form10ksb.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-KSB
(Mark
one)
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T
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended: June 30, 2007
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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Commission
file number: 33-19598
VYTA
CORP
(Exact
name of small business issuer as specified in its charter)
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NEVADA
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84-0992908
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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370
17TH STREET, SUITE 3640
DENVER,
COLORADO 80202
(303)
592-1010
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. £
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90 days. Yes þ
No £
Check
if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B contained in this form, and no disclosure will be contained, to the best
of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No
T
As
of the
close of trading on October 10, 2007, there were 37,109,845 shares outstanding,
27,755,260 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 10, 2007, was approximately
$9,159,235.
The
registrant’s revenue for the fiscal year ended June 30, 2007 was
$0.
Transitional
Small Business Disclosure Yes £ No
þ
PAGE
NUMBER
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FORWARD-LOOKING
STATEMENTS
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ITEM
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This
Annual Report on Form 10-KSB includes “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. We base these forward looking statements on our current
expectations and projections about future events. These forward
looking statements are subject to risks, uncertainties, and assumptions about
our company, including:
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the
operations and potential profitability of BioAgra, LLC, a company
in which
we have a 50% interest;
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the
rate of market development and acceptance of our beta glucan products
in
the animal and aquatic animal feed industry within which we are
concentrating our business
activities;
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the
rate of market development and acceptance of our beta glucan products
for
human consumption;
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our
ability to compete successfully with growth promotion antibiotic
manufacturers and other providers of feed
additives;
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the
operations and potential profitability of ExypnoTech, Gmbh, a company
in
which we have a 49% interest that is manufacturing and developing
inlay
components used in the manufacturing of radio frequency identification
devices (“RFID”), such as smart labels, smart cards and smart
tags;
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the
limited revenues and significant operating losses generated by us
to
date;
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the
possibility of significant ongoing capital requirements and our ability
to
secure financing as and when
necessary;
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our
ability to retain the services of our key management, and to attract
new
members to the management team; and
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our
ability to obtain and retain appropriate patent, copyright and trademark
protection for our intellectual properties and any of our
products.
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These
forward-looking statements include statements regarding our expectations,
beliefs, or intentions about the future, and are based on information available
to us at this time. We assume no obligation to update any of these statements
and specifically decline any obligation to update or correct any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. Actual
events and results could differ materially from our expectations as a result
of
many factors, including those identified in the section titled “Item
1. Description of Business—Risk Factors” and other sections of this
report. We urge you to review and consider those factors, and those identified
from time to time in our reports and filings with the Securities and Exchange
Commission, for information about risks and uncertainties that may affect our
future results. All forward-looking statements we make after the date of this
filing are also qualified by this cautionary statement and identified
risks.
Company
Overview
We
were
incorporated on June 22, 1996 as a Nevada corporation. In
January 2006, we changed our name from NanoPierce Technologies, Inc. to Vyta
Corp. Our corporate offices are located at 370 17th Street,
Suite 3640, Denver, Colorado 80202, and our telephone number is
(303) 592-1010. We maintain a website at
www.vytacorp.com, which is not incorporated in and is not a part of this
report.
When
used
in this report, the terms “we,” “our,” “us,” “the company” and similar
expressions refer to Vyta Corp, BioAgra, LLC, ExypnoTech, Gmbh and our
subsidiaries, unless the context otherwise requires.
Business
General
In
2004,
we instituted steps to change our principal business from electronics technology
to biotechnology. In August 2005, we purchased a 50% equity interest
in BioAgra, LLC, a Georgia limited liability company. The remaining
50% was purchased by Xact Resources International and later assigned to Justin
Holdings, Inc., both unaffiliated parties. BioAgra is engaged in the
production, marketing and sale of Agrastim®, a natural,
non-toxic purified beta-1,3/1,6-D glucan feed additive used to replace growth
promotion antibiotics that are currently in use in the animal feed
industry. In addition to its use as a feed additive, BioAgra intends
to include Agrastim® in premixed
feeds,
such as in EquiForce™, a feed targeted for the equine industry that contains
Agrastim®,
vitamins and minerals formulated to supply nutrients to meet the physiological
needs of equine athletes and to boost their immune systems.
BioAgra
is also producing Purestim™, a purified beta-1,3/1,6-D glucan intended for use
by other companies that manufacture neutraceuticals and dietary supplements
for
human consumption, and is designing other products for human, animal and
aquaculture consumption based on beta glucan and other
immunoenhancers. Purestim™, together with Agrastim®, are sometimes
referred to herein as “beta glucan products.”
We
also
own a 49% interest in ExypnoTech, Gmbh (“ExypnoTech”), a company that is
manufacturing and developing radio frequency identification (“RFID”) components
used in the production of, among other things, smart labels, smart cards and
smart tags. 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 to TagStar Systems, GmbH for
$98,000 in cash. As a result of this sale, we have a 49% interest in
ExypnoTech, are entitled to 49% of any net income generated by ExypnoTech or
any
dividends paid and share 49% of any net losses.
Prior
to
our acquisition of an interest in BioAgra, we were primarily involved in our
patented particle interconnect technology. We acquired the particle
technology in February 1998 to pursue a more focused, strategic application
and
development of the particle technology and to commercialize the technology
as
the NanoPierce Connection System (NCSTM). While
we do not plan, at this time, to continue efforts to manufacture or develop
products that utilize our particle technology, we have entered into two
provisional technology license agreements for the manufacture, development
and
marketing of products using our particle technology. However, to
date, neither agreement has matured into a full-scale commercial license
generating royalty and license revenues for us.
As
a
result of our change in business focus from electronics technology to
biotechnology, we have several inactive or discontinued subsidiaries and
investments described below.
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ExypnoTech,
LLC. On June 18, 2004, we organized ExypnoTech,
LLC for the purpose of marketing, primarily in the United States,
the RFID
components manufactured by ExypnoTech. ExypnoTech, LLC has had
no active operations since the first calendar quarter of
2005.
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NanoPierce
Card Technologies, GmbH. Established in January
2000, NanoPierce Card was responsible for the marketing of our technology,
services and products on an international basis. On April 1,
2003, NanoPierce Card filed for insolvency with the courts of Munich,
Germany. NanoPierce Card completed a plan of self-liquidation
and the German court legally dissolved the entity on June 8,
2004.
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Scimaxx
Solutions, LLC. On September 15, 2003, we entered
into a joint venture with Scimaxx, LLC. 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. In April 2005, Scimaxx Solutions ceased
operations.
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BioAgra,
LLC
Business
Strategy
Governments
are currently urging, and consumers are demanding, producers to remove growth
promotion 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, consumers are demanding more natural,
organic, antibiotic-free foods.
Animals
in the cattle, dairy, poultry, turkey, duck, equine, and swine industries and
aquatic animals, such as shrimp, are currently fed growth promotion
antibiotics. BioAgra is targeting the cattle, dairy, poultry, turkey,
duck and swine industries for the sale of Agrastim® as an alternative
to growth promotion antibiotics used in feed. BioAgra is targeting
the equine industry with a product called EquiForce™ that contains Agrastim® and has
been
formulated to supply nutrients to meet the physiological needs of equine
athletes and to boost their immune systems.
BioAgra
has also begun producing and marketing a new beta glucan product under the
name
Purestim™. This product is sold to companies that manufacture neutraceuticals
and dietary supplements for human consumption. BioAgra’s beta glucan
products may be targeted for other uses in the future.
Background
on Beta Glucan Products and the Need for Alternatives to Growth Promotion
Antibiotics
Agrastim®
and Purestim™ are
produced from spent brewer’s or distillery yeast. The beta glucan
products are a combination of bioactive nutrients and B-glucans that are
extracted from the cell walls of yeast using steam injection and a centrifuging
extraction process. Beta glucan is a natural, non-toxic product that
has been shown to stimulate immune systems in animal, poultry and other
organisms. Independent test results were published in an article
titled “The Influence of B-Glucan on Immune Responses in Broiler
Chickens” (“Immunopharmacology and Immunotoxicology,”
Volume 25, 2003 (Marcel Dekker)), demonstrating the stimulation of
the
broiler chicken’s immune systems by the B-glucan. BioAgra’s beta
glucan products are designed to enhance the immune system and to promote
accelerated growth in various organisms.
Antibiotics
have been added to animal feed in an effort to produce healthier animals and
to
promote faster growth. Scientists, however, now believe that this
practice may lead to unforeseen and unwanted effects. Some studies
and articles indicate that growth promotion antibiotics contained in animal
feeds may accumulate in the animal body and can cause harm to humans, including
causing allergic and abnormal reactions.
The
excessive use of antibiotics, especially growth promotion antibiotics, in animal
feed may convert some bacteria into antibiotic-resistant strains of bacteria
that can infect humans through the consumption of meat products. When
a human develops a resistant strain of bacteria, it becomes difficult and
expensive to treat due to the bacteria’s resistance to
antibiotics. The use of antibiotics in animal feed has already
affected many countries in Europe, which have banned the use of growth promotion
antibiotics in animal feed. It is expected that the United States may also
begin
to ban or discourage the use of these antibiotics in animal feed.
Alternatives
to antibiotics, including Agrastim®, are increasingly
in demand by animal farmers and other producers because they lack the drawbacks
of antibiotics and other chemical compounds. Agrastim® is a natural,
non-toxic product that has been proven to stimulate immune systems, thereby
eliminating the usage of antibiotics and growth hormone supplements in animal
feeds. Agrastim® is designed
to
enhance the immune system and to promote accelerated growth. We believe
Agrastim® as a
feed additive can help resolve the harmful effects of growth promotion
antibiotics that can be toxic to humans and can produce safe and healthy animal
feed that may be claimed as “drug-free.”
Manufacturing
of the Beta Glucan Products
Raw
Materials
BioAgra
produces its beta glucan products from spent brewer’s or distillery
yeast. Brewer’s yeast is used in the production of alcoholic
beverages. Currently, yeast and other raw materials utilized in the
production of the beta glucan products are purchased from a Brazilian supplier
pursuant to invoices documenting each separate purchase. The yeast is
consistent with BioAgra’s production needs and such arrangements currently are
not subject to any volume limitations or import
restrictions. Arrangements are being made with additional commercial
firms that purchase and distribute these types of yeast. BioAgra
believes that there is an adequate supply of these raw materials for the
foreseeable future for BioAgra’s proposed activities. BioAgra intends
to purchase these raw materials from other available worldwide suppliers that
can provide a cost efficient source of high quality raw materials that will
permit it to produce a purified beta glucan product that is at least 80%
pure.
Production
Plant
BioAgra’s
production plant 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 120 calendar months at $12,000 per month (of which
certain
amount have been paid other than monthly as permitted by the
lessor). At the expiration of the lease term, BioAgra has the option
to purchase the leased premises (real estate and improvement) for
$500,000. The facility is approximately 30,000 square feet,
consisting of both office space and a production area and is also expected
to
include a research and development laboratory. The production area
has enough space to hold three separate production lines in its current
configuration, although as of this date, BioAgra only has a single production
line. The facility is located on approximately 7.29
acres.
The
plant
commenced operations in March of 2006. The plant went through a
shakedown period in which BioAgra evaluated and better understood the controls
and efficiencies of the plant. BioAgra started operating at
full-scale capacity in April of 2006. The production line has a
designed capacity of producing 10,000 kilograms of Agrastim® per
month. BioAgra has approximately 5,600 kilograms of packaged and
drummed pure Agrastim® finished
and on the
floor for sale and delivery. It has discontinued production at this time until
at least 50% of the Agrastim® in inventory
has
been sold.
Production
Process
In
manufacturing the beta glucan product, the cell walls of the baker’s or
distillery yeast are exposed to high temperatures using steam
injection. The mixture is then separated into solid and liquid
portions by a centrifuge, and the liquid portion is discarded. The
solid portion is thoroughly washed with water and then exposed to elevated
temperatures using stream injection extracting a residue. The residue
is separated again into solid and liquid portions by a centrifuge and the liquid
portion is discarded. Finally, the solid portion is thoroughly washed
with water and the residue is spray dried, which results in the beta glucan
product.
Agrastim®
is a concentrate
that many farmers or producers will be unable to mix with feed in the required
proportions. Therefore, BioAgra expects to produce specialized
premixes containing Agrastim® and vitamins
and/or
mannoproteins. Mannoproteins are purified from the yeast during the
manufacturing process. BioAgra will be able to sell to a broader
array of customers through the production of premixed
products. EquiForce™, a premixed product designed for and marketed to
the racing and sport horse industry, is one of BioAgra’s first premixed products
and is a combination of vitamins, minerals and Agrastim®.
Purestim™
is a concentrate that is being marketed and sold as an additive to companies
that manufacture and sell neutraceuticals and dietary
supplements. These companies will purchase the Purestim™ as an
ingredient for inclusion in existing products. There has been limited
sales of Purestim™ to customers of AHD International.
Employees
BioAgra
has three employees. In addition to its two managers and executive
officers, there is one employee employed as Plant Manager, Research and
Development Director and Administrative Assistant. During production
cycles, BioAgra hires additional employees consisting of one manager and two
crew members for each of two 12 hour shifts. When BioAgra begins
full-scale operations, these temporary employees are expected to be hired on
a
full-time basis.
Marketing
and Distribution
BioAgra
is focusing its initial marketing efforts on the animal feed
industry. BioAgra has targeted its efforts in the State of Georgia
and those states in which the vast majority of poultry producers in the United
States are located. The initial marketing strategy was to penetrate
the poultry industry by utilizing existing industry distributors or direct
sales
on a national and international basis. BioAgra also marketed
Agrastim® by
attendance at various poultry-related conventions. After successful
testing of Agrastim® with other
animals,
BioAgra has expanded the scope of its marketing to include the cattle, dairy,
swine, aquatic animal, equine and dietary supplement industries.
In
addition to BioAgra’s agreement with AHD International, LLC, BioAgra has one
independent distributor, Agra Nutrition, LLC, that is marketing Agrastim® on a national
basis
and in India. Agra Nutrition, LLC is owned by Mr. Warren Robold who
also functions as Director of U.S. and International Sales for
BioAgra.
Poultry
and Turkey Industry
Poultry
is the largest worldwide source of protein food for human
consumption. In addition, poultry can be raised in small geographical
areas. In the United States, approximately 8 billion chickens and 275
million turkeys are farmed for “broiler” production and processing each year.
Each broiler chicken consumes an average of 10 pounds of feed during its
approximately 42 day life span for a total of 40 million tons of feed for all
the broiler chickens in the United States each year. Each turkey
consumes approximately 110 pounds of feed for a total of 13.75 million tons
of
feed. In addition, there are approximately 450 million egg producing chickens
raised in the United States each year, which consume approximately 132 pounds
of
feed over a period of 1.5 years for a total of 27 million tons of
feed.
Cattle
Industry
The
United States has the largest fed-cattle industry in the world, and is the
world’s largest producer of beef for domestic and export
use. According to the National Cattleman’s Beef Association, there
are roughly 800,000 beef producers in the United States and approximately 97.1
million cattle in the United States. During the production process,
cattle usually spend four to six months in a feedlot, during which time they
are
fed scientifically formulated rations. Producers and veterinarians
take great care to use only the optimal amount of antibiotics needed to maintain
an animal in good health. The United States government through the
National AntiMicrobal Resistance Monitoring System strictly tracks antibiotic
resistance as well as products and interventions to assure the safety of the
cattle as well as the beef supply.
Dairy
Industry
According
to Best Food Nation, a group of associations representing all levels of the
food
chain, there are approximately 65,000 dairy farms and approximately 9,041,000
dairy cows in the United States. Each year, the United States produces over
1
billion pounds of butter, more than 7 billion pounds of cheese, over 1 billion
pounds of nonfat dry milk, 1.5 billion pounds of yogurts, and 1 billion gallons
of ice cream. Dairy cows eat roughly 100 pounds of feed each
day. Dairy farmers typically employ professional nutritionists to
develop scientifically formulated diets for their cows. If a cow is
being treated with antibiotics, she is taken out of the milking herd and not
put
back into the herd until her milk tests free of
antibiotics. Applicable regulations require every tank load of milk
entering dairy processing plants to be strictly tested for animal drug
residues. The United States dairy industry conducts more than 3.5
million tests each year to ensure that antibiotics are kept out of the milk
supply. Any tanker that tests positive is disposed of immediately,
never reaching the public.
Swine
Industry
Another
industry where the use of antibiotics among animals is of concern is the swine
industry. According to the United States Department of Agriculture,
pork is the number one meat consumed in the world and there are approximately
70,000 hog farms in the United States today. Antibiotics may be given
to prevent or treat disease in hogs; however, a “withdrawal” period is required
from the time antibiotics are administered until it is legal to slaughter the
animal. Pigs fed antibiotics are segregated so that residues can exit
the animal’s system and not be present in the meat. Recently, the
pork industry has established programs to encourage producers to implement
management practices that reduce the need for antibiotics, and to use
antibiotics only when other management practices do not, or will not, succeed
in
managing a correctly diagnosed problem.
Aquaculture
Industry
Aquaculture
is defined as the production of aquatic animals and plants under controlled
conditions for all or part of their lifecycle. According to the
United States Department of Agriculture’s Economic Research Service, during the
last two decades, the value of United States aquaculture production rose to
nearly $1 billion and is one of the fastest growing food-producing
sectors. According to the International Trade Report
produced in 2005 by the United States Department of Agriculture, U.S. per-capita
seafood consumption has remained around 15 pounds through the late 1980s and
1990s, it is expected to increase as farm-raised products become cheaper.
Currently, the United States consumes nearly 12 billion pounds of fish a
year. By 2025, demand for seafood is projected to grow by another 4.4
billion pounds above what is consumed today. In addition, it is
estimated that by 2020, 50 percent of the U.S. seafood supply will come from
aquaculture.
Equine
Industry
In
addition to the use of Agrastim® as an alternative
to antibiotics in animal feed, BioAgra has developed a product with
Agrastim®
focused
on racing and performance horses. Racing and
performance horses are subject to the outbreak of debilitating and deadly
diseases, such as the Equine Herpesvirus type 1 that killed six horses in an
outbreak in December 2006 in Wellington, Florida. BioAgra’s EquiForce™ product
has been designed to supply vitamins and minerals needed to meet the
physiological needs of equine athletes. In addition, EquiForce™
contains Agrastim® to boost
equine
immune systems to aid in suppressing bacterial and viral infections and
increasing stamina and resistance to stress. A trial of the
EquiForce™ product was conducted by an equine veterinarian at Fort Valley State
University in Fort Valley, Georgia showing positive immune responses in a
controlled study. BioAgra expects to obtain its first commercial
scale order for the product in the near future.
Neutraceuticals
and Dietary Supplement Industry
Annual
sales of supplements, fortified foods and beverages and neutraceuticals for
human consumption in the United States, are estimated to be approximately $100
billion. The vitamins, minerals and supplements market reached its
present size due to a number of factors, including (i) interest in healthier
lifestyles, living longer and living well, (ii) the publication of research
findings supporting the positive health effects of certain nutritional
supplements and (iii) the aging of the “baby boom” generation combined with the
tendency of consumers to purchase more nutritional supplements and natural
foods
as they age. BioAgra is considering the sale of Purestim™ as a
supplement for introduction by outside companies into packaged products for
human consumption.
Customers
BioAgra
is targeting a broad range of customers consisting of both large and small
consumers of animal feed both nationally and internationally to avoid dependency
on one or a small number of customers. In addition, BioAgra is
beginning to target neutraceutical and dietary supplement producers for the
sale
of Purestim™ as an additive in their existing products for human
consumption.
On
April
1, 2007, BioAgra and AHD International, LLC signed an agreement whereby AHD
International agreed to purchase beta glucan products from
BioAgra. The agreement has a term of five years with the right for
successive renewals provided minimum sales requirements are met. The
agreement provides that AHD International will purchase beta glucan products
for
resale to various end users in thirteen countries. The agreement
grants AHD International the exclusive right to sell the beta glucan products
to
all users in ten countries, including, Canada, Chile, Brazil, Japan, Vietnam,
South Korea, Australia, New Zealand, Germany and Denmark. In
addition, the agreement grants the right to sell the beta glucan products in
an
additional three countries (South Africa, Mexico and the United States), with
the exclusivity of such right dependant on the type of end user sold to and
the
country involved.
Mid
South
Feeds of Alma, Georgia began adding Agrastim® to its
top 5
premium lines of dog food and its top 2 premium brands of horse feed in May
2006. In addition, Mid South Feeds has recently begun to add
Agrastim® to
its equine vitamin supplement, Equi-Match, which has been designed to be fed
as
a top-dress supplement for horses in training, competition and recovery. Mid
South Feeds has over 175 distributors in Florida, Georgia, Alabama, Virginia,
Kentucky, North Carolina and South Carolina. Besides manufacturing dog and
horse
feed, Mid South also manufactures fish and shrimp feed, and starter feed for
dairy cattle and swine. To date, sales of Agrastim® by MidSouth
have
been limited.
Management
Managers
and Officers
BioAgra
is a manager-managed Georgia limited liability company. The managers
and officers of BioAgra are as follows:
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Name
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Position
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Neal
Bartoletta
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Manager,
President and Chief Executive Officer
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Paul
H. Metzinger
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Manager,
Executive Vice President, Chief Financial Officer and
Secretary
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Biographical
Information
Biographical
information regarding Mr. Metzinger is set forth in “Item 9—Directors and
Executive Officers of the Company.” The following is biographical
information about Mr. Bartoletta:
Mr.
Bartoletta has served as the President and a Manager of BioAgra, LLC since
December 2004. From 1980 to 1991, Mr. Bartoletta served as the
President of Bart Warehousing Corp in South Kearny, New Jersey, and from 1978
to
1999, as the President of N.J. Bart Corp, Elizabeth, New Jersey. From
1998 to the 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 is the owner of the other 50% equity
interest in BioAgra. Mr. Bartoletta is a graduate of the Academy of
Advanced Traffic.
Joint
Venture Partner
As
described elsewhere in this report, we own a 50% interest in
BioAgra. The remaining 50% of BioAgra is owned by Justin Holdings,
Inc., a Florida corporation. Justin Holdings, Inc. is a holding
company that currently has no other investments and no other substantial
business activities other than its ownership interest in BioAgra. All
of the outstanding capital stock of Justin Holdings is owned by Neal Bartoletta,
who is also the sole officer and director of Justin Holdings and is the manager,
president and CEO of BioAgra. Justin Holdings acquired a 50%
ownership interest in BioAgra as the result of the assignment by Xact Resources
of its membership interest in BioAgra in February 2006.
ExypnoTech,
Gmbh
ExypnoTech
is involved in the manufacture and development of RFID components used in the
manufacture of, among other things, smart labels, smart cards and smart
tags. RFID components 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. ExypnoTech
currently offers RFID components using a method of ultrasonic bonding originally
developed by us.
Raw
Materials
Production
of RFID components requires computer chips, antennas and
laminates. ExypnoTech obtains its supply of chips from Phillips,
Infineon and other suppliers and its antennas and laminates from many
sources.
Production
Process
The
production process for a smart label is a form of “welding” at the molecular
level, bonding a chip to the antenna using ultrasonic energy and applying the
assembled circuitry into laminates printed with customer designed
information. A continuous feed high speed die bonder extracts a chip
from the wafer, flips the chip, applies a high speed non conductive adhesive
to
the antenna contact pads, which are fed into the die bonder on a tape, and
presses the chip down onto the antenna pads. Customers can then print
designated information to the laminate enveloping the assembled circuitry.
ExypnoTech currently is operating four die bonders, three shifts per day, five
days a week. Management of ExypnoTech has advised us that ExypnoTech
is the third largest inlay manufacturer in Europe. ExypnoTech plans
to install two additional die bonders this year.
Customers
There
are
a wide range of potential customers for RFID components. ExypnoTech
has numerous customers using its products in a wide variety of RFID
applications.
Management
The
managers of ExypnoTech are Bernhard Maier, Michael Kober and Peter
Hahn.
Particle
Technology
On
February 26, 1998, we acquired the intellectual property rights related to
our
particle interconnect technology from Particle Interconnect Corporation, a
Colorado corporation. We acquired the particle technology to pursue a more
focused, strategic application and development of the particle technology and
to
commercialize the technology as the NanoPierce Connection System (NCSTM). NCS is
an
alternative method of providing temporary or permanent electrical connections
between different flexible, rigid, metallic and non-metallic surfaces. Through
the use of the particle technology, we can also attach semiconductors directly
to various surfaces. While we do not plan, at this time, to continue efforts
to
manufacture or develop products that utilize our particle technology, we will
pursue the licensing of our technology to third parties.
In
November 2006, we signed a six-month technology license agreement to permit
a
prospective licensee the non-exclusive opportunity to conduct a market survey
relating to our particle interconnect technology that was extended in May 2007
for an additional six-month period. This prospective licensee has
advised us that it wishes to negotiate a long term royalty paying license
agreement. In January 2007, we signed a separate six-month technology
licensing agreement to permit a different prospective licensee the non-exclusive
opportunity to conduct a market survey relating to our particle interconnect
technology that was extended in July 2007 for an additional six-month
period. If either market survey is favorable, that technology
licensing agreement may mature into a royalty-paying commercial
license.
Research
and Development
Our
research and development activities were formerly conducted through NanoPierce
Connection, with additional activities occurring at ExypnoTech. For
the fiscal years ended June 30, 2007, 2006 and 2005, we incurred no research
and
development expenses.
We
anticipate that a substantial amount of research and development activities
will
occur at BioAgra, LLC. The expected activities include testing
Agrastim® and
Purestim™ for quality control and the development of new premixed products
containing Agrastim® that will
allow
BioAgra to market and sell to a broader range of customers. BioAgra
expects to fund and build an extensive research and development laboratory
at
its main facility and has adequate space at the facility to build such a
laboratory. The laboratory is currently in the design
stages.
BioAgra
sponsors independent university research projects for Agrastim®. One
past research project was an equine study completed by Fort Valley State
University in Fort Valley, Georgia. Another research project was
conducted by the University of Georgia relating to the application of
Agrastim® in
chicken feed as an alternative to antibiotics to treat necrotic enteritis,
a
deadly disease affecting poultry and turkey.
BioAgra
and Agra Nutrition, LLC have conducted, in the past, and are currently
conducting numerous field trials of Agrastim® in all
market
applications. These trials provide valuable data relating to the
benefits of using Agrastim® in the
feeds of
animals. The dairy market is of particular interest to BioAgra and
Agra Nutrition, LLC because of the dramatic reduction on somatic cell count
in
milk after application of Agrastim® in the
feed of
dairy cattle. A reduction in somatic cell count is directly related
to an increase in overall milk production and can contribute to longer shelf
life of the milk.
Competition
BioAgra
Competition
for beta glucan products in the markets targeted by BioAgra is currently
limited. The United States and many other countries are in the
process of eliminating or plan to eliminate the use of growth promotion
antibiotics in the feed of animals intended for human consumption. There are
a
limited number of alternatives to growth promotion antibiotics. Such
alternatives include organic acids, plant extracts such as oregano oil, and
mannoproteins. These alternatives have not experienced a great
success rate to date.
Other
potential competitors to BioAgra include those companies 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. “Bioactivity” is the ability to activate the cells of the
immune system, specifically white blood cells that help to kill and digest
foreign materials and infectious microorganisms. The greater the
bioactivity level, the greater the ability to activate the cells of the immune
system. Based upon data provided to us, beta glucan having less than
80% bioactivity is not effective in the animal feed markets chosen by
BioAgra. BioAgra intends to produce beta glucan with at least 80%
bioactivity and intends to provide a written guarantee to its customers that
its
beta glucan products will have a bioactivity level of at least 80%.
Competition
will also consist of established producers of growth promotion antibiotic
products. These are large companies with vast resources allocated to
the protection of the brand recognition and market share of their products.
Success will require people switching from the artificial antibiotic growth
products to beta glucan products.
We
are
also aware of one company, Fibona Health Products GmbH, which is promoting
yeast
beta glucan products in Europe and the United Kingdom. We do not
believe its products will compete with BioAgra’s beta glucan
products.
ExypnoTech
Competition
in the electronic connector and RFID market is fierce. The principal
competitive factors are product quality, performance, price and
service. We and our licensees face competition from well-established
firms with other interconnect technologies. We will face competition
from the development of existing and future competing
technologies. There currently exists approximately 28 different
technologies that can be used to create interconnect solutions, including
dendrite crystals, gold dot technology, anisotropic technology (technologies
using materials whose behavior differs in the up/down and left/right
directions), elastomerics (rubber-like synthetic materials) and Z-axis
conductive adhesives. These technologies currently are produced by
materials and chemical suppliers, flexible and rigid printed circuit board
manufacturers, as well as electronics manufacturers who produce their own
materials and interconnect systems.
Intellectual
Property
BioAgra
Progressive
Bioactives License Termination Agreement
On
July 11, 2007, BioAgra, LLC entered into a Termination and Mutual General
Release Agreement with Progressive Bioactives, Inc. to terminate the parties’
Technology License Agreement dated April 15, 2005 that had granted BioAgra
the license to produce and process a yeast beta glucan product. As
consideration for termination of the Technology License Agreement, BioAgra
agreed to pay to Progressive Bioactives 2.5% of its gross sales of beta glucan
products from July 1, 2007 through June 30,
2017. Additionally, for a period of two years beginning on
July 1, 2007, BioAgra agreed to use its best efforts not to pursue
marketing and sales of its beta glucan products in the field of livestock,
companion animal, and aquaculture in Canada, South Africa, Australia, Chile,
and
South Korea. BioAgra also agreed to indemnify and hold Progressive
Bioactives harmless from any third-party claim arising from any sale of beta
glucan into the human nutrition and cosmetic markets.
The
termination and mutual release agreement further provided that BioAgra has
the
right to manufacture beta glucan products utilizing its own intellectual
property, methods and processes, such methods and processes being independent
of
and separate from any patent or other intellectual property rights of
Progressive Bioactives. BioAgra and Progressive Bioactives (and its
affiliates) each acknowledged and agreed that their respective beta glucan
technology does not infringe on the technology of the other party and agreed
not
to sue each other or any agent, customer, affiliate, representative distributor
or other person acting on behalf of such party for infringement of any current
or future intellectual property rights based on each party’s use of its own
methods and processes for producing beta glucan or any reasonable modifications
thereof.
Progressive
Bioactives and BioAgra each unconditionally released and discharged each other
from any and all claims, defenses, demands, causes of action, liability,
damages, costs and expenses arising from or related to the subject matter of
the
license agreement, which they have or may have up through and including the
date
of execution of the termination and mutual release agreement, whether such
claims were known or unknown at the time of the agreement.
Development
of Beta Glucan Products
BioAgra
has developed, and continues to work towards new modifications to, its beta
glucan manufacturing process. BioAgra may file for patent protection
for its beta glucan products or may keep its processes and procedures as a
trade
secret.
Particle
Technology
We
are
currently in the process of attempting to license our NCS™ technology
to third
parties. NCS™
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. NCS
provides advantages to potential users including lower costs through the usage
of less expensive materials, the elimination of manufacturing steps, improved
thermal and electrical properties, elimination of special environments for
application, decreased production time, easy integration into existing
production lines, increased design miniaturization, adaptability for specific
applications, and RF (radio frequency) performance.
Other
Intellectual Property
We
currently hold 11 patents with the U.S. Patent and Trademark
Office. To reduce expenses, during the fiscal years ended
June 30, 2006 and 2005, we abandoned several of our patent
applications. We also hold several trademarks with the U.S. Patent
and Trademark Office in connection with our former name, logo and
services.
Government
Regulation
BioAgra
has self-certified that all components of its beta glucan products are generally
recognized as safe or GRAS according to the U.S. Food and Drug Administration
regulations. A GRAS designation exempts the beta glucan products from
the regulations of the U.S. Department of Agriculture, permitting the sale
of
the beta glucan products anywhere in the United States without obtaining a
license. Should BioAgra determine that the beta glucan products can
no longer be recognized as GRAS, it will be required to sell the beta glucan
products as food additives by obtaining a license to sell from each individual
state in which sales would occur. 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 cost of obtaining and maintaining
these licenses will not limit BioAgra’s ability to sell the beta glucan
products.
We
believe that we are in compliance with all federal and state laws and
regulations governing our limited operations. Further, we believe
that we are in compliance with all German laws and regulations governing our
limited operations in Germany. Compliance with federal and state
environmental laws and regulations did not have a material effect on our capital
expenditures, earnings or competitive position during the fiscal years ended
June 30, 2007 or 2006.
Employees
As
of
October 10, 2007, we and our subsidiaries had one employee. Mr.
Metzinger is our only executive officer and has a signed employment agreement
with us.
