As filed with the Securities and Exchange Commission on June 30, 2006
Registration No. 333-113071
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VYTA CORP
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
(Exact name of small business issuer as specified in its charter)
NEVADA 84-0992908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
PAUL H. METZINGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VYTA CORP
370 17TH STREET, SUITE 3640
DENVER, COLORADO
(303) 592-1010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies sent to:
ROBERT J. AHRENHOLZ, ESQ.
JOSHUA M. KERSTEIN, ESQ.
KUTAK ROCK LLP
1801 CALIFORNIA STREET, SUITE 3100
DENVER, COLORADO 80202
(303) 297-2400
Approximate date of commencement of the proposed sale to the public: From time
to time after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
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EXPLANATORY NOTE
This Post-Effective Amendment No. 2 on Form SB-2 (this "Post-Effective
Amendment") relates to the original Registration Statement on Form S-2 (No.
333-113071) (the "Registration Statement") of Vyta Corp (formerly known as
Nanopierce Technologies, Inc.) which registered for resale from time to time
82,600,000 shares of common stock issued to the selling stockholders listed
therein. The Registration Statement was declared effective by the Securities
and Exchange Commission on May 4, 2004.
Pursuant to Rule 401(e) under the Securities Act of 1933, as amended, the
Registrant is filing this Post-Effective Amendment to update the information
contained in the prospectus included in the Registration Statement. At the time
of filing this Post-Effective Amendment No. 2, Form S-2 had been eliminated by
Securities Act Release No. 33-8591 and, as a result, this amendment is on Form
SB-2. The number of shares subject to resale has been adjusted throughout this
Post-Effective Amendment to reflect the one for twenty reverse stock split of
our common stock that occurred on January 31, 2006 that is described in this
Post-Effective Amendment.
The Registrant is also filing this Post-Effective Amendment to deregister
202,500 shares of common stock originally registered by the Registration
Statement, including the following:
NAME OF STOCKHOLDER NUMBER OF DEREGISTERED SHARES
OF COMMON STOCK*
Clayton Dunning & Company 10,500
(f/k/a Charleston Capital Corp.)
Chris Messalas 19,500
Jason Lyons 50,000
Colbart Birnet LP 37,500
Goldstrand Investments 85,000
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Total 202,500
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*Includes shares of common stock that were issued to the selling stockholders
listed above that remain unsold and shares of common stock issuable to the
selling stockholders upon exercise of warrants issued to the selling
stockholders listed above that remain unsold.
As a result of this deregistration, the total number of shares of common stock
registered pursuant to the Registration Statement held by stockholders other
than the stockholders named above that remain unsold is 1,230,000 and the
sections of the prospectus captioned "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION" were revised accordingly.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. OUR SELLING STOCKHOLDERS MAY NOT SELL THESE
SECURITIES UNTIL THAT REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 30, 2006
PROSPECTUS
VYTA CORP
---------
370 17th Street, Suite 3640
Denver, Colorado 80202
1,230,000 SHARES OF COMMON STOCK, INCLUDING:
- 90,000 SHARES CURRENTLY OUTSTANDING
- 1,140,000 SHARES ISSUABLE UPON EXERCISE OF
WARRANTS
THE SELLERS: All of our common stock offered by this prospectus is offered
from time to time by the selling stockholders identified in this
prospectus. These shares of common stock may be sold at fixed
prices, prevailing market prices determined at the time of sale,
varying prices determined at the time of sale or at negotiated
prices. We will not receive any proceeds from the sale of our
common stock offered by the selling stockholders.
MARKET FOR
SECURITIES: Our common stock is presently quoted on the over-the-counter
bulletin board under the symbol "VYTC." Our common stock also is
traded on the Berlin Stock Exchange, the Frankfurt Stock
Exchange, the Munich Stock Exchange and the Xetra Stock Exchange.
On June 28, 2006, the last reported sale price of our common
stock on the over-the-counter bulletin board was $0.75 per share
(rounded to the nearest penny). See "MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS."
RISK
FACTORS: INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5.
As of June 28, 2006, we had 22,643,512 shares of our common stock issued
and outstanding. The shares of common stock offered by this prospectus
represent about 5% of our issued and outstanding common stock as of that
date, assuming that, as of that date, all of our outstanding warrants and
options were exercised and all of our reserved shares of common stock were
issued.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED ANY OF THESE SECURITIES
OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2006.
--------- --
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . 1
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . 2
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . 5
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . 12
DETERMINATION OF OFFERING PRICE . . . . . . . . . . . . . 13
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 13
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 16
MANAGEMENT'S DISCUSSION AND ANALYSIS. . . . . . . . . . . 27
SELLING STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 38
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . 40
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . 42
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . 43
PRINCIPAL SHAREHOLDERS. . . . . . . . . . . . . . . . . . 48
RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . 50
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION . . . . . . 51
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . 51
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . 52
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . F-1
ii
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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:
- the rate of market development and acceptance of AgraStim(TM)
(trademark pending) (formerly marketed as YBG-2000), a beta glucan
feed additive, in the animal feed industry within which BioAgra, LLC
is now concentrating its business activities;
- the operations and potential profitability of BioAgra, LLC, a
company in which we have only a 50% interest which holds the license
for AgraStim;
- the operations and potential profitability of ExypnoTech, Gmbh, a
company in which we have only a 49% interest that is manufacturing and
developing inlay components used in the manufacturing of, among other
things, smart labels (often referred to as radio frequency
identification tags);
- 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;
- BioAgra's ability to compete successfully with artificial
antibiotic providers and other providers of feed additives;
- our ability to retain the services of our key management, and to
attract new members to the management team;
- BioAgra's ability to maintain and protect the license for
AgraStim held by BioAgra, LLC;
- our ability to obtain and retain appropriate patent, copyright
and trademark protection of our intellectual properties and any of our
products.
You should only rely on the information contained in this prospectus. We
have not authorized any person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. The selling stockholders are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate as
of the date on the front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed since that date.
1
PROSPECTUS SUMMARY
The following summary highlights certain information contained throughout
this prospectus. It is not complete and may not contain all of the information
that you should consider before investing in the securities offered by this
prospectus. To understand this offering fully, you should read this entire
prospectus carefully, including the risk factors.
THE COMPANY
GENERAL
We were incorporated on June 22, 1996 as a Nevada corporation. 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
www.vytacorp.com. Information on our website is not part of this prospectus and
----------------
you should not rely on it in deciding whether to invest in our common stock.
When used in this prospectus, the terms "we," "our," "us," "our company," "the
company" and similar expressions refer to Vyta Corp, and our subsidiaries,
unless the context indicates otherwise.
DESCRIPTION OF BUSINESS
In 2004, we instituted steps to change our principal business from
semiconductor technology to biotechnology. In August 2005, we purchased a 50%
equity interest in BioAgra, LLC, a Georgia limited liability company
("BioAgra"). The remaining 50% was purchased by Xact Resources International and
later assigned to Justin Holdings, Inc. BioAgra holds a license for the
production of AgraStimTM (trademark pending) (formerly marketed as YBG-2000), a
natural, all organic, non-toxic beta glucan feed additive used to replace
artificial antibiotics which are currently in use in the animal feed industry.
In early 2006, management of BioAgra decided to market YBG-2000 as AgraStim. The
license, dated April 18, 2005, has a term expiring October 18, 2024. Under the
license, BioAgra was granted the right and license to produce, process, make or
otherwise manufacture and sell the licensed products in the United States.
BioAgra plans to manufacture and market AgraStim, initially in the poultry
industry. See "THE COMPANY."
Prior to our acquisition of an interest in BioAgra, we were primarily
involved in semiconductor technology. On February 26, 1998, we acquired the
intellectual property rights related to our patented Particle Interconnect
Technology (the "particle technology") from Particle Interconnect Corporation, a
Colorado corporation, a wholly owned subsidiary of Intercell Corporation (now
known as Intercell International Corporation), a Nevada corporation that was our
affiliate at the time of the acquisition. We acquired the particle technology to
pursue a more focused, strategic application and development of the particle
technology. We were commercializing our particle technology as the NanoPierce
Connection System (NCSTM) and focused on providing the electronics industry with
possible solutions to their "connection" problems. The company does not plan, at
this time, to continue efforts to manufacture or develop products that utilize
the company's particle technology. To date, the company has not successfully
manufactured, marketed, sold products or licensed companies to manufacture,
develop and market products using the company's particle technology. As
described later in this prospectus, we continue to own a minority interest in
ExypnoTech, Gmbh ("ExypnoTech"), a company that is manufacturing and developing
inlay components used in the manufacturing of, among other things, smart labels
(often referred to as radio frequency identification tags or "RFID").
2
RECENT DEVELOPMENTS
In connection with our change in business, we recently completed a
corporate restructuring consisting of a private placement of a new series of
convertible preferred stock, which also resulted in a change of who controls us,
a reverse stock split of our common stock, a subsequent increase in our
authorized capital and we changed our name from NanoPierce Technologies, Inc. to
Vyta Corp.
THE OFFERING
This offering includes 1,230,000 shares of our common stock, including:
- 90,000 shares outstanding as of the date of this prospectus;
and
- 1,140,000 shares issuable upon the exercise of warrants
owned by the stockholders identified later in this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock offered by this prospectus. Some of the shares of common stock that are
being offered by this prospectus are issuable upon exercise of warrants owned by
the stockholders identified later in this prospectus. We will receive proceeds
from the exercise, if any, of these warrants. See "USE OF PROCEEDS" for more
information.
RISK FACTORS
Your investment in our common stock offered by this prospectus involves a
high degree of risk. See "RISK FACTORS" beginning on page 5.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents our summary consolidated historical financial
information for the periods indicated (after giving effect to the reverse stock
split of our common stock that occurred on January 31, 2006 that is described
elsewhere in this prospectus). You should read this information together with
the consolidated financial statements for the fiscal year ended June 30, 2005,
our unaudited quarterly financial statements for the nine months ended March 31,
2006 and related notes and the information under "FINANCIAL STATEMENTS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS" included elsewhere in this prospectus.
3
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------------- --------------------------
2006 2005
(UNAUDITED) (UNAUDITED) 2005 2004
------------ ------------ ----------- -------------
Revenues $ - $ - $ - $ 34,258
------------ ------------ ----------- -------------
Operating expenses:
Research and development - - - 41,849
General and administrative 691,546 604,296 872,203 1,312,519
Selling and marketing - - - 37,033
Impairment of intellectual property(1) - - - 608,061
------------ ------------ ----------- -------------
(691,546) (604,296) (872,203) (1,999,462)
------------ ------------ ----------- -------------
Loss from operations (691,546) (604,296) (872,203) (1,965,204)
------------ ------------ ----------- -------------
Other income (expense):
Other income 28,585 10,538 10,618 -
Interest income, related party 40,245 11,907 17,672 2,550
Extinguishment of liabilities (2) - - - 52,500
Equity losses of affiliates (3) (429,896) (114,215) (144,323) (99,922)
Loss on revaluation of derivative
warrant liability(4) (74,295) - - -
Interest expense (235,131) - (9,301) (1,683)
Interest expense, related party (219) - (79) (1,206)
------------ ------------ ----------- -------------
(670,711) (91,770) (125,413) (47,761)
------------ ------------ ----------- -------------
Loss from continuing operations (1,362,257) (696,066) (997,616) (2,012,965)
------------ ------------ ----------- -------------
Discontinued operations,
income from operations
of subsidiary (5) - - - 454,882
------------ ------------ ----------- -------------
Net loss (1,362,257) (696,066) (997,616) (1,558,083)
Beneficial conversion feature(6) (1,500,000) - - -
------------ ------------ ----------- -------------
Net loss applicable to common
shareholders $(2,862,257) $ (696,066) $ (997,616) $ (2,012,965)
============ ============ =========== =============
Basic and diluted loss per share:
Loss from continuing operations $ (0.29) $ (0.15) $ (0.22) $ (0.54)
Income from discontinued operations $ - $ - $ - $ 0.12
------------ ------------ ----------- -------------
Net loss per share, basic and diluted(7) $ (0.29) $ (0.15) $ (0.22) $ (0.42)
============ ============ =========== =============
Weighted average number of
common shares outstanding (7) 9,818,450 4,537,697 4,544,980 3,755,836
============ ============ =========== =============
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1 See Note 1 to our consolidated financial statements for the fiscal year
ended June 30, 2005 in "FINANCIAL STATEMENTS."
2 See Note 7 to our consolidated financial statements for the fiscal year
ended June 30, 2005 in "FINANCIAL STATEMENTS."
3 See Notes 3 and 6 to our consolidated financial statements for the fiscal
year ended June 30, 2005 and our unaudited quarterly financial statements
for the nine months ended March 31, 2006 in "FINANCIAL STATEMENTS."
4 See Note 5 to our unaudited quarterly financial statements for the nine
months ended March 31, 2006 in "FINANCIAL STATEMENTS."
5 See Note 3 to our consolidated financial statements for the fiscal year
ended June 30, 2005 in "FINANCIAL STATEMENTS."
6 See Note 1 to our unaudited quarterly financial statements for the nine
months ended March 31, 2006 in "FINANCIAL STATEMENTS."
7 Rounded to the nearest share. See Note 1 to our consolidated financial
statements for the fiscal year ended June 30, 2005 and our unaudited
quarterly financial statements for the nine months ended March 31, 2006 in
"FINANCIAL STATEMENTS."
4
RISK FACTORS
An investment in our common stock involves a number of risks. Before
making an investment decision, you should carefully consider all of the risks
described in this prospectus and the documents that are incorporated by
reference into this prospectus. The risks discussed in this prospectus could
materially adversely affect our business, financial condition and results of
operations and cause the trading price of our common stock to decline
significantly. If this occurs, you may lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES
We expect that developing and marketing beta-glucan for feed in the poultry
industry will be expensive. We recently have incurred increased operating
expenses without any increase in revenues. We reported a net loss applicable to
common shareholders of $997,616, $1,558,083 and $4,017,785 for our fiscal years
ended June 30, 2005, 2004 and 2003, respectively, and a net loss applicable to
common shareholders of $2,862,257 for the nine-month period ended March 31,
2006.
WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN
Our independent auditors' report on our consolidated financial statements
as of June 30, 2005 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 shareholders may lose their
investment.
OUR JOINT VENTURE INVESTMENTS COULD BE ADVERSELY AFFECTED BY OUR LACK OF
SOLE-DECISION-MAKING AUTHORITY, OUR RELIANCE ON CO-VENTURERS' FINANCIAL
CONDITION AND DISPUTES BETWEEN OUR CO-VENTURERS AND US
Our primary business is our 50% interest in BioAgra, LLC and our 49%
interest in Exypnotech. Investments in joint ventures may involve risks not
present were a third party not involved, including the possibility that our
co-venturer Justin Holdings, Inc. (as assignee of Xact Resources International
which assigned its interest in BioAgra in February 2006) with respect to
BioAgra, LLC and TagStar Systems, GmbH with respect to Exypnotech (each of which
an entity over which we have no control) might become bankrupt, fail to fund
their share of required capital contributions or fail to perform their
responsibilities under our agreements with them. Our co-venturers also may have
economic or other business interests or goals that are inconsistent with our
business interests or goals, and may be in a position to make decisions or to
take actions that are contrary to our preferences, policies, or objectives. We
do not have 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 use
and enforcement of the license to produce AgraStim held by BioAgra or a sale of
the joint venture, because neither we nor Justin Holdings, Inc. would have 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.
5
LICENSE TO AGRASTIM IS LIMITED
BioAgra has a license agreement with Progressive Bioactives, Inc. for
AgraStim, the license is limited in geographic area and function. Under the
license, BioAgra was granted the right and license to produce, process, make or
otherwise manufacture and sell the licensed products in the United States and
holds a right of first refusal to build and operate any new plant intended to
manufacture the licensed product in the United States. The license is also
limited in function to the consumption of animal products, which limits
BioAgra's ability to expand into new areas, such as the production of beta
glucan for human consumption.
BIOAGRA MAY LOSE THE LICENSE TO AGRASTIM OR HAVE ITS RIGHTS UNDER THE LICENSE
LIMITED IF IT FAILS TO SATISFY THE MINIMUM PRODUCTION STANDARDS REQUIRED BY THE
LICENSE
The license requires BioAgra to meet certain minimum production standards,
which will begin on the first year anniversary after BioAgra produces its first
successful batch of the licensed product, which yields a sufficient quantity of
product made available for sale. If BioAgra fails to satisfy the minimum
production standards provided in the license, BioAgra may lose its right of
first refusal to build and operate any new manufacturing plants in the United
States, and may be deemed in material breach of the license causing the licensor
to terminate the license.
IF AGRASTIM DOES NOT SATISFY CERTAIN GOVERNMENTAL REGULATIONS, BIOAGRA MAY BE
UNABLE TO OBTAIN REGULATORY APPROVAL OR MAY BE REQUIRED TO OBTAIN MULTIPLE
LICENSES TO SELL AGRASTIM
BioAgra is in the process of applying for a "generally recognized as safe"
(GRAS) designation from the U.S. Food and Drug Administration for the AgraStim
beta-glucan product to be produced by BioAgra. A GRAS designation would exempt
AgraStim from the regulations of the U.S. Department of Agriculture and the U.S.
Department of Agriculture and would permit the sale of AgriStim anywhere in the
United States without obtaining a license. BioAgra believes that it will
receive GRAS designation for AgraStim based, in part, upon the fact that the
GRAS designation has been given to other products whose main ingredients are
also based upon all organic, natural, non-toxic substances such as the yeast
from which beta-glucan is derived. If a GRAS designation is not obtained,
AgraStim would be required to be sold as a food additive by obtaining a license
to sell from each individual state in which sales would occur. At this time,
BioAgra has applied and obtained licenses from the States of Georgia and North
Carolina and is preparing licenses in other states. There is no assurance that
BioAgra will be able to successfully obtain or maintain licenses in all states
in which sales are expected to be made or that the costs of obtaining and
maintaining these licenses will not limit BioAgra's ability to sell AgraStim.
OPERATIONS OF BIOAGRA MAY BE DELAYED OR COST MORE THAN WE ANTICIPATE
It was previously anticipated that the plant would commence operations in
January 2006, however operations did not commence until March 2006. There can
be no assurances that there will not be further delays in operations, including
the time before we are able start operating on a full-scale capacity or that the
average cost to operate the plant will not be higher than anticipated.
WE CANNOT GUARANTEE THE QUALITY, PERFORMANCE OR RELIABILITY OF BIOAGRA'S
PRODUCTS
We have no prior experience in taking AgraStim or any other product to the
manufacturing or production stage. We are relying upon the skill and experience
of BioAgra's managers and our co-joint venturer to timely and cost effectively
manufacture AgraStim. We expect that the customers of BioAgra will demand
quality, performance and reliability. We cannot assure you that we or our
co-joint venturer will be able to meet the quality control standards that may be
established by the poultry industry within
6
which we are currently concentrating our business activities. BioAgra intends
to assure their customers that AgraStim will contain at least 80% pure beta
glucan.
THERE MAY BE INSUFFICIENT DEMAND FOR AGRASTIM
The market acceptance of fairly new products and technologies, including
AgraStim, is subject to a number of factors, including the ability of the
product to meet potential customers' needs more effectively or more efficiently
than current products. Antibiotics and growth hormone supplements are widely
used in animal, poultry and other feeds. BioAgra must convince their potential
customers that their beta-glucan product is safe and effective as a feed
additive and can be manufactured efficiently and cost-effectively before the
poultry industry, or other animal producers will be willing to use their product
rather than existing products such as antibiotics and growth hormone
supplements. To create this consumer demand, BioAgra will have to successfully
market and sell their product. Even after these efforts, their beta-glucan
product may not be viewed by consumers as an improvement over existing products
and may not achieve commercial acceptance.
WE MAY BE UNABLE TO MEET OUR ONGOING NEEDS FOR ADDITIONAL CAPITAL
We cannot accurately predict how much funding we will need to implement our
strategic business plan or to continue operations. Our future capital
requirements, the likelihood that we can obtain money and the terms of any
financing will be influenced by many different factors, including:
- our revenues and the revenues of our joint venture;
- the status of competing products in the marketplace,
- our performance in the marketplace;
- our overall financial condition;
- our business prospects;
- the perception of our growth potential by the public, including
potential lenders;
- our ability to enter into joint venture or licensing
relationships to achieve a market presence; and
- the progress of BioAgra in developing, marketing and selling
AgraStram.
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.
DEEMED DIVIDENDS RELATED TO BENEFICIAL CONVERSION FEATURE OF OUR OUTSTANDING
CONVERTIBLE PREFERRED STOCK ADVERSELY AFFECTED EARNINGS FOR THE MARCH 2006
QUARTER.
As part of the private placement transaction on January 17, 2006 described
later in this prospectus, we issued convertible preferred stock. The conversion
price of the convertible preferred stock, was less than the closing price of our
common stock on January 17, 2006. The difference between
7
the conversion price of the convertible preferred stock and the closing price of
our common stock on this date resulted in a beneficial conversion feature. We
calculated this beneficial conversion feature at $1.5 million and it is included
in the net loss applicable to common stockholders and the basic and diluted net
loss per share calculation in the quarter ended March 31, 2006. See Note 1 to
the consolidated financial statements for the three months ended March 31, 2006
in "FINANCIAL STATEMENTS."
WE MAY BE UNABLE TO HIRE AND RETAIN KEY PERSONNEL
Our future success depends on our ability to attract qualified personnel.
We may be unable to attract or retain these necessary personnel. If we fail to
attract or retain skilled employees, or if a key employee fails to perform in
his or her current position, we may be unable to bring AgraStim to the
marketplace and to generate sufficient revenues to offset our operating costs.
WE MAY BE UNABLE TO OBTAIN AND RETAIN APPROPRIATE PATENT, COPYRIGHT AND
TRADEMARK PROTECTION OF OUR PRODUCTS OR MANUFACTURING PROCESS
We protect our intellectual property rights through patents, trademarks,
trade names, trade secrets and a variety of other measures. However, these
measures may be inadequate to protect our intellectual property or other
proprietary information.
- TRADE SECRETS MAY BECOME KNOWN BY THIRD PARTIES. Our trade secrets or
proprietary information may become known or be independently developed
by competitors.
- RIGHTS TO PATENTS AND TRADE SECRETS MAY BE INVALIDATED. Disputes may
arise with third parties over the ownership of our intellectual
property rights. Our patents may be invalidated, circumvented or
challenged, and the rights granted under those patents that provide us
with a competitive advantage may be nullified.
- PROBLEMS WITH FUTURE PATENT APPLICATIONS. Our pending or future patent
applications may not be approved, or the scope of the granted patent
may be less than the coverage sought.
- INFRINGEMENT CLAIMS BY THIRD PARTIES. Infringement, invalidity, right
to use or ownership claims by third parties or claims for
indemnification may be asserted by third parties in the future. If any
claims or actions are asserted against us, we can attempt to obtain a
license for that third party's intellectual property rights. However,
the third party may not provide a license under reasonable terms, or
may not provide us with a license at all.
- THIRD PARTIES MAY DEVELOP SIMILAR PRODUCTS OR MANUFACTURING PROCESS.
Competitors may develop similar products, duplicate our products or
may design around the patents that are owned by us. Competitors may
develop a similar manufacturing process, duplicate our manufacturing
process or may design around any patents that are owned by us in
relation to the manufacturing process.
- LAWS IN OTHER COUNTRIES MAY INSUFFICIENTLY PROTECT INTELLECTUAL
PROPERTY RIGHTS ABROAD. Foreign intellectual property laws may not
adequately protect our intellectual property rights abroad. Our
failure to protect these rights could adversely affect our business
and financial condition.
- LITIGATION MAY BE REQUIRED TO PROTECT INTELLECTUAL PROPERTY RIGHTS.
Litigation may be necessary to protect our intellectual property
rights and trade secrets, to determine the validity of and scope of
the rights of third parties or to defend against claims of
infringement or
8
invalidity by third parties. This litigation could be expensive, would
divert resources and management's time from our sales and marketing
efforts, and could have a materially adverse effect on our business,
financial condition and results of operations and on our ability to
enter into joint ventures or partnerships with others.
ECONOMIC FACTORS OUTSIDE OUR CONTROL MAY HAVE AN ADVERSE AFFECT ON BIOAGRA'S
REVENUES AND OUR INCOME
Our income may be impacted by economic factors that are beyond our control
such as fluctuations in price of poultry feed, outbreaks of poultry diseases,
and demand for poultry products. Because Bio Agra's initial focus for AgraStim
is the poultry industry, the poultry industry will be a significant component of
their revenues. Rising poultry feed prices, increase production costs of
commercial poultry producers may cause them to reduce production, which, in
turn, could adversely impact BioAgra's revenues. An outbreak of disease, such
as avian influenza, could result in increased government regulation of the
poultry industry, a serious drop in demand for poultry products, and adverse
publicity materially affecting the poultry industry for a significant period of
time, which could adversely impact BioAgra's business, revenues, prospects,
financial condition, and results of operation. In general, reduced demand for
poultry products could adversely impact BioAgra's revenues and therefore our
income.
THE MARKET FOR FEED ADDITIVES IS COMPETITIVE
The feed additive market is competitive. BioAgra will compete with
producers of artificial antibiotic and growth hormone products, many of which
are large companies with vast resources allocated to the protection of brand
recognition and market share of their products. BioAgra may also compete with
companies producing beta-glucan for other purposes, and companies that produce
existing alternatives to antibiotic and growth hormone products, such as organic
acids, plant extracts, and mannoproteins. BioAgra is disadvantaged competing
against some of these competitors in several different areas, including:
- financial resources;
- manufacturing capabilities;
- diversity of revenue sources and business opportunities;
- personnel and human resources; and
- research and development capabilities.
Larger companies have long term advantages over BioAgra in research and new
product development and have a greater ability to withstand periodic downturns
in the feed additive market because they have diverse product lines that can
provide revenue even when there is a downturn in the feed additive market.
IF BIOAGRA WAS UNABLE TO USE THEIR MANUFACTURING FACILITY, THEY MAY NOT BE ABLE
TO MANUFACTURE AGRASTIM FOR AN EXTENDED PERIOD OF TIME
BioAgra manufactures at a single location in Georgia with a single
production line. Manufacturing products at a single site presents risks because
a disaster, such as a fire or hurricane, may interrupt our manufacturing
capability. In such an event, they will have to resort to alternative sources
of manufacturing that could increase their costs as well as result in
significant delays. Any increase in costs,
9
slowdowns or shutdowns could have a material adverse affect on our future
business, financial condition and results of operations.
BIOAGRA'S USE OF A SINGLE MANUFACTURING FACILITY MAY RESTRICT THEIR ABILITY TO
ATTRACT CUSTOMERS
Poultry farms require a steady source of feed additives. BioAgra's use of
a single manufacturing plant and a single production line may restrict their
ability to attract large customers who require certainty in the production
process. If BioAgra is successful, they expect to expand manufacturing
operations, but there is no assurance that BioAgra will have the financial
resources required to expand their production facilities.
MANUFACTURING CAPACITY RESTRAINTS AND LIMITED EXPERIENCE MAY HAVE AN ADVERSE
AFFECT ON BIOAGRA
BioAgra has limited manufacturing capacity and experience. We may
encounter some difficulties, such as significant unexpected costs and delays, in
scaling up the manufacturing operations of BioAgra to produce quantities
required for us to achieve profitability. The failure to scale-up manufacturing
operations in a timely and cost-effective way may adversely affect our income.
We believe that BioAgra has adequate capacity to meet anticipated demand for
2006. However, in the event the demand for AgraStim rapidly increases or spikes
in a certain period, BioAgra may not have the manufacturing ability to fulfill
demand, either in their own facilities or through agreements with third parties.
This lack of manufacturing capacity may materially affect BioAgra's and our
reputation, prospects, revenue, income and results of operation.
REPLACING BIOAGRA'S SOLE SOURCE OF SUPPLIERS FOR KEY MATERIALS COULD RESULT IN
UNEXPECTED DELAYS AND EXPENSES.
BioAgra obtains some key materials and services for AgraStim from sole
source suppliers, primarily with respect to spent brewer's or baker's yeast.
All of these materials are commercially available elsewhere. If these materials
or services were no longer available at a reasonable cost from existing
suppliers, BioAgra would need to purchase substitute materials from new
suppliers. If BioAgra needed to locate a new supplier, the substitute or
replacement materials may need to be tested for equivalency. The process of
locating a new supplier and any testing of materials, if necessary, may cause a
delay in production of the product and may cause BioAgra to incur additional
expense.
RISKS RELATING TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
THE OFFER AND SALE OF OUR SECURITIES BY CURRENT STOCKHOLDERS COULD CAUSE
DILUTION OF EXISTING HOLDERS OF OUR COMMON STOCK AND COULD DECREASE THE PRICE OF
OUR COMMON STOCK
As described under "THE COMPANY-Corporate Restructuring," as a result of
the private placement transaction with Arizcan Properties in January of 2006, we
were required to file a selling shareholder registration statement, registering
for resale a total of 17,092,184 additional shares of our common stock for
additional selling stockholders in addition to those persons offering shares by
this prospectus. In addition, as required by the terms of two consulting
agreements we have entered into with consultants, we are required to file a
registration statement on Form S-8 registering for resale a total of 700,000
additional shares of our common stock in addition to those persons offering
shares by this prospectus (together with the offering described in the previous
sentence, the "concurrent offerings"). The market price of our common stock
could be adversely affected by sales of substantial amounts of common stock in
the public market as a result of this offering, the concurrent offerings, by the
perception that those types of sales could occur or by the fact or perception of
events which would have a dilutive effect on the market for our common stock.
As of June 28, 2006, we had 22,643,512 shares of our
10
common stock outstanding, including shares of our common stock issued as
described under "THE COMPANY." 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 29,995,271 shares of common stock outstanding. Future
transactions with other investors could further depress the price of our common
stock because of additional dilution. See "DESCRIPTION OF COMMON STOCK."
COMMON STOCK PRICE COULD BE EFFECTED 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 stock holders to sell their stock. As of June 28, 2006, approximately
22,064,326 shares of our common stock were freely transferable and constitute
the "float" in the public market for our common stock (including the shares of
our common stock included in the concurrent offerings). 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
25,271,460 shares (including the shares of our common stock registered under the
registration statement to which this prospectus relates and including the shares
of our common stock included in the concurrent offerings). As of June 28, 2006,
approximately 579,186 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 4,813,811 shares (excluding the shares of our
common stock registered under the registration statement to which this
prospectus relates that would otherwise be restricted or control shares).
WE COULD ISSUE PREFERRED STOCK THAT COULD ADVERSELY EFFECT THE RIGHTS OF OUR
COMMON STOCKHOLDERS
We are authorized to issue up to 5,000,000 shares of our preferred stock,
$.0001 par value per share. Our articles of incorporation gives our board of
directors the authority to issue preferred stock without 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,
- voting rights,
- conversion privileges,
- redemption terms, and
- 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 shareholders and it can 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.
DEEMED DIVIDENDS RELATED TO BENEFICIAL CONVERSION FEATURE OF OUR OUTSTANDING
CONVERTIBLE PREFERRED STOCK MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
11
As described earlier in this prospectus, the conversion price of the
convertible preferred stock issued on January 17, 2006 was less than the closing
price of our common stock on such date which could negatively affect the price
of our common stock. The deemed dividend is described in Note 1 to the
consolidated financial statements for the three months ended March 31, 2006 in
"FINANCIAL STATEMENTS." The market price of our common stock may be adversely
affected by the fact that the conversion price of the preferred stock was less
than the market price of our common stock.
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 and 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 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.
USE OF PROCEEDS
The shares of our common stock offered by this prospectus are being
registered for the account of the selling stockholders named in this prospectus.
Therefore, any proceeds from the sale of our common stock will be received by
the related selling stockholders for their own account, and we will not receive
any proceeds from the sale of our common stock offered by this prospectus.
Assuming that all of the warrants that we issued to the selling
stockholders described in "THE COMPANY" were exercised, we expect to receive an
additional $3,420,000, substantially all of which we
12
expect to use for general working capital purposes, including strategic
acquisitions of technology or other businesses. However, no assurance can be
given that any of these warrants will be exercised, and we have identified no
acquisitions or other business to be acquired as of the date of this prospectus.
We will incur all of the costs associated with the registration of the shares of
our common stock offered by this prospectus other than underwriting discounts
and selling commissions, if any. See "PLAN OF DISTRIBUTION."
We will incur all of the costs associated with the registration of the
shares of our common stock offered by this prospectus other than underwriting
discounts and selling commissions, if any. See "PLAN OF DISTRIBUTION."
DETERMINATION OF OFFERING PRICE
The selling stockholders may sell all or a portion of their shares of our
stock in the over-the-counter market at prices prevailing at the time of sale,
or related to the market price at the time of sale, or at other negotiated
prices. See "PLAN OF DISTRIBUTION."
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND HOLDERS OF OUR COMMON STOCK
Our common stock is presently quoted on the over-the-counter bulletin board
maintained by the National Association of Securities Dealers, Inc. (the "NASD")
under the symbol "VYTC." 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
13
The following table sets forth the range of high and low quotations for the
common stock of each full quarterly period during the fiscal year or equivalent
period for the fiscal periods indicated below (after giving effect to the
reverse stock split of our common stock that occurred on January 31, 2006 that
is described elsewhere in this prospectus). The quotations were obtained from
information published by the NASD and reflect interdealer prices, without retail
mark-up, markdown or commission and may not represent actual transactions.
2004 FISCAL YEAR HIGH LOW
---------------- ----- -----
September 30, 2003 $5.40 $4.20
December 31, 2003 5.80 5.00
March 31, 2004 6.80 6.20
June 30, 2004 3.40 3.00
2005 FISCAL YEAR
----------------
September 30, 2004 2.40 2.20
December 31, 2004 3.40 3.20
March 31, 2005 2.20 2.00
June 30, 2005 2.00 1.80
2006 FISCAL YEAR
----------------
September 30, 2005 1.60 1.20
December 31, 2005 1.20 1.20
March 31, 2006 1.05 1.05
As of June 28, 2006, there were approximately 419 holders of record of the
company's 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.
14
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of June 30, 2005 (after giving
effect to the reverse stock split of our common stock that occurred on January
31, 2006 that is described elsewhere in this prospectus) regarding compensation
plans (including individual compensation arrangements) under which shares of our
common stock are authorized for issuance. No class of our securities other than
our common stock or options to purchase our common stock is authorized for
issuance under any of our equity compensation plans.
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
Plan Category exercise of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a)
(a) (b) (c)
Equity compensation plans
approved by security holders 0 - 0
Equity compensation plans not
approved by security holders (1) 398,127 $ 20.00 3,712,476
Total 398,127 $ 20.00 3,712,476
(1) The material features of the plans not approved by the security holders are
described herein under "MANAGEMENT-Compensation of Executive Officers-Stock
Option Plans."
15
THE COMPANY
We were incorporated on June 22, 1996 as a Nevada corporation. 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
----------------
prospectus. When used in this prospectus, the terms "we," "our," "us," "our
company," "the company" and similar expressions refer to Vyta Corp, and our
subsidiaries, unless the context indicates otherwise.
BUSINESS
GENERAL
In 2004, we instituted steps to change our business from semiconductor
technology to biotechnology. In August 2005, we purchased a 50% equity interest
in BioAgra, LLC, a Georgia limited liability company ("BioAgra") for
approximately $905,000 in cash and a note payable of $595,000, which was paid in
full on September 15, 2005. BioAgra is located in Hinesville, Georgia. The
remaining 50% was purchased by Xact Resources International (now Justin
Holdings, Inc. as a result of a subsequent assignment by Xact Resources) for the
contribution of rights, a license, intellectual properties, purchase orders and
similar items. BioAgra holds a license for the production of AgraStim, a
natural, all organic, non-toxic beta glucan feed additive used to replace
artificial antibiotics which are currently in use. The license is described in
more detail later in this prospectus. BioAgra plans to initially manufacture,
market and sell AgraStim in the poultry industry.
We also continue to own a minority interest in ExypnoTech, Gmbh
("ExypnoTech"), a company that is manufacturing and developing inlay components
used in the manufacturing of, among other things, smart labels (often referred
to as radio frequency identification tags or "RFID"). ExypnoTech, in addition to
the inlay components, plans to manufacture and sell other types of RFID
components. In December 2003 ExypnoTech sold a controlling 51% interest in
ExypnoTech to TagStar Systems, GmbH for $98,000 in cash. As a result of this
sale, we have only a 49% interest in ExypnoTech and are entitled to 49% of any
net income generated by ExypnoTech or any dividends paid and share 49% of any
net losses.
As a result of our acquisition of an interest in BioAgra, we have largely
discontinued our involvement in semiconductor technology. On February 26, 1998,
we acquired the intellectual property rights related to our patented Particle
Interconnect Technology (the "particle technology") from Particle Interconnect
Corporation, a Colorado corporation, a wholly owned subsidiary of Intercell
Corporation (now known as Intercell International Corporation), a Nevada
corporation that was our affiliate at the time of the acquisition. We acquired
the particle technology to pursue a more focused, strategic application and
development of the particle technology, subsequently referred to as the
NanoPierce Connection System ("NCS(TM)"). 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 semi-conductors directly to various
surfaces. We have trademarked this process as WaferPierce(TM). We were
commercializing our particle technology as NCS(TM) and focused on providing the
electronics industry with possible solutions to their "connection" problems. At
this time we do not plan to continue efforts to manufacture or develop products
that utilize our particle technology. To date, we have not successfully
manufactured, marketed, sold products or licensed companies to manufacture,
develop and market products using our particle technology.
As a result of our change in business, we have several inactive or
discontinued subsidiaries and investments, including:
16
- EXYPNOTECH, LLC ("ExypnoTech, LLC"). On June 18, 2004, we organized
ExypnoTech, LLC for the purpose of marketing, primarily in the United
States of America, the RFID components manufactured by ExypnoTech.
ExypnoTech, LLC during the calendar year ended December 31, 2005, did
not have active operations.
- NANOPIERCE CARD TECHNOLOGIES, GMBH ("NanoPierce Card"). Established in
January 2000, NanoPierce Card was located in Hohenbrunn, Germany.
NanoPierce Card was responsible for the marketing of the company's
technology, services and products on an international basis. On April
1, 2003, NanoPierce Card filed for insolvency with the Courts of
Munich, Germany. The insolvency was necessary in order to comply with
specific German legal requirements. The company completed a plan of
self-liquidation and the German court legally dissolved NanoPierce
Card on June 8, 2004.
- NANOPIERCE CONNECTION SYSTEMS, INC. ("NanoPierce Connection").
NanoPierce Connection, a Nevada corporation, was located in Colorado
Springs, Colorado, USA. Beginning business in January 2002, NanoPierce
Connection was the center for research and development activities. In
September 2003, the company entered into a joint venture with Scimaxx,
LLC in order to further the marketing of the services previously
offered by NanoPierce Connection. During the fiscal year ended June
30, 2005, NanoPierce Connection had no operations.
- SCIMAXX SOLUTIONS, LLC ("Scimaxx Solutions"). On September 15, 2003,
the company entered into a joint venture with Scimaxx, LLC (Dr.
Neuhaus, a director of the company is a part owner of Scimaxx, LLC -
See "RELATIONSHIPS AND RELATED TRANSACTIONS"). In April 2005, Scimaxx
Solutions ceased operations. The purpose of the joint venture was to
provide the electronics industry with technical solutions to
manufacturing problems based on the need for electrical connectivity.
The company received a 50% interest in the joint venture in exchange
for a contribution of the equipment owned by NanoPierce Connection.
The company also granted Scimaxx Solutions a ten-year, non-exclusive,
non-royalty bearing worldwide license to use the company's
intellectual property. The company and Scimaxx, LLC have formally
terminated Scimaxx Solutions, and the license has terminated.
BIOAGRA
Business Strategy
Governments are currently urging or directing, and consumers are demanding
producers to remove artificial antibiotics from the human food chain supply to
reduce the development in humans of increasingly powerful and virulent strains
of antibiotic resistant bacteria, which makes treatment for illnesses and
diseases more difficult and expensive. In addition, food service providers are
demanding natural, organic, antibiotic free foods.
Animals in the cattle, poultry, swine and seafood industries are currently
fed artificial antibiotics, in order to prevent the spread of bacterial and
viral infections and steroids to promote growth. BioAgra holds a license for
the production of AgraStim (formerly marketed as YBG-2000), a natural, all
organic, non-toxic beta glucan feed additive used to replace artificial
antibiotics that are currently in use. BioAgra is initially targeting customers
in the poultry processing industry as an alternative to artificial antibiotics.
BioAgra is initially targeting the poultry industry because of the size of the
poultry industry inside and outside of the United States as described later in
this section of the prospectus. AgraStim, in the poultry
17
industry, is designed to enhance the avian immune system to fight bacterial and
viral infections more effectively and efficiently, and to promote accelerated
growth.
Assuming BioAgra can successfully sell to the poultry producing industry,
BioAgra intends to market and sell to other industries such as the swine and
seafood processing industries. While BioAgra may switch markets or enter into
new markets for AgraStim, BioAgra cannot guarantee that it will be successful or
earn a profit in any market in which it enters.
Background on AgraStim and Need for Alternatives to Antibiotics and
Steroids
AgraStim is a beta glucan feed additive produced from spent brewer's or
baker's yeast. The additive is a combination of bioactive nutrients and
B-glucans that are extracted from the cell walls of the yeast using steam
injection and a centrifuging extraction process. The beta glucan additive is a
natural, all organic, non-toxic product that has been shown by an independent
test the results of which were published in an article titled "The Influence of
B-Glucan on Immune Responses in Broiler Chicks" (Immunopharmacology and
Immunotoxicology, Volume 25, 2003 (Marcel Dekker)), to stimulate immune systems,
thereby eliminating the usage of antibiotics and growth hormone supplements in
animal, poultry and other feeds. AgraStim is designed to enhance the immune
system and to promote accelerated growth.
Antibiotics have been added to animal feed in an effort to produce
healthier animals. Scientists, however, now believe that this practice may lead
to unforeseen and unwanted effects. Some studies and articles indicate that the
antibiotics that are contained in feeds may accumulate in the animal body and
can cause harm to humans, including causing allergic and abnormal reactions.
The excessive use of 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 becomes infected with 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 certain
antibiotics in animal feed. It is expected that the United States may also begin
to ban or discourage the use of certain antibiotics in animal feed.
Alternatives to antibiotics, including AgraStim are increasing in demand by
animal farmers and other producers because they lack the drawbacks of
antibiotics and other chemical compounds. AgraStim is a natural, all organic,
non-toxic product that has been proven to stimulate immune systems, thereby
eliminating the usage of antibiotics and growth hormone supplements in animal,
poultry and other feeds. AgraStim is designed to enhance the immune system and
to promote accelerated growth. AgraStim, we believe, can resolve the harmful
effects of antibiotics that could be toxic to humans, and can produce safe and
healthy animal foods that may be claimed as "drug-free."
Poultry Industry
The poultry industry has been initially targeted because of the size of the
market inside and outside of the United States. Poultry is the largest
worldwide source of protein food for human consumption. Poultry is depended
upon by humans for eggs, meat and other products. 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 approximately an average of
10 pounds of feed during their life of approximately 42 days for a total of
approximately 40 million tons for all the broiler chickens in the United States.
Each turkey consumes approximately 50 kilograms of feed for a total of 13.75
million tons of feed. In addition, there are approximately 450 million egg
producing chickens grown in the United States each year, which
18
consume approximately 60 kilograms of feed over a period of 1.5 years for a
total of 27 million tons of feed.
Manufacturing of AgraStim
Raw Materials. Production of AgraStim requires spent brewer's or baker's
yeast. Brewer's yeast is used in the production of alcoholic beverages.
Currently, yeast and other raw materials utilized in the production of AgraStim
are purchased from Biorigin in Brazil, South America pursuant to invoices
documenting each separate purchase that will be consistent with BioAgra's
production needs and such arrangements 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. We believe that there
is an adequate supply of these raw materials for the foreseeable future for
BioAgra's proposed activities. We intend to purchase these raw materials from
any other available worldwide suppliers that provide us with a cost efficient
source of high quality raw materials that permit us to produce AgraStim that is
at least 80% pure beta glucan.
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 a price of $12,000
per month. 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 which consists 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, we only
have the equipment for 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 we evaluated the controls and efficiencies of the
plant. The plant began operating on a full-scale capacity in June of 2006. The
average cost for production and operations of the plant on a month-to-month
basis is expected to be approximately $200,000.
Production Process. In manufacturing AgraStim, the cell walls of the bakers
or brewers yeast is 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 AgraStim product.
Pure AgraStim is a concentrate in which many animal farmers or producers
will not have the ability to mix with the feed in the required proportions.
Therefore, BioAgra expects to produce specialized pre-mixes and mixes containing
AgraStim and vitamins and/or mannoproteins. Mannoproteins are purified from the
yeast during the manufacturing process. This will enable BioAgra to sell to a
broader array of customers.
Employees. BioAgra hired 5 production employees for a two-shift production
cycle between May and June of 2006.
19
Marketing and Distribution.
BioAgra intends to initially market AgraStim and other AgraStim products to
the poultry industry. BioAgra is initially targeting their efforts inside the
United States in the State of Georgia and the surrounding four-state area in
which the vast majority of poultry producers in the United States are located.
BioAgra is developing marketing plans and strategies for AgraStim. The initial
marketing strategy is to penetrate the poultry producing industry by utilizing
existing industry distributors or direct sales on a national and international
basis. BioAgra has begun to market its presence in the industry by attendance
at various poultry related conventions and expects to continue to be represented
at future conventions. BioAgra has begun to make contact with potential
customers, though no formal agreements have been signed.
Customers.
BioAgra is in the initial stages of marketing and contacting potential
customers for the purchase of AgraStim. Initial customers are expected to be
poultry producers located in the United States and abroad. BioAgra is targeting
a broad range of customers consisting of both small and large poultry producers
both nationally and internationally to avoid dependency on one or a small number
of customers. BioAgra currently has no formal commitments from producers to
purchase AgraStim.
Management
Managers and Officers. BioAgra is a manager-managed Georgia limited
liability company. The managers and officers of BioAgra are as follows:
NAME POSITION
----------------------- ----------------------------
Neal Bartoletta (59) Manager, President and Chief
Executive Officer
Paul H. Metzinger (66) Manager and Executive Vice
President
Kristi J. Kampmann (33) Chief Financial Officer,
Secretary
Biographical Information. Biographical information regarding Mr. Metzinger
and Ms. Kampmann is set forth in "MANAGEMENT-Biographical Information on
Officers, Directors and Significant Employees." The following is biographical
information about Mr. Bartoletta:
Mr. Bartoletta serves as the President and a Manager of BioAgra since
December 2004. From 1980 to 1991, Mr. Bartoletta served as the President of Bart
Warehousing Corp in South Kearny, New Jersey. From 1978 to 1999, as the
President of N.J. Bart Corp, Elizabeth, New Jersey. From 1998 to present he has
served as the President of Xact Resource International, Inc. of Boca Raton,
Florida. In 2006, Mr. Bartoletta was appointed the President of Justin Holdings,
Inc. of Boca Raton, Florida. Justin Holdings in the owner of the other 50%
equity interest in BioAgra. Mr. Bartoletta is a graduate of the Academy of
Advanced Traffic.
Joint Venture Partner
As described elsewhere in this prospectus, 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
20
its ownership interest in BioAgra. All of the outstanding capital stock of
Justin Holdings is owned by Neal Bartoletta, who also is the sole officer and
director of Justin Holdings and holds the positions in BioAgra set forth above
under the heading "-Management." 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 of 2006.
EXYPNOTECH
ExypnoTech is involved in manufacturing and developing inlay components
used in the manufacturing of, among other things, smart labels (often referred
to as radio frequency identification tags or "RFID").
RFID Components. 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. NCS or Ultrasonic
bonding can be used to provide the connection between the transponder chip and
the antenna. In addition, NCS can be used to connect the chip to the chip module
in contact smart cards or the chip module to the antenna in the case of
contactless smart cards. There are many different applications for RFID
components, but the application being focused on by ExypnoTech is smart labels.
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 current 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, presses
the chip down onto the antenna pads. Customers can then print designated
information to the laminate enveloping the assembled circuitry.
Distribution Methods. Smart labels will be sold directly by ExypnoTech and
through selected industry distributors and partners.
Customers. There are a wide range of potential customers for RFID
components. ExypnoTech has two recent customer contracts in the gaming and
transportation industry.
Management. The managers of ExypnoTech are Bernhard Maier, Michael Kober
and Peter Hahn.
RESEARCH AND DEVELOPMENT
The company anticipates that a substantial level of research and
development activities will occur at BioAgra. The expected activities include
testing AgraStim for quality control and the development of new products.
BioAgra expects to 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. The research and development
laboratory is expected to be funded by BioAgra.
21
The company's research and development activities were formerly conducted
through NanoPierce Connection, with additional activities occurring at
ExypnoTech. During the last year, minimal research and development activities
were conducted at Scimaxx Solutions. For the fiscal years ended June 30, 2005
and June 30, 2004, the company incurred $0 and $41,849, respectively, in
research and development expenses.
COMPETITION
BioAgra. Competition for beta glucan products in the market targeted by
BioAgra is currently limited. The United States and many other countries in the
world are in the process of eliminating or plan to eliminate the usage of
antibiotics in the feed of animals in the human food chain supply. There are a
limited number of alternatives to antibiotics. Such alternatives include
organic acids, plant extracts (ex. oregano oil), and mannoproteins. These
alternatives have not experienced a great success rate to date.
Other potential competitors include those already producing beta glucan for
human consumption. This type of "purified" beta glucan is considered too
expensive to use in markets other than for direct human consumption. Other
competitors are those producing beta glucan with a 60% or less purity level for
the markets addressed by BioAgra. Based upon data provided to the company beta
glucan having less than 80% purity is not effective in the markets chosen by
BioAgra. BioAgra intends to produce beta glucan with at least 80% purity and
expects to make representations as to this percentage to its customers.
Competition will also consist of established producers of artificial
antibiotic growth promotion products. These are large companies with vast
resources allocated to the protection of the brand recognition and market share
of their products. Success will require people switching from the artificial
antibiotic growth products to AgraStim.
We are also aware of one company, Fibona Health Products GmbH, that is
promoting yeast beta-glucan products in Europe and the United Kingdom. We do not
believe their products will compete with AgraStim.
Exypnotech. Competition in the electronic connector market is fierce. The
principal competitive factors are product quality, performance, price and
service. The company and its 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
AGRASTIM LICENSE
BioAgra holds a license for the production of AgraStim, which is a natural
beta glucan feed additive used to replace artificial antibiotics currently in
use. Under the license, BioAgra was granted the right and license to produce,
process, make or otherwise manufacture and sell the licensed beta glucan product
for consumption by animal livestock in the United States and has the right of
first refusal to build and operate any new plant in the United States intended
to manufacture the licensed product. The license also grants BioAgra the right
to use any other technologies or information held by the licensor necessary
22
to manufacture and sell the licensed product, and to use certain trademarks of
the licensor in marketing and promotional materials. The licensor will further
provide BioAgra with specific services, such as a basic engineering package and
support and training for the start-up of the initial and any new manufacturing
plants.
For each manufacturing plant, including the initial plant, BioAgra pays a
flat license fee of $100,000. BioAgra also pays a royalty fee of 7 % of gross
sales on a quarterly basis, and pays the taxes, tariffs and fees, except income
taxes, imposed on the licensor as a result of the royalty fee received by the
licensor.
The license, dated April 18, 2005, has a term expiring October 18, 2024,
and may be terminated prior to expiration by mutual consent, for an uncured
material breach of the license, or for a change in control of BioAgra. Under the
license, BioAgra must build a production plant that, within 10 months of April
18, 2005, is capable of producing a specified amount of the licensed product.
The production plant commenced operations and the current status of the plant is
described under the section of this "THE COMPANY-Business-BioAgra-Manufacturing
of AgraStim-Production Plant." BioAgra must also meet certain minimum production
standards, which will begin on the first year anniversary after BioAgra produces
its first successful batch of the licensed product, which yields a sufficient
quantity of product made available for sale. If BioAgra fails to satisfy the
minimum production standards for a certain period of time, BioAgra will lose the
right of first refusal for new manufacturing plants in the United States, and
may be deemed to be in material breach of the license.
THE NCS(TM) TECHNOLOGY
NCS(TM) is a method where metallized, hard, microscopic particles are
deposited onto one of two contact surfaces, through electrolytic or electro-less
plating methods or other methods. When the two surfaces are pressed together,
the conductive particles penetrate the second contact surface and create an
electrical connection. Bonding of the contact surfaces can be achieved using
nonconductive adhesives or ultrasonic welding.
NCS can be used with many different substrates (flexible, rigid, metallic
and non-metallic), allowing NCS to replace more conventional methods of making
electrical contacts, such as soldering, spring-loading, pin-in-hole connections
and conventional "flip chip" attachment. In addition, NCS can be used to form
either temporary or permanent connections.
NCS provides advantages to potential users among which are; 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.
The company has extended NCS to permit the direct attachment of
semiconductor chips to a substrate, a process called WaferPierce(TM).
WaferPierce is comprised of two parts: (1) the electroless application of NCS to
the contact pads of chips while still in wafer form; and (2) a proprietary chip
attachment process in which chips are bonded to a substrate face down using the
core NCS method.
OTHER INTELLECTUAL PROPERTY
The company currently holds 13 patents with the U.S. Patent and Trademark
Office. Further, the company has filed several patent applications both in the
United States and internationally in order to continue to protect its
intellectual property. To reduce expenses, during the fiscal years ended June
30,
23
2005 and 2004, the company abandoned several of its patent applications. The
company also holds several trademarks with the U.S. Patent and Trademark Office,
in connection with the company's former name, logo and services.
GOVERNMENT REGULATION
The company believes that it is in compliance with all federal and state
laws and regulations governing its limited operations. Further, the company
believes that it is in compliance with all German laws and regulations governing
its limited operations in Germany. Compliance with federal and state
environmental laws and regulations did not have a material effect on the
company's capital expenditures, earnings or competitive position during the
fiscal year ended June 30, 2005 or the nine months ended March 31, 2006.
BioAgra has applied for a "generally recognized as safe" (GRAS) designation
from the U.S. Food and Drug Administration for the AgraStim beta-glucan product
to be produced by BioAgra. A GRAS designation would exempt AgraStim from the
regulations of the U.S. Department of Agriculture and would permit the sale of
AgriStim anywhere in the United States without obtaining a license. BioAgra
believes that it will receive GRAS designation for AgraStim based, in part, upon
the fact that the GRAS designation has been given to other products whose main
ingredients are also based upon all organic, natural, non-toxic substances such
as the yeast from which beta-glucan is derived. If a GRAS designation is not
obtained, AgraStim would be required to be sold as a food additive by obtaining
a license to sell from each individual state in which sales would occur. At this
time, Bioagra has applied and obtained licenses from the States of Georgia and
North Carolina and is preparing licenses in other states. There is no assurance
that BioAgra will be able to successfully obtain or maintain licenses in all
states in which sales are expected to be made or that the costs of obtaining and
maintaining these licenses will not limit BioAgra's ability to sell AgraStim.
EMPLOYEES
On March 31, 2006, the company and its subsidiaries had three employees.
Mr. Metzinger and Ms. Kampmann, key officers of the company and the only two key
employees of the company, have signed employment agreements with the company.
See "MANAGEMENT - Executive Officers and Directors." None of the company's
employees are represented by a labor union or are subject to a collective
bargaining agreement. The company believes that its relations with its
employees are excellent.
PROPERTIES
The company's corporate headquarters are located at 370 17th Street, Suite
3640, Denver, Colorado 80202. The company moved into its current office space
on June 27, 2001 and has a 5-year lease on the property, expiring in September
2006. The base rent is $4,850 per month for the remaining term of the lease,
plus certain occupancy costs.
NanoPierce Connection was located at 4180 Center Park Drive, Colorado
Springs, Colorado 80916. NanoPierce Connection had a 3-year lease on the
property, which expired in March 2006. As of March 2006, we had no further
obligation under this lease.
24
LEGAL PROCEEDINGS
HARVEST COURT LITIGATION
In connection with a financing obtained in October 2000, the company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York.
In this litigation, Harvest Court, LLC filed counterclaims against the
company, Mr. Metzinger, Ms. Kampmann, Dr. Neuhaus, Dr. Shaw and a number of
unrelated third parties. The counterclaims allege violations of federal
securities laws and other laws. Harvest Court, LLC is seeking various forms of
relief including compensatory and punitive damages. Responsive pleadings have
been filed and the litigation is currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the company in the
Supreme Court of the State of New York, County of New York. The suit alleges
that the company breached an October 20, 2000 Stock Purchase Agreement, by not
issuing 370,945 free trading shares of the company's common stock in connection
with the reset provisions of the Purchase Agreement due on the second reset date
and approximately 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 the company 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 of the company
described elsewhere in this prospectus, the Supreme Court of the State of New
York, County of New York issued an injunction ordering the company to reserve
3.7% of the company's issued and outstanding common stock (832,290 shares at
February 13, 2006). The company has set aside these shares. The company has
filed counterclaims seeking various forms of relief against Harvest Court, LLC.
DEPOSITORY TRUST LAWSUIT
In May 2004, the company filed suit against the Depository Trust and
Clearing Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the
National Securities Clearing Corporation ("NSCC") in the Second Judicial
District Court of the County of Washoe, State of Nevada. The suit alleges
multiple claims under the Nevada Revised Statutes 90.570, 90.580, 90.660 and
598A.060 and on other legal bases. The complaint alleges, among other things,
that the DTCC, DTC and NSCC acted in concert to operate the "Stock Borrow
Program," originally created to address short term delivery failures by sellers
of securities in the stock market. According to the complaint, the DTCC, NSCC
and DTC conspired to maintain significant open fail deliver positions of
millions of shares of the company's common stock for extended periods of time by
using the Stock Borrow Program to cover these open and unsettled positions. The
company was seeking damages in the amount of $25,000,000 and treble damages. On
April 27, 2005, the court granted a motion to dismiss the lawsuit. The company
has filed an appeal to overturn the motion to dismiss the lawsuit.
The company intends to vigorously prosecute all litigation and does not
believe the outcome of the litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the company. However,
it is too early at this time to determine the ultimate outcome of these matters.
25
OTHER LITIGATION
Other than the above mentioned lawsuits, to the knowledge of the management
of the company, there are no material legal proceedings pending or threatened
(other than routine litigation incidental to business) to which the company (or
any officer, director, affiliate of beneficial owner of more than 5% of the
company's voting securities) is party, or to which property of the company is
subject.
2004 PRIVATE PLACEMENT
We are registering the shares of our common stock offered for resale by
this prospectus in order to satisfy our obligations to certain of the selling
stockholders named under "SELLING STOCKHOLDERS." In January of 2004, we sold
1,000,000 units for a total of $2,000,000 to accredited investors in a private
placement transaction exempt from registration under Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated under the Securities Act of
1933. Each unit consists of:
- one share of our common stock;
- a warrant to purchase one share of our common stock at an
exercise price of $2.00 per share (the "$2.00 investor warrants"); and
- a warrant to purchase two shares of our common stock at an
exercise price of $5.00 per share (the "$5.00 investor warrants").
On November 16, 2004, we voluntarily reduced the exercise price of the
$5.00 investor warrants to $3.00 per share (the "$3.00 investor warrants"). On
August 12, 2005, we voluntarily reduced the exercise price of certain of the
$3.00 investor warrants to $1.00 per share (the "$1.00 re-priced investor
warrants"). On August 12, 2005, we also voluntarily reduced the exercise price
of certain of the $2.00 warrants to $1.00 per share (also the "$1.00 re-priced
investor warrants"). All of the these warrants will expire on January 20, 2009
unless exercised earlier.
CORPORATE RESTRUCTURING
In connection with our change in business described above, we recently
completed a corporate restructuring consisting of a private placement of a new
series of convertible preferred stock, which also resulted in a change of who
controls us, a reverse stock split of our common stock, a subsequent increase in
our authorized capital and we changed our name from NanoPierce Technologies,
Inc. to Vyta Corp.
PRIVATE PLACEMENT
On January 17, 2006, in a private placement transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act
of 1933"), pursuant to Section 4(2) of the Securities Act of 1933 and Regulation
D promulgated thereunder, we issued to Arizcan Properties, Ltd. a total of
200,000 shares of our newly designated series A convertible preferred stock, par
value $0.0001 per share (the "series A preferred stock") for a purchase price of
$1,500,000. For purposes of acquiring the shares of our series A preferred
stock, Arizcan Properties paid us $400,000 in cash and executed and delivered an
unsecured promissory note bearing interest at 7% for the remaining $1,100,000
payable on or before one year from the date the series A preferred stock was
issued. In May 2006, the note receivable was paid in full. Arizcan Properties
is wholly owned by Triumphant Partners, LLC, a Colorado limited liability
company, that is owned by Stan Richards.
26
Each share of series A preferred stock is convertible into 1,500 shares of
our common stock, votes as a single class with our common stock and each share
is entitled to 1,200 votes. As a result of this private placement, Arizcan
Properties acquired approximately 55% of our voting power. Arizcan Properties
converted all of the shares of series A preferred stock into 15,000,000 shares
of our common stock on February 2, 2006 (the number of shares of our common
stock issued upon conversion of each share of series A preferred stock was
adjusted downward from 1,500 to 75 as a result of the reverse split described
below) and, as a result, holds approximately 51% of our voting power on a fully
diluted basis.
REVERSE SPLIT
On January 31, 2006, we effected a reverse stock split of our common stock,
whereby each twenty (20) shares of our common stock, either issued and
outstanding or held as treasury stock was reclassified and changed into one (1)
fully-paid and nonassessable share of our common stock. Our authorized capital
with respect to our common stock was reduced in like manner from 200,000,000
shares to 10,000,000 shares. Our authorized capital with respect to our
preferred stock remained unchanged at 5,000,000 shares. No fractional shares
were issued as a result of the reverse split, and any fractional share interests
were rounded up to the nearest whole share. The reverse split was approved by
our board of directors without shareholder approval in accordance with the
requirements of Nevada law.
INCREASE OF AUTHORIZED CAPITAL.
On January 31, 2006 following the reverse split, our authorized capital
with respect to our common stock was increased from 10,000,000 shares to
200,000,000 shares. Our authorized capital with respect to our preferred stock
remained unchanged. The increase to our authorized capital was recommended by
our board of directors to our shareholders for approval and the shareholders
representing at least a majority of the voting power of the company approved the
increase to our authorized capital by written consent in lieu of a special
meeting in accordance with the requirements of Nevada law.
NAME CHANGE.
Concurrently with the increase to our authorized capital, we changed our
name from NanoPierce Technologies, Inc. to Vyta Corp. The name change was
approved by the shareholders in the same manner as the increase to our
authorized capital. As a result of the name change, our trading symbol changed
to "VYTC."
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, our consolidated financial statements
for the fiscal year ended June 30, 2005, our unaudited quarterly financial
statements for the nine months ended March 31, 2006 and the related notes
included elsewhere in this prospectus. The discussions in this section contain
forward-looking statements that involve risks and uncertainties, and actual
results could differ materially from those discussed below. See "Risk Factors"
and "Forward-Looking Statements" for a discussion of these risks and
uncertainties.
RECENT EVENTS
On January 19, 2006, our board of directors approved an amendment to our
Articles of Incorporation to change the name of the company effective January
31, 2006 from NanoPierce Technologies, Inc. to Vyta Corp.
27
On January 19, 2006 our board approved an amendment to our Articles of
Incorporation to affect a one-for-twenty reverse stock split of our common stock
effective January 31, 2006. All references to shares, options, warrants,
exercise and conversion prices in the three and nine months ended March 31, 2006
and in prior periods, have been adjusted to reflect the post-reverse split
amounts. The company's common stock now trades on the Over-the-Counter Bulletin
Board under the trading symbol "VYTC."
On January 19, 2006, our board approved an amendment to the Articles of
Incorporation to increase the authorized capital of 10,000,000 common shares to
200,000,000 common shares. The increase to our authorized capital was effective
January 31, 2006.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2006
We had no revenues during the three and nine months ended March 31, 2006
and 2005.
We recognized $28,585 of other income, of which $28,250 represented a gain
on the extinguishment of liabilities. We recognized $40,245 in interest income
during the nine months ended March 31, 2006 compared to $11,907 during the nine
months ended March 31, 2005 ($31,895 and $5,720 for the three months ended March
31, 2006 and 2005, respectively). The increase in interest income for the
periods ended March 31, 2006 is due to interest recorded on amounts owed to us
from BioAgra and Arizcan in the form of notes receivable.
Total general and administrative expenses during the nine months ended
March 31, 2006 were $691,546 compared to $604,296 for the nine months ended
March 31, 2005 ($250,519 and $213,036 for the three months ended March 31, 2006
and 2005, respectively). The increase of $87,250 is primarily attributable to a
$70,010 increase in commission fees, a $40,679 increase in consulting fees,
increase of $29,176 in legal fees offset by a $23,981 decrease in public
relations expense.
We recognized interest expense of $235,350 for the nine months ended March
31, 2006 (no interest expense was recognized in the three months ended March 31,
2006). No interest expense was recorded during the three and nine months ended
March 31, 2005. Of the $235,350 in interest expense, $219 represented related
party interest. The remaining $235,131 was incurred in connection with the
issuance of promissory notes, which were discounted at the time of issuance. The
resulting discounts ($213,760) were amortized over the term of the promissory
notes. The promissory notes were paid in full in August 2005, and at that time
the discounts were fully amortized.
During the nine months ended March 31, 2006, we recognized a net loss of
$1,362,257 compared to a net loss of $696,066 during the nine months ended March
31, 2005 ($329,003 and $272,204 for the three months ended March 31, 2006 and
2005, respectively). The increase of $666,191 during the nine months ended March
31, 2006, is primarily attributable to the increase of $235,350 in interest
expense, as explained above, the $74,295 loss on the revaluation of derivative
warrants, explained below and the increase of $280,065 in losses of equity
investments.
Included in net loss applicable to common shareholders for the three and
nine months ended March 31, 2006 is $1,500,000 related to a beneficial
conversion feature recorded in connection with the issuance of preferred stock
to Arizcan in February 2006 and the subsequent conversion to common stock during
the quarter ended March 31, 2006.
28
FISCAL YEAR ENDED JUNE 30, 2005
On April 1, 2003, NanoPierce Card filed insolvency with the Courts of
Munich, Germany. On June 8, 2004, NanoPierce Card was dissolved by the Courts
of Munich, Germany. NanoPierce Card is presented as discontinued operations in
the company's consolidated financial statements for the fiscal year ended June
30, 2005. The company recognized a gain of $454,882 on the disposal of
NanoPierce Card during the year ended June 30, 2004. During the year ended June
30, 2005, the company did not have any income or loss from discontinued
operations.
During the year ended June 30, 2005, the company did not recognize any
revenues from continuing operations. The company recognized $34,258 of revenues
from continuing operations during the fiscal year ended June 30, 2004. The
revenue generated from continuing operations was from the sale of inlays by
ExypnoTech ($28,449 through December 2003), and $5,809 from services provided by
the company.
The company recognized $17,672 in interest income during the fiscal year
ended June 30, 2005 compared to $2,550 during the fiscal year ended June 30,
2004. The increase of $15,122 is due primarily to the interest earned on funds
loaned to an unrelated third party.
Total operating expenses from continuing operations during the fiscal year
ended June 30, 2005 were $872,203, compared to $1,999,462 for the fiscal year
ended June 30, 2004. The decrease of $1,127,259 is attributable to a decrease in
operational activities and spending over the year, as described below.
General and administrative expenses during the fiscal year ended June 30,
2005 were $872,203 compared to $1,312,519 for the fiscal year ended June 30,
2004. The decrease of $440,316 is mainly attributable to decreases in
amortization expenses, consulting expenses, legal expenses and accounting
expenses. Selling and marketing expenses during the fiscal year ended June 30,
2005 were $0 compared to $37,033 during the fiscal year ended June 30, 2004. The
decrease of $37,033 was due to a decrease in marketing activities. Research and
development expenses during the fiscal year ended June 30, 2005 were $0 compared
to $41,849 for the fiscal year ended June 30, 2004. The decrease of $41,849 was
primarily attributable to the reduction in research and development activities
over the previous fiscal year.
During the fiscal year ended June 30, 2004, the company incurred an expense
of $608,061 in connection with the impairment of the intellectual property,
patent applications and trademarks owned by the company. The decision to record
an impairment of the intellectual property was based primarily on the overall
age of the patents and patent applications underlying the intellectual property
combined with the company's current inactive operational status. After the
impairment to the intellectual property, patent applications and trademarks, the
book value of the aforementioned items was $0.
During the fiscal year ended June 30, 2005, the company recognized a net
loss of $997,616 compared to a net loss of $1,558,083 during the fiscal year
ended June 30, 2005. The decrease of $560,467 mostly resulted from the decrease
of $1,127,259 in operating expenses offset by the gain of $454,882 on the
disposal of NanoPierce Card during the fiscal year ended June 30, 2004.
29
LIQUIDITY AND FINANCIAL CONDITION
NINE MONTHS ENDED MARCH 31, 2006
During the nine months ended March 31, 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.
In August 2005, we raised $1,535,000 cash through the exercise of 1,535,000
warrants with an exercise price of $1.00 per share.
In August 2005, we purchased a 50% equity interest in BioAgra for $905,000
cash (which includes the $405,000 advanced to Xact Resources during the fiscal
year ended June 30, 2005) and a note payable of $595,000 which was paid in full
in September 2005. BioAgra plans to manufacture and sell a beta glucan product,
YBG-2000 to be marketed as AgraStimTM, to be used as a replacement for hormone
growth steroids and antibiotics in products such as poultry feed. BioAgra began
producing and shipping product during the quarter ended June 30, 2006.
On January 19, 2006, we completed the sale of 200,000 shares of our series
A preferred stock for $400,000 cash ($200,000 of which was received in December
2005) and an unsecured corporate promissory note of $1,100,000. In February
2006, Arizcan converted the 200,000 shares of preferred stock into 15,000,000
shares of the company's restricted common stock.
Upon conversion, Arizcan held approximately 67% of our issued and
outstanding common stock. During the three months ended March 31, 2006, Arizcan
made payments on the promissory note totaling $110,000, with accrued interest of
$11,729. On March 31, 2006, the note had an outstanding balance of $1,005,078,
of which $220 was accrued interest. Through May 2006, Arizcan repaid the note in
cash.
During the nine months ended March 31, 2006, we used $652,167 in operating
activities. Net cash provided by financing activities was $1,851,631; $960,663
was used to pay notes payable, $2,167,372 was received from the exercise of
warrants and the issuance of common stock and warrants and $150,000 was received
from notes payable. Net cash used in investing activities was $1,099,558;
$500,000 was used to purchase the 51% equity interest in the BioAgra joint
venture and $875,000 was advanced to BioAgra to support operations and complete
construction of the production line. We had $125,741 of cash and cash
equivalents at March 31, 2006, which is being used to support operations and
activities of BioAgra, in which we own a 50% equity interest. During the nine
months ended March 31, 2005, we used $453,194 in operating activities, advanced
$225,000 to Xact Resources for the start up of BioAgra, loaned $349,000 to third
parties, received $112,801 from the exercise of warrants and common stock and
used $61,400 to pay a note payable.
As of March 31, 2006, if all existing outstanding warrants issued in a
January 2004 private placement were exercised, we will be required to issue an
additional 1,342,500 shares of common stock, and the company, on a fully diluted
basis (including the reservation of 832,029 shares as required by the court in
the Harvest Court, LLC litigation described in Item 1 of Part II of this
report), would have 29,995,271 shares of common stock issued and outstanding.
As of March 31, 2006, if the warrants issued to investors in the private
placement described above are all exercised, we would receive approximately an
additional $2,842,500. However, no assurance can be given that any of these
warrants will be exercised. If the warrants are exercised, we may use the
additional funds to acquire a revenue generating company or to acquire
technology
30
complementary to our current technology, our ownership interest in ExypnoTech
and any other licensing agreements or joint venture agreements that we may enter
in the future.
We intend to use the funds raised through recent sales of our restricted
common shares and preferred shares to support our operations over the next 12
months. Operational plans include administrative support provided to BioAgra. We
expect to receive funds from BioAgra in the form of payment of outstanding
promissory notes and through payments as specified in the operating agreement
for BioAgra. We initially plan to use such funds to support administrative
activities. The company continues to evaluate additional merger and acquisition
opportunities.
FISCAL YEAR ENDED JUNE 30, 2005
Net cash used in operating activities from continuing operations in 2005
was $544,194, compared to net cash used in operating activities from continuing
operations in 2004 of $1,199,214. In 2005, the net cash used represented a net
loss of $997,616, adjusted for the depreciation expense of $7,258, equity in
losses of affiliates of $144,323, provision for losses on notes receivable of
$35,000, and amortization of discount on note payable of $7,272.
In 2004, the net cash used represented a net loss of $1,558,083, adjusted
for the income from discontinued operations of $454,882, amortization and
depreciation expense of $169,331, impairment charges of $608,061, equity in
losses of affiliates of $99,922, gain on extinguishment of liabilities of
$52,500, and provision for a doubtful receivable of $58,074.
During the fiscal year ended June 30, 2005, the company loaned $314,000 to
an unrelated third party and received a payment of $50,000, which included
interest of $11,442 during the same period. The loan was paid in full on
February 21, 2006. During the fiscal year ended June 30, 2005, the company
loaned Intercell $35,000. In March 2005, Intercell filed for protection under
Chapter 11 of the US Bankruptcy Code. The company has recorded a provision for
this note receivable of $35,000.
During the fiscal year ended June 30, 2005, in connection with an
investment in BioAgra, the company advanced Xact Resources International
$405,000 to be used for the purchase of a 50% equity interest in BioAgra, LLC
for $1.5 million cash. The purchase was completed in August 2005.
During the fiscal year ended June 30, 2004, the company advanced $50,000 to
Scimaxx, which was fully reserved.
During the fiscal year ended June 30, 2004, the company made investments in
machinery and equipment of $1,575. During the fiscal year ended June 30, 2004,
the company contributed fixed assets with a book value of $132,000 to the
Scimaxx Solutions, LLC as part of the terms of the joint venture.
During the fiscal year ended June 30, 2005, the company received $112,800
(net of $7,200 of offering costs) in connection with the exercise of warrants
for 60,000 shares of the company's common stock.
During the fiscal year ended June 30, 2005, the company received $41,000 in
exchange for an unsecured 5% note payable from Mr. Metzinger, an officer and
director of the company. In August 2005, the note was paid in full.
During the fiscal year ended June 30, 2005, the company received $150,000
in exchange for an unsecured 15% per quarter, note payable from an unrelated
third party. In connection with the note the company issued 100,000 shares of
its restricted common stock (50,000 shares were issued in June 2005
31
and the remaining 50,000 shares were issued in July 2005) with a relative fair
value of $81,718, to be amortized over the term of the note. The note was
repaid in full in September 2005.
During the fiscal year ended June 30, 2005, the company received $25,000 in
exchange for an unsecured 8% per annum note payable, from an unrelated third
party. In connection with the note the company issued 75,000 shares of its
restricted common stock (issued in July 2005) with a relative value of $21,428,
to be amortized over the term of the note. The note was paid in full in August
2005.
During the fiscal year ended June 30, 2004 the company sold 1,038,462
shares of common stock and granted warrants to purchase 30,000 shares of its
common stock at exercise prices ranging from $2.00 to $5.00 for net proceeds of
$1,828,000 (net of offering costs of $272,000). The warrants are exercisable
through 2008 and contain a cashless exercise provision. The funds were raised to
support operations. In addition, the company issued 192,500 shares of common
stock upon the exercise of 192,500 warrants for $347,950 (net of offering costs
of $37,050).
In June 2003, Mr. Metzinger loaned $10,000 to the company in exchange for
an unsecured 7% note payable due in December 2003, the proceeds of which were
utilized for operational purposes. In January 2004, the company paid Mr.
Metzinger the outstanding principal balance of this note, together with all
accrued interest.
In September 2003, Mr. Metzinger, the President, Chief Executive Officer
and director of the company loaned the company $30,000, in exchange for an
unsecured 7% note payable due in September 2004. In January, 2004 the company
paid Mr. Metzinger the outstanding principal balance of this note, together with
all accrued interest, in full.
In September 2003, Intercell, an affiliate of the company at the time,
loaned the company $35,000 in exchange for an unsecured, 7% promissory note due
in September 2004. In November 2003, Intercell loaned the company $100,000 in
exchange for a 7% promissory note due in November 2004. This promissory note was
collateralized by an assignment of a 51% interest in the proceeds, if any, the
company may have received in connection with the Harvest Court, LLC litigation.
In January 2004, the company paid the $135,000 note plus accrued interest of
$2,493.
In 2004, the company converted accounts payable of $92,100 into an
unsecured non-interest bearing note payable due in March 2005. During the fiscal
year ended June 30, 2005, the company paid the note in full, $61,737 in 2005 and
$30,363 in 2004.
PLAN OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2006
The company intends to use the funds raised through recent sales of shares
of its restricted common stock and the preferred shares to support the
operations of the company over the next 12 months. Operational plans include a
corporate restructuring that occurred in January 2006, as discussed above, and
administrative support provided to BioAgra. The company expects to receive
funds from BioAgra in the form of payment of outstanding promissory notes and
through payments as specified in the operating agreement for BioAgra. The
company initially plans to use such funds to support administrative activities.
The company continues to evaluate additional merger and acquisition
opportunities.
In addition, in August 2005 the company entered into an agreement with
Arizcan, pursuant to which the company agreed to pay Arizcan 20% of any cash
distributions received by the company from BioAgra until such time as Arizcan
has been paid $800,000. On March 10, 2006, Arizcan and the
32
company terminated this agreement without any such payments being made or future
payments required to be made by the company.
FISCAL YEAR ENDED JUNE 30, 2005
During the year ended June 30, 2005, the company did not recognize any
revenues or income from its equity investment. The company did not have
operations and management of the company spent a majority of the fiscal year
securing funds to purchase a 50% ownership in BioAgra.
In August 2005, the company was able to raise $1,535,000 cash through the
exercise of 1,535,000 warrants with an exercise price of $1.00 per share. The
company subsequently completed its purchase of a 50% equity investment in the
BioAgra, LLC joint venture for $1.5 million in cash.
In August 2005, the company purchased a 50% equity interest in BioAgra (a
Georgia limited liability company) for $905,000 cash (which includes the
$405,000 advanced to Xact Resources as of June 30, 2005) and a note payable of
$595,000 which was paid in full in September 2005. BioAgra plans to manufacture
and sell a beta glucan product, AgraStim, to be used as a replacement for
hormone growth steroids and antibiotics in products such as poultry feed.
BioAgra is currently constructing a production line and expects to finish such
construction by the end of December 2005. BioAgra anticipates beginning
production and sale of the beta glucan product AgraStim in January 2006. The
company anticipates, but cannot be sure, that prior to the end of the fiscal
year 2006 it will receive cash disbursements from BioAgra.
Additionally, in August 2005 the company entered into an agreement with
Arizcan Properties by which the company agreed to pay to Arizcan 20% of the cash
distributions paid to the company by BioAgra, until such time as Arizcan shall
be paid $800,000. On March 10, 2006, Arizcan and the company terminated this
agreement without any such payments being made or any future payments required
to be paid by the company.
In September 2005, the company executed a Subscription Agreement to sell
shares of the company's Preferred Stock with Arizcan Properties. The
Subscription Agreement provides for the sale of 200,000 shares of a Class A 8%
cumulative and participating preferred shares with a sales price of $7.50 per
share. The Preferred Shares are convertible into 60% of the company's issued and
outstanding post-split shares of the company's common stock on the date of
conversion.
In September 2003, the company formed a joint venture with Scimaxx, LLC.
The joint venture, Scimaxx Solutions, LLC was entered into for the purpose of
marketing the company's technology. Scimaxx LLC, is owned by an officer and
director of the company and two former employees of the company. In return for
50% ownership of the Scimaxx Solutions, LLC, the company contributed a license
to utilize its technology and the facilities and equipment of NanoPierce
Connections. In April 2005, Scimaxx ceased operations and during the third
quarter of the fiscal year ended June 30, 2005, the company impaired the value
of its investment to $0. The company recognized an impairment charge of $63,544
in equity losses from affiliates.
On December 11, 2003, TagStar Systems, GmbH, a German entity unrelated to
the company, purchased a controlling 51% equity interest in ExypnoTech in
exchange for a capital contribution of $98,000, of which $62,787 has been
received as of June 30, 2005. As a result of this transaction, the company does
not have a controlling interest in ExypnoTech and the company is only entitled
to 49% of the revenues generated by ExypnoTech (and 49% of the dividends, if
any, paid by ExypnoTech). As a result of the company's reduced ownership
interest and loss of control of ExypnoTech, the company deconsolidated
ExypnoTech as of December 11, 2003, and began accounting for its investment in
33
ExypnoTech under the equity method of accounting. Under the equity method of
accounting, the carrying amount of the company's investment in ExypnoTech
($159,642 at June 30, 2005) is adjusted to recognize the company's proportionate
share of ExypnoTech's income (loss) each period.
The company intends to raise additional funds to support operations of the
company during the 2006 fiscal year. Such funds are to be raised through an
offering of convertible preferred stock, the terms of which are in the process
of being finalized. Additionally, the company intends to change its corporate
name and most likely to institute a reverse split in connection with recent
business events.
To the extent the company's operations are not sufficient to fund the
company's capital requirements the company may enter into a revolving loan
agreement with financial institutions or attempt to raise capital through the
sale of additional capital stock or through the issuance of debt. At the present
time the company does not have a revolving loan agreement with any financial
institution nor can the company provide any assurance that it will be able to
enter into any such agreement in the future or be able to raise funds through
the further issuance of debt or equity in the company.
CRITICAL ACCOUNTING POLICIES
NINE MONTHS ENDED MARCH 31, 2006
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123(R), Share Based Payment, which addresses the accounting for share
based payment transactions. SFAS No. 123(R) eliminates the ability to account
for share based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for the
company beginning on July 1, 2006. Management is currently evaluating the
provisions of this standard. Depending upon the number of and terms of options
that may be granted in future periods, the implementation of this standard could
have a significant impact on the company's financial position and results of
operations in future periods.
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 own stock in accordance with 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, our own 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 disclose 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's critical accounting policies during this period also include
those outlined below for the fiscal year ended June 30, 2005.
34
FISCAL YEAR ENDED JUNE 30, 2005
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements for the fiscal
year ended June 30, 2005, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses and
related disclosures of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to deferred revenues;
depreciation or fixed assets, valuation of intangible assets such as our
intellectual property, financing operations, currency valuations and
contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The company believes that the following are some of the more significant
accounting policies and methods used by the company:
- stock based compensation;
- valuation of intellectual property, patent and trademark applications
and other long-lived assets;
- equity method investments;
- international operations;
- revenue recognition and deferred revenue;
- litigation; and
- contractual obligations.
STOCK-BASED COMPENSATION
SFAS No. 123, Accounting for Stock Based Compensation, defines a
fair-value-based method of accounting for stock-based employee compensation
plans and transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees, and encourages but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value.
The company has chosen to account for employee stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, employee compensation cost for stock
options is measured as the excess, if any, of the estimated fair value of the
company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), Share-Based Payment, which addresses the accounting for
share-based payment transactions. SFAS No. 123(R) eliminates the ability to
account for share-based compensation transactions using APB 25, and generally
requires instead that such transactions be accounted and recognized in the
statement of operations based on their fair value. SFAS No. 123(R) will be
effective for public companies that file as
35
small business issuers as of the first interim or annual reporting period that
begins after December 15, 2005. The company is currently evaluating the
provisions of this standard. Depending upon the number of and terms of options
that may be granted in future periods, the implementation of this standard could
have a significant impact on the company's financial position and results of
operations in future periods.
VALUATION OF INTELLECTUAL PROPERTY, PATENT AND TRADEMARK APPLICATIONS AND OTHER
LONG-LIVED ASSETS
The company assesses the impairment of long-lived assets and intangible
assets such as intellectual property and patent and trademark applications
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors the company considers important which could trigger
an impairment review include negative projected operating performance by the
company and significant negative industry or economic trends. At June 30, 2004,
management assessed the carrying value of intellectual and other long-lived
assets for impairment, and based on this assessment the company believed that
impairment was necessary in the case of the original intellectual property, the
patent applications and the trademarks.
During 2004, the company recognized an impairment charge of $608,061 on the
intellectual property, patent applications and trademarks. The company does not
believe that there has been any other impairment to long-lived assets as of June
30, 2005.
EQUITY METHOD INVESTMENTS
Entities where the company can exercise significant influence, but not
control, are accounted for under the equity method of accounting. Whether or
not the company exercises significant influence with respect to a company
depends on an evaluation of several factors including, among others,
representation on the company's board of directors and ownership level,
generally 20% to 50% interest in the voting securities of the company including
voting rights associated with the company's holdings in common, preferred and
other convertible instruments in the company. Under the equity method of
accounting, the company's share of the earnings or losses of these companies is
included in the equity income (loss) section of the consolidated statements of
operations.
A loss in value of an investment that is other than a temporary decline is
recognized as a charge to operations. Evidence of a loss in value might include,
but would not necessarily be limited to, absence of an ability to recover the
carrying amount of the investment or inability of the investee to sustain an
earnings capacity that would justify the carrying amount of the investment.
During the year ended June 30, 2005, the company recorded an impairment charge
of approximately $64,000 related to one of its equity method investments (Note 6
to our consolidated financial statements for the fiscal year ended June 30,
2005). No impairments were recorded during the nine months ended March 31, 2006.
INTERNATIONAL OPERATIONS
The company's foreign equity investee (ExypnoTech) operations are located
in Germany. ExypnoTech transactions are conducted in currencies other than the
U.S. dollar, (the currency into which the subsidiaries' historical financial
statements have been translated) primarily the Euro. As a result, the company
is exposed to adverse movements in foreign currency exchange rates. In
addition, foreign political and economic environment, trade barriers, managing
foreign operations and potentially adverse tax consequences. Any of these
factors could have a material adverse effect on the company's financial
condition or results of operations in the future.
36
REVENUE RECOGNITION AND DEFERRED REVENUE
The company's revenue recognition policy is significant because future
revenue could be a key component of its results or operations. Revenue results
are difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause operating results to vary significantly.
LITIGATION
The company is involved in certain legal proceedings, as described in "THE
COMPANY - Litigation" and Note 9 to the consolidated financial statements for
the fiscal year ended June 30, 2005 included elsewhere in this prospectus.
The company intends to vigorously prosecute these legal proceedings and
does not believe the outcome of these proceedings will have a material adverse
effect on the financial condition, results of operations or liquidity of the
company. However, it is too early at this time to determine the ultimate outcome
of these matters.
CONTRACTUAL OBLIGATIONS
For more information on the company's contractual obligations on operating
leases, refer to Note 9 of the consolidated financial statements for the fiscal
year ended June 30, 2005 included elsewhere in this prospectus. At June 30,
2005, the company's commitments under these obligations were as follows:
OPERATING LEASES
YEAR ENDING JUNE 30,
2006 $83,401
2007 14,550
-------
$97,951
=======
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FISCAL YEAR ENDED JUNE 30, 2005
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), Share-Based Payment, which addresses the accounting for
share-based payment transactions. SFAS No. 123(R) eliminates the ability to
account for share-based compensation transactions using APB 25, and generally
requires instead that such transactions be accounted and recognized in the
statement of operations based on their fair value. SFAS No. 123(R) will be
effective for public companies that file as small business issuers as of the
first interim or annual reporting period that begins after December 15, 2005.
The company is currently evaluating the provisions of this standard. Depending
upon the number of and terms of options that may be granted in future periods,
the implementation of this standard could have a significant impact on the
company's financial position and results of operations in future periods.
In December 2003, the FASB issued Interpretation No. 46R ("FIN 46R"), a
revision to SFAS Interpretation No. 46, Consolidation of Variable Interest
Entities. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain
entities from its requirements. FIN 46R requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. FIN 46R also
requires disclosures about variable interest entities that a company is not
required
37
to consolidate but in which it has a significant variable interest. FIN 46R
became effective for variable interest entities or potential variable interest
entities for periods ending after December 15, 2003 for public companies (other
than small business issuers), and became effective by the end of the first
annual reporting period ending after December 15, 2004 for companies that are
small business issuers. FIN 46R did not have an impact on the company's
financial position or results of operations.
SELLING STOCKHOLDERS
We are registering the shares of our common stock offered for resale by
this prospectus in order to satisfy our obligations to the selling stockholders
named below in connection with a private placement transaction we completed in
January 2004 and as a result of so-called "piggy-back" registration rights for
certain selling stockholders.
The shares of our common stock offered by this prospectus are being sold
for the account of the selling stockholders identified in the following table.
Except as indicated in the table, for the last three years, to our knowledge,
none of the selling stockholders have held any position, office or have other
material relationship with us, our predecessors or our affiliates. The
information in the following table and footnotes is based solely on information
furnished to us by the selling stockholders on or prior to the date of this
prospectus. However, any or all of the common stock listed below may be offered
for sale with this prospectus by the selling stockholders from time to time.
Accordingly, no estimate can be given as to the amount of our common stock that
will be held by the selling stockholders upon consummation of any sales. In
addition, the selling stockholders listed in the table below may have acquired,
sold or transferred, in transactions exempt from the registration requirements
of the Securities Act, some or all of their securities since the date this
information was last provided to us. The information in the following table for
each selling stockholder includes:
(a) the name and address of the selling stockholder;
(b) the number of shares of our common stock currently beneficially owned
by the selling stockholder and the percentage that those shares of our common
stock represent of all of our outstanding common stock as of June 28, 2006 (on a
fully-diluted basis);
(c) the number of shares of our common stock offered by the selling
stockholder; and
(d) the amount and, if 1% or more, the percentage of shares of our common
stock that will be beneficially owned by the selling stockholder after
completion of the offering, assuming the sale of all of the shares of our common
stock as shown in (c) above.
Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
our common stock shown as beneficially owned by them. Except as indicated below,
each selling stockholder has indicated to us that it is neither a broker-dealer
nor is affiliated with a broker-dealer. The selling stockholders and any
brokers, dealers, agents or underwriters that participate in the distribution of
the common stock may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933.
38
(a) (b) (c) (d)
AMOUNT OF COMMON AMOUNT OF
STOCK/PERCENTAGE OF COMMON STOCK
NAME AND ADDRESS OF OUR COMMON STOCK AMOUNT OF COMMON OWNED AFTER
SELLING STOCKHOLDER OWNED BEFORE OFFERING STOCK OFFERED OFFERING(1)
M/S Family Foundation(2)
242 4th Street 50,000(3) / * 50,000 0
Lakewood, NJ 08701
Platinum Partners Value Arbitrage
Fund LP(4)
152 West 57th Street 280,000(3) / * 280,000 0
New York, NY 10019
Peekskill, LLC(5)
152 West 57th Street 120,000 (3) / * 120,000 0
New York, NY 10019
Laura Huberfeld Naomi Bodner
Partnership(6)
15 Manor Lane 40,000(3) / * 40,000 0
Lawrence, NY 11559
Omega Capital Small Cap Fund, LTD(7)
1243 48th Street 440,000(3) / 1.47% 440,000 0
Brooklyn, NY 11219
Marketwise Trading, Inc. (8)
21 Crestview Terrace 100,000(3) / * 100,000 0
Monsey, NY 10952
Jules Nordlicht
225 West Beach Street 100,000 (3) / 1.67% 100,000 0
Long Beach, NY 11561
Ellis International (9)
27 Old Gloncester Street 100,000 (3) / 1.67% 100,000 0
London Wein 3xx
* Less than 1%.
(1) Assumes that all of the shares of our common stock relating to the units
that we previously sold to a number of accredited investors as described under
"THE COMPANY-2004 Private Placement," including those issued upon the exercise
of warrants, are sold by the selling stockholders. There is no assurance that
the selling stockholders will exercise all or any of their warrants or that they
will sell any or all of their shares offered by this prospectus.
(2) Shoshana Englander has voting and dispositive power over the shares of
common stock being offered.
(3) Assumes the exercise of all of the warrants currently held by the named
selling stockholder that were purchased as part of the units we sold to a number
of accredited investors as described under "THE COMPANY-2004 Private Placement."
(4) Mark Nordlict is the general partner of the listed selling stockholder and
has voting and dispositive power over the shares of common stock being offered.
(5) Mark Nordlict is the general partner of the listed selling stockholder and
has voting and dispositive power over the shares of common stock being offered.
(6) Laura Huberfeld, partner, has voting and dispositive power over the shares
of common stock being offered.
(7) Herman Segal, President, has voting and dispositive power over the shares of
common stock being offered.
(8) Rachel L. Gershan, President of the selling stockholder, has voting and
dispositive power over the shares of common stock being offered.
(9) Wilhelm Ungar has voting and dispositive power over the shares of common
stock being offered.
39
PLAN OF DISTRIBUTION
We are registering the shares of our common stock offered for resale by
this prospectus in order to satisfy our obligations to the selling stockholders
named in "SELLING STOCKHOLDERS" in connection with a private placement
transaction we completed in January 2004 described in "THE COMPANY-2004 Private
Placement" and as a result of so-called "piggy-back" registration rights for
certain selling stockholders. We have agreed to keep this prospectus effective
until the earlier of the date on which no warrants that we previously issued or
are required to issue to the selling stockholders listed above under "SELLING
STOCKHOLDERS" to purchase shares of our common stock remain unexercised by the
selling stockholders and January 20, 2009.
The selling stockholders may, from time to time, use this prospectus to
sell all or a portion of the shares of our common stock offered by this
prospectus. These sales and transfers of our common stock may be effected from
time to time in one or more transactions on the over-the-counter bulletin board,
in the over-the-counter market, in negotiated transactions or otherwise, at a
fixed price or prices, which may be changed, at market prices prevailing at the
time of sale, at negotiated prices, or without consideration, or by any other
legally available means.
These transfers or sales may occur directly or by or through brokers,
dealers, agents or underwriters, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling holders
and/or from purchasers of the common stock for whom they may act as agent. Any
or all of the shares of common stock may be sold or transferred from time to
time by means of:
- a block trade in which the broker or dealer so engaged will
attempt to sell the common stock as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by that
broker or dealer for its account based on this prospectus;
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- the writing of options on the common stock;
- pledges as collateral to secure loans, credit or other financing
arrangements and any subsequent foreclosure, if any, under those
arrangements;
- gifts, donations and contributions; and
- any other legally available means.
To the extent required by the Securities Act of 1933, the number of shares
of common stock to be sold or transferred, the purchase price, the name of any
agent, broker, dealer or underwriter and any applicable discounts or commissions
and any other required information with respect to a particular offer will be
shown in an accompanying prospectus supplement or post-effective amendment.
In the event of the transfer by any selling stockholder of shares of our
common stock offered by this prospectus to any pledge, donee or other
transferee, we will supplement or amend this prospectus (as required by the
Securities Act of 1933) and the registration statement of which this prospectus
forms a part in order to have the pledge, donee or other transferee included as
a selling stockholder.
40
We have agreed to keep the registration statement to which prospectus forms
a part effective until the earlier of the date on which all registered shares
have been sold and the date all shares may be sold without volume limitations
under Rule 144(k).
If necessary to comply with state securities laws, the common stock will be
sold only through registered or licensed brokers or dealers. In addition, the
common stock may not be sold unless it has been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The selling stockholders and any brokers, dealers, agents or underwriters
that participate in the distribution of the common stock may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, in which event
any discounts, concessions and commissions received by those brokers, dealers,
agents or underwriters and any profit on the resale of the common stock
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act of 1933.
No underwriter, broker, dealer or agent has been engaged by us or, to our
knowledge, any of the selling stockholders, in connection with the distribution
of the common stock.
We and the selling stockholders will be subject to the applicable
provisions of the Securities Exchange Act of 1934 and the rules and regulations
under it, including, without limitation, Rule 10b-5 and, insofar as the selling
stockholders are distributors and we, under certain circumstances, may be a
distribution participant, under Regulation M.
The anti-manipulation provisions of Regulation M under the Securities
Exchange Act of 1934 will apply to purchases and sales of shares of our common
stock by the selling stockholders, and there are restrictions on market-making
activities by persons engaged in the distribution of the shares of our common
stock. Under Regulation M, a selling stockholder or its agents may not bid for,
purchase, or attempt to induce any person to bid for or purchase, shares of our
common stock while they are distributing shares of our common stock covered by
this prospectus. Accordingly, the selling stockholders are not permitted to
cover short sales by purchasing shares of our common stock while the
distribution is taking place.
Any common stock covered by this prospectus which also qualify for sale
based on Rule 144 under the Securities Act of 1933 may be sold under Rule 144
rather than based on this prospectus. There is no assurance that the selling
stockholders identified in this prospectus will sell any or all of the common
stock. The selling stockholders may transfer, devise or gift common stock by
other means not described in this prospectus.
We will pay all of the expenses incident to the registration of the common
stock, other than underwriting discounts and selling commissions, if any. The
aggregate proceeds to the selling holders from the sale of the common stock will
be the purchase price of that common stock less any of these discounts or
commissions.
We have agreed to indemnify the selling stockholders against some of the
liabilities under the Securities Act of 1933 arising from this prospectus or the
registration statement of which it is a part.
41
DESCRIPTION OF COMMON STOCK
GENERAL
Our authorized capital stock consists of 200,000,000 shares of common
stock, $.0001 par value per share, and 5,000,000 shares of preferred stock,
$.0001 par value per share. As of June 28, 2006 we had 22,643,512 shares of
common stock and no shares of preferred stock issued and outstanding (as a
result of the conversion of the outstanding shares of our series A preferred
stock to common stock in February 2006 described in "THE COMPANY-Corporate
Restructuring"). We have outstanding warrants, options, and convertible
privileges which, if exercised, would total 6,519,469 shares of common stock. We
have also reserved 832,290 shares of our common stock in connection with our
ongoing litigation with Harvest Court, LLC described above under "THE
COMPANY-Legal Proceedings." Overall, we would have a total of 29,995,271 shares
of common stock issued and outstanding if all of our outstanding warrants and
options were exercised and all of our reserved shares of common stock were
issued.
COMMON STOCK
Each share of our common stock is entitled to one vote on each matter
submitted to a vote of the stockholders and is equal to each other share of our
common stock with respect to voting, liquidation and dividend rights. Holders
of our common stock are entitled to receive the dividends, if any, as may be
declared by our board of directors out of assets legally available therefor and
to receive net assets in liquidation after payment of all amounts due to
creditors and any liquidation preference due to preferred stockholders. Holders
of our common stock have no conversion rights and are not entitled to any
preemptive or subscription rights. Our common stock is not subject to
redemption or any further calls or assessments. Our common stock does not have
cumulative voting rights in the election of directors.
DIVIDEND POLICY
While there currently are no restrictions prohibiting us from paying
dividends to our stockholders, 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.
TRADING OF OUR COMMON STOCK
Our common stock presently is quoted on the over-the-counter bulletin board
maintained by the National Association of Securities Dealers, Inc. under the
symbol "VYTC." Our common stock also is traded on the Berlin Stock Exchange,
the Frankfurt Stock Exchange, the Munich Stock Exchange and the Xetra Stock
Exchange under the symbols indicated under "MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS."
TRANSFER AGENT
The transfer agent for our common stock is Corporate Stock Transfer, Inc.,
3200 South Cherry Creek Drive, Suite 430, Denver, Colorado 80209.
ANTI-TAKEOVER PROVISIONS OF CHARTER PROVISIONS
One of the effects of the existence of authorized but unissued shares of
our common stock or preferred stock may be to enable our board of directors to
render it more difficult or to discourage an
42
attempt to obtain control of the company and thereby protect the continuity of
or entrench our management, which may adversely effect the market price of our
common stock. If in the due exercise of its fiduciary obligations, for example,
our board of directors were to determine that a takeover proposal were not in
the best interests of the company, such shares could be issued by the board of
directors without stockholder approval in one or more private placements or
other transactions that might prevent or render more difficult or make more
costly the completion of any attempted takeover transaction by diluting voting
or other rights of the proposed acquirer or insurgent stockholder group, by
creating a substantial voting block in institutional or other hands that might
support the position of the incumbent board of directors, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise. See
"RISK FACTORS-We could issue preferred stock that could adversely effect the
rights of our common stockholders."
MANAGEMENT
FINANCIAL EXPERT
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 the best interests of the
company at this time to incur the costs associated with identifying and
designating a Financial Expert.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and significant employees are as follows:
NAME AND AGE POSITION PERIOD
--------------------------- -------------------------- -------------------------
Paul H. Metzinger (67) Director, President, and December 1998 to present
Chief Executive Officer,
General Manager of January 2000 to June 2003
NanoPierce Card
Dr. Herbert J. Neuhaus (44) Director, Former Executive January 1999 to present
Vice President of
Technology & Marketing,
President & Chief January 2002 to September
Executive Officer of 2003
NanoPierce Connection
Kristi J. Kampmann (33) Chief Financial Officer, October 1999 to present
Secretary February 1998 to present
Dr. Robert Shaw (65) Director October 2000 to present
John Hoback (65) Director April 2002 to present
Our directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Our board of
directors elects the officers at its annual meeting immediately following the
shareholders annual meeting and hold office until they resign or are removed
from office. There are no family relationships that exist between any director,
executive officer, significant employee or person nominated or chosen by the
company to become a director of executive officer.
43
BIOGRAPHICAL INFORMATION ON OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
PAUL H. METZINGER. Mr. Metzinger was President and Chief Executive Officer
of the company from February 26, 1998 to May 6, 1998 and has served in that same
capacity from December 1, 1998 to present. He has been a director of the
company since February 26, 1998. He has served as a Manager and Vice President
of BioAgra since August 2005. He served as the General Manager of NanoPierce
Card from January 2000 to June 2003. In addition, he served as the President,
Chief Executive Officer and a Director of Intercell International Corporation
from June 1996 to October 2003 and from September 30, 2004 to March 16, 2005.
In March 2005, Intercell International Corporation filed for protection under
Chapter 11 of the United States Bankruptcy Code. Prior to becoming a director
and officer of the company and Intercell International Corporation, Mr.
Metzinger served as Intercell's General Counsel and practiced securities law in
Denver, Colorado for over 32 years. Mr. Metzinger received his J.D. degree in
1967 from Creighton University Law School and his L.L.M. from Georgetown
University in 1969.
HERBERT J. NEUHAUS, PH.D. Dr. Neuhaus has been the Executive Vice President
of Marketing and Technology and a Director of the company since January 1, 1999.
He has been the President and Chief Executive Officer of NanoPierce Connection
since January 2002. Dr. Neuhaus previously served as the Managing Director of
Particle Interconnect Corporation from August 18, 1997 to November 1, 1997. From
August 1989 to August 1997, he was associated with the Electronic Material
Venture Group in the New Business Development Department of Amoco Chemical
Company, Naperville, Illinois. While associated with Amoco Chemical Company he
held among other positions: Business Development Manger/Team Leader; Project
Manager --High Density Interconnect; Product Manager MCM Products and as a
research scientist.
Dr. Neuhaus received his Ph.D. degree in Physics from the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1989 and his BS in Physics
from Clemson University, Clemson, South Carolina in 1980.
KRISTI J. KAMPMANN. Ms. Kampmann was appointed the Chief Financial Officer
of the company on October 15, 1999. Ms. Kampmann has been Secretary of the
company since February 1998. Ms. Kampmann has served as the Chief Financial
Officer of BioAgra since August 2005. Ms. Kampmann has served as a manager of
ExypnoTech, LLC since June 2004. She has served as the Chief Financial Officer
of Intercell International Corporation since October 1, 2003 and as Secretary of
Intercell International Corporation since July 28, 1999. In March 2005,
Intercell International Corporation filed for protection under Chapter 11 of the
United States Bankruptcy Code. Since June 1997, she has been the administrative
assistant to the Chief Executive Officer and Chief Financial Officer; in
addition, during the same period she served in the same capacity to the Chief
Executive Officer of Intercell. From April 1996 to June 1997, she served as a
paralegal and administrative assistant for Paul H. Metzinger, P.C. Ms. Kampmann
received an MBA from the University of Colorado, Denver in December 2001. Ms.
Kampmann graduated from the Denver Paralegal Institute in 1996 and received a
B.A. from the University of Minnesota in Morris in 1995, majoring in Political
Science with a minor in Business Management.
DR. ROBERT SHAW. Dr. Shaw has been a director of the company since October
31, 2000. Dr. Shaw currently is a Tenured Professor of Physics at Farleigh
Dickinson University with joint appointments in the Departments of Math and
Computer Science, 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;
44
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 from Cambridge
University, Cambridge, England. He was among the first to conduct academic
research on electronic conduction mechanisms in amorphous semiconductors. He
received a B.S. in Inorganic Chemistry with a minor in Nuclear Physics from
North Carolina State University, Raleigh, NC.
JOHN HOBACK. Mr. Hoback has been a director of the company since April
2002. Mr. Hoback currently serves as the President of Z&H Enterprises Solutions,
Ltd., which position he has held since September 1999. Z&H Enterprise Solutions
is a consulting firm specializing in assisting small entrepreneurial companies
in business plans, product development and securing financing. 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The company has established audit, incentive compensation and nominating
committees, consisting of the independent directors.
CODE OF ETHICS
The company in January 2004 adopted a Code of Ethics that applies to the
Chief Executive Officer, Chief Financial Officer, Controller, Principal
Accounting Officer and those employees performing similar functions.
COMPENSATION OF DIRECTORS
The company holds 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 the financial situation of the company is
adequate, we compensate directors $1,000 per meeting, plus reasonable travel
expenses. During the fiscal year ended June 30, 2005, the officers and
directors were not compensated for attendance at board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning compensation
paid by the company to the Chief Executive Officer and the company's three most
highly compensated executive officers for the fiscal years ended June 30, 2005,
2004 and 2003 (the "Named Executive Officers") (after giving effect to the
reverse stock split of our common stock that occurred on January 31, 2006 that
is described elsewhere in this prospectus):
45
SUMMARY COMENSATION TABLE
---------------------------------------------
ANNUAL COMPENSATION LONG TERM COMENSATION
-------------------------------- ----------------------------------
AWARDS PAYOUTS
----------- ----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME & PRINCIPAL SALARY BONUS COMPENSA- STOCK OPTIONS/ PAYOUTS COMPENSA-
POSITION YEAR ($) ($) TION AWARDS ($) SARS (#) ($) TION
Paul H.
Metzinger,
Director, 2005 $ 136,785 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
President & 2004 $ 114,583 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
CEO (1) 2003 $ 132,500 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Dr. Herbert J.
Neuhaus,
Director, Ex. VP
of Technology & 2005 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Marketing, Pre & 2004 $ 16,668 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
CEO of 2003 $ 148,333 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
NanoPierce
Connection (2)
Dr. Michael E.
Wernle,
Director, Ex. VP 2005 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
of Strategic 2004 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Business Dvlpmt, 2003 $ 128,000 $ -0- $ -0- $ -0- 18,250 $ -0- $ -0-
Pres & CEO of
ExypnoTech (3)
Kristi J.
Kampmann, Chief
Financial 2005 $ 80,625 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Officer & 2004 $ 37,492 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Secretary (4) 2003 $ 58,125 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
-------------------
1 Paul Metzinger has served as President & CEO since December 1998. He is
compensated pursuant to a written Employment Agreement, dated March 15, 2004 at
an annual salary of $150,000. Over the three year period Mr. Metzinger has
taken salary cuts when necessary.
2 Dr. Neuhaus has served as the Executive Vice President of Technology and
Marketing since January 1999. He served as the President and CEO of NanoPierce
Connection from January 2002 to September 2003. He was compensated pursuant to
a written Employment Agreement, dated January 2002 at an annual salary of
$200,000. This employment agreement was terminated in September 2003 and Dr.
Neuhaus is no longer a paid employee of the company and/or its subsidiaries.
3 Dr. Wernle served as the Executive Vice President of Strategic Business
Development until September 2003. He served as the President & CEO of
NanoPierce Card from January 2000 until May 2003. He served as the President &
CEO of ExypnoTech, from February 2002 to August 2003. He was compensated
pursuant to a written Employment Agreement with NanoPierