, 2005.
The increase of $20,858 is mainly attributable to decreases in consulting
expenses,
14
rent expenses, commission expenses and public relations expenses, offset by an
increase in legal expenses and accounting expenses.
During the fiscal year ended June 30, 2006, the Company recognized a net
loss of $2,407,821 compared to a net loss of $997,616 during the fiscal year
ended June 30, 2005. The increase of $1,410,205 primarily resulted from the
increase of $1,253,879 in the equity losses of affiliates, as a result of the
Company recording 100% of the losses incurred by BioAgra, combined with the
$226,057 increase in interest expense resulting primarily from non-cash expense
recorded for warrants and common stock issued with notes payable, offset by a
$120,788 gain on the extinguishment of liabilities during the fiscal year ended
June 30, 2006.
The Company recorded a net loss applicable to common shareholders of
$3,907,821 during the year ended June 30, 2006. As a result of the beneficial
conversion feature of $1,500,000 related to preferred stock.
LIQUIDITY AND FINANCIAL CONDITION
Net cash used in operating activities in 2006 was $878,306, compared to net
cash used in operating activities in 2005 of $544,194. In 2006, the net cash
used represented a net loss of $2,407,821, adjusted certain non-cash items
consisting of the amortization and depreciation expense of $34,571, equity in
losses of equity investees of $1,398,202, gain on the extinguishment of
liabilities of $120,788, amortization of discounts on notes payable of $213,860
and a loss on the revaluation of derivative warrant liabilities of $74,295.
In 2005, the net cash used represented a net loss of $997,616, adjusted
certain non-cash items consisting of amortization and depreciation expense of
$14,758, equity in losses of equity investees of $144,323, amortization of
discounts on notes payable of $7,272 and a provision for a loss on a note
receivable of $35,000.
During the fiscal year ended June 30, 2006, the Company raised $632,372
cash through the sale of 790,467 shares of our restricted common stock and
warrants to purchase 746,717 shares of our restricted common stock.
During the fiscal year ended June 30, 2006, the Company raised $1,535,000
cash through the exercise of 1,535,000 warrants with an exercise price of $1.00
per share.
During the fiscal year ended June 30, 2006, the Company purchased a 50%
equity interest in BioAgra for $905,000 cash (which includes the $405,000
advanced to Xact Resources during the fiscal year ended June 30, 2005) and a
note payable of $595,000 which was paid in full in September 2005.
During the fiscal year ended June 30, 2006, the Company completed the sale
of 200,000 shares of our series A preferred stock for $1,500,000 cash. In
February 2006, Arizcan converted the 200,000 shares of preferred stock into
15,000,000 shares of the Company's restricted common stock. Upon conversion,
Arizcan held approximately 67% of our issued and outstanding common stock.
During the fiscal year ended June 30, 2006, the Company loaned $1,686,570
to BioAgra through a series of secured, 7.5% promissory notes, which were due
over a period from June 30, 2006 through October 31, 2006. On June 26, 2006,
the Company agreed to combine all of the promissory notes and accrued interest
of $40,257 into a $1,726,827 secured, 7.5% promissory note with payments to be
made monthly starting October 31, 2006. Through October 31, 2007, the entire
loan balance is classified as a non-current asset at June 30, 2006 as BioAgra
has not generated cash flow since its inception. The funds were loaned to
facilitate BioAgra's
15
completion of its first production line and to support operations as product is
sold. The promissory note is collateralized by all equipment, furnishings,
present and future accounts, collateral securing such accounts, tangible and
intangible personal property and any proceeds from any of the foregoing located
on BioAgra's premises. Additionally, the promissory note is to be paid in full
prior to any disbursements being made to the members of the joint venture. At
June 30, 2006, interest of $1,064 was accrued. During the quarter ended
September 30, 2006, the Company has advanced an additional $191,250 to BioAgra.
During the fiscal year ended June 30, 2005, the Company loaned $314,000 to
a unrelated third party and received a payment of $50,000, which included
interest of $11,442 during the same period. During the fiscal year ended June
30, 2005, the Company loaned Intercell $35,000. In March 2005, Intercell filed
for protection under Chapter 11 of the US Bankruptcy Code. The Company has
recorded a provision for this note receivable of $35,000.
During the fiscal year ended June 30, 2005, in connection with an
investment in BioAgra, the Company advanced Xact Resources International
$405,000 to be used for the purchase of a 50% equity interest in BioAgra, LLC.
for $1.5 million cash. The purchase was completed in August 2005.
During the fiscal year ended June 30, 2005, the Company received $112,800
(net of $7,200 of offering costs) in connection with the exercise of warrants
for 1,200,000 shares of the Company's common stock.
During the fiscal year ended June 30, 2005, the Company received $41,000 in
exchange for an unsecured 5% note payable from Mr. Metzinger, an officer and
director of the Company. In August 2005, the note was paid in full.
During the fiscal year ended June 30, 2005, the Company received $150,000
in exchange for an unsecured 15% per quarter, note payable from an unrelated
third party. In connection with the note the Company issued 2,000,000 shares of
its restricted common stock (1,000,000 shares were issued in June 2005 and the
remaining 1,000,000 shares were issued in July 2005) with a relative fair value
of $81,718, to be amortized over the term of the note. The note was repaid in
full in September 2005.
During the fiscal year ended June 30, 2005, the Company received $25,000 in
exchange for an unsecured %8 per annum note payable, from an unrelated third
party. In connection with the note the Company issued 1,500,000 shares of its
restricted common stock (issued in July 2005) with a relative value of $21,428,
to be amortized over the term of the note. The note was paid in full in August
2005.
During the year ended June 30, 2006, the Company did not have any
significant operations, and management of the Company spent a majority of the
fiscal year, restructuring the Company and raising additional funds for the
BioAgra investment. During the 2007 fiscal year the Company intends to continue
its efforts to aid BioAgra with the continuing development of its sales,
nationally and internationally in other animal feed markets, such as the equine
and the swine markets.
The Company intends to raise additional funds to support operations of the
Company during the 2007 fiscal year. Such funds are to be raised through a
private offering of preferred stock, the terms of which are in the process of
being finalized.
16
To the extent the Company's operations are not sufficient to fund the
Company's capital requirements the Company may enter into a revolving loan
agreement with financial institutions or attempt to raise capital through the
sale of additional capital stock or through the issuance of debt. At the
present time the Company does not have a revolving loan agreement with any
financial institution nor can the Company provide any assurance that it will be
able to enter into any such agreement in the future or be able to raise funds
through the further issuance of debt or equity in the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), Share-Based Payment, which addresses the accounting for share-based
payment transactions. SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for the
Company beginning with the first fiscal quarter of the fiscal year ending June
30, 2007. As the company currently has no un-vested options, the implementation
of this standard is not expected to have an immediate impact on the Company's
financial position and results of operations.
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid
Financial Instruments, which amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a replacement
of FASB Statement No. 125. SFAS 155 will be effective for the Company for all
financial instruments issued or acquired after the beginning its fiscal year
ending June 30, 2008. We have not yet evaluated and determined the likely effect
of SFAS 155 on our future financial statements.
In June 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB Statement No.
109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return that
results in a tax benefit. Additionally, FIN 48 provides guidance on
de-recognition, income statement classification of interest and penalties,
accounting in interim periods, disclosure, and transition. This interpretation
is effective for the Company for its fiscal year ending June 30, 2008. The
Company has not yet evaluated the effect that the application of FIN 48 may
have, if any, on its future results of operations and financial condition.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets
and liabilities, revenues and expenses and related disclosures of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to deferred revenues; depreciation or fixed assets,
valuation of intangible assets such as our intellectual property, financing
operations, currency valuations and contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes that the following are some of the more significant
accounting policies and methods used by the Company:
- stock based compensation;
- value of long-lived assets;
- equity method investments;
- international operations;
- revenue recognition and deferred revenue;
- litigation; and
- contractual obligations.
Stock-based compensation
SFAS No. 123, Accounting for Stock Based Compensation, defines a
fair-value-based method of accounting for stock-based employee compensation
plans and transactions in which an entity issues its equity instruments to
acquire goods or
17
services from non-employees, and encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value.
The Company has chosen to account for employee stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, employee compensation cost for stock
options is measured as the excess, if any, of the estimated fair value of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), Share-Based Payment, which addresses the accounting for
share-based payment transactions. SFAS No. 123(R) eliminates the ability to
account for share-based compensation transactions using APB 25, and generally
requires instead that such transactions be accounted and recognized in the
statement of operations based on their fair value. SFAS No. 123(R) will be
effective for the Company beginning with the first fiscal quarter of the fiscal
year ended June 30, 2007. Depending upon the number of and terms of options
that may be granted in future periods, the implementation of this standard could
have a significant impact on the Company's financial position and results of
operations in future periods.
Valuation of long-lived assets
The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Factors the Company considers important which could trigger an
impairment review include negative projected operating performance by the
Company and significant negative industry or economic trends. The Company does
not believe that there has been any impairment to long-lived assets as of June
30, 2006.
Equity method investments
Entities where the Company can exercise significant influence, but not control,
are accounted for under the equity method of accounting. Whether or not the
Company exercises significant influence with respect to a company depends on an
evaluation of several factors including, among others, representation on the
company's board of directors and ownership level, generally 20% to 50% interest
in the voting securities of the company including voting rights associated with
the Company's holdings in common, preferred and other convertible instruments in
the company. Under the equity method of accounting, the Company's share of the
earnings or losses of these companies is included in the equity income (loss)
section of the consolidated statements of operations.
A loss in value of an investment that is other than a temporary decline is
recognized as a charge to operations. Evidence of a loss in value might
include, but would not necessarily be limited to, absence of an ability to
recover the carrying amount of the investment or inability of the investee to
sustain an earnings capacity that would justify the carrying amount of the
investment.
International operations
The Company's foreign equity investee (ExypnoTech) operations are located
in Germany. ExypnoTech transactions are conducted in currencies other than the
U.S. dollar, (the currency into which the subsidiaries' historical financial
statements have been translated) primarily the Euro. As a result, the Company
is exposed to adverse movements in foreign currency exchange rates. In
addition, foreign political and economic environment, trade barriers, managing
foreign operations and potentially adverse tax consequences. Any of these
factors could have a material
18
adverse effect on the Company's financial condition or results of operations in
the future.
Revenue recognition and deferred revenue
The Company's revenue recognition policy is significant because future
revenue could be a key component of its results or operations. Revenue results
are difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause operating results to vary significantly.
Litigation
The Company is involved in certain legal proceedings, as described in Item
3 of this report and Note 9 to the consolidated financial statements included in
this report.
The Company intends to vigorously prosecute these legal proceedings and
does not believe the outcome of these proceedings will have a material adverse
effect on the financial condition, results of operations or liquidity of the
Company. However, it is too early at this time to determine the ultimate
outcome of these matters.
Contractual obligations
For more information on the Company's contractual obligations on operating
leases, refer to Note 9 of the consolidated financial statements included in
this report. At June 30, 2006, the Company's commitments under these
obligations were as follows:
OPERATING LEASES
-----------------
Year ending June 30,
2007 $ 39,822
2008 38,211
2009 39,415
2010 40,618
2011 20,761
-----------------
$ 178,827
=================
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements and related financial information
required to be filed are indexed on page F-1 and are incorporated herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report on Form 10-KSB,
the Company carried out an evaluation, under the supervision and with the
participation of the Company's President and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based
upon such evaluation, such officers have concluded that the Company's disclosure
controls and procedures are
19
effective as of the end of the period covered by this annual report on Form
10-KSB in alerting them, on a timely basis, to material information relating to
the Company required to be included in the Company's periodic SEC filings and to
ensure that information required to be disclosed in the Company's periodic SEC
filings is accumulated and communicated to the Company's management, including
its President and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
There was no change to the Company's internal controls over financial
reporting during the fiscal quarter ended June 30, 2006 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
FINANCIAL EXPERT
The Company's Board of Directors does not have a designated Financial
Expert, as defined by the SEC, due to factors including the Company's
operational status, and the limited number of transactions, accounts and
balances that the Company maintains. In addition, the estimates of cost that
the Company would be required to incur in identifying and designating a
Financial Expert are deemed not to be in the best interest of the Company.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
NAME AND AGE POSITION PERIOD
------------ -------- ------
Paul H. Metzinger (67) Director, President, and December 1998 to present
Chief Executive Officer,
Manager & Vice President August 15, 2006 to present
of BioAgra
Dr. Herbert J. Neuhaus (45) Director, Former Executive January 1999 to present
Vice President of
Technology & Marketing
Kristi J. Kampmann (33) Chief Financial Officer, October 1999 to present
Secretary February 1998 to present
Chief Financial Officer, August 15, 2006 to present
BioAgra
Dr. Robert Shaw (66) Director October 2000 to present
John Hoback (66) Director April 2002 to present
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The Board of
Directors elects the officers at its annual meeting immediately following the
shareholders annual meeting and hold office until they resign or are removed
from office. There are no family relationships that exist between any director,
executive officer, significant employee or person nominated or chosen by the
Company to become a director of executive officer. The Company has established
audit, incentive compensation and nominating committees, consisting of the
independent directors.
20
BIOGRAPHICAL INFORMATION ON OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
PAUL H. METZINGER. Mr. Metzinger was President and Chief Executive Officer
of the Company from February 26, 1998 to May 6, 1998 and has served in that same
capacity from December 1, 1998 to present. He has been a director of the
Company since February 26, 1998. He has served as a Manager and Vice President
of BioAgra since August 15, 2005. He served as the General Manager of
NanoPierce Card from January 2000 to June 2003. In addition, he served as the
President, Chief Executive Officer and a Director of Intercell International
Corporation from June 1996 to October 2003 and from September 30, 2004 to March
16, 2005. Prior to becoming a director and officer of the Company and Intercell
International Corporation, Mr. Metzinger served as Intercell's General Counsel
and practiced securities law in Denver, Colorado for over 32 years. Mr.
Metzinger received his J.D. degree in 1967 from Creighton University Law School
and his L.L.M. from Georgetown University in 1969.
On March 16 2005, Intercell International Corporation filed for protection
under the Chapter 11 of the United States Bankruptcy Code. In April 5, 2006, the
United States Bankruptcy Court for the District of Colorado, dismissed the
Chapter 11 bankruptcy proceedings.
HERBERT J. NEUHAUS, PH.D. Dr. Neuhaus has been the Executive Vice
President of Marketing and Technology and a Director of the Company since
January 1, 1999. He has been the President and Chief Executive Officer of
NanoPierce Connection since January 2002. Dr. Neuhaus previously served as the
Managing Director of Particle Interconnect Corporation from August 18, 1997 to
November 1, 1997. From August 1989 to August 1997, he was associated with the
Electronic Material Venture Group in the New Business Development Department of
Amoco Chemical Company, Naperville, Illinois. While associated with Amoco
Chemical Company he held among other positions: Business Development
Manger/Team Leader; Project Manager --High Density Interconnect; Product Manager
MCM Products and as a research scientist.
Dr. Neuhaus received his Ph.D. degree in Physics form the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1989 and his BS in Physics
from Clemson University, Clemson, South Carolina in 1980.
KRISTI J. KAMPMANN. Ms. Kampmann was appointed the Chief Financial Officer
of the Company on October 15, 1999. Ms. Kampmann has been Secretary of the
Company since February 1998. Ms. Kampmann has served as a manager of ExypnoTech,
LLC since June 2004. She has served as the Chief Financial Officer of BioAgra
since August 15, 2005. She has served as the Chief Financial Officer of
Intercell International Corporation since October 1, 2003 and as Secretary of
Intercell International Corporation since July 28, 1999. Since June 1997, she
has been the administrative assistant to the Chief Executive Officer and Chief
Financial Officer; in addition, during the same period she served in the same
capacity to the Chief Executive Officer of Intercell. From April 1996 to June
1997, she served as a paralegal and administrative assistant for Paul H.
Metzinger, P.C. Ms. Kampmann received an MBA from the University of Colorado,
Denver in December 2001. Ms. Kampmann graduated from the Denver Paralegal
Institute in 1996 and received a B.A. from the University of Minnesota in Morris
in 1995, majoring in Political Science with a minor in Business Management.
On March 16 2005, Intercell International Corporation filed for protection
under the Chapter 11 of the United States Bankruptcy Code. In April 5, 2006, the
United States Bankruptcy Court for the District of Colorado, dismissed the
Chapter 11 bankruptcy proceedings.
DR. ROBERT SHAW. Dr. Shaw has been a director of the Company since October
31, 2000. Dr. Shaw currently is an Assistant Professor of Physics at Farleigh
Dickinson University where he has served on the faculty since September 1988.
Dr. Shaw also performs professional research in his academic areas of specialty,
and has held, among others, the positions of Research Chemist at the American
Cyanamid Research Laboratories, Stamford; Senior Research Physicist at Exxon
Research and Engineering Company; Manager of New Business Development at Exxon
Enterprises, Exxon Corporation, New York, NY; and President of Robert Shaw
Associates, Inc., Chatham, NJ.
21
Dr. Shaw received his Ph.D. in Solid State Physics form Cambridge
University, Cambridge, England. He was among the first to conduct academic
research on electronic conduction mechanisms in amorphous semiconductors. He
received a B.S. in Inorganic Chemistry with a minor in Nuclear Physics from
North Carolina State University, Raleigh, NC.
JOHN HOBACK. Mr. Hoback has been a director of the Company since April
2002. Mr. Hoback currently serves as the President of Z&H Enterprises
Solutions, Ltd., which position he has held since 2000. Among other positions,
Mr. Hoback was the Director of Marketing and Sales of CTS from 1999 to 2000 and
was the Venture Manager of Electronics with Amoco Chemical from 1988 to 1999.
CODE OF ETHICS
The Company in January 2004 adopted a Code of Ethics that applies to the
Chief Executive Officer, Chief Financial Officer, Controller, Principal
Accounting Officer and those employees performing similar functions.
22
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer and the Company's three most
highly compensated executive officers for the fiscal years ended June 30, 2006,
2005 and 2004 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- ----------------------------------------------------
AWARDS PAYOUTS
------------------------- -------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME & PRINCIPAL SALARY BONUS COMPENSA STOCK OPTIONS/ PAYOUTS COMPENSA-
POSITION YEAR ($) ($) TION AWARDS ($) SARS (#) ($) TION
Paul H.
Metzinger, 2006 $ 105,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Director, 2005 $ 136,785 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
President & 2004 $ 114,583 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
CEO(1)
Dr. Herbert J.
Neuhaus, 2006 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Director, Ex. VP 2005 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
of Technology & 2004 $ 16,668 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Marketing, (2)
Kristi J. 2006 $ 78,125 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Kampmann, Chief 2005 $ 80,625 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Financial 2004 $ 37,492 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Officer &
Secretary(3)
------------------
(1) Paul Metzinger has served as President & CEO since December 1998. He is
compensated pursuant to a written Employment Agreement, dated March 15, 2004 at
an annual salary of $150,000. Over the three year period Mr. Metzinger has taken
salary cuts when necessary.
(2) Dr. Neuhaus has served as the Executive Vice President of Technology and
Marketing since January 1999. He served as the President and CEO of NanoPierce
Connection from January 2002 to September 2003. He was compensated pursuant to a
written Employment Agreement, dated January 2002 at an annual salary of
$200,000. This employment agreement was terminated in September 2003 and Dr.
Neuhaus is no longer a paid employee of the Company and/or its subsidiaries.
(3) Kristi Kampmann has served as the Chief Financial Officer since October
1999. She is compensated pursuant to a written Employment Agreement, dated March
15, 2004. During the year ended June 30, 2005, Ms. Kampmann received a gross
monthly salary of $7,500 for 7 months, in March 2005 it was reduced to $6,250
per month.
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain
non-monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
23
OPTION/SAR GRANTS TABLE
There were no grants of stock options to the Company's executive officers
during the fiscal year ended June 30, 2006.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 2006 by the Company's executive
officers and the 2006 fiscal year-end value of unexercised options.
SHARES VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SAR
NAME EXERCISE (#) ($) AT FY-END AT FY-END ($)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------------- ---------------------------------
Paul H.
Metzinger 0 0 90,000/0 $72,000/0
Dr. Herbert
J. Neuhaus 0 0 67,500/0 $54,000/0
Kristi
J.Kampmann 0 0 10,000/0 $8,000/0
(1) The average of the closing bid and asked price of the Common Stock on June
30, 2006 ($0.80) was used to calculate the option value.
EMPLOYMENT AGREEMENTS
On March 15, 2004, the Company entered into an employment agreement with
Paul H. Metzinger to serve as President and Chief Executive Officer of the
Company. The employment agreement with Mr. Metzinger expires March 14, 2008.
Pursuant to his employment agreement, the Company agreed to pay Mr. Metzinger an
annual salary of $150,000. In March 2005, Mr. Metzinger took a salary cut to
receive an annual salary of $105,000.
On March 15, 2004, the Company entered into an employment agreement with
Kristi J. Kampmann to serve as the Chief Financial Officer of the Company. The
employment agreement with Ms. Kampmann expires on March 14, 2008. Pursuant to
her employment agreement, the Company agreed to pay Ms. Kampmann an annual
salary of $30,000. During the year ended June 30, 2005, Ms. Kampmann received a
salary increase for an annual salary of $90,000, but in March 2005 took a salary
cut to receive an annual salary of $75,000.
In connection with the Employment Agreements, generally, the Company or the
employee may terminate the Employment Agreement at any time with or without
cause. In the event the Company terminates an Employment Agreement for cause or
the employee terminates his or her Employee Agreement without cause, all of such
employee's rights to compensation would cease upon the date of such termination.
If the Company terminates an Employment Agreement without cause, the such
employee terminates his or her Employment Agreement for cause, or in the event
of a change in control, the Company is required to pay to such employee all
compensation and other benefits that would have accrued and/or been payable to
that employee during the full term of the Employment Agreement.
24
A change of control is considered to have occurred when, as a result of any
type of corporate reorganization, execution of proxies, voting trusts or similar
arrangements, a person or group of persons (other than incumbent officers,
directors and principal shareholders of the Company) acquires sufficient control
to elect more than a majority of the Company's Board of Directors, acquires 50%
or more of the voting shares of the Company, or the Company adopts a plan of
dissolution of liquidation. The Employment Agreement also include a non-compete
and nondisclosure provisions in which each employee agrees not to compete with
or disclose confidential information regarding the Company and its business
during the term of the Employment Agreement and for a period of one year
thereafter.
COMPENSATION PURSUANT TO PLANS
STOCK OPTION PLANS. The Company has two Stock Option Plans. As of June 30,
2006, 311,127 options are outstanding under the 1998 Compensatory Stock Option
Plan and 87,000 options are outstanding under the 2000 Compensatory Stock Option
Plan, for a total of 398,127 options are outstanding. A total of 398,127 options
are exercisable at June 30, 2006, under these plans. During the fiscal year
ended June 30, 2006, the Company did not grant any options. The Company has
reserved 375,000 shares of common stock for issuance under the 1998 Compensatory
Stock Option Plan. In January 2002, the Company's Board of Directors passed a
resolution closing the 1998 Compensatory Stock Option Plan for issuance of new
options. The Company has reserved 250,000 shares of common stock for issuance
under the 2000 Compensatory Stock Option Plan.
During the fiscal year ended June 30, 2006, there was no action taken to
reprice any options held by any officers, directors or employees.
COMPENSATION OF DIRECTORS
The Company holds quarterly meetings of the board of directors. Although
the Company does not have any standard arrangements pursuant to which our
directors are compensated for any services provided as a director or for
attendance at meetings of the board of directors, if the financial situation of
the Company is adequate, the Company compensates directors $1,000 per meeting,
plus reasonable travel expenses.
During the fiscal year ended June 30, 2006, the officers and directors were
not compensated for attendance at board meetings.
25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCK HOLDER MATTERS
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of the Company's common stock as of June 30,
2006 on a fully diluted basis, by (a) each person known by the Company to own
beneficially 5% or more of the outstanding shares of common stock, (b) the
Company's directors, Chief Executive Officer and executive officers whose total
compensation exceeded $100,000 for the last fiscal year, and (c) all directors
and executive officers of the Company as a group.
--------------------------------------------------------------------------------------------------
NAME, ADDRESS & NATURE OF
BENEFICIAL OWNER TITLE OF CLASS AMOUNT PERCENT OF CLASS (7)
---------------------------------- ----------------- ------------------ -----------------------
The Paul H. Metzinger Trust Common Stock 191,585(1) 0.64%
Paul H. Metzinger, President &
CEO, Director 370 17th Street,
Suite 3640 Denver, CO 80202
---------------------------------- ----------------- ------------------ -----------------------
The Cheri L. Metzinger Trust Common Stock 191,585(2) 0.64%
Cheri L. Metzinger, Wife of Paul
H. Metzinger
3236 Jellison Street Wheatridge,
CO 80033
---------------------------------- ----------------- ------------------ -----------------------
Dr. Herbert J. Neuhaus, Director, Common Stock 67,500(3) 0.23%
770 Maroonglen Court
Colorado Springs, CO 80906
---------------------------------- ----------------- ------------------ -----------------------
Kristi J. Kampmann, Chief Common Stock 10,955(4) 0.04%
Financial Officer & Secretary
370 17th Street, Suite 3640
Denver, CO 80202
---------------------------------- ----------------- ------------------ -----------------------
Dr. Robert E. Shaw, Director Options to 20,000(5) 0.07%
8 Nicklaus Court purchase Common
Florham Park, NJ 07932 Stock
---------------------------------- ----------------- ------------------ -----------------------
John Hoback, Director 20 White Options to 20,000(6) 0.07%
Heron Lake purchase Common
East Stroudsburg, PA 18301 Stock
---------------------------------- ----------------- ------------------ -----------------------
Arizcan Properties, Ltd.
77 S. Adams, Suite 906 Common Stock 8,827,631(7) 29%
Denver, CO 80219
---------------------------------- ----------------- ------------------ -----------------------
All Officers & Directors as a Common Stock 305,040(8) 1.02%
Group (5 persons)
--------------------------------------------------------------------------------------------------
----------------
(1) Includes 43,640 common shares held directly and beneficially; 57,945 common
shares that Mr. Metzinger owns beneficially though his wife and options held by
Mr. Metzinger consisting of options to purchase 15,000 shares exercisable at
$10.40 per share and options to purchase 75,000 shares exercisable at $6.50 per
share.
(2) Cheri L. Metzinger is the wife of Mr. Paul H. Metzinger, the Chief Executive
Officer and President of the Company. This includes 57,945 shares held directly
and beneficially and -common shares and 90,000 common shares subject to options
owned beneficially by her husband.
(3) Based on options to purchase 25,000 shares exercisable at $42.50 per share,
options to purchase 5,000 shares exercisable at $55.00 per share, options to
purchase 12,500 shares exercisable at $10.40 per share and options to purchase
25,000 shares exercisable at $4.00 per share.
(4) Based on 955 common shares and options to purchase 5,000 shares exercisable
at $16.80 per share, options to purchase 2,500 shares exercisable at $10.40 per
share and options to purchase 2,500 shares exercisable at $6.50 per share.
(5) Based on options to purchase 12,500 shares exercisable at $19.40 per share,
options to purchase 2,500 shares exercisable at $13.40 per share, and options to
purchase 5,000 shares exercisable at $40.00 per share.
(6) Based on options to purchase 15,000 shares exercisable at $14.00 per share
and options to purchase 5,000 shares exercisable at $14.00 per share.
(7) Based on 8,327,631 shares of common shares, of which 2,500,000 shares are
held under warrant by an unrelated third party.
(8) Based on 22,643,512 shares of common stock issued and outstanding on June
30, 2006, assuming exercise of all 398,127 presently exercisable options,
exercise of 6,953,632 outstanding warrants, and the issuance of 832,290 shares
reserved in the Harvest Court Litigation there would be 29,995,271 shares
outstanding. Mr. Metzinger's and Mrs. Metzinger's stock ownership are not
duplicated in this computation.
26
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of June 30, 2006 regarding
compensation plans (including individual compensation arrangements) under which
shares of our common stock are authorized for issuance. No class of our
securities other than our common stock or options to purchase our common stock
is authorized for issuance under any of our equity compensation plans.
-------------------------------------------------------------------------------------------
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
Plan Category warrants and rights and rights reflected in column (a)
(A) (B) (C)
------------------- --------------------- ------------------- --------------------------
Equity
compensation plans
approvedby
security holders 0 - 0
------------------- --------------------- ------------------- --------------------------
Equity
compensation plans
not approved by
security holders(1) 398,127 $22.00 226,173
------------------- --------------------- ------------------- --------------------------
Total 398,127 $22.00 226,173
-------------------------------------------------------------------------------------------
(1) The material features of the plans not approved by the security holders are
described herein under "ITEM 10-EXECUTIVE COMPENSATION-Compensation Pursuant to
Plans."
27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2005 and January 2006, Mr. Metzinger and Ms. Kampmann agreed to
cancel certain options held by them.
In June 2005, Mr. Metzinger loaned the Company $41,000, in exchange for an
unsecured 5% note payable due December 31, 2005. In August 2005, the Company
paid the outstanding principal balance of this note and all accrued interest
thereon in full.
In March 2004, the Company entered into employment agreements, as
previously discussed, with Mr. Metzinger, the President and Chief Executive
Officer and a Director of the Company, and with Ms. Kampmann, the Chief
Financial Officer and Secretary of the Company.
PART IV
ITEM 13. EXHIBITS
The following documents are filed as a part of this Report.
(i) Financial Statements. See Index to Financial Statements and
Schedule on page F-2 of this Report.
(ii) Exhibits. The following is a complete list of exhibits filed as
part of this Form 10-KSB. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-B.
EXHIBIT NO. DESCRIPTION
2 Agreement dated February 26, 1998, by and among the Company,
Particle Interconnect Corporation and Intercell Corporation (4)
2.02 Application and Development Agreement, dated April 15, 1999, by
and among the Company and Multitape & Co., Gmbh, KG. (2)
2.03 Technology Cooperation Agreement, dated May 17, 1999, by and
among the Company and Meinen, Zeigel & Co. (2)
2.04 Technology Development Agreement, dated June 11, 1999, by and
among the Company and ORGA Kartensysteme, GmbH. (2)
2.05 Agreement-In-Principle, dated May 18, 1999, by and
among the Company and Cirrex Corporation. (2)
4.01 The Articles of Incorporation of the Company (3)
4.02 Amendment to the Articles of Incorporation of the Company filed
with the Nevada Secretary of State on March 20, 2002 (3)
4.03 Amendment to Articles of Incorporation filed with the Nevada
Secretary of State on March 20, 2002
4.04 Certificate of Designation of Rights and Preferences of the
Series A Preferred Stock (4)
4.05 Certificate of Designation of Rights and Preferences of the
Series B Preferred Stock (5)
4.06 Certificate of Designation of Rights and Preferences of the
Series C Preferred Stock (5)
4.07 Form of Common Stock Certificate (3)
4.08 The Amended and Restated By-laws of the Company (6)
10.01 Employment Agreement, dated March 15, 2004, between Paul H.
Metzinger and the Company (7)
28
10.02 Employment Agreement, dated March 15, 2004, between Kristi J.
Kampmann and the Company (7)
10.03 Operating Agreement, dated August 15, 2005, between the Company
and Xact Resources International, Inc. for BioAgra, LLC. (8)
21 Subsidiaries of the Company (1)
23 Consent of Independent Registered Public Accounting Firm (1)
31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act (1)
32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act (1)
___________________
(1) Filed herewith.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1999.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1998.
(4) Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 26, 1998.
(5) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 23, 1998.
(6) Incorporated by reference to Amendment No. 1 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2003.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended March 31, 2004.
(8) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 12, 2005.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed and expected to be billed by GHP Horwath, P.C.
(previously known as Gelfond Hochstadt Pangburn, P.C.), the Company's
independent registered public accounting firm, for professional services in the
fiscal years ended June 30, 2006 and 2005 are as follows:
-------------------------------------
Services Rendered 2006 2005
------------------ -------- -------
Audit Fees $ 84,350 $50,660
------------------ -------- -------
Audit Related Fees 0 0
------------------ -------- -------
All Other Fees 0 0
-------------------------------------
The engagement of the Company's independent registered public accounting
firm was approved by the Company's audit committee prior to the start of the
audit for the fiscal year ended June 30, 2006.
29
SIGNATURES
Pursuant to the requirements of 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.
VYTA CORP
(a Nevada corporation)
Date: October 12, 2006 By: /s/ Paul H. Metzinger
------------------------------
Paul H. Metzinger, Director, Chief
Executive Officer & President
Date: October 12, 2006 By: /s/ Kristi J. Kampmann
------------------------------
Kristi J. Kampmann, Chief Financial
Officer & Chief Accounting 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.
Date: October 12, 2006 By: /s/ Paul H. Metzinger
------------------------------
Paul H. Metzinger, Director, Chief
Executive Officer & President
Date: October 12, 2006 By: /s/ Herbert J. Neuhaus
------------------------------
Herbert J. Neuhaus, Director &
Executive Vice-President of
Technology & Marketing
Date: October 12, 2006 By: /s/ Robert Shaw
------------------------------
Robert Shaw, Director
Date: October 12, 2006 By: /s/ John Hoback
------------------------------
John Hoback, Director
30
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report covering the Company's fiscal year ended June 30, 2006,
nor any proxy material, has been sent to security holders of the Company.
31
VYTA CORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Financial Statements:
Consolidated Balance Sheet - June 30, 2006 F-2
Consolidated Statements of Operations -
Years ended June 30, 2006 and 2005 F-3
Consolidated Statements of Comprehensive Loss -
Years ended June 30, 2006 and 2005 F-4
Consolidated Statements of Changes in Shareholders' Equity -
Years ended June 30, 2006 and 2005 F-5
Consolidated Statements of Cash Flows -
Years ended June 30, 2006 and 2005 F-8
Notes to Consolidated Financial Statements F-10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors
Vyta Corp
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Vyta Corp
(formerly known as Nanopierce Technologies, Inc.) and subsidiaries (the
"Company") as of June 30, 2006, and the related consolidated statements of
operations, comprehensive loss, changes in shareholders' equity and cash flows
for each of the years in the two-year period ended June 30, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vyta Corp and
subsidiaries as of June 30, 2006, and the results of their operations and their
cash flows for each of the years in the two-year period ended June 30, 2006, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company reported a net loss applicable to
common shareholders of approximately $3,908,000, substantially all derived from
its equity in development stage net losses of its principal investee, a 50%
joint venture whose ability to continue as a going concern is in substantial
doubt, and significant cash outflows from operations, for the year ended June
30, 2006, and an accumulated deficit of approximately $26,037,000 as of June 30,
2006. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters,
which do not include any direct revenue-producing activities in the foreseeable
future, are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ GHP HORWATH, P.C.
Denver, Colorado
October 3, 2006
F-1
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Balance Sheet
June 30, 2006
Assets
------
Current assets:
Cash and cash equivalents $ 192,360
Prepaid expenses and other 454,214
-------------
Total current assets 646,574
-------------
Property and equipment:
Office equipment and furniture 67,107
Less accumulated depreciation (56,283)
-------------
10,824
-------------
Other assets:
Deposits and other 19,343
Note receivable, equity investee (Note 4) 1,726,827
Investments in equity investees (Note 5) 268,715
-------------
2,014,885
-------------
Total assets $ 2,672,283
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 78,854
Advances payable, related party (Note 6) 100,000
Accrued liabilities 7,063
-------------
Total liabilities (all current) 185,917
-------------
Commitments and contingencies (Notes 3,6,7,8 and 9)
Shareholders' equity (Note 7):
Preferred stock; $0.0001 par value; 5,000,000 shares authorized;
none issued and outstanding
Common stock; $0.0001 par value; 200,000,000 shares authorized;
22,643,512 shares issued and outstanding 2,264
Additional paid-in capital 28,390,883
Accumulated other comprehensive income 130,359
Accumulated deficit (26,037,140)
-------------
Total shareholders' equity 2,486,366
-------------
Total liabilities and shareholders' equity $ 2,672,283
=============
See notes to consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Statements of Operations
Years Ended June 30, 2006 and 2005
2006 2005
------------ -----------
Revenues $ - -
------------ -----------
General and administrative expense (893,061) (872,203)
------------ -----------
Loss from operations (893,061) (872,203)
------------ -----------
Other income (expense):
Other income - 10,618
Interest income, equity investee 72,307 17,672
Extinguishment of liabilities (Note 6) 120,788 -
Equity losses of equity investees (Note 5) (1,398,202) (144,323)
Loss on revaluation of derivative
warrant liability (Note 7) (74,295) -
Interest expense (235,139) (9,301)
Interest expense, related party (219) (79)
------------ -----------
(1,514,760) (125,413)
------------ -----------
Net loss (2,407,821) (997,616)
------------ -----------
Beneficial conversion feature, preferred
stock (Note 8) (1,500,000) -
------------ -----------
Net loss applicable to common
shareholders $(3,907,821) (997,616)
============ ===========
Net loss per share, basic and diluted
(Note 1) $ (0.30) (0.22)
============ ===========
Weighted average number of common
shares outstanding (Note 1) 12,984,849 4,544,980
============ ===========
See notes to consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Statements of Comprehensive Loss
Years Ended June 30, 2006 and 2005
2006 2005
------------ ------------
Net loss $(2,407,821) (997,616)
Change in unrealized gain (loss) on
securities 59 (379)
Change in foreign currency
translation adjustments 7,457 -
------------ ------------
Comprehensive loss $(2,400,305) (997,995)
============ ============
See notes to consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
Years Ended June 30, 2006 and 2005
(Note 1)
Accumulated
Common stock Additional other Total
-------------------------- paid-in comprehensive Accumulated shareholders'
Shares Amount capital Income deficit equity
------------ ------------ ------------- ------------- -------------- -------------
Balances, July 1, 2004 4,503,045 $ 450 23,753,447 123,222 (22,631,703) 1,245,416
Common stock issued upon
exercise of warrants
(net of offering costs
of $7,200)(Note 8) 60,000 6 112,794 - - 112,800
Common stock issued for
deferred consulting
costs (Notes 1 and 8) 50,000 5 89,995 - - 90,000
Common stock issued
with note Payable
(Notes 6 and 8) 50,000 5 102,891 - - 102,896
Common stock to be
issued (Notes 6 and 8) - - 250 - - 250
Net loss - - - - (997,616) (997,616)
Other comprehensive
loss:
Change in unrealized
gain on securities - - - (379) - (379)
------------ ------------ ------------- ------------- -------------- -------------
Balances,
June 30, 2005 4,663,045 $ 466 24,059,377 122,843 (23,629,319) 553,367
============ ============ ============= ============= ============== =============
(continued)
F-5
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Statement of Changes in Shareholders' Equity
Years Ended June 30, 2006 and 2005
(Note 1)
(continued)
Accumu-
lated
other Total
Preferred stock Common stock Additional Compre- Share
---------------------- --------------------- paid-in hensive Accumulated holders'
Shares Amount Shares Amount capital income deficit equity
--------- ----------- ----------- -------- ----------- ------- ------------ ----------
Balances, July 1, 2005 - - 4,663,045 $ 466 24,059,377 122,843 (23,629,319) 553,367
Common stock issued upon
exercise of warrants,
net of offering costs
(Note 8) - - 1,535,000 154 734,846 - - 735,000
Forgiveness of offering
cost liability
(Note 8) - - - - 800,000 - - 800,000
Common stock issued
with notes payable
(Notes 6 and 8) - - 455,000 45 117,841 - - 117,886
Common stock and
warrants issued for
cash (Notes 6 and 7) - - 790,467 79 453,067 - - 453,146
Common stock issued as
payment of commission
(Note 8) - - 50,000 5 89,995 - - 90,000
Series A preferred stock
issued for cash
(Note 8) 200,000 1,500,000 - - - - - 1,500,000
Common stock issued upon
conversion of Series A
preferred stock
(Note 8) (200,000) (1,500,000) 15,000,000 1,500 1,498,500 - - -
Common stock originally
issued for services,
returned for non-
performance (Notes 1
and 8) - - (50,000) (5) (89,995) - - (90,000)
(Continued)
F-6
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Statement of Changes in Shareholders' Equity
Years Ended June 30, 2006 and 2005
(Note 1)
(Continued)
Accumu
lated
other Total
Preferred stock Common stock Additional Compre Share
----------------- ------------------- paid-in hensive Accumulated holders'
Shares Amount Shares Amount capital income deficit equity
-------- ------- ---------- ------- ---------- ------- ------------ -----------
Common stock and
warrants issued for
services (Notes 1
and 8) - - 200,000 20 464,980 - - 465,000
Reclassification of
derivative warrant
liability to equity
(Note 7) - - - - 253,522 - - 253,522
Forgiveness of accrued
payroll owed to
officer /shareholder - - - 8,750 - - 8,750
Net loss - - - - - - (2,407,821) (2,407,821)
Other comprehensive
loss:
Change in unrealized
gain on securities - - - - - 59 - 59
Change in foreign
currency
translation
adjustments - - - - - 7,457 - 7,457
-------- ------- ---------- ------- ---------- ------- ------------ -----------
Balances,
June 30, 2006 - - 22,643,512 $ 2,264 28,390,883 130,359 (26,037,140) 2,486,366
======== ======= ========== ======= ========== ======= ============ ===========
See notes to consolidated financial statements.
F-7
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Statements of Cash Flows
Years Ended June 30, 2006 and 2005
2006 2005
------------- ------------
Cash flows from operating activities:
Net loss $ (2,407,821) (997,616)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization 28,803 7,500
Depreciation 5,768 7,258
Equity losses of equity investees 1,398,202 144,323
Gain on extinguishment of liabilities (120,788) -
Amortization of discounts on notes payable 213,860 7,272
Provision for losses on note receivable - 35,000
Loss on revaluation of derivative warrant
liability (Note 7) 74,295 -
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other (52,777) 37,907
(Decrease) increase in accounts payable (15,435) 105,935
(Decrease) increase in accrued liabilities (2,413) 18,227
Increase in other liability - 90,000
------------- ------------
Total adjustments 1,529,515 453,422
------------- ------------
Net cash used in operating activities (878,306) (544,194)
------------- ------------
Cash flows from investing activities:
Purchase of equipment (750) -
Increase in notes receivable, affiliate and equity investee (1,686,570) (349,000)
Increase in advance receivable, equity investee - (405,000)
Payment on note receivable, affiliate 275,442 38,558
Investment in joint venture (Note 3) (500,000) -
------------- ------------
Net cash used in investing activities (1,911,878) (715,442)
------------- ------------
Cash flows from financing activities:
Exercise of warrants, and common stock and warrants issued
for cash 2,167,372 112,800
Proceeds from sale of preferred stock (Note 6) 1,500,000 -
Proceeds from subscribed preferred stock 100,000 -
Payment of notes payable (960,663) (61,737)
Proceeds from issuance of notes payable and common stock 150,000 216,000
------------- ------------
Net cash provided by financing activities 2,956,709 267,063
------------- ------------
Net increase (decrease) in cash and cash equivalents 166,525 (992,573)
Cash and cash equivalents, beginning 25,835 1,018,408
------------- ------------
Cash and cash equivalents, ending $ 192,360 25,835
============= ============
(Continued)
F-8
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Consolidated Statements of Cash Flows
Years Ended June 30, 2006 and 2005
(Continued)
2006 2005
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 23,569 17
============ ===========
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of common stock in connection with notes payable $ 117,886 103,146
============ ===========
Issuance of common stock in exchange for deferred
consulting costs $ 465,000 90,000
============ ===========
Issuance of common stock in exchange for accrued
commissions $ 90,000 -
============ ===========
Offering costs recorded in accounts payable $ - 7,200
============ ===========
Advances receivable applied to equity investment $ 405,000 -
============ ===========
Equity investment acquired in exchange for note payable $ 595,000 -
============ ===========
Liability recorded for offering costs of common stock
issuance $ 800,000 -
============ ===========
Forgiveness of offering costs owed in connection with
common stock issuance $ (800,000) -
============ ===========
Forgiveness of accrued payroll owed to
officer/shareholder $ 8,750 -
============ ===========
Conversion of Series A Preferred Stock to common stock $ 1,500,000 -
============ ===========
Beneficial conversion feature $ 1,500,000 -
============ ===========
Reclassification of derivative warrant liability to
equity $ 253,522 -
============ ===========
See notes to consolidated financial statements.
F-9
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
1. BASIS OF PRESENTATION, BUSINESS, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of Vyta
Corp (formerly known as NanoPierce Technologies, Inc.), a Nevada corporation
(the Company), which include its wholly-owned subsidiaries, NanoPierce
Connection Systems, Inc., a Nevada corporation (NCOS) which was incorporated in
November 2001 and ExypnoTech, LLC (ET LLC), a Colorado limited liability
company, which was formed in June 2004. All significant intercompany accounts
and transactions have been eliminated in consolidation.
On January 19, 2006, the Company's Board of Directors (the "Board") approved an
amendment to the Company's Articles of Incorporation to effect a one-for-twenty
reverse stock split effective January 31, 2006. All references to shares,
options, and warrants in the year ended June 30, 2006 and in prior periods, have
been retroactively adjusted to reflect the reverse split amounts. The Company's
common stock now trades on the Over-the-Counter Bulletin Board under the trading
symbol "VYTC".
As a result of the reverse split, the Company's authorized capital was reduced
from 200,000,000 shares to 10,000,000 shares. As part of the reverse split, the
Company amended and restated its Articles of Incorporation to increase the
authorized capital of the Company to 200,000,000 shares.
BUSINESS:
Through June 30, 2006, NCOS had no operations. ET LLC business activities
included the marketing and sales of RFID (Radio Frequency Identification)
products in North America. ET LLC had no revenues or operations in 2006 and
2005. The Company has three investments which are accounted for using the
equity method of accounting. These equity method investments consist of
ExypnoTech, GmbH (EPT), Scimaxx Solutions, LLC (Scimaxx) and BioAgra, LLC
(BioAgra)(Note 5). EPT's activities primarily consist of manufacturing inlay
components used in, among other things, Smart Labels, which is a paper sheet
holding a chip-containing module that is capable of memory storage and/or
processing. Scimaxx was primarily involved in research and development and
marketing functions through April 2005, at which time it ceased operations.
In August 2005, the Company entered into a joint venture with Xact Resources
International, Inc. ("Xact Resources"), a privately held company. The Company
purchased a 50% equity interest in the joint venture, BioAgra (a Georgia limited
liability company) for $1,500,000 in cash (Note 2). BioAgra manufactures and
plans to sell a beta glucan product, AgraStim(TM), to be used as a replacement
for hormone growth steroids and antibiotics in products such as poultry feed.
The Company's equity investees, EPT and BioAgra, operate in two segments, the
RFID industry and the animal feed industry, respectively.
F-10
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS:
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America 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 periods. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair values of the Company's cash and cash equivalents and accounts payable
approximate their carrying amounts due to the short maturities of these
instruments. The fair values of the note receivable from affiliates and equity
investee and advances payable to a related party are not subject to reasonable
estimation, based upon the related party nature of the underlying transactions.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
DEFERRED CONSULTING COSTS:
In June 2006, the Company entered into a twelve-month consulting services
agreement with two third parties, in which the parties agreed to provide
lobbying and public relation services. Compensation consisted of 200,000 shares
of the Company's common stock with a market value of approximately $182,000
(based on a closing market price of $0.91 per share at the date the transaction
was entered into) and a warrant to purchase 500,000 shares of the Company's
common stock, with an exercise price of $0.91 per share and a term of 3 years.
The warrant was valued at $283,000 using the Black-Scholes pricing model method.
The deferred cost is being amortized on a straight-line basis as earned over the
twelve-month period from the date of the agreement. During the year ended June
30, 2006, $28,803 was expensed.
In June 2005, the Company entered into a twelve-month consulting services
agreement with a third party, in which this party agreed to provide public and
investor relation services and general business services for the twelve-month
term of the agreement. Compensation consisted of 50,000 shares of the Company's
restricted common stock with a market value of approximately $90,000 (based on
the closing market price of $1.80 per share at the date the transaction was
entered into). The deferred cost was being amortized on a straight-line basis
over the twelve-month period from the date of the agreement. However, in May
2006, the third party returned the 50,000 shares to the Company due to
non-performance under the contract, and the shares were cancelled by the
Company. During the year ended June 30, 2005, $7,500 was expensed.
F-11
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of 1,180 shares of common stock of
Intercell International Corporation ("Intercell"). These securities are carried
at estimated fair value ($71 at June 30, 2006) based upon quoted market prices,
and are included in other long-term assets in the Company's June 30, 2006
consolidated balance sheet.
Unrealized gains and losses are computed on the basis of specific identification
and are reported as a separate component of comprehensive income (loss),
included as a separate item in shareholders' equity. The Company reported a
decrease in the unrealized gain on available for sale securities of $59 in 2006
and a loss of $379 in 2005.
At June 30, 2006, the unrealized gain on available for sale securities was $59.
Realized gains, realized losses, and declines in value, judged to be
other-than-temporary, are included in other income (expense). During the years
ended June 30, 2006 and 2005, the Company did not sell any available for sale
securities.
The Company's Chief Financial Officer (CFO), has served as CFO of Intercell
since 2003, and the Company's Chief Executive Officer (CEO) served as the CEO of
Intercell from September 2004 until March 2005.
EQUITY METHOD INVESTMENTS:
Investee entities that the Company can exercise significant influence, but not
control, are accounted for under the equity method of accounting. Whether the
Company exercises significant influence with respect to an investee depends on
an evaluation of several factors including, among others, representation on the
company's board of directors and ownership level, generally 20% to 50% interest
in the voting securities of the company including voting rights associated with
the Company's holdings in common, preferred and other convertible instruments in
the company. Under the equity method of accounting, the Company's share of the
earnings or losses of these companies is included in the equity income (loss)
section of the consolidated statements of operations.
A loss in value of an investment that is other than a temporary decline is
recognized as a charge to operations. Evidence of a loss in value might
include, but would not necessarily be limited to, absence of an ability to
recover the carrying amount of the investment or inability of the investee to
sustain an earnings capacity that would justify the carrying amount of the
investment.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation expense is provided by
use of accelerated and straight-line methods over the estimated useful lives of
the assets, which range from five to seven years.
F-12
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE COMPANY'S
COMMON STOCK:
The Company accounts for obligations and instruments potentially to be settled
in the Company's stock in accordance with Emerging Issues Task Force (EITF)
Issue No. 00-19, Accounting For Derivative Financial Instruments Indexed to, and
Potentially Settled in a Company's Own Stock. This issue addresses the initial
balance sheet classification and measurement of contracts that are indexed to,
and potentially settled in, the Company's stock. Under EITF 00-19, contracts are
initially classified as equity or as either assets or liabilities, depending on
the situation. All contracts are initially measured at fair value and
subsequently accounted for based on the then current classification. Contracts
initially classified as equity do not recognize subsequent changes in fair value
as long as the contracts continue to be classified as equity. For contracts
classified as assets or liabilities, the Company reports changes in fair value
in earnings and discloses these changes in the financial statements as long as
the contracts remain classified as assets or liabilities. If contracts
classified as assets or liabilities are ultimately settled in shares, any
previously reported gains or losses on those contracts continue to be included
in earnings. The classification of a contract is reassessed at each balance
sheet date.
LEGAL DEFENSE COSTS:
The Company does not accrue for estimated future legal and related defense
costs, if any, to be incurred in connection with outstanding or threatened
litigation and other disputed matters but rather, records such as period costs
when the services are rendered.
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock
Based Compensation, allows companies to choose whether to account for employee
stock-based compensation on a fair value method, or to continue accounting for
such compensation under the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). The Company has chosen to continue to account for employee stock-based
compensation using APB 25.
F-13
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
Had compensation cost for the Company's stock plans (Note 8) been determined
based on fair value at the grant dates for awards under the plans consistent
with the method prescribed under SFAS No. 123, the Company's pro forma net loss
and net loss per share would have been as indicated below:
2006 2005
------------ -----------
Net loss, as reported $(2,407,821) (997,616)
Total stock-based employee compensation,
expense determined under fair value
based method for all awards - -
------------ -----------
Net loss, pro forma $(2,407,821) (997,616)
============ ===========
Net loss per share as reported $ (0.30) (0.22)
Net loss per share pro forma $ (0.30) (0.22)
No options were granted during the years ended June 30, 2006 and 2005.
FOREIGN CURRENCY TRANSLATION:
The financial statements of the Company's foreign equity investment (EPT) are
measured using the local currency (the Euro) as the functional currency. Assets
and liabilities of EPT are translated at exchange rates as of the balance sheet
date. Revenues and expenses are translated at average rates of exchange in
effect during the period. The resulting cumulative translation adjustments have
been recorded as a component of comprehensive income (loss), included as a
separate item in shareholders' equity.
COMPREHENSIVE INCOME (LOSS):
SFAS No. 130, Reporting Comprehensive Income, requires the reporting and display
of comprehensive income (loss) and its components. SFAS No. 130 requires
unrealized gains and losses on the Company's investment in Intercell to be
included in comprehensive income (loss). SFAS No. 130 also requires the
Company's foreign currency translation adjustments to be included in
comprehensive income (loss).
LOSS PER SHARE:
Basic loss per share of common stock is computed based on the average number of
common shares outstanding during the year. Stock options and warrants are not
considered in the calculation, as the impact of the potential common shares
(6,519,469 shares at June 30, 2006 and 3,809,089 shares at June 30, 2005) would
be to decrease loss per share (anti-dilutive). Therefore, diluted loss per share
is equivalent to basic loss per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), Share-Based Payment, which addresses the accounting for share-based
payment transactions. SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for the
Company beginning with the first quarter of the fiscal year ending June 30,
2007. As the Company has no un-vested options outstanding, the implementation of
this standard is not expected to have an immediate impact on the Company's
financial position and results of operations.
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid
Financial Instruments, which amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a replacement
of FASB Statement No. 125. SFAS 155 will be effective for the Company for all
financial instruments issued or acquired after the beginning its fiscal year
ending June 30, 2008. The Company not yet evaluated and determined the likely
effect of SFAS 155 on future financial statements.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in Income Taxes - An Interpretation of FASB Statement No. 109, (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return that results in a
tax benefit. Additionally, FIN 48 provides guidance on de-recognition, income
statement classification of interest and penalties, accounting in interim
periods, disclosure, and transition. This interpretation is effective for the
Company for its fiscal year ending June 30, 2008. The Company has not yet
evaluated the effect that the application of FIN 48 may have, if any, on its
future results of operations and financial condition.
F-14
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
2. GOING CONCERN AND MANAGEMENT'S PLANS:
The Company's financial statements for the year ended June 30, 2006 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. The Company reported a net loss of $2,407,821 (net loss applicable to
common shareholders of $3,907,821) for the year ended June 30, 2006, and an
accumulated deficit of $26,037,140 as of June 30, 2006. Cash flows used in
operations for 2006 substantially exceeded its working capital remaining at year
end. The Company has no revenues from its activities during the year ended June
30, 2006.
The Company's ability to continue as a going concern may be dependent on the
success of management's plan discussed below. The financial statements do not
include any adjustments relating to the recoverability and classification of
assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
During the 2007 fiscal year, the Company intends to continue its efforts to
assist BioAgra with the continuing development of its sales, nationally and
internationally in other animal feed markets, such as the equine and the swine
markets.
The Company also intends to raise funds to support operations of the Company
during the 2007 fiscal year through a private offering of preferred stock, the
terms of which are being negotiated.
To the extent the Company's operations are not sufficient to fund the Company's
capital requirements, the Company may attempt to enter into a revolving loan
agreement with financial institutions or attempt to raise capital through the
sale of additional capital stock or through the issuance of debt. At the present
time the Company does not have a revolving loan agreement with any financial
institution nor can the Company provide any assurance that it will be able to
enter into any such agreement in the future or be able to raise funds through
the further issuance of debt or equity in the Company.
3. RISK CONSIDERATIONS:
INTERNATIONAL OPERATIONS:
The Company's foreign equity investment's (EPT) operations are located in
Germany. EPT transactions are conducted in currencies other than the U.S.
dollar (the currency into which EPT's historical financial statements have been
translated) primarily the Euro. As a result, the Company is exposed to adverse
movements in foreign currency exchange rates.
In addition, the Company is subject to risks including adverse developments in
the foreign political and economic environment, trade barriers, managing foreign
operations and potentially adverse tax consequences. There can be no assurance
that any of these factors will not have a material adverse effect on the
Company's financial condition or results of operations in the future.
F-15
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
4. NOTES AND ADVANCES RECEIVABLE:
Through June 30, 2006, the Company loaned $1,686,570 to BioAgra through a series
of secured, 7.5% promissory notes, which were due over the period from June 30
through October 31, 2006. On June 26, 2006, the Company agreed to combine all of
the promissory notes and accrued interest of $40,257 into a $1,726,827 secured,
7.5% promissory note with payments to be made monthly starting October 31, 2006,
through October 31, 2007. The funds were loaned to facilitate BioAgra's
completion of its first production line and to support operations. The
promissory note is collateralized by all BioAgra assets. Additionally, the
promissory note is to be paid in full prior to any distributions being made to
the members of the joint venture. At June 30, 2006, interest of $1,064 was
accrued. During the quarter ended September 30, 2006, the Company advanced an
additional $191,250 to BioAgra under the same terms as the promissory note,
described above.
During the fiscal year ended June 30, 2005, the Company advanced a total of
$405,000 to Xact Resources, which was applied to the August 2005 purchase of the
50% equity interest in BioAgra (Note 5).
In November 2004, the Company loaned $314,000 to Arizcan Properties, Ltd.
(Arizcan). The sole director of Arizcan is related to a Board member and
officer of Intercell. In exchange for the loan, the Company received an
unsecured, 7% promissory note, due on October 31, 2005. The funds were loaned
to facilitate Arizcan's purchase of an option from certain of the Company's
warrant holders, to initiate the exercise of certain existing warrants to
purchase up to 15,700,000 shares of the Company's common stock. The warrants
were initially issued as part of a January 2004 equity placement (Note 8). In
June 2005, the Company received a payment of $50,000, which included interest of
$11,442. During the fiscal year ended June 30, 2006, the Company received
payments of $288,718, which included interest of $13,726. The note was paid in
full at that time. In August 2005, Arizcan exercised its option on all
15,700,000 shares (Note 8).
In December 2004, the Company loaned $35,000 to Intercell in return for an
unsecured, 7% promissory note, due in December 2005. The loan was made in order
to assist Intercell in its efforts to support operations. On March 16, 2005,
Intercell filed for protection under Chapter 11 of the U.S. Bankruptcy Laws.
The Company does not believe that it will be able to fully collect this
receivable, and during the year ended June 30, 2005, recorded an allowance of
$35,000 in connection with the note receivable.
F-16
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
5. EQUITY INVESTMENTS IN AFFILIATES:
INVESTMENT IN EPT:
At June 30, 2006, the Company's investment in EPT in $161,399. Financial
information of EPT as of June 30, 2006, and for the years ended June 30, 2006
and 2005 is as follows:
June 30, 2006
--------------
Assets:
Current assets(1) $ 635,547
Equipment 89,271
--------------
Total assets $ 724,818
==============
Liabilities and members' equity:
Current liabilities(2) $ 538,441
Members' equity 186,377
--------------
Total liabilities and members' equity $ 724,818
==============
(1) Current assets include receivables in the amount of $359,343 due from
the 51% owner of EPT.
(2) Current liabilities include a payable of $40,135 to the 51% owner of
EPT.
Year ended Year ended
June 30,2006 June 30, 2005
-------------- ---------------
Revenues(1) $ 2,492,828 $ 586,480
Expenses(2) (2,489,249) (676,222)
-------------- ---------------
Net income (loss) $ 3,579 $ (89,742)
============== ===============
(1) Revenues include $2,492,751 and $570,584, respectively, of sales to
the 51% owner of EPT for each period presented.
(2) Expenses include $97,155 and $60,723, respectively, of charges paid to
the 51% owner of EPT for each period presented.
INVESTMENT IN BIOAGRA
On August 15, 2005, the Company entered into a joint venture with Xact
Resources, a privately held company. The Company purchased a 50% equity
interest in the joint venture, BioAgra, for $905,000 in cash (which includes
$405,000 previously advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is
to manufacture and sell a beta glucan product, YBG-2000 also known as
AgraStim(TM), to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed. As of June 30, 2006, BioAgra (a
development stage company) has completed construction of a production line.
The terms of the joint venture provide for the Company to share in 50% of joint
venture net income, if any, or net losses. The Company is accounting for its
investment in BioAgra as an equity method investment. The Company's
F-17
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
investment in BioAgra is $107,316, at June 30, 2006. Net losses incurred by
BioAgra have exceeded the underlying equity attributed to BioAgra's other joint
venture investor. As a result, the excess of the losses attributable to the
other joint venture investor have been charged to the Company through June 30,
2006.
Financial information of BioAgra as of June 30, 2006 and for the period from
August 15, 2005 through June 30, 2006, is as follows:
June 30,
2006
----------
Assets:
Current assets $ 84,434
Land, building and equipment, net 2,997,327
Other assets, net 95,644
----------
Total assets $3,177,405
==========
Liabilities and members' equity:
Current liabilities(1) $2,064,843
Obligation under capital lease(2) 1,005,245
----------
Total liabilities 3,070,089
Members' equity 107,316
----------
Total liabilities and members' equity $3,177,405
==========
(1) Includes $1,726,827 owed to the Company.
(2) BioAgra leases land and a building under a ten-year lease expiring in
February 2015, which requires a monthly lease payment of $12,000.
August 15, 2005
through
June 30, 2006
-----------------
Revenues $ 5,340
Expenses (1,398,024)
-----------------
Net loss $ (1,392,684)
=================
INVESTMENT IN SCIMAXX SOLUTIONS
Prior to July 1, 2004, the Company entered into an agreement to receive a 50%
interest in a joint venture with Scimaxx, LLC. The name of the joint venture was
Scimaxx Solutions, LLC (Scimaxx Solutions). The purpose of the joint venture was
to provide the electronics industry with technical solutions to manufacturing
problems based on the need for electrical connectivity. Scimaxx Solutions ceased
operations in April 2005. Accordingly, during the third quarter of the fiscal
year ended June 30, 2005, the Company made the decision to write down the value
of its investment in Scimaxx Solutions for impairment to $0, recording an
impairment charge in that year of $63,544, which is included in equity losses of
affiliates.
F-18
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
For the year ended June 30, 2005, Scimaxx Solutions recorded revenues of $5,773
and expenses of $80,781 resulting in a net loss of $75,008.
6. NOTES AND ADVANCES PAYABLE:
RELATED PARTIES:
In June 2005, an officer/director of the Company loaned $41,000 to the Company
in exchange for an unsecured, 5% note payable due in December 2005. In June
2005, the Company paid $336 plus accrued interest of $17. In August 2005, the
Company paid the remaining $40,664 plus accrued interest of $298.
In June 2006, the Company received an advance of $100,000 from Arizcan. The
advance is to be applied to an equity placement that the Company and Arizcan
have not yet finalized. The proceeds were used to fund the Company's
operations.
OTHER:
In June 2005, an unrelated third party loaned the Company $150,000 in exchange
for an unsecured, promissory note due in September 2005 with interest at 15% per
quarter and 100,000 shares of the Company's restricted common stock (50,000
shares were issued in June 2005 and the remaining 50,000 shares were issued in
July 2005). At the date of issuance, the common stock had a market value of
$180,000 (based on the closing market price of $1.80 per share on the date of
the transaction). The relative fair value of the common stock, ($81,718) was
accounted for as a discount applied against the face amount of the note. The
effective interest rate on this note was 54%. As of June 30, 2005, $7,272 of
the discount had been amortized to interest expense. In September 2005, the
Company paid the $150,000, plus accrued interest of $22,500. Through that date,
the remaining discount of $74,446 was fully amortized to interest expense.
On June 30, 2005, an unrelated third party loaned the Company $25,000 in
exchange for an unsecured, 8% promissory note due in December 2005 and 75,000
shares of the Company's restricted common stock which were issued in July 2005.
At the date of issuance, the common stock had a market value of $150,000 (based
on the closing market price of $2.00 per share on the date of the transaction).
The relative fair value of the common stock ($21,428) was accounted for as a
discount against the face amount of the note. The effective interest rate on
this note was 85%. In August 2005, the Company paid the $25,000, plus accrued
interest of $208. Through that date, the discount of $21,428 was fully
amortized to interest expense.
In July and August 2005, six unrelated third parties loaned the Company a total
of $150,000 in exchange for unsecured, 8% promissory notes due in December 2005
and a total of 330,000 shares of the Company's restricted common stock. The
common stock had a total market value of $574,000 (based on the closing market
prices which ranged from $1.60 to $1.80 per share at the date of each
transaction). The relative fair value of the common stock ($117,886) was
accounted for as a discount applied against the face amount of the notes. The
discount was amortized over the terms of the promissory notes as additional
interest expense. The effective interest rate on these notes
F-19
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
was 85%. In August 2005, the Company paid the $150,000, plus accrued interest
of $642. Through that date, the discount of $117,886 was fully amortized to
interest expense.
During the year ended June 30, 2006, four vendors agreed to forgive payment on
$120,788 of liabilities owed, and as a result the Company recognized a gain on
the extinguishment of liabilities.
7. DERIVATIVE WARRANT LIABILITY:
During the year ended June 30, 2006, the Company sold 746,717 shares of its
restricted common stock for $597,372. In connection with the sale of the
restricted common shares, the Company issued warrants exercisable into 746,717
shares of the Company's common stock. The common stock had a total market value
of $1,058,153 (based on the closing market prices which ranged from $1.00 to
$1.60 per share at the date of each transaction). The warrants had an aggregate
estimated fair value of $462,965 (using the Black-Scholes model). The relative
fair value of the warrants ($179,227) was accounted for as a liability in
accordance with EITF 00-19, as the Company's authorized and unissued shares
available to settle the warrants (after considering all other commitments that
could have required the issuance of stock during the maximum period the warrant
could remain outstanding) were determined to be insufficient.
Through January 2006, the Company's authorized and unissued common shares were
insufficient to settle these warrant contracts. As a result, the value of these
warrants was classified as a liability. As a result of the one-for-twenty
reverse stock split in February 2006 and the increase in authorized shares,
there are now sufficient authorized and unissued common shares to settle these
contracts. Accordingly, the fair value of the warrants at the effective date of
the stock split ($253,522) was reclassified to additional paid-in capital.
During the year ended June 30, 2006, the Company recorded a loss of $74,295, on
these contracts. The appropriateness of the classification of these contracts is
reassessed at each balance sheet date.
8. SHAREHOLDERS' EQUITY:
COMMON STOCK:
2006 Transactions:
In connection with the issuance of a $150,000 promissory note in June 2005, the
Company agreed to issue 100,000 shares of its restricted common stock, valued at
$81,718, of which 50,000 shares were issued in June 2005, and 50,000 shares were
issued in July 2005.
In connection with the issuance of a $25,000 promissory note in June 2005, the
Company agreed to issue 75,000 shares of its restricted common stock, valued at
$21,428, which were issued in July 2005.
In July and August 2005, in connection with the issuance of promissory notes
totaling $150,000, the Company issued 330,000 shares of its restricted common
stock, valued at $117,886.
F-20
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
In August 2005, warrants to purchase 1,535,000 shares of common stock were
exercised for cash of $1,535,000 in exchange for 1,535,000 shares of common
stock. The exercise price of these warrants was lowered from $2.00 and $3.00
per share to $1.00 per share in connection with the exercise. The Company had
recorded an $800,000 payable to Arizcan, which represents the costs incurred in
connection with this offering of equity securities. In March 2006, Arizcan
terminated the agreement and forgave the payment of this liability. As a
result, in March 2006, the Company reclassified the liability to equity.
In September 2005, the Company executed a subscription agreement with Arizcan to
sell shares of the Company's preferred stock. The subscription agreement
provided for the sale of 200,000 shares of Class A 8% cumulative and
participating preferred shares for $7.50 per share. In January 2006, Arizcan
purchased 200,000 shares of the Company's Series A Convertible Preferred Stock
("Preferred Stock") for $400,000 cash and an unsecured promissory note for
$1,100,000. The promissory note had an interest rate of 8% per annum and was due
in January 2007. In February 2006, Arizcan converted the 200,000 shares of
preferred stock into 15,000,000 shares of the Company's restricted common stock.
Upon the conversion, Arizcan held approximately 67% of the issued and
outstanding common stock of the Company. In May 2006, Arizcan paid the Company
cash of $1,100,000 to repay the note in full.
The conversion feature was deemed beneficial and accordingly resulted in a
beneficial conversion feature of $1,500,000. The intrinsic value of the
beneficial conversion feature is limited to the total amount of the proceeds
received. As a result of the beneficial conversion feature, net loss applicable
to common shareholders was increased by $1,500,000 during the year ended June
30, 2006.
In October 2005, the Company issued 50,000 shares of its restricted common
stock, valued at $90,000, in satisfaction of a $90,000 liability incurred in
connection with the Company's financing efforts.
In October 2005, the Company issued 43,750 shares of its restricted common stock
in exchange for $35,000. The shares were sold for $0.80 per share (based on a
50% discount from the closing market price, $1.60 per share, on the date of each
transaction).
In November and December 2005 and January 2006, the Company issued 746,717
shares of its restricted common stock and warrants to purchase 746,717 shares of
its restricted common stock for $597,372. The warrants have an exercise price
of $1.00 per share and a term of three years. The shares of common stock were
sold for $0.80 share.
In May 2006, 50,000 shares of the Company's restricted stock, that had been
issued in June 2005 to an unrelated party for services were returned to the
Company and were cancelled.
In June 2006, in connection with two twelve-month consulting agreements, the
Company issued 200,000 shares of its restricted common stock to unrelated third
parties. The market value of the shares was $182,000 (based on a closing market
price of $0.91 per share at the date of the transaction). In addition, the
Company issued a warrant exercisable for 500,000 shares of the
F-21
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
Company's common stock with an exercise price of $0.91 per share and a term of 3
years. The warrant was deemed to have a value of $283,000 using the
Black-Scholes Method.
2005 Transactions:
In November 2004, the Company issued 60,000 shares of common stock upon the
exercise of warrants. The Company received cash proceeds of $112,800 (net of
$7,200 of offering costs).
In June 2005, the Company issued 50,000 shares of its restricted common stock as
consideration for a twelve-month consulting agreement. These shares of common
stock had a market value of $90,000.
In June 2005, in connection with the issuance of a $150,000 promissory note, the
Company agreed to issue 100,000 shares of its restricted common stock, valued at
$81,718, of which 50,000 shares were issued in June 2005, and 50,000 shares were
issued in July 2005.
STOCK OPTIONS AND WARRANTS:
Stock Options:
The Company has established two Compensatory Stock Option Plans (the "Option
Plans") and has reserved 625,000 shares of common stock for issuance under the
Option Plans. Vesting provisions are determined by the Board of Directors. All
stock options expire 10 years from the date of grant.
A summary of the Option Plans is as follows:
2006 2005
------------------------------------ -----------------------------------
WEIGHTED AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------------------------------------------------------------------
Outstanding, Beginning of
Year 439,377 $ 20.00 439,377 $ 20.00
Granted - - - -
Cancelled (41,250) 2.00
Expired - - - -
Exercised - - - -
----------------- ----------------- ---------------- -----------------
Outstanding, End of Year 398,127 $ 22.00 439,377 $ 20.00
================= ================= ================ =================
Options Exercisable at End
of Year 398,127 $ 22.00 431,377 $ 20.00
================= ================= ================ =================
F-22
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
The following table summarizes information about stock options outstanding as of
June 30, 2006:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------------
WEIGHTED-AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER OF CONTRACTUAL WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
PRICES OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
----------------------------------------------------------------------------------------------------------
$4.00-10.00 162,750 2.37 $ 6.41 162,750 $ 6.41
10.20-20.00 114,777 5.92 13.65 114,777 13.36
20.20-40.00 43,000 4.56 30.39 43,000 30.39
40.20-60.00 77,100 2.99 62.21 77,100 62.21
100.20-120.00 500 3.66 120.00 500 120.00
---------------- ----------------- ----------------- ---------------- -----------------
398,127 4.61 $ 22.00 398,127 $ 22.00
================ ================= ================= ================ =================
During the year ended June 30, 2006, officers and a director of the Company
agreed to cancel options under the Company's 1998 Compensatory Stock Option Plan
exercisable for 41,250 shares of the Company's stock.
The officers and director did not receive any consideration in return for the
cancellations.
Warrants:
At June 30, 2006, the following warrants to purchase common stock were
outstanding:
NUMBER OF COMMON
SHARES COVERED BY WARRANTS EXERCISE PRICE EXPIRATION DATE
-------------------------- -------------- ---------------
9,625 25.00 January 2007
22,500 12.00 January 2010
1,250,000 3.00 January 2009
92,500 1.00 January 2009
4,246,717 1.00 February 2009
500,000 0.91 June 2009
---------
6,121,342
=========
2006 Transactions
During the year ended June 30, 2006, warrants to purchase 202,709 shares of
common stock expired.
In August 2005, warrants to purchase 1,535,000 shares of common stock were
exercised for cash of $1,535,000 in exchange for 1,535,000 shares of common
stock. The proceeds were used to purchase a 50% equity interest in BioAgra.
The warrants' exercise price was lowered from $2.00 and $3.00 per share to $1.00
per share in connection with the exercise.
In December 2005, warrants to purchase 238,667 shares of common stock were
canceled by their holders. The warrants were cancelled to reduce the total
dilutive securities below the authorized share limit, to allow the Company to
enter into additional equity financing in December 2005. In return for the
cancellation of such warrants, the Company agreed to issue warrants to purchase
3,500,000 common shares. The warrants have an exercise price of
F-23
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
$1.00 and have a term of 3 years. These warrants were issued in February 2006.
In February 2006, the Company issued warrants to purchase 746,717 shares of
common stock. The warrants were issued to fullfill commitments made with the
sale of common stock from November 2005 through January 2006, as discussed
above. The warrants have an exercise price of $1.00 per share and a term of 3
years.
2005 Transactions
During the year ended June 30, 2005, warrants to purchase 60,000 shares of
common stock were exercised for net cash proceeds of $112,800 (net of commission
of $7,200).
CAPITAL TRANSACTION:
In August 2005, an officer/shareholder of the Company forgave $8,750 of accrued
salary, which has been accounted for as a capital transaction and has resulted
in an increase in additional paid in capital.
9.COMMITMENTS AND CONTINGENCIES
LITIGATION:
Depository Trust Suit:
In May 2004, the Company filed suit against the Depository Trust and Clearing
Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the National
Securities Clearing Corporation ("NSCC") in the Second Judicial District Court
of the County of Washoe, State of Nevada. The suit alleges multiple claims
under the Nevada Revised Statutes 90.570, 90.580, 90.660 and 598A.060 and on
other legal bases. The complaint alleges, among other things, that the DTCC,
DTC and NSCC acted in concert to operate the "Stock Borrow Program," originally
created to address short term delivery failures by sellers of securities in the
stock market. According to the complaint, the DTCC, NSCC and DTC conspired to
maintain significant open fail deliver positions of millions of shares of the
Company's common stock for extended periods of time by using the Stock Borrow
Program to cover these open and unsettled positions. The Company is seeking
damages in the amount of $25,000,000 and treble damages. Responsive pleadings
were filed by the defendants. In April 2005, the court granted a motion to
dismiss the lawsuit. The Company has filed an appeal to overturn the motion to
dismiss the lawsuit.
Financing Agreement Suit:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the
F-24
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
District of Colorado transferred the case to the United States District Court
for the Southern District of New York, New York City, New York.
In this litigation, Harvest Court, LLC filed counterclaims against the Company
and certain officers and former board members of the Company, and a number of
unrelated third parties. The counterclaims allege violations of federal
securities laws and other laws. Harvest Court, LLC is seeking various forms of
relief including compensatory and punitive damages. Responsive pleadings have
been filed and the litigation is currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the Supreme
Court of the State of New York, County of New York. The suit alleges that the
Company breached an October 20, 2000 Stock Purchase Agreement, by not issuing
370,945 free trading shares of the Company's common stock in connection with the
reset provisions of the Purchase Agreement due on the second reset date and
approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. The Company has
filed counterclaims seeking various forms of relief against Harvest Court, LLC.
The Company intends to vigorously prosecute all litigation and does not believe
the outcome of the litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
LEASES:
The Company has entered into certain facilities and equipment leases. The
leases are non-cancelable operating leases that expire through December 31,
2011. Future minimum lease payments under these operating leases are as
follows:
Year ending
June 30, Amount
----------- --------
2007 $ 39,822
2008 38,211
2009 39,415
2010 40,618
2011 20,761
--------
$178,827
========
Rental expense was $86,783 and $113,380 for the years ended June 30, 2006 and
2005, respectively.
F-25
VYTA CORP AND SUBSIDIARIES
(Formerly NanoPerce Technologies, Inc.)
Notes to the Consolidated Financial Statements
Years Ended June 30, 2006 and 2005
10. INCOME TAXES:
The Company and its subsidiaries did not incur income tax expense for the years
ended June 30, 2006 and 2005. The reconciliation between income taxes computed
at the statutory federal tax rate of 34% and the effective tax rate for the
years ended June 30, 2006 and 2005 is as follows:
2006 2005
----------- -----------
Expected income tax benefit $ (818,000) (339,000)
Increase in valuation allowance 818,000 339,000
----------- -----------
$ - -
=========== ===========
The tax effects of temporary differences that would give rise to substantially
all deferred tax assets subject to the valuation allowance at June 30, 2006 are
as follows:
Deferred tax assets:
Net operating loss $ 2,407,000
Less valuation allowance (2,407,000)
------------
Net deferred tax assets $ -
============
As of June 30, 2006, the Company has net operating loss carry forwards of
approximately $18,132,000, which expire between 2013 and 2026. The Company's
net operating loss carry forwards may be subject to annual limitations, which
could reduce or defer the utilization of the losses as a result of an ownership
change as defined in Section 382 of the Internal Revenue Code.
F-26