Risk
Factors
In
addition to the other information in this report, the following factors should
be considered in evaluating our business and financial condition. We
believe the risks and uncertainties described below may materially affect our
liquidity and operating results. There also could be additional risks
and uncertainties that we are currently unaware of, or that we are aware of
but
currently do not consider to be material. These could become
important in the future or prove to be material and affect our financial
condition or results of operations.
Risks
Relating to Our Business and the Business of Our Unconsolidated
Investees
We
have a history of losses
We
expect
that BioAgra’s manufacturing, developing and marketing of Agrastim® as a
feed additive
in the poultry, equine, cattle, swine and aquaculture industries and Purestim™
for human consumption will be expensive. We recently have incurred
increased operating expenses without any increase in revenues. We
reported a net loss of $3,770,738, $2,407,821 and $997,616 for our fiscal
years
ended June 30, 2007, 2006 and 2005, respectively.
We
may not be able to continue as a going concern
Our
independent registered public accounting firm’s audit report on our consolidated
financial statements as of June 30, 2007 includes an explanatory paragraph
expressing substantial doubt about our ability to continue as a going
concern. As a result of this going concern modification in our
auditor’s report on our financial statements, we may have a difficult time
obtaining significant additional financing. If we are unable to
secure significant additional financing, we may be obligated to seek protection
under the bankruptcy laws and our stockholders 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, our particle interconnect
technology and our 49% interest in ExypnoTech, Gmbh. Investments in
joint ventures involve risks that would not be present were another party not
involved, including the possibility that our co-venturer, Justin Holdings,
Inc.
with respect to BioAgra, LLC and TagStar Systems, Gmbh with respect to
ExypnoTech, Gmbh (each of which is 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’ and our licensees also may have economic
or other business interests or goals that are inconsistent with our business
interests or goals, and they 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 sole 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
business policies, practices and procedures relating to the production and
marketing of beta glucan products or a sale of the joint venture, because
neither we nor the other 50% owner, Justin Holdings, Inc., has full 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.
If
our products infringe the intellectual property rights of others, we may pay
unexpected litigation costs or damages for selling our
products
We
intend
to avoid infringing (and to cause entities in which we hold equity interests
to
avoid infringing) the intellectual property rights of others; however, no
assurances can be given that the manufacture and sale of our products (or
products of entities in which we hold an equity interest) may not infringe
or
otherwise violate the intellectual property rights of others. If this were
to be
the case, we (or the entities in which we hold equity interests) may be subject
to legal proceedings and claims, including claims of alleged infringement by
us
(or the entities in which we hold equity interests) of the patents and other
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming, regardless of the merits of any
claim.
If
it
were to be found that our products (or the products of an entity in which we
hold an equity interest) potentially infringe or violate the intellectual
property rights of others, we may need to obtain licenses from these parties,
substantially re-engineer products in order to avoid infringement or renegotiate
existing licenses to avoid future infringement. We (or the applicable entity
in
which we hold an equity interest) might not be able to obtain the necessary
licenses on acceptable terms, or at all, or be able to re-engineer products
successfully. Moreover, if we are (or an entity in which we hold an equity
interest is) sued for infringement and lose the suit, we (or such entity) could
be required to pay substantial damages and/or be enjoined from using or selling
the infringing products. Any of the foregoing could cause us to incur
significant costs and prevent us (or such entity) from selling the products
subject to any legal action.
BioAgra
entered into a Termination and Mutual General Release Agreement with Progressive
Bioactives. Pursuant to the termination agreement, BioAgra and
Progressive Bioactives agreed not to sue each other for infringement of any
current or future intellectual property rights based on each party’s use of its
own methods and processes or any reasonable modifications thereof, for the
development and manufacture of beta glucan products. However, we can
provide no assurance that Progressive Bioactives will not allege that BioAgra
has violated its intellectual property rights through the production and sale
of
the beta glucan product, which could result in substantial monetary damages
or
injunctions prohibiting the production of the beta glucan products.
If BioAgra's
beta glucan products do not satisfy certain governmental
regulations, BioAgra may be unable to obtain regulatory approval or may be
required to obtain multiple licenses to sell our beta glucan
products
BioAgra
has self-certified that all components of its beta glucan products are generally
recognized as safe or GRAS according to the U.S. Food and Drug Administration
regulations. A GRAS designation exempts the beta glucan products from
the regulations of the U.S. Department of Agriculture, permitting the sale
of
the beta glucan products anywhere in the United States without obtaining a
license. Should the beta glucan products lose their GRAS designation,
BioAgra will be required to sell the beta glucan products as feed additives
by
obtaining a license to sell from each individual state in which sales would
occur. There is no assurance that BioAgra would be able to
successfully obtain or maintain licenses in all states in which sales are
expected to be made or that the cost of obtaining and maintaining these licenses
would not limit its ability to sell the beta glucan products.
Operations
of BioAgra may be delayed or cost more than we
anticipate
Operations
at the beta glucan production plant commenced in March of 2006. BioAgra produced
approximately 7,600 kilograms of finished product, of which 5,600 kilograms
remains in inventory, and has halted production pending the sale of at least
50%
of the existing inventory. Once production is recommenced, there can
be no assurances that there will not be future delays in operations 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
Except
as
described in the prior risk factor, we have no prior experience manufacturing
or
producing beta glucan products or any other products. We are relying
upon the skill and experience of BioAgra’s managers and our co-joint venturer to
timely and cost effectively manufacture the beta glucan product. We
expect that BioAgra’s customers 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
various industries for feed additives. BioAgra intends to provide a
written guarantee or other assurance to its customers that its beta glucan
products will have a bioactivity level of at least 80%. “Bioactivity”
is the ability to activate the cells of the immune system, specifically white
blood cells that help to kill and digest foreign materials and infectious
microorganisms. The greater the bioactivity level, the greater the
ability to activate the cells of the immune system. However, BioAgra cannot
guarantee that all batches of the beta glucan products produced for inclusion
in
various animal feed products will meet that bioactivity level. Should
BioAgra be unable to meet the standard, it may lose existing customers and
be
unable to acquire new customers.
There
may be insufficient demand for BioAgra's beta glucan
products
Sales
of
the beta glucan products have been limited to date. The market acceptance of
new
products and technologies, including the beta glucan products, is subject to
a
number of factors, including the ability of the product to more effectively
and
efficiently meet potential customers’ needs than current
products. Antibiotics and growth hormone supplements are widely used
in animal feed. BioAgra must convince potential customers that
Agrastim® is
safe and effective as a feed additive and can be manufactured efficiently and
cost effectively before animal producers will be willing to use the product
rather than existing products such as antibiotics and growth hormone
supplements. In addition, BioAgra must convince potential customers
that Purestim™ is safe for human consumption. To create this consumer
demand, BioAgra will have to successfully market and sell its
products. BioAgra has been conducting independent research studies
and field trials as part of its overall marketing efforts, which has delayed
market acceptance of Agrastim® and
Purestim™. While results in such research studies and field trials
have been favorable, the beta glucan products 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:
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our
revenues and the revenues of our joint
ventures;
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the
status of competing products in the
marketplace;
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our
performance in the marketplace;
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our
overall financial condition;
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our
business prospects;
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the
perception of our growth potential by the public, including potential
lenders;
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our
ability to enter into joint venture or licensing relationships to
achieve
a market presence; and
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our
progress in developing, marketing and selling the beta glucan
products.
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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
our key employee fails to perform in his current position, we may be unable
to
assist in bringing the beta glucan products to the marketplace and to generate
sufficient revenues to offset operating costs.
BioAgra
may be unable to hire and retain independent
distributors
BioAgra’s
future success depends on its ability to attract qualified independent
distributors for the beta glucan products. It may be unable to
attract or retain these independent distributors. If BioAgra fails to
attract or retain independent distributors, or if its existing independent
distributors fail to find end users for the beta glucan products, it may be
unable to successfully bring the beta glucan products to the marketplace and
to
generate sufficient revenues to offset 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. Should we encounter any of the following
issues with our intellectual property, our business and financial condition
could be negatively affected.
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Trade
secrets may become known by third parties. Our
trade secrets or proprietary information may become known or be
independently developed by
competitors.
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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.
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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.
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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.
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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.
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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, 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.
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Economic
factors outside our control may have an adverse effect on our revenues and
income
BioAgra’s
income may be impacted by economic factors that are beyond its control such
as
fluctuations in the price of animal feed and human dietary supplements,
outbreaks of diseases in animals, and demand for products related to cattle,
dairy, poultry, equine, swine, aquatic animals and human neutraceuticals and
dietary supplements. Rising animal feed prices and increases in
production costs for livestock producers may cause a reduction in overall
production, which, in turn, could adversely impact BioAgra’s
revenues. An outbreak of disease, such as avian influenza or mad cow
disease, could result in increased government regulation of the livestock
industry, a serious drop in demand for livestock products, and adverse publicity
materially affecting the animal producers for a significant period of time,
which could adversely impact BioAgra’s business, revenues, prospects, financial
condition, and results of operation.
The
market for feed additives is competitive
The
feed
additive market is competitive. BioAgra will compete with producers
of growth promotion antibiotic 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 growth promotion antibiotic products, such as organic acids, plant extracts,
and mannoproteins. BioAgra has a competitive disadvantage against
many of these competitors in several different areas, including:
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manufacturing
capabilities;
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diversity
of revenue sources and business
opportunities;
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personnel
and human resources; and
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research
and development capabilities.
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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 becomes unable to use its manufacturing facility, it may be unable
to
manufacture its beta glucan products for an extended period of
time
BioAgra
manufactures at a single location in Georgia, which currently runs a single
production line. Manufacturing products at a single site presents
risks because a disaster, such as a fire or hurricane, may interrupt
manufacturing capability. In such an event, BioAgra will have to
resort to alternative sources of manufacturing that could increase costs, as
well as result in significant delays. Any increase in costs of
manufacturing, slowdowns or shutdowns by BioAgra 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 its ability to attract
customers
BioAgra
will fulfill the needs of varied livestock producers, human dietary supplement
producers and horse owners based on the use of a single manufacturing plant
and
a single production line. BioAgra’s manufacturing limitations may
restrict its ability to attract large customers who require certainty in the
production process. If BioAgra is successful, it anticipates
expanding manufacturing operations. However, while our production
area has enough space for three separate production lines, there is no assurance
that BioAgra will have the financial resources required to expand its production
facilities beyond the single production line currently existing at the Georgia
manufacturing facility.
Manufacturing
capacity restraints and limited experience may have an adverse affect on
BioAgra
BioAgra
has limited manufacturing capacity and experience. BioAgra may
encounter some difficulties, such as significant unexpected costs and delays,
in
scaling up the manufacturing operations of BioAgra to produce quantities
required for it to achieve profitability. The failure to scale-up
BioAgra’s manufacturing operations in a timely and cost-effective manner may
adversely affect our income. We believe that we have adequate
capacity to meet anticipated demand for 2007. However, in the event
the demand for the beta glucan products rapidly increases or spikes in a certain
period, BioAgra may not have the manufacturing ability to fulfill demand, either
in its own facilities or through agreements with third parties. A
potential lack of manufacturing capacity may materially affect BioAgra’s and our
reputation, prospects, revenue, income and results of operation.
An
increase in the cost or a disruption in the flow of BioAgra’s imported yeast
product may decrease its sales and profits
BioAgra
obtains its entire supply of spent yeast product, which is used to manufacture
the beta glucan products, from a Brazilian supplier. Risks associated with
BioAgra’s use of imported spent yeast include: disruptions in the flow of
imported goods because of factors such as electricity or raw material shortages,
work stoppages, strikes and political unrest; problems with oceanic shipping,
including shipping container shortages; economic crises and international
disputes; increases in the cost of purchasing or shipping foreign merchandise
resulting from the failure to maintain normal trade relations with source
countries; adverse fluctuations in currency exchange rates; and import duties,
import quotas, trade embargoes and other trade sanctions. A
disruption in the flow of spent yeast from the Brazilian supplier or an increase
in the cost of the spent yeast may limit or decrease BioAgra’s sales and
profits.
Replacing
BioAgra’s sole supplier of key materials could result in unexpected delays and
expenses
BioAgra
obtains key materials and services for the beta glucan products from sole source
suppliers, primarily with respect to spent brewer’s or distillery
yeast. Specifically, BioAgra obtains its spent yeast product from a
sole source in Brazil. Should the Brazilian supplier become unable to
supply BioAgra with the spent yeast product, BioAgra will be forced to purchase
substitute products. All of these materials are commercially
available elsewhere. However, if BioAgra is required 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, if necessary, may cause a delay in production of the beta glucan
products and may cause BioAgra to incur additional expense.
Risks
Relating to the Ownership of Our Equity Securities
We
have a single controlling shareholder, who has the power to elect a majority
of
our board of directors and control our strategic
direction
As
of
October 10, 2007, Arizcan Properties Ltd. owned approximately 41% of our
outstanding common stock assuming all securities held by Arizcan Properties
and
other holders that are convertible into common stock or exercisable for common
stock were converted or exercised. In addition, as a result of our
March 2007 private placement transaction, we issued to Arizcan Properties
warrants and shares of series A nonconvertible preferred stock. As a
result, Arizcan Properties acquired approximately 51% of our voting power,
and,
on a fully diluted basis, Arizcan Properties would hold approximately 80% of
our
voting power if they exercise the warrant. These shares give Arizcan
Properties Ltd. the power to elect a majority of our board of directors and,
through that board control, control our operations. The ability of other
shareholders to influence our direction (for example, through the election
of
directors) is therefore limited or not available.
Sales
of common stock by our controlling shareholder may result in a change of
control
As
of
October 10, 2007, Arizcan Properties, Ltd. is our controlling shareholder.
Arizcan Properties, Ltd. may cause us to have a change of control if they sell
enough of our common stock. We are not aware of any present intention of Arizcan
Properties, Ltd. to cause us to have a change of control and we are not aware
of
any other arrangements that may result in a change of control.
We
have a thinly-traded stock and public sale of shares by our controlling
shareholder could cause the market price of our shares to drop
significantly
As
of
October 10, 2007, Arizcan Properties, Ltd. owned approximately 41% of our
outstanding common stock assuming all securities held by Arizcan Properties,
Ltd. and other holders that are convertible into common stock or exercisable
for
common stock were converted or exercised. If Arizcan Properties, Ltd. were
to
begin selling shares in the market rather than holding all of those shares
over
a longer term, the added available supply of shares could cause the market
price
of our shares to drop. Furthermore, in light of the large number of shares
that
it holds and its generally lower acquisition cost of those shares, Arizcan
Properties, Ltd. could be willing to sell it shares at a price lower than the
currently-prevailing market price, thereby depressing that price.
The
sale of securities by current stockholders could cause dilution of existing
holders of our common stock by decreasing the price of our common
stock
The
market price of our common stock could be adversely affected by sales of
substantial amounts of common stock in the public market, by investor perception
that substantial amounts of common stock could be sold or by the fact or
perception of other events that could have a dilutive effect on the market
for
our common stock. As of October 10, 2007, we had 31,592,845
shares of our common stock outstanding. If all of our outstanding
options and warrants were exercised and all of our reserved shares of common
stock were issued, we could have up to 47,221,979 shares of common stock
outstanding. Future transactions with other investors could further
depress the price of our common stock because of additional
dilution.
The
price of our common stock could be affected by the ability of holders of our
common stock to sell their stock
The
market price of our common stock will be influenced by the ability of common
stockholders to sell their stock. As of October 10, 2007,
approximately 22,064,326 shares of our common stock were freely transferable
and
constitute the “float” in the public market for our common stock. If
all of our outstanding options and warrants were exercised and all of our
reserved shares were issued, the “float” for our common stock could increase to
a total of 31,756,460 shares. As of October 10, 2007,
approximately 9,465,519 shares of our common stock were “restricted” or
“control” securities within the meaning of Rule 144 under the Securities
Act of 1933. These restricted securities cannot be sold unless they
are registered under the Securities Act of 1933, or unless an exemption from
registration is otherwise available, including the exemption that is contained
in Rule 144. If all of our outstanding options and warrants were
exercised and all of our reserved shares were issued, the number of “restricted”
or “control” shares of our common stock could increase to a total of 15,465,519
shares.
We
could issue preferred stock that could adversely affect the rights of our common
stockholders
We
are
authorized to issue up to 5,000,000 shares of preferred stock, $.0001 par value
per share. Our articles of incorporation give our board of directors
the authority to issue preferred stock without the approval of our common
stockholders. We may issue preferred stock to finance our
operations. We may authorize the issuance of our preferred stock in
one or more series. In addition, we may set several of the terms of
the preferred stock, including:
|
|
·
|
dividend
and liquidation preferences;
|
|
|
·
|
other
privileges and rights of the shares of each authorized
series.
|
The
issuance of large blocks of preferred stock could have a dilutive effect on
our
existing stockholders and could negatively impact our existing stockholders’
liquidation preferences. In addition, while we include preferred
stock in our capitalization to improve our financial flexibility, we could
possibly issue our preferred stock to third parties as a method of discouraging,
delaying or preventing a change in control in our present
management.
The
resale of our common stock by you may be limited because of its low price,
which
could make it more difficult for broker/dealers to sell our common
stock
The
Securities Enforcement and Penny Stock Reform Act of 1990, as amended, requires
additional disclosure relating to the market for penny stocks in connection
with
trades in any stock defined as a penny stock. Regulations enacted by
the SEC generally define a penny stock as an equity security that has a market
price of less than $5.00 per share, subject to some
exceptions. Unless an exception applies, a disclosure schedule
explaining the penny stock market and the risks associated with investing in
penny stocks must be delivered before any transaction in penny stock can
occur.
Our
common stock is not a reported security and is currently subject to the
Securities and Exchange Commission’s “penny stock” rules. It is
anticipated that trading in our common stock will continue to be subject to
the
penny stock rules for the foreseeable future.
Until
such time as our common stock meets an exception to the penny stock regulations
cited above, trading in our securities is covered by Rule 15g-2 and Rule 15g-9
promulgated under the Securities Exchange Act of 1934. Under Rule
15g-2, before a broker/dealer can consummate a trade in penny stock, the
broker/dealer must send an additional disclosure, receive a written
acknowledgement of such disclosure from the purchaser of the penny stock, and
wait two business days from the date the additional disclosure was sent. Under
Rule 15g-9, broker/dealers who recommend penny stocks to persons who are not
established customers or accredited investors must make a special determination
in writing for the purchaser that the investment is suitable, and must also
obtain the purchaser’s written agreement to a transaction before the
sale.
The
penny
stock regulations could limit the ability of broker/dealers to sell our
securities and, thus, the ability of purchasers of our securities to sell their
securities in the secondary market for so long as our common stock has a market
price of less than $5.00 per share.
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.
Our
corporate headquarters are located at 370 17th Street, Suite 3640, Denver,
Colorado 80202. We moved into our current office space on
June 27, 2001 and had a five-year lease on the property, which expired
September 2006 and was extended for a five-year term expiring December
2011. The base rent is approximately $3,110 per month for the first
year of the lease, with annual increases of approximately $100 per month for
each successive year of the lease, plus certain occupancy costs.
Harvest
Court Litigation
In
connection with a financing obtained in October 2000, we 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.
In
this
litigation, Harvest Court, LLC filed counterclaims against us, Paul Metzinger,
Kristi Kampmann, Dr. Neuhaus, Dr. Shaw, a former director Albert Capote 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. Discovery has been completed and a trial date is expected to
be set by the court.
In
May 2001, Harvest Court, LLC filed suit against us in the Supreme Court of
the State of New York, County of New York. The suit alleges that we
breached an October 20, 2000 Stock Purchase Agreement by not issuing
370,945 free trading shares of our common stock in connection with the reset
provisions of the Purchase Agreement due on the second reset date and
approximately 227,265 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
us to reserve and not transfer the shares allegedly due to Harvest Court,
LLC. In February 2006, in connection with the reverse stock
split of our common stock described elsewhere in this report, the Supreme Court
of the State of New York, County of New York issued an injunction ordering
us to
reserve 3.7% of our issued and outstanding common stock (832,290 shares at
February 13, 2006). We have set aside these
shares. We have filed counterclaims seeking various forms of relief
against Harvest Court, LLC. Discovery has been completed in these
cases and a trial date is expected to be set by the court.
Depository
Trust Lawsuit
In
May 2004, we 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 our common stock for extended periods
of time by using the Stock Borrow Program to cover these open and unsettled
positions. We were 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. We filed an appeal to the Supreme Court of the State of
Nevada to overturn the motion to dismiss the lawsuit. Oral argument
on the appeal was presented before the Nevada State Supreme Court in
February 2007. In September 2007, the Nevada Supreme Court ruled
that all of our claims were preempted by federal law and affirmed the district
court’s dismissal of our complaint.
Other
Litigation
Other
than the above mentioned lawsuits, to the knowledge of our management, there
are
no material legal proceedings pending or threatened (other than routine
litigation incidental to business) to which we (or any officer, director,
affiliate of beneficial owner of more than 5% of our voting securities) are
party, or to which our property is subject.
ITEM
4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
There
were no matters submitted to security holders during the fourth quarter of
the fiscal year covered by this report.
ITEM
5. MARKET FOR COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES
Our
common stock is presently quoted on the over-the-counter bulletin board
maintained by the Financial Industry Regulatory Authority (formerly known as
the
National Association of Securities Dealers) (“FINRA”) under the symbol
“VYTC.OB.” Our common stock is also traded on the Berlin Stock
Exchange, the Frankfurt Stock Exchange, the Munich Stock Exchange and the Xetra
Stock Exchange under the symbols indicated in the table below:
|
Foreign
Exchange
|
Trading
Symbol
|
| |
|
|
Berlin
Stock Exchange
|
NPI1.BE
|
|
Frankfurt
Stock Exchange
|
NPI1.F
|
|
Munich
Stock Exchange
|
NPI1.MU
|
|
Xetra
Stock Exchange
|
NPI1.DE
|
The
following table sets forth the range of high and low quotations for our common
stock on the over-the-counter bulletin board for each full quarterly period
during the fiscal year or equivalent period for the fiscal periods ending on
the
dates indicated below after giving effect to the reverse stock split of our
common stock that occurred on January 31, 2006 that is described elsewhere
in this report. The quotations were obtained from information
published by FINRA and reflect interdealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
|
2007
Fiscal Year
|
|
High
|
|
|
Low
|
|
| |
|
|
|
|
|
|
|
September 30,
2006
|
|
$ |
0.49
|
|
|
$ |
0.41
|
|
|
December
31, 2006
|
|
|
0.41
|
|
|
|
0.41
|
|
|
March
31, 2007
|
|
|
0.32
|
|
|
|
0.32
|
|
|
June 30,
2007
|
|
|
0.42
|
|
|
|
0.35
|
|
| |
|
|
|
|
|
|
|
|
|
2006
Fiscal Year
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
September 30,
2005
|
|
|
1.60
|
|
|
|
1.20
|
|
|
December
31, 2005
|
|
|
1.20
|
|
|
|
1.20
|
|
|
March
31, 2006
|
|
|
1.05
|
|
|
|
1.05
|
|
|
June 30,
2006
|
|
|
0.84
|
|
|
|
0.75
|
|
As
of
September 30, 2007, there were approximately 557 holders of record of our common
stock.
Dividends
Our
board
of directors determines any payment of dividends. We have not paid
any cash dividends on our common stock in the past, and we do not anticipate
paying any dividends in the foreseeable future. Earnings, if any, are
expected to be retained to fund our future operations. There can be
no assurance that we will pay dividends at any time in the future.
Recent
Sales of Unregistered Securities
We
made
the following unregistered sales of its securities from April 1, 2007 through
June 30, 2007.
|
DATE
OF SALE
|
|
TITLE
OF SECURITIES
|
|
NO.
OF SHARES
|
|
CONSIDERATION
|
|
CLASS
OF PURCHASER
|
| |
|
|
|
|
|
|
|
|
|
6/30/07
|
|
Common
Stock
|
|
|
333,333
|
|
$ |
50,000
|
|
Business
Associate
|
|
4/1/07
- 6/30/07
|
|
Common
Stock
|
|
|
5,263,000
|
|
$ |
789,450
|
|
Business
Associate
|
Exemption
From Registration Claimed
All
of
the sales by us of our unregistered securities were made in reliance upon
Section 4(2) of the Securities Act of 1933, as amended (the “1933
Act”). The entity listed above that purchased the unregistered
securities was an existing shareholder, known to us and our management, through
pre-existing business relationships, as a long standing business
associate. The entity was provided access to all material
information, which it requested, and all information necessary to verify such
information and was afforded access to our management in connection with the
purchases. The purchaser of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to us. 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
in any further resale or disposition.
Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers
Not
applicable.
ITEM
6. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This
Annual Report on Form 10-KSB includes “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. We base these forward looking statements on our current
expectations and projections about future events. These forward
looking statements are subject to risks, uncertainties, and assumptions about
us, including:
|
|
·
|
the
operations and potential profitability of BioAgra, LLC, a company
in which
we have a 50% interest;
|
|
|
·
|
the
rate of market development and acceptance of our beta glucan products
in
the animal and aquatic animal feed industry within which we are
concentrating our business
activities;
|
|
|
·
|
the
rate of market development and acceptance of our beta glucan products
for
human consumption;
|
|
|
·
|
our
ability to compete successfully with growth promotion antibiotic
manufacturers and other providers of feed
additives;
|
|
|
·
|
the
operations and potential profitability of ExypnoTech, Gmbh, a company
in
which we have a 49% interest that is manufacturing and developing
inlay
components used in the manufacturing of radio frequency identification
devices (“RFID”), such as smart labels, smart cards and smart
tags;
|
|
|
·
|
the
limited revenues and significant operating losses generated by us
to
date;
|
|
|
·
|
the
possibility of significant ongoing capital requirements and our ability
to
secure financing as and when
necessary;
|
|
|
·
|
our
ability to retain the services of our key management, and to attract
new
members to the management team; and
|
|
|
·
|
our
ability to obtain and retain appropriate patent, copyright and trademark
protection for our intellectual properties and any of our
products.
|
These
forward-looking statements include statements regarding our expectations,
beliefs, or intentions about the future, and are based on information available
to us at this time. We assume no obligation to update any of these statements
and specifically decline any obligation to update or correct any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
Actual events and results could differ materially from our expectations as
a result of many factors, including those identified in the section titled
“Item
1. Business—Risk Factors” and other sections of this report. We
urge you to review and consider those factors, and those identified from time
to
time in our reports and filings with the Securities and Exchange Commission,
for
information about risks and uncertainties that may affect our future results.
All forward-looking statements we make after the date of this filing are
also qualified by this cautionary statement and identified risks.
Our registered
public accounting firm’s audit report on our consolidated financial statements
as of June 30, 2007, and for each of the years in the two-year period then
ended, includes a “going concern” explanatory paragraph that describes
substantial doubt about our 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 included in this report.
Plan
of Operations
At
June
30, 2007, we had cash on hand, of $354,702, which we do not believe is
sufficient to fund our operations for the next twelve months. We
intend to use our cash funds to continue to support operations. We
intend to continue to develop the business opportunity presented by
our investment in an unconsolidated investee, BioAgra and the
Agrastim®
product. The development of the business opportunity includes
continued marketing efforts and product testing over the next twelve
months.
In
the
continuance of our business operations, we do not intend to purchase or sell
any
significant assets and we do not expect a significant change in the number
of
employees.
We
are
dependent on raising additional equity and/or, debt to fund any negotiated
settlements with our outstanding creditors and meet our ongoing operating
expenses. There is no assurance that we will be able to raise the necessary
equity and/or debt that we will need to be able to negotiate acceptable
settlements with our outstanding creditors or fund our ongoing operating
expenses. We cannot make any assurances that we will be able to raise
funds through such activities.
Results
of Operations
During
the fiscal years ended June 30, 2007 and 2006, we did not have any revenues
from
operations.
We
recognized $22 in interest income during the fiscal year ended June 30, 2007
compared to $72,307 during the fiscal year ended June 30, 2006. The
decrease of $72,285 is due primarily to our decision to not accrue interest
on
loan made to one of our equity investees, BioAgra, during the year ended June
30, 2007, due to BioAgra’s inability to make scheduled payments on the
note.
General
and administrative expenses during the fiscal year ended June 30, 2007 were
$1,835,973 compared to $893,061 for the fiscal year ended June 30, 2006.
The increase of $942,912 is mainly attributable to an increase in
stock-based compensation expense of $743,750 due to the issuance of 2,350,000
shares under our stock option plan and the $427,209 increase in consulting
expenses offset by decreases in rent expense, commission expenses, public
relations expenses, legal expenses and payroll expenses.
During
the fiscal year ended June 30, 2007, we recognized a net loss of $4,460,541
compared to a net loss of $2,407,821 during the fiscal year ended June 30,
2006. The increase of $2,052,720 primarily resulted from the increase
of $942,912 in general and administrative expenses, discussed above and the
$1,198,000 the provision for loss on the note receivable owed by
BioAgra. This increase is offset by the $235,139 decrease in interest
expense during the fiscal year ended June 30, 2007.
We
recorded a net loss applicable to common shareholders of $4,473,691 during
the
year ended June 30, 2007 compared to $3,907,821 during the fiscal year ended
June 30, 2006. The increase of $565,870 was a result of the
$1,198,000 impairment on the note receivable offset by the conversion of the
preferred stock during the fiscal year ended June 30, 2006. We
recognized a $13,150 deemed dividend on preferred stock issued during the fiscal
year ended June 30, 2007.
Liquidity
and Financial Condition
Net
cash
used in operating activities in 2007 was $612,724, compared to net cash used
in
operating activities in 2006 of $878,306. In 2007, the net cash used
represented a net loss of $4,460,541, adjusted for certain non-cash items
consisting of amortization and depreciation expense of $441,584, equity in
net
losses of unconsolidated investees of $1,426,590, a provision for loss on a
note receivable of $1,198,000, and $743,750 in options issued for
compensation.
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 net losses of unconsolidated invested 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.
During
the fiscal year ended June 30, 2007, we raised $1,255,950 cash through the
sale
of 8,373,000 shares of its restricted common stock.
During
the fiscal year ended June 30, 2007, we raised $251,900 through the sale of
a
warrant to purchase 6,000,000 shares of restricted common stock. The
warrant has an exercise price of $0.50 per share and provides for a cashless
exercise.
During
the fiscal year ended June 30, 2007, we raised $500,000 through the sale of
500,000 shares of its Series A nonconvertible preferred stock to
Arizcan. The shares provide that when voting as a single class, the
shares have the votes and voting power that at all times is greater by 1% than
the combined voting power of all other classes of securities entitled to vote
on
any matter. As a result of the issuance, Arizcan acquired
approximately 51% of the voting power of the Company. We have a
right, solely at the Company’s discretion, to redeem the shares in ten years at
130% of deemed par value.
During
the fiscal year ended June 30, 2007, we raised $50,000 through an unsecured,
8%
promissory note, due in March 2008. In June 2007, the holder of the
note agreed to accept 333,333 shares of our common stock as payment on the
note.
During
the fiscal year ended June 30, 2006, we 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, we 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, we purchased a 50% equity interest in
BioAgra for $905,000 cash (which includes the $405,000 advanced to Exact
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, we 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 our restricted common stock. Upon conversion, Arizcan held
approximately 67% of our issued and outstanding common stock.
During
the year ended June 30, 2006, we 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, we 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. During the year ended June 30, 2007, the
note was reduced by $1,371,269, which represents the excess of the BioAgra
losses recognized by us over the adjusted basis of our equity investment in
BioAgra remaining at June 30, 2007.
During
the year ended June 30, 2007, we advanced an additional $1,182,784 to BioAgra
at
7.5% interest. We have classified these notes receivable as non-current assets
on the balance sheet and is not accruing interest on these notes receivable,
as
they are currently in default and non-performing.
During
the fourth quarter of the year ended June 30, 2007, we made a decision
to provide for a loss on the value of the note
receivable. This decision was based on factors including our
evaluation of past and current operating results, failure of BioAgra to make
scheduled payments and our continuing support of the operational efforts of
BioAgra. We also considered the estimated fair value of BioAgra’s
assets and liabilities in making the decision. As a result of this
decision, we recorded a charge of $1,198,000 in the fourth quarter ended June
30, 2007.
During
the year ended June 30, 2007, we did not have any significant operations, and
our management spent a majority of the fiscal year, raising additional funds
for
the BioAgra investment and supporting it marketing and sales efforts.
During the 2008 fiscal year we intend to continue our 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. In addition, in January 2007, we signed a six-month technology
agreement to permit a prospective licensee the opportunity to conduct a market
survey relating to its NCOS™ technology. We believe that if the
market survey is favorable the technology agreement may mature into a royalty
paying commercial license the terms and conditions of which are under
negotiation with the perspective licensee.
To
the
extent our operations are not sufficient to fund our capital requirements,
we
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 we do not have a revolving loan
agreement with any financial institution nor can we provide any assurance that
we 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.
Recently
Issued Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
155, Accounting for Certain Hybrid Financial
Instruments. SFAS No. 155 allows financial instruments that
contain an embedded derivative and that otherwise would require bifurcation
to
be accounted for as a whole on a fair value basis, at the holder’s
election. SFAS No. 155 also clarifies and amends certain other
provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is
effective for us for all financial instruments issued or acquired after the
beginning its fiscal year ending June 30, 2008. The adoption of SFAS
No. 155 is not expected to have an impact on the Company’s 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 will be effective for us on July 1,
2007, but is not expected to have a material impact on our consolidated
financial statements, with the possible exception of certain disclosures
relative to our net operating loss carryovers and the related valuation
allowance.
In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair
value
measurements. SFAS No. 157 will be effective for us for our fiscal
year beginning on July 1, 2008. We are currently assessing the impact
the adoption of SFAS No. 157 may have on its consolidated financial
statements.
In
February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement
No.
115. This statement will be effective for us for our fiscal year beginning
on July 1, 2008, and will permit entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions
of
SFAS No. 159 apply only to entities that elect the fair value
option. The possible adoption of this statement is not expected to
have a material effect on our financial statements.
In
September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 in order
to eliminate the diversity of practice surrounding how public companies quantify
financial statement misstatements. In SAB 108, the SEC staff
established an approach that requires quantification of financial statement
misstatements based on the effects of the misstatements on each of our financial
statements and the related financial statement disclosures. SAB No.
108 is effective for our current 2007 fiscal year end. The adoption
of SAB No. 108 did not have an impact on our consolidated financial
statements.
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 property and
equipment, 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.
We
believe that the following are some of the more critical accounting policies
and
estimates (that is those that require the application of significant judgments
by management as to their selection and valuation) used by us:
|
|
·
|
stock
based compensation;
|
|
|
·
|
investments
in and notes and advances receivable from unconsolidated
investees;
|
|
|
·
|
international
operations;
|
|
|
·
|
revenue
recognition and deferred revenue;
|
|
|
·
|
contractual
obligations.
|
Stock-based
compensation
Beginning
July 1, 2006, we adopted the provisions of and account for stock-based
compensation in accordance with the Statement of Financial Accounting standards
No. 123 – revised 2004 (“SFAS 123R”), Share-Based Payment, which
replaced Statement of Financial Accounting Standards No. 123 (“SFAS 123”),
Accounting for Stock-based Compensation, and supersedes APB Opinion No.
25 (“APB 25”), Accounting for Stock Issued to
Employees. Under the fair value recognition provisions of this
statement, stock-based compensation cost is measured at the grant date based
on
the fair value of the award and is recognized as expense on a straight-line
basis over the requisite service period, which is the vesting
period. We elected the modified-prospective method, under which prior
periods are not revised for comparative purposes. The valuation
provisions of SFAS 123R apply to new grants and to grants that were outstanding
as of the effective date and are subsequently modified. All options
granted prior to the adoption of SFAS 123R and outstanding during the periods
presented were fully-vested.
We
assess
the impairment of long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we
consider important that could trigger an impairment review include negative
projected operating performance by us and significant negative industry or
economic trends. We do not believe that there has been any impairment
to long-lived assets as of June 30, 2007.
Investments
in and notes and advances receivable from unconsolidated
investees
Entities
where we can exercise significant influence, but not control, are accounted
for
under the equity method of accounting. Whether or not we exercise
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 our holdings
in common, preferred and other convertible instruments in the
company. Under the equity method of accounting, our 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 in or in the expected relizability of notes and advances
receivable from an unconsolidated investee 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 notes and advances
receivable or inability of the investee to sustain an earnings capacity that
would justify the carrying amount of the investment or notes and advances
receivable.
International
operations
Our
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, we are 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 adverse
effect on our financial condition or results of operations in the
future.
Revenue
recognition and deferred revenue
Our
revenue recognition policy is significant because future revenue could be a
key
component of our 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
We
are
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.
We
intend
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 our liquidity. However, it is too
early at this time to determine the ultimate outcome of these
matters.
Contractual
obligations
For
more
information on our contractual obligations on operating leases, refer to Note
9
of the consolidated financial statements included in this report. At
June 30, 2007, our commitments under these obligations were as
follows:
|
Year
ending June 30,
|
|
|
Operating
Leases
|
|
| |
|
|
|
|
|
2008
|
|
|
$ |
38,211
|
|
|
2009
|
|
|
|
39,415
|
|
|
2010
|
|
|
|
40,618
|
|
|
2011
|
|
|
|
20,761
|
|
| |
|
|
$ |
139,005
|
|
Off-Balance
Sheet Arrangements
We
do not
maintain any off-balance sheet arrangements that have, or that are reasonably
likely to have, a material current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
The
consolidated financial statements and related financial information required
to
be filed with this report are indexed on page F-1 and are incorporated
herein.
ITEM
8. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Disclosure
Controls and Procedures
We
have
adopted and maintain disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”)) that are designed to ensure that information
required to be disclosed in our reports under the Exchange Act, is recorded,
processed, summarized and reported within the time periods required under the
SEC’s rules and forms and that the information is gathered and communicated to
our management, including our Chief Executive Officer (Principal Executive
Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required
disclosure.
As
required by SEC Rule 15d-15(b), we carried out an evaluation under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant
to Exchange Act Rule 15d-14 as of the end of the period covered by this report.
Based on the foregoing evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
are
not effective in timely alerting them to material information required to
be
included in our periodic SEC filings and to ensure that information required
to
be disclosed in our periodic SEC filings is accumulated and communicated
to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure as a result of the
deficiency in our internal control over financial reporting discussed
below.
In
connection with their audit of our June 30, 2007, consolidated financial
statements, our independent registered public accounting firm identified and
reported to our board of directors a material weakness in our processes,
procedures and controls related to the preparation, analysis and review of
financial information. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting,
such
that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on
a
timely basis. The material weakness identified was related to a lack
of accounting staff responsible for the authorization, processing, approval
and
reporting of transactions as well as the overall financial reporting
process. This material weakness has caused delays in our financial
reporting process and threatened our ability to make timely filings under the
Exchange Act without undue risk of error. Our management agreed with
these findings.
Subsequent
to the discovery of the material weakness in internal control over financial
reporting described above, we initiated and plan to undertake changes to
our
internal control over financial reporting to remediate the aforementioned
deficiency and to strengthen our internal control processes, including the
seeking of additional accounting staff and/or the consultation with outside
resources as we deem appropriate.
Notwithstanding
this material weakness, we believe that the consolidated financial statements
included in this report fairly present, in all material respects, our
consolidated financial position and results of operations as of and for the
year
ended June 30, 2007.
Internal
Control Over Financial Reporting
There
was
no change in our internal control over financial reporting that occurred during
the fiscal quarter ended June 30, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
None.
ITEM
9. DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY
Our
executive officers and directors are as follows:
|
Name,
Age and Year First Elected or Appointed
|
|
Principal
Occupation and Business Experience
|
| |
|
|
|
Paul H.
Metzinger
Age: 68
1998
|
|
Mr. Metzinger
was our President and Chief Executive Officer from February 26, 1998
to May 6, 1998 and has served in that same capacity from
December 1, 1998 to present. In addition, Mr. Metzinger
has been serving as acting Chief Financial Officer since February of
2007. He has been a director 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. Prior
to becoming a director, Mr. Metzinger 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.
|
| |
|
|
|
Herbert J.
Neuhaus
Age: 46
1999
|
|
Dr. Neuhaus
has been a director since January 1, 1999. Since January 1999,
he has been our Executive Vice President of Marketing and Technology.
He
was the President and Chief Executive Officer of NanoPierce Connection
from January 2002 to September 2003. 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 Manager/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 from the Massachusetts Institute of Technology, Cambridge,
Massachusetts in 1989 and his BS in Physics from Clemson University,
Clemson, South Carolina in 1980.
|
| |
|
|
|
Robert
Shaw, Ph.D.
Age: 68
2000
|
|
Dr. Shaw
has been our director 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. 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.
|
|
Name,
Age and Year First Elected or Appointed
|
|
Principal
Occupation and Business Experience
|
| |
|
|
|
John
Hoback
Age: 68
2002
|
|
Mr. Hoback
has been our director 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.
|
There
are
no family relationships that exist between any director or executive
officer.
Code
of Ethics
We
have a Code of Ethics that applies to the Chief Executive Officer, Chief
Financial Officer, Controller, Principal Accounting Officer and those employees
performing similar functions. The Code of Ethics is available on our
website (www.vytacorp.com). We intend to disclose amendments to, or
waivers from, provisions of the Code of Ethics by posting such information
on
its website. The contents of our website are not part of this Annual Report
on
Form 10-KSB.
Changes
in Director Nomination
There
have been no material changes to the procedures by which security holders may
recommend nominees to our board of directors.
Audit
Committee and Financial Expert
Since
the
Company is not required to have, and does not have an audit committee, all
members of our board of directors perform the responsibilities of an audit
committee, providing oversight of our accounting and financial reporting
functions and internal controls. Our board of directors has not
designated a Financial Expert, as defined by the SEC, due to factors including
but not limited to our operational status and the limited number of
transactions, accounts and balances that we maintain. Our board of
directors has determined that it is not in our best interests at this time
to
incur the costs associated with identifying and designating a Financial Expert,
as defined by the Sarbanes-Oxley Act of 2002.
The
following table sets forth information with respect to the compensation paid
or
earned during the fiscal year ended June 30, 2007 by our Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal
Financial Officer) who served in such capacities during the fiscal year ended
June 30, 2007 (“Named Executive Officers”), in all capacities in which they
served.
2007
Summary Compensation Table
|
Name
and Principal Position
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
|
Change
in Pension Value and Non-Qualified Deferred Compensation
Earnings
($)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
|
(a)
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Metzinger
CEO,
President, Acting CFO
|
2007
|
|
$ |
105,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
305,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
410,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kristi
J. Kampmann
CFO(1)
|
2007
|
|
$ |
50,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
50,800
|
|
____________________
(1)
Ms. Kampmann
served as our Chief Financial Officer until February 28,
2007.
2007
Outstanding Equity Awards at Fiscal Year-End
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options
(#)
|
|
|
Number
of Securities Underlying Unexercised Options
(#)
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
|
Market
Value of Shares or Units of Stock That Have Not Been
Vested
($)
|
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested
(#)
|
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested
($)
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
(f)
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Metzinger
|
|
|
50,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
6.50
|
|
2/26/98-2/26/08
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Paul
Metzinger
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6.50
|
|
2/27/98-2/27/08
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Paul
Metzinger
|
|
|
15,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.40
|
|
3/12/99-3/12/09
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Paul
Metzinger
|
|
|
1,000,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.32
|
|
3/17/07-3/17/17
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Kristi
J. Kampmann(1)
|
|
|
2,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6.50
|
|
2/26/98-2/26/08
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Kristi
J. Kampmann(1)
|
|
|
2,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.40
|
|
3/12/99-3/12/09
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Kristi
J. Kampmann(1)
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16.80
|
|
10/6/00-10/6/10
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
_________________________
(1)
Ms. Kampmann
served as our Chief Financial Officer until February 28,
2007.
2007
Grants of Plan-Based Awards
There
were no grants of plan-based awards to any of the Named Executive Officers
during the fiscal year ended June 30, 2007.
2007
Option Exercises and Stock Vested
There
were no exercises of options or vesting of stock awards by any of the Named
Executive Officers during the fiscal year ended June 30, 2007.
2007
Pension Benefits
We
do not
have a benefit pension plan.
2007
Non-Qualified Deferred Compensation
We
do not
have a nonqualified defined contribution or other nonqualified deferred
compensation plans.
Employment
Contracts and Termination of Employment and Change in Control
Arrangements
On
March 15, 2004, we entered into an employment agreement with Paul H.
Metzinger to serve as our President and Chief Executive Officer. The
employment agreement with Mr. Metzinger expires March 14,
2008. Pursuant to his employment agreement, we 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.
In
connection with the employment agreements, generally, we or the employee may
terminate the employment agreement at any time with or without
cause. In the event we terminate 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 we terminate an employment agreement without cause,
then such employee terminates his or her employment agreement for cause, or
in
the event of a change in control, we are 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.
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 our principal stockholders) acquires sufficient control to elect
more than a majority of our board of directors, acquires 50% or more of our
voting shares, or we adopt 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 us and our business during the term of the employment
agreement and for a period of one year thereafter.
On
March
15, 2004, we entered into an employment agreement with Kristi Kampmann to serve
as our Chief Financial Officer. Ms. Kampmann resigned on February 28,
2007 and we have no further obligations under the agreement. However,
pursuant to the agreement, Ms. Kampmann agreed to a twelve month non-compete
clause that prohibits working in certain industries, as well as requires
confidentiality.
Stock
Option Plans
We
have
two Stock Option Plans. As of October 10, 2007, 311,127 options
are outstanding under the 1998 Compensatory Stock Option Plan and 2,437,000
options are outstanding under the 2000 Compensatory Stock Option Plan, for
a
total of 2,748,127 options outstanding. A total of 2,748,127 options
are exercisable at October 10, 2007, under these plans. During the year
ended June 30, 2007, we issued 2,350,000 options under the 2000 Compensatory
Stock Option Plan to officers, directors and one employee. We have
reserved 375,000 shares of common stock for issuance under the 1998 Compensatory
Stock Option Plan. In January 2002, our board of directors
passed a resolution closing the 1998 Compensatory Stock Option Plan for issuance
of new options. We have reserved 2,480,000 shares of common stock for
issuance under the 2000 Compensatory Stock Option Plan. During the fiscal years
ended June 30, 2006 and 2007, there was no action taken to reprice any
options held by any officers, directors or employees.
Director
Compensation
We
hold
quarterly meetings of the board of directors. Although we do 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 our financial situation is adequate, we compensate directors
$1,000 per meeting, plus reasonable travel expenses. During the
fiscal year ended June 30, 2007, our officers and directors were not
compensated for attendance at board meetings. On March 27, 2007, our
officers and directors were issued 1,750,000 options under the 2000 Compensatory
Stock Option Plan. These options have a term of 10 years, an exercise
price of $0.32 per share and are fully-vested.
Director
Compensation in Fiscal 2007
|
Name
|
|
Fees
Earned or Paid in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Metzinger
|
|
$ |
—
|
|
|
|
—
|
|
|
$ |
305,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
105,000
|
|
|
$ |
410,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herbert
Neuhaus
|
|
|
—
|
|
|
|
—
|
|
|
|
77,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77,500
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Shaw
|
|
|
—
|
|
|
|
—
|
|
|
|
77,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77,500
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Hoback
|
|
|
—
|
|
|
|
—
|
|
|
|
77,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77,500
|
|
Compensation
Discussion and Analysis
General
Philosophy and Objectives
In
2004,
we began changing our principal business and investments from electronics
technology to biotechnology. Through our 50% interest in BioAgra,
LLC, we and BioAgra hope to generate revenue through the production and sale
of
Agrastim® and
Purestim™. While BioAgra has recently signed its first agreement for
the distribution of Agrastim®, BioAgra
has
generated no revenue and is currently incurring net losses in each
quarter. Due to our lack of revenue and continuing net losses, the
board of directors has not established a general philosophy pertaining to
the
compensation of our executive officers. However, should we begin to
generate revenue in the future, the board will establish formal objectives
and
policies for the compensation of our executives that is tied to the generation
of value for our stockholders.
Base
Salaries
We
believe that the base salary level of our executive officer is reasonably
related to our current revenue levels. Base salaries are reviewed annually,
and
any increases in base salary take into account such factors as individual past
performance, changes in responsibilities, changes in pay levels of companies
deemed comparable by us, inflation and our overall financial position. The
annual base salary for Mr. Metzinger was $150,000 as required by the terms
of
his employment agreement with us. However, due to our net losses, Mr.
Metzinger has voluntarily chosen to reduce his annual salary to $105,000 until
such time as we begin generating revenues.
Annual
Cash Bonuses
At
this
time, we do not pay annual cash bonuses to our Named Executive
Officers.
Long-Term
Incentive Compensation
At
this
time, we do not award equity compensation to our Named Executive
Officers.
Participation
of Named Executive Officers in Compensation Decisions Relating to
Them
Compensation
decisions for the Named Executive Officers are made by the board of
directors. To the extent that a Named Executive Officer is a member
of the board, they recuse themselves from the discussions or and do not
participate in compensation decisions that relate to them.
Tax
Deductibility of Executive Compensation
Section
162(m) of the Code disallows a tax deduction for any publicly held corporation
for individual compensation of more than $1.0 million in any taxable year to
any
named executive officers, other than compensation that is performance-based
under a plan that is approved by the Stockholders and that meets certain other
technical requirements. Our policy with respect to
Section 162(m) is to make every reasonable effort to ensure that
compensation is deductible to the extent permitted while simultaneously
providing our executives with appropriate rewards for their
performance. In the appropriate circumstances, however, we are
prepared to exceed the limit on deductibility under Section 162(m) to the
extent necessary to ensure our executive officers are compensated in a manner
consistent with our best interests and those of our Stockholders.
ITEM
11. SECURITY OWNERSHIP
OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth certain information regarding the beneficial
ownership of outstanding shares of our common stock as of October 10, 2007
on a fully diluted basis, by (a) each person known by us to own beneficially
5%
or more of the outstanding shares of common stock, (b) our directors, Named
Executive Officers, and (c) all our directors and executive officers as a
group.
|
Name,
Address & Nature of
Beneficial
Owner
|
Amount
|
Percent
of Class(7)
|
| |
|
|
|
Arizcan
Properties, Ltd.
77
South Adams, Suite 906
Denver,
CO 80209
|
15,260,770(1)
|
41%
|
| |
|
|
|
The
Paul H. Metzinger Trust
Paul
H. Metzinger
President,
CEO & CFO, Director
370
Seventeenth Street
Suite
3640
Denver,
CO 80202
|
1,186,585
(2)
|
3.18
|
| |
|
|
|
The
Cheri L. Metzinger Trust
Cheri
L. Metzinger
Wife
of Paul H. Metzinger
3236
Jellison Street
Wheatridge,
CO 80033
|
1,186,585
(3)
|
3.18
|
| |
|
|
|
Dr.
Herbert J. Neuhaus
Director
770
Maroonglen Court
Colorado
Springs, CO 80906
|
317,500
(4)
|
0.86
|
| |
|
|
|
Dr.
Robert E. Shaw, Director
8
Nicklaus Court
Florham
Park, NJ 07932
|
270,000
(5)
|
0.73
|
| |
|
|
|
John
Hoback, Director
20
White Heron Lake
East
Stroudsburg, PA 18301
|
270,000
(6)
|
0.73
|
| |
|
|
|
All
Officers & Directors as a Group
(4
persons)
|
2,044,085
|
5.51
|
|
Name,
Address & Nature of
Beneficial
Owner
|
Amount
|
Percent
of Class(7)
|
| |
|
|
|
Former
Executive Officer
|
|
|
|
Kristi
J. Kampmann (8)
|
10,955
|
*
|
____________________
*Less
than 0.01%.
(1)
Arizcan
Properties is wholly-owned by Triumphant Partners, LLC, a Colorado limited
liability company, which is owned by Stan Richards. Includes
9,253,000 common shares held directly and beneficially (and 6,000,000 which
are
issuable upon the exercise of a warrant at $0.50 per share) and 7,770 common
shares that are held by Stan Richards.
(2)
Includes 53,697
common shares held directly and beneficially; 47,888 common shares that
Mr. Metzinger owns beneficially though his wife and options held by Mr.
Metzinger consisting of options to purchase 10,000 shares exercisable at
$10.40
per share, options to purchase 75,000 shares exercisable at $6.50 per share
and
options to purchase 1,000,000 shares exercisable at $0.32 per
share.
(3)
Cheri L.
Metzinger is the wife of Mr. Paul H. Metzinger, our Chief Executive Officer,
Chief Financial Officer and President. This includes 47,888 shares
held directly and beneficially and 53,697 common shares, 1,085,000 common
shares
subject to options owned beneficially by her husband.
(4)
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, options to purchase 25,000 shares exercisable
at $4.00 per share and options to purchase 250,000 shares exercisable at
$0.32
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, options to purchase 5,000 shares
exercisable at $40.00 per share and options to purchase 250,000 shares
exercisable at $0.32 per share.
(6)
Based on options
to purchase 15,000 shares exercisable at $14.00 per share, options to purchase
5,000 shares exercisable at $14.00 per share and options to purchase 250,000
shares exercisable at $0.32 per share.
(7) Shares
of our common stock subject to options and warrants currently exercisable
or
convertible, or exercisable or convertible within 60 days of October 10,
2007, are deemed outstanding for purposes of computing the percentage
beneficially owned by the person or entity holding those securities, but
are not
deemed outstanding for purposes of computing the percentage beneficially
owned
by any other person or entity. Percentage of beneficial ownership is based
on
37,109,845 shares of our common stock outstanding as of the close of business
on
October 10, 2007.
(8) Ms.
Kampmann served as our Chief Financial Officer until February 28,
2007.
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table provides information as of June 30, 2007 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.
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(b)
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
(c)
|
|
| |
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
0
|
|
|
|
—
|
|
|
|
0
|
|
|
Equity
compensation plans not approved by security holders(1)
|
|
|
2,748,127
|
|
|
$ |
3.00
|
|
|
|
226,173
|
|
|
Total
|
|
|
2,748,127
|
|
|
$ |
3.00
|
|
|
|
226,173
|
|
____________________
(1)
The material
features of the plans not approved by the security holders are described
herein
under “ITEM 10—EXECUTIVE COMPENSATION—Stock Option
Plans.”
Change
in Control
As
of
October 10, 2007, Arizcan Properties, Ltd. is our controlling shareholder.
Arizcan Properties Ltd. may cause us to have a change of control if they sell
enough of our common stock. We are not aware of any present intention of Arizcan
Properties, Ltd. to cause us to have a change of control and we are not aware
of
any other arrangements that may result in a change of control.
ITEM
12. CERTAIN RELATIONSHIPS
AND
RELATED TRANSACTIONS
Transactions
with Related Persons
On
March 2, 2007, in a private placement transaction, we issued to Arizcan
Properties a total of 500,000 shares of our newly-designated series A
nonconvertible preferred stock for a total purchase price of $500,000, in
cash. In addition to the purchase of the series A nonconvertible
preferred stock, Arizcan Properties purchased for a purchase price of $251,900
a
warrant exercisable for 6,000,000 shares of common stock. This
warrant has an exercise price of $0.50 per share and provides for cashless
exercise. As a result, Arizcan Properties acquired approximately 51%
of our voting power, and, on a fully diluted basis, Arizcan Properties would
have approximately 89% of our voting power if they exercise the
warrant.
During
the year ended June 30, 2006, Arizcan Properties purchased 8,373,000 shares
of
restricted common stock for cash of $1,255,950, a price of $0.15, a discount
from the closing market price of the stock on the date of purchase.
Mr.
Metzinger, an officer and director, during the year ended June 30, 2007,
advanced us a total of $25,203. We have repaid $18,327 of the funds
at October 10, 2007.
During
the year ended June 30, 2007, we issued options to purchase 2,350,000 shares
of
common stock to our officer and directors. The options are fully
vested, have a term of 10 years and an exercise price of $0.41 per
share. The options were determined to have a value of $743,750 using
the Black-Scholes Model of valuation and certain assumptions considered
appropriate by management.
Related
Party Transaction Policy
The
board
of directors recognizes that related party transactions can present conflicts
of
interest and questions as to whether the transactions are in our best
interests. Accordingly, effective in September 2007, the board
of directors adopted a written policy formalizing the policy for the review,
approval and ratification of transactions with related persons. For the purposes
of this policy, a “related party transaction” is a transaction or relationship
involving a director, executive officer or 5% stockholder or their immediate
family members that is reportable under the SEC’s rules regarding such
transactions.
Under
our
policy, a related party transaction should be approved or ratified based upon
a
determination that the transaction is in, or not opposed to, our best interests
and on terms no less favorable to us than those available with other parties.
The policy provides for the board of directors to review and approve all related
party transactions, other than transactions involving amounts less than $100,000
in aggregate. Pursuant to the policy, management shall recommend any related
party transaction, including the proposed aggregate value of the transaction,
if
applicable. After review, the board of directors shall approve or disapprove
of
such transaction.
Director
Independence
We
have
voluntarily adopted the NASDAQ Marketplace Rules for determining whether a
director is independent and our board of directors has determined that three
of
our four directors, Messrs. Neuhaus, Shaw and Hoback, are “independent” within
the meaning of Rule 4200(a)(15) of the NASDAQ Manual. Mr. Metzinger
is not independent under those standards.
The
following documents are filed as a part of this report.
(i) Financial
Statements. See Index to Financial Statements on page F-1 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
|
| |
|
|
3.01
|
Amended
and Restated Articles of Incorporation filed with the Nevada Secretary
of
State on January 31, 2006 (Incorporated by reference to the company’s
Current Report on Form 8-K, dated January 31,
2006)
|
| |
|
|
3.02
|
Certificate
of Designation of Rights and Preferences of the Series A Convertible
Preferred Stock (Incorporated by reference to the company’s Current Report
on Form 8-K, dated January 17, 2006)
|
| |
|
|
3.03
|
Certificate
of Designation of Series A Nonconvertible Preferred Stock
(Incorporated by reference to the company’s Current Report on
Form 8-K, dated March 6, 2007)
|
| |
|
|
3.04
|
Amended
and Restated By-laws of the company (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)
|
| |
|
|
4.01
|
Form
of Common Stock Certificate (Incorporated by reference to the company’s
Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998)
|
| |
|
|
10.01*
|
1998
Compensatory Stock Option Plan dated February 26, 1998 (Incorporated
by reference to the company’s Registration Statement on Form S-8, dated
November 21, 2000)
|
| |
|
|
10.02*
|
2000
Compensatory Stock Option Plan dated October 31, 2000 (Incorporated
by reference to the company’s Registration Statement on Form S-8, dated
November 21, 2000)
|
| |
|
|
10.03*
|
Employment
Agreement, dated March 15, 2004, between Paul H. Metzinger and the
company
(Incorporated by reference to the company’s Quarterly Report on
Form 10-QSB for the fiscal quarter ended March 31,
2004)
|
|
Exhibit
No.
|
Description
|
| |
|
|
10.04
|
Operating
Agreement, dated August 15, 2005, between the company and Xact Resources
International (now Justin Holdings, Inc. as a result of the assignment
by
Xact Resources in February 2006), Inc. for BioAgra, LLC (Incorporated
by reference to the company’s Current Report on Form 8-K, dated August 12,
2005)
|
| |
|
|
10.05
|
Investment
Agreement, dated December 11, 2003, by and between TagStar Systems,
GmbH, NanoPierce Technologies, Inc. and ExypnoTech, GmbH (Incorporated
by
reference to the company’s Current Report on Form 8-K, dated
December 11, 2003)
|
| |
|
|
10.06
|
Asset
Purchase Agreement, dated December 11, 2003, by and between Prof. Dr.
Gerd Lederer, NanoPierce Card Technologies, GmbH and TagStar Systems,
GmbH
(Incorporated by reference to the company’s Current Report on Form 8-K,
dated December 11, 2003)
|
| |
|
|
10.07*
|
Consulting
Agreement, effective as of June 1, 2006, between the company and
Edwin Buckham (Incorporated by reference to the company’s Registration
Statement on Form S-8, dated August 23, 2006)
|
| |
|
|
10.08*
|
Consulting
Agreement, effective as of June 1, 2006, between the company and
Terry Allen (Incorporated by reference to the company’s Registration
Statement on Form S-8, dated August 23, 2006)
|
| |
|
|
10.09
|
Technology
License Agreement dated April 18, 2005 by and between Progressive
Bioactives, Inc. and BioAgra LLC (Incorporated by reference to the
company’s Registration Statement on Form SB-2, dated March 29,
2006)
|
| |
|
|
10.10
|
Termination
and Mutual General Release Agreement dated July 11, 2007 by and
between Progressive Bioactives, Inc. and BioAgra LLC (Incorporated
by
reference to the company’s Current Report on Form 8-K, dated July 11,
2007)
|
| |
|
|
10.11
|
Agreement,
dated April 1, 2007 by and between AHD International, Inc. and BioAgra
LLC
(Incorporated by reference to the company’s Current Report on Form 8-K,
dated April 18, 2007)
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
____________________
*Indicates
a management contract or compensatory plan or arrangement.
#
Filed
herewith.
ITEM
14. PRINCIPAL ACCOUNTANTS'
FEES
AND SERVICES
The
aggregate fees billed and expected to be billed by GHP Horwath, P.C., our
independent registered public accounting firm, for professional services in
the
fiscal years ended June 30, 2007 and 2006 are as follows:
|
Services
Rendered
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
Audit
Fees
|
|
$ |
89,593
|
|
|
$ |
84,350
|
|
|
Audit
Related Fees
|
|
|
0
|
|
|
|
0
|
|
|
All
Other Fees
|
|
|
0
|
|
|
|
0
|
|
The
engagement of our independent registered public accounting firm was approved
by
our board of directors functioning as our audit committee prior to the start
of
the audit of our consolidated financial statements for the fiscal year ended
June 30, 2007.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| |
|
VYTA
CORP
|
| |
|
|
|
| |
Date: October 15,
2007
|
By:
|
/s/
Paul H. Metzinger
|
| |
|
|
Paul
H. Metzinger, Chief Executive Officer, President and acting Chief
Financial Officer
|
In
accordance with the Exchange Act, 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 15,
2007
|
By:
|
/s/
Paul H. Metzinger
|
| |
|
|
Paul
H. Metzinger, Director, Chief Executive Officer, President and acting
Chief Financial Officer (Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
|
| |
|
|
|
| |
|
|
|
| |
Date: October 15,
2007
|
By:
|
/s/
Herbert J. Neuhaus
|
| |
|
|
Herbert J. Neuhaus,
Director
|
| |
|
|
|
| |
|
|
|
| |
Date: October 15,
2007
|
By:
|
/s/
Robert Shaw
|
| |
|
|
Robert Shaw,
Director
|
| |
|
|
|
| |
|
|
|
| |
Date: October 13,
2007
|
By:
|
/s/
John Hoback
|
| |
|
|
John Hoback,
Director
|
Supplemental
Information to be Furnished With Reports Filed Pursuant to Section 15(d) of
the
Exchange Act By Non-reporting Issuers
Neither
an annual report covering our fiscal year ended June 30, 2007, nor any
proxy material, has been sent to our security holders.
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, 2007
|
F-2
|
| |
|
|
|
| |
Consolidated
Statements of Operations –
|
|
| |
|
Years
ended June 30, 2007 and 2006
|
F-3
|
| |
|
|
|
| |
Consolidated
Statements of Comprehensive Loss –
|
|
| |
|
Years
ended June 30, 2007 and 2006
|
F-4
|
| |
|
|
|
| |
Consolidated
Statements of Changes in Shareholders’ Equity –
|
|
| |
|
Years
ended June 30, 2007 and 2006
|
F-5
|
| |
|
|
|
| |
Consolidated
Statements of Cash Flows –
|
|
| |
|
Years
ended June 30, 2007 and 2006
|
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 and
subsidiaries (the "Company") as of June 30, 2007, 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,
2007.
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, 2007, and the results of their operations and their cash flows
for each of the years in the two-year period ended June 30, 2007, 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 $4,474,000, 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,
2007, and an accumulated deficit of approximately $30,498,000 as of June 30,
2007. 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.
As
discussed in Notes 1 and 8 to the consolidated financial statements, effective
July 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123(R), Share Based Payment.
/s/ GHP
HORWATH, P.C.
Denver,
Colorado
October
12, 2007
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Balance Sheet
June
30,
2007
|
Assets
|
|
|
|
| |
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
354,702
|
|
|
Prepaid
expenses
|
|
|
1,840
|
|
|
Total
current assets
|
|
|
356,542
|
|
| |
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
|
Office
equipment and furniture
|
|
|
67,107
|
|
|
Less
accumulated depreciation
|
|
|
(61,670 |
) |
| |
|
|
5,437
|
|
| |
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
Investment
in unconsolidated investee (Note 5)
|
|
|
205,196
|
|
|
Note
and advances receivable, net, unconsolidated investee (Note
4)
|
|
|
340,344 |
|
|
Deposits
and other
|
|
|
19,562 |
|
| |
|
|
565,102
|
|
| |
|
|
|
|
|
Total
assets
|
|
$ |
927,081
|
|
| |
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
| |
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$ |
76,797
|
|
|
Advances payable,
officer (Note 6)
|
|
|
24,612
|
|
|
Accrued
expenses
|
|
|
7,063
|
|
|
Total
liabilities (all current)
|
|
|
108,472
|
|
| |
|
|
|
|
|
Commitments
and contingencies (Notes 3, 6, 7 and 9)
|
|
|
|
|
| |
|
|
|
|
|
Shareholders’
equity (Note 8):
|
|
|
|
|
|
Preferred
stock; $0.0001 par value; 5,000,000 shares authorized; Series A,
8%;
deemed par value $1.00 per share; 500,000 shares issued and outstanding;
liquidation preference of $513,150
|
|
|
513,150
|
|
|
Common
stock; $0.0001 par value; 200,000,000 shares authorized; 31,349,845
shares
issued and outstanding
|
|
|
3,135
|
|
|
Additional
paid-in capital
|
|
|
30,678,462
|
|
|
Accumulated
other comprehensive income
|
|
|
121,543
|
|
|
Accumulated
deficit
|
|
|
(30,497,681 |
) |
|
Total
shareholders’ equity
|
|
|
818,609
|
|
| |
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
927,081
|
|
See
notes
to consolidated financial statements.
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Operations
Years
Ended June 30, 2007 and 2006
| |
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
General
and administrative expense
|
|
$ |
(1,835,973 |
) |
|
$ |
(893,061 |
) |
| |
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,835,973 |
) |
|
|
(893,061 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
22
|
|
|
|
72,307
|
|
|
Extinguishment
of liabilities (Note 6)
|
|
|
-
|
|
|
|
120,788
|
|
|
Equity
losses of unconsolidated investees (Note 5)
|
|
|
(1,426,590 |
) |
|
|
(1,398,202 |
) |
|
Provision
for loss on note receivable, unconsolidated investees (Note
4)
|
|
|
(1,198,000 |
) |
|
|
-
|
|
|
Loss
on revaluation of derivative warrant liability (Note 7)
|
|
|
-
|
|
|
|
(74,295 |
) |
|
Interest
expense
|
|
|
-
|
|
|
|
(235,139 |
) |
|
Interest
expense, related party
|
|
|
-
|
|
|
|
(219 |
) |
| |
|
|
(2,624,568 |
) |
|
|
(1,514,760 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(4,460,541 |
) |
|
|
(2,407,821 |
) |
| |
|
|
|
|
|
|
|
|
|
Accumulated dividends
on preferred stock (Note 8)
|
|
|
(13,150 |
) |
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature (Note 8)
|
|
|
-
|
|
|
|
(1,500,000 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
$ |
(4,473,691 |
) |
|
$ |
(3,907,821 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted (Note 1)
|
|
$ |
(0.19 |
) |
|
|
(0.30 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding (Note 1)
|
|
|
23,884,955
|
|
|
|
12,984,849
|
|
See
notes
to consolidated financial statements.
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
Years
Ended June 30, 2007 and 2006
| |
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,460,541 |
) |
|
$ |
(2,407,821 |
) |
| |
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on securities
|
|
|
(619 |
) |
|
|
59
|
|
| |
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation adjustments
|
|
|
(8,197 |
) |
|
|
7,457
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$ |
(4,469,357 |
) |
|
$ |
(2,400,305 |
) |
See
notes
to consolidated financial statements.
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Changes in Shareholders’ Equity
Years
Ended June 30, 2007 and 2006
(Note
1)
| |
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated other
|
|
|
|
|
|
Total
|
|
| |
|
Preferred stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
shareholders’
|
|
| |
|
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 7 and 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
790,467
|
|
|
|
79
|
|
|
|
453,067
|
|
|
|
-
|
|
|
|
-
|
|
|
|
453,146
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as payment of accrued commissions (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
(Note
8)
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,000 |
) |
|
|
(5 |
) |
|
|
(89,995 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(90,000 |
) |
(Continued)
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Changes in Shareholders’ Equity
Years
Ended June 30, 2007 and 2006
(Note
1)
(Continued)
| |
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated other
|
|
|
|
|
|
Total
|
|
| |
|
Preferred stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
shareholders’
|
|
| |
|
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
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitol
contribution of accrued payroll owed to and forgiven by officer
/shareholder (Note 8)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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
|
|
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Changes in Shareholders’ Equity
Years
Ended June 30, 2007 and 2006
(Note
1)
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated other
|
|
|
|
|
|
Total
|
|
| |
|
Preferred stock
|
|
|
Common stock
|
|
|
paid
in
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
shareholders’
|
|
| |
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
income
|
|
|
deficit
|
|
|
equity
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
July 1, 2006
|
|
|
-
|
|
|
$ |
-
|
|
|
|
22,643,512
|
|
|
$ |
2,264
|
|
|
$ |
28,390,883
|
|
|
$ |
130,359
|
|
|
$ |
(26,037,140 |
) |
|
$ |
2,486,366
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A preferred stock issued for cash, of which $100,000 was recieved in
advance as of June 30, 2006 (Note 8)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
issued for cash (Note 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
251,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
251,900
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash (Note 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,373,000
|
|
|
|
838
|
|
|
|
1,255,112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,255,950
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in settlement of note payable, stockholder
(Note 6)
|
|
|
-
|
|
|
|
-
|
|
|
|
333,333
|
|
|
|
33
|
|
|
|
49,967
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for compensation (Note 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
743,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
743,750
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
dividends on Series A preferred stock (Note 8)
|
|
|
-
|
|
|
|
13,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,150
|
) |
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,460,541 |
) |
|
|
(4,460,541 |
) |
| Other
comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(619 |
) |
|
|
-
|
|
|
|
(619 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,197 |
) |
|
|
-
|
|
|
|
(8,197 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
500,000
|
|
|
$ |
513,150
|
|
|
|
31,349,845
|
|
|
$ |
3,135
|
|
|
$ |
30,678,462
|
|
|
$ |
121,543
|
|
|
$ |
(30,497,681 |
) |
|
$ |
818,609
|
|
See
notes
to consolidated financial statements.
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years
Ended June 30, 2007 and 2006
| |
|
2007
|
|
|
2006
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,460,541 |
) |
|
$ |
(2,407,821 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Consulting expense
|
|
|
436,197
|
|
|
|
28,803
|
|
|
Depreciation
expense
|
|
|
5,387
|
|
|
|
5,768
|
|
|
Provision
for loss on note receivable, unconsolidated investee
|
|
|
1,198,000
|
|
|
|
-
|
|
|
Equity
in net losses of unconsolidated investees
|
|
|
1,426,590
|
|
|
|
1,398,202
|
|
|
Options
issued for compensation
|
|
|
743,750
|
|
|
|
-
|
|
|
Gain
on extinguishment of liabilities
|
|
|
- |
|
|
|
(120,788 |
) |
|
Amortization
of discounts on notes payable
|
|
|
-
|
|
|
|
213,860
|
|
|
Loss
on revaluation of derivative warrant liability
|
|
|
-
|
|
|
|
74,295
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in prepaid expenses
|
|
|
14,742
|
|
|
|
(52,777 |
) |
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
23,151
|
|
|
|
(17,848 |
) |
|
Total
adjustments
|
|
|
3,847,817
|
|
|
|
1,529,515
|
|
| |
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(612,724 |
) |
|
|
(878,306 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
-
|
|
|
|
(750 |
) |
|
Advances
to unconsolidated investee
|
|
|
(1,182,784 |
) |
|
|
(1,686,570 |
) |
|
Payment
on note receivable
|
|
|
-
|
|
|
|
275,442
|
|
|
Investment
in joint venture
|
|
|
-
|
|
|
|
(500,000 |
) |
|
Net
cash used in investing activities
|
|
|
(1,182,784 |
) |
|
|
(1,911,878 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued for cash
|
|
|
1,255,950
|
|
|
|
2,167,372
|
|
|
Proceeds
applied to preferred stock and warrant purchase
|
|
|
651,900
|
|
|
|
1,500,000
|
|
|
Proceeds
from subscribed preferred stock
|
|
|
-
|
|
|
|
100,000
|
|
|
Payment
of notes payable
|
|
|
-
|
|
|
|
(960,663 |
) |
|
Proceeds
from issuance of notes payable and common stock
|
|
|
50,000
|
|
|
|
150,000
|
|
|
Net
cash provided by financing activities
|
|
|
1,957,850
|
|
|
|
2,956,709
|
|
| |
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
162,342
|
|
|
|
166,525
|
|
| |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning
|
|
|
192,360
|
|
|
|
25,835
|
|
| |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending
|
|
$ |
354,702
|
|
|
$ |
192,360
|
|
| |
|
|
|
|
|
|
|
|
|
(Continued)
|
VYTA
CORP
AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years
Ended June 30, 2007 and 2006
(Continued)
| |
|
2007
|
|
|
2006
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
-
|
|
|
$ |
23,569
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Subscription
payable converted to preferred stock
|
|
$ |
100,000
|
|
|
$ |
-
|
|
|
Conversion
of Series A Preferred Stock to common stock
|
|
$ |
-
|
|
|
$ |
1,500,000
|
|
|
Beneficial
conversion feature
|
|
$ |
-
|
|
|
$ |
1,500,000
|
|
|
Issuance
of common stock for payment of note payable
|
|
$ |
50,000
|
|
|
$ |
117,886
|
|
|
Issuance
of common stock in exchange for accrued commissions
|
|
$ |
-
|
|
|
$ |
90,000
|
|
|
Issuance
of common stock in exchange for deferred consulting costs
|
|
$ |
-
|
|
|
$ |
465,000
|
|
|
Notes receivable
applied to investment in unconsolidated investee
|
|
$ |
-
|
|
|
$ |
405,000
|
|
|
Investment
in unconsolidated investee 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
|
|
|
Capitalization of
derivative warrant liability as equity
|
|
$ |
-
|
|
|
$ |
253,522
|
|
See
notes
to consolidated financial statements.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
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, a Nevada corporation, and 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 (collectively referred to as the
“Company”). All significant intercompany accounts and transactions have been
eliminated in consolidation.
On
January 19, 2006, the Company’s Board of Directors 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.
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:
NCOS
and
ET LLC had no revenues or operations in 2007 and 2006. The Company has two
unconsolidated investees which are accounted for using the equity method
of
accounting, ExypnoTech, GmbH (EPT), and BioAgra, LLC (BioAgra), which operate
in
two segments, the RFID industry and the animal feed industry, respectively.
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.
BioAgra (a development stage enterprise) manufactures and plans to sell a
beta
glucan product, Agrastim®, to be
used as a
replacement for hormone growth steroids and antibiotics in products such
as
poultry feed.
SUMMARY
OF SIGNIFICANT ACCOUNTING 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 and advances receivable from the
unconsolidated equity investee and advances payable to an officer of the Company
are not subject to reasonable estimation, based upon the related party nature
of
the underlying transactions.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
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 one-year consulting services agreement
with two unrelated parties, in which the parties agreed to provide lobbying
and
public relations 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. The deferred cost
was
amortized on a straight-line basis as earned over the one-year period from
the date of the agreement. During the year ended June 30, 2007, the value of
the
shares and warrant was amortized in full, and the Company recognized an expense
of $436,197. During the year ended June 30, 2006, $28,803 was
expensed.
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 ($291 at June 30, 2007) based upon quoted market prices, and are
included in other long-term assets in the Company’s June 30, 2007 consolidated
balance sheet.
During
the years ended June 30, 2007 and 2006, the Company did not sell any available
for sale securities.
Equity
Method Investments:
Investee
entities in which 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 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.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
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.
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:
Beginning
July 1, 2006, the Company adopted the provisions of and accounts for stock-based
compensation in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123 – revised 2004 (SFAS 123R), Share-Based Payment, which
replaced SFAS No. 123 (SFAS 123), Accounting for Stock-based
Compensation, and supersedes APB Opinion No. 25 (APB 25), Accounting
for Stock Issued to Employees. Under the fair value recognition provisions
of this statement, stock-based compensation cost is measured at the grant date
based on the fair value of the award and is recognized as expense on a
straight-line basis over the requisite service period, which generally is the
vesting period. The Company elected the modified-prospective method, under
which
prior periods are not revised for comparative purposes. The valuation provisions
of SFAS 123R apply to new grants and to grants that were outstanding as of
the
effective date and are subsequently modified. All options granted prior to
the
adoption of SFAS 123R and outstanding during the periods presented were
fully-vested at the date of adoption.
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.
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
(14,859,844 shares at June 30, 2007 and 6,519,469 shares at June 30, 2006)
would
be to decrease loss per share (anti-dilutive). Therefore, diluted loss per
share
is equivalent to basic loss per share.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
Recently
Issued Accounting Pronouncements:
In
February 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No.
155, Accounting for Certain Hybrid Financial
Instruments. SFAS No. 155 allows financial instruments that
contain an embedded derivative and that otherwise would require bifurcation
to
be accounted for as a whole on a fair value basis, at the holder’s election.
SFAS No. 155 also clarifies and amends certain other provisions of SFAS No.
133
and SFAS No. 140. SFAS No. 155 is effective for the Company for all financial
instruments issued or acquired after the beginning its fiscal year ending
June
30, 2008. The adoption of SFAS No. 155 is not expected to have an impact
on the
Company’s 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
will be effective for the Company on July 1, 2007, but is not expected to
have a
material impact on the Company’s consolidated financial statements, with the
possible exception of certain disclosures relative to the Company’s net
operating loss carry forwards and the related valuation allowance.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
This statement defines fair value, establishes a framework for measuring
fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157
will
be effective for the Company for its fiscal year beginning on July 1, 2008.
The
Company is currently assessing the impact the adoption of SFAS No. 157 may
have
on its consolidated financial statements.
In
February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement
No.
115. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions
of
SFAS No. 159 apply only to entities that elect the fair value option. The
possible adoption of this statement is not expected to have a material effect
on the Company's financial statements.
In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 108 in order to eliminate the diversity of
practice surrounding how public companies quantify financial statement
misstatements. In SAB 108, the SEC staff established an approach that requires
quantification of financial statement misstatements based on the effects of
the
misstatements on each of the Company’s financial statements and the related
financial statement disclosures. SAB No. 108 was effective for the Company’s
current 2007 fiscal year end. The adoption of SAB No. 108 did not have an impact
on the Company’s consolidated financial statements.
2. GOING
CONCERN UNCERTAINTY AND MANAGEMENT’S PLANS:
The
Company’s financial statements for the year ended June 30, 2007 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 $4,460,541 (net loss applicable
to
common shareholders of $4,473,691) for the year ended June 30, 2007, and an
accumulated deficit of $30,497,681 as of June 30, 2007. Cash flows used in
operations for 2007 substantially exceeded its working capital remaining at
year
end, and the Company had no revenues from its activities during the year ended
June 30, 2007.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 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 2008 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 intends to continue to raise funds to support the efforts
through the sale of its equity securities.
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. INTERNATIONAL
OPERATIONS:
Since
the
Company’s foreign equity investment’s (EPT) operations (Note 5) are located in
Germany, its 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 that could have a material
adverse effect on the Company’s financial condition or results of operations in
the future.
4. NOTES
AND ADVANCES RECEIVABLE – UNCONSOLIDATED INVESTEE:
During
the 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 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 beginning October 31, 2006,
through October 31, 2007. The funds were loaned to BioAgra to facilitate
completion of its first production line and to support its development stage
activities. 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. During the
year
ended June 30, 2007, the note was reduced by $1,371,269, which represents
the
excess of the BioAgra losses recognized by the Company over the adjusted
equity
method basis of the Company’s investment in BioAgra (Note 5).
During
the year ended June 30, 2007, the Company advanced an additional $1,182,784
to
BioAgra at 7.5% interest. The Company has classified the note and advances
receivable as non-current assets and is not accruing interest on these
receivables, as they are currently in default and non-performing. During the
quarter ended September 30, 2007, the Company advanced an additional $284,135
to
BioAgra.
During
the fourth quarter of the year ended June 30, 2007, the Company made a decision
to provide for a loss on the value of the note receivable. This
decision was based on factors including the Company’s evaluation of past and
current operating results, failure of BioAgra to make scheduled payments and
the
Company’s continuing support of the development stage activities of BioAgra. The
Company also considered the estimated fair value of BioAgra’s assets and
liabilities in making the decision. As a result of this decision, the Company
recorded provision for loss of $1,198,000 in the fourth quarter ended June
30,
2007.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
5. INVESTMENTS
IN UNCONSOLIDATED INVESTEES:
At
June
30, 2007, the Company’s investment in EPT is $205,196. During the years ended
June 30, 2007 and 2006 the Company's proportionate income was approximately
$43,800 and $1,900, respectively. Financial information of EPT as of June 30,
2007, and for the years ended June 30, 2007 and 2006 is as follows:
| |
|
June
30, 2007
|
|
|
Assets:
|
|
|
|
|
Current
assets (1)
|
|
$ |
300,888
|
|
|
Equipment
|
|
|
3,587
|
|
|
|
|
$ |
304,475
|
|
| |
|
|
|
|
|
Liabilities
and members’ equity:
|
|
|
|
|
|
Current
liabilities
|
|
$ |
11,267
|
|
|
Members’
equity
|
|
|
293,208
|
|
|
|
|
$ |
304,475
|
|
____________________
(1) Current
assets include receivables in the amount of $280,674 due from the 51% owner
of
EPT.
| |
|
Year ended
|
|
|
Year ended
|
|
| |
|
June
30, 2007
|
|
|
June
30, 2006
|
|
| |
|
|
|
|
|
|
|
Revenues
(1)
|
|
$ |
3,714,845
|
|
|
$ |
2,492,828
|
|
|
Expenses
(2)
|
|
|
(3,625,463 |
) |
|
|
(2,489,249 |
) |
|
Net
income
|
|
$ |
89,382
|
|
|
$ |
3,579
|
|
____________________
(1) Revenues
include $1,842,199 and $2,492,751 of sales to the 51% owner of EPT for the
years
ended June 30, 2007 and 2006, respectively.
(2) Expenses
include $229,754 and $97,155 of charges paid to the 51% owner of EPT for the
years ended June 30, 2007 and 2006, respectively.
On
August
15, 2005, the Company entered into a joint venture with Xact Resources
International, Inc., a privately held company. The Company purchased a 50%
equity interest in the joint venture, BioAgra, for $1,500,000. BioAgra
manufactures and plans to sell a beta glucan product, YBG-2000 also known as
Agrastim®,
which can be used as a replacement for hormone growth steroids and antibiotics
in animal feed products such as poultry feed. As of June 30, 2007, BioAgra
(a
development stage company) has completed construction of a production line;
however BioAgra has not yet recognized any significant revenues from product
sales.
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. 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. BioAgra losses during the
year ended June 30, 2006, recorded by the Company as equity losses and a
reduction to the BioAgra equity investment were $1,392,684. At June 30, 2006,
the investment balance of BioAgra was $107,316. During the quarter ended
September 30, 2006, BioAgra losses were applied to the equity investment and
reduced the balance to $0. Since September 30, 2006 and through June 30, 2007,
the carrying value of the Company’s investment in BioAgra was $0. BioAgra losses
for the year ended June 30, 2007 in excess of the carrying value of the
Company’s investment in BioAgra ($1,371,269) were applied to reduce the value of
the note receivable due from BioAgra.
Financial
information of BioAgra as of June 30, 2007, for the year ended June 30, 2007
and
for the period from August 15, 2005 through June 30, 2006, is as
follows:
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
| |
|
June 30, 2007
|
|
|
Assets:
|
|
|
|
|
Current
assets
|
|
$ |
223,135
|
|
|
Land,
building and equipment, net (2)
|
|
|
2,680,799
|
|
|
|
|
$ |
2,903,934
|
|
| |
|
|
|
|
|
Liabilities
and members’ deficiency:
|
|
|
|
|
|
Current
liabilities (1)
|
|
$ |
3,317,256
|
|
|
Obligation
under capital lease (2)
|
|
|
957,942
|
|
|
Total
liabilities
|
|
|
4,275,198
|
|
| |
|
|
|
|
|
Members’
deficiency
|
|
|
(1,371,264 |
) |
|
|
|
$ |
2,903,934
|
|
___________________
(1) Includes
$2,909,611 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
|
|
| |
|
Year ended
June 30, 2007
|
|
|
through
June 30, 2006
|
|
| |
|
|
|
|
|
|
|
Revenues
|
|
$ |
68,754
|
|
|
$ |
5,340
|
|
|
Expenses
|
|
|
(1,547,339 |
) |
|
|
(1,398,024 |
) |
|
Net
loss
|
|
$ |
(1,478,585 |
) |
|
$ |
(1,392,684 |
) |
6. NOTES
AND ADVANCES PAYABLE:
SHAREHOLDER:
In
March
2007, a non-related party shareholder of the Company loaned $50,000 to the
Company for an unsecured, 8% note payable due in March 2008. In June 2007,
the
shareholder agreed to accept 333,333 shares of the Company’s common stock as
payment on the note (Note 8).
RELATED
PARTY:
At
June
30, 2007, the Company owes its President $24,612 for amounts advanced to
the
Company or for reimbursements. This amount is unsecured, non-interest
bearing and due on demand.
OTHER
PARTIES:
Prior
to
July 1, 2005, an unrelated third party loaned $150,000 to the Company 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 July 1, 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.
Prior
to
and during the year ended June 30, 2006, various third parties loaned the
Company $175,000 in exchange for unsecured 8% promissory notes due in December
of 2005 and 405,000 shares of the Company’s restricted common stock. The common
stock had a market value of $724,000 (based on closing market prices which
ranged from $1.60 to $2.00 per share at the date of each transaction). The
relative fair value of the common stock ($139,314) was accounted for as a
discount 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 was 85%. In August 2005, the Company paid the
$175,000, plus accrued interest of $850. Through that date, the discount of
$139,314 was fully amortized to interest expense.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
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 of $120,788
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 five-year 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 pricing model
utilizing an expected volatility of 83%, a risk-free investment rate of 3.8%
and
a dividend yield of 0%).
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:
PREFERRED
STOCK:
In
February 2007, the Company sold 500,000 shares of Series A,
cumulative, non-convertible preferred stock (the "Series A") for $500,000
cash to Arizcan Properties, Ltd. (Arizcan), the majority shareholder of the
Company. Arizcan had previously advanced (as of June 30, 2006) $100,000 to
the
Company, under a subscription agreement, prior to the issuance of the shares.
The Series A shares provide that when voting as a single class, the shares
have
the votes and the voting power that at all times is 1% greater than the combined
votes and voting power of all other classes of securities entitled to vote
on
any matter. As a result of the issuance, Arizcan acquired approximately 51%
of
the voting power of the Company. The Company has a right, solely at its
discretion, to redeem the shares in 2017 at 130% of then deemed par
value.
The
holder of the Series A is entitled to a dividend equal to 8% per annum of
the
deemed par value ($1.00 per share). Accumulated dividends for the period
from Series A issuance (February 2007) through June 30, 2007, were $13,150,
which have been recorded as an inverse in the net loss per common shareholder.
Also, the holder is entitled to a liquidation preference of the then deemed
par
value for each outstanding share and any accrued but unpaid dividends upon
the
liquidation of the Company.
COMMON
STOCK:
Fiscal
2007 Transactions:
Between
March and June 2007, the Company issued an aggregate of 8,373,000 shares of
its
restricted common stock for cash proceeds of $1,255,950. The shares were sold
for $0.15 per share (based upon an approximate 38% discount from the closing
market price, ranging from $0.37-$0.46 per share on the dates of the
transactions).
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
In
June
2007, the Company issued 333,000 shares of its restricted common stock to a
non-related party shareholder as payment on a $50,000 promissory note. The
shares were issued for $0.15 per share, based on the cash proceeds per share
in
the transactions noted above.
Fiscal
2006 Transactions:
In
connection with the issuance of $175,000 in promissory notes in June 2005,
the
Company agreed to issue 175,000 shares of its restricted common stock, valued
at
$103,146, of which 50,000 shares were issued in June 2005, and 125,000 shares
were issued in July 2005. Also in July and August 2005, in
connection with the issuance of promissory notes totaling $150,000, the Company
issued 450,000 shares of its restricted common stock, valued at
$117,886.
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 accounted for the forgiveness of the liability as a contribution
to
equity.
In
September 2005, the Company executed a subscription agreement with Arizcan
to
sell shares of the Company’s preferred stock. In January 2006, Arizcan purchased
200,000 shares of the Company’s Series A Convertible Preferred Stock
(“Convertible 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 convertible 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
then paid the Company cash of $1,100,000 plus interest to repay the note in
full. The
conversion feature was deemed beneficial and accordingly resulted in a
beneficial conversion feature valued at $1,500,000. The intrinsic
value assigned to the beneficial conversion feature was 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 previously incurred
in
connection with the Company’s financing efforts.
Between
October 2005 and January 2006, the Company issued 790,467 shares of its
restricted common stock and warrants to purchase 746,717 shares of its
restricted common stock for $632,372 in cash. 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 per share (based on a 50% discount from the closing market
price, $1.60 per share, on the date of each transaction).
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 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 option pricing model
(utilizing an contractual term of 3 years, an expected volatility of 97%,
a
risk-free interest rate of 3.93%, and a dividend yield of 0%).
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
STOCK
OPTIONS:
Stock
Options:
The
Company has two stock option plans which permit the grant of shares to attract,
retain and motivate employees, directors and consultants of up to 2,863,000
shares of common stock. Options are generally granted with an exercise price
equal to the Company’s market price of its common stock on the date of the grant
and with vesting rates as determined by the Board of Directors. The maximum
contractual term of stock options under the plans is 10 years. All options
outstanding at July 1, 2006 and June 30, 2007 are fully-vested and
exercisable.
During
the year ended June 30, 2007, the Company granted 2,350,000 stock options to
an
officer, directors and an employee at exercise prices ranging from $0.32 to
$0.41 per share. The fair value of stock options at the date of grant was
$743,750 based on the Black-Scholes option pricing model and was recorded as
compensation expense. The weighted average grant date fair value of the stock
options granted was $0.32 per option. The Company used the following assumptions
to determine the fair value of stock option grants during the year ended June
30, 2007:
|
Expected
term
|
5
years
|
|
Expected
volatility
|
183%
- 172%
|
|
Risk-free
interest rate
|
4.82%
- 4.94%
|
|
Dividend
yield
|
0%
|
The
Company did not grant any options during the year ended June 30,
2006.
The
expected term of stock options represents the period of time that the stock
options granted are expected to be outstanding based on historical exercise
trends. The expected volatility is based on the historical price volatility
of
the Company’s common stock. The risk-free interest rate represents the U.S.
Treasury bill rate for the expected term of the related stock options. The
dividend yield represents our anticipated cash dividend over the expected term
of the stock options.
At
June
30, 2007, all outstanding and exercisable options were fully vested. The
aggregate intrinsic value of outstanding fully-vested options as of June 30,
2007 was approximately $185,000.
A
summary
of the option plans are as follows:
| |
|
|
|
|
|
|
| |
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
Beginning of Year
|
|
|
398,127
|
|
|
$ |
20.00
|
|
|
|
439,377
|
|
|
$ |
20.00
|
|
|
Granted
|
|
|
2,350,000
|
|
|
|
0.33
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,250 |
) |
|
|
2.00
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding,
End of Year
|
|
|
2,748,127
|
|
|
$ |
3.00
|
|
|
|
398,127
|
|
|
$ |
22.00
|
|
|
Options
Exercisable at End of Year
|
|
|
2,748,127
|
|
|
$ |
3.00
|
|
|
|
398,127
|
|
|
$ |
22.00
|
|
The
following table summarizes information about stock options outstanding as of
June 30, 2007:
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
| |
|
|
|
|
|
|
|
|
Range
of Exercise Prices
|
|
|
Number
of Options
|
|
|
Weighted-Average
Remaining Contractual Life (years)
|
|
|
Weighted-Average
Exercise Price
|
|
|
Number
of Options
|
|
|
Weighted-Average
Exercise Price
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.32–3.99
|
|
|
|
2,350,000
|
|
|
|
9.86
|
|
|
$ |
0.33
|
|
|
|
2,350,000
|
|
|
$ |
0.33
|
|
| |
4.00–10.00
|
|
|
|
162,750
|
|
|
|
1.37
|
|
|
|
6.41
|
|
|
|
162,750
|
|
|
|
6.41
|
|
| |
10.20–20.00
|
|
|
|
114,777
|
|
|
|
4.74
|
|
|
|
13.65
|
|
|
|
114,777
|
|
|
|
13.36
|
|
| |
20.20–40.00
|
|
|
|
43,000
|
|
|
|
3.66
|
|
|
|
30.39
|
|
|
|
43,000
|
|
|
|
30.39
|
|
| |
40.20–60.00
|
|
|
|
77,100
|
|
|
|
2.23
|
|
|
|
62.21
|
|
|
|
77,100
|
|
|
|
62.21
|
|
| |
100.20–120.00
|
|
|
|
500
|
|
|
|
2.69
|
|
|
|
120.00
|
|
|
|
500
|
|
|
|
120.00
|
|
| |
|
|
|
|
2,748,127
|
|
|
|
3.89
|
|
|
$ |
3.00
|
|
|
|
2,748,127
|
|
|
$ |
3.00
|
|
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, 2007, the following warrants to purchase common stock were
outstanding:
|
Number
of common shares covered by warrants
|
|
|
Exercise
Price
|
|
Expiration
Date
|
| |
|
|
|
|
|
| |
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
|
| |
6,000,000
|
|
|
|
0.50
|
|
March
2012
|
| |
500,000
|
|
|
|
0.91
|
|
June
2009
|
| |
12,111,717
|
|
|
|
|
|
|
Fiscal
2007 Transactions:
In
February 2007, the Company sold to Arizcan, a warrant exercisable immediately
for up to 6,000,000 shares of restricted common stock for $251,900 in cash.
The
warrant has an exercise price of $0.50 per share and provides for cashless
exercise. The warrant has a term of 5 years.
In
January 2007, warrants to purchase 9,625 shares of common stock expired
unexercised.
Fiscal
2006 Transactions:
During
the year ended June 30, 2006, warrants to purchase 202,709 shares of common
stock expired unexercised.
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 $1.00 and have a term of 3 years.
These warrants were issued in February 2006.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
In
February 2006, the Company issued warrants to purchase 746,717 shares of common
stock. The warrants were issued to fulfill 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.
OTHER
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 contribution 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”). 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 of $25,000,000 and treble damages. In April 2005,
the court granted a motion to dismiss the lawsuit. The Company filed an appeal
to overturn the motion to dismiss the lawsuit; however, in September 2007,
the
Court ruled that all of the Company's claims were pre-empted by federal law
and
affirmed the dismissal of the Company's complaint.
Financing
Agreement Suit:
In
connection with a financing obtained in October 2000, the Company filed various
actions 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.
In
May
2001, Harvest Court, LLC filed suit against the Company alleging 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.
Discovery has been completed in these cases and a trial date is expected
to be
set by the Court.
In
this
litigation, Harvest Court, LLC also 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.
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.
VYTA
CORP AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
Years
Ended June 30, 2007 and 2006
LEASES:
The
Company has certain non-cancelable operating 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
|
|
| |
|
|
|
|
2008
|
|
$ |
38,211
|
|
|
2009
|
|
|
39,415
|
|
|
2010
|
|
|
40,618
|
|
|
2011
|
|
|
20,761
|
|
|
|
|
$ |
139,005
|
|
Rental
expense under all operating leases was $54,396 and $86,783 for the years ended
June 30, 2007 and 2006, respectively.
10. INCOME
TAXES:
The
Company and its subsidiaries did not incur income tax expense for the years
ended June 30, 2007 and 2006. 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, 2007 and 2006 is as follows:
| |
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
Expected
income tax benefit
|
|
$ |
(1,517,000 |
) |
|
$ |
(818,000 |
) |
|
Increase
in valuation allowance
|
|
|
1,517,000
|
|
|
|
818,000
|
|
| |
|
$ |
-
|
|
|
$ |
-
|
|
The
tax
effects of temporary differences that would give rise to substantially all
deferred tax assets subject to the valuation allowance at June 30, 2007 are
as
follows:
|
Deferred
tax assets, non-current:
|
|
|
|
|
Net
operating loss carry forwards
|
|
$ |
4,724,000
|
|
|
Receivables
|
|
|
407,000
|
|
|
Stock-based
compensation
|
|
|
253,000
|
|
|
Losses
in unconsolidated investees
|
|
|
221,000
|
|
| |
|
|
5,605,000
|
|
|
Less
valuation allowance
|
|
|
(5,605,000 |
) |
|
Net
deferred tax assets
|
|
$ |
-
|
|
As
of
June 30, 2007, the Company has net operating loss carry forwards of
approximately $13,890,000, which expire between 2013 and 2027, and may be
subject to limitations, which could reduce or defer the utilization of the
losses as a result of an ownership change as provided in Section 382 of the
Internal Revenue Code.
F-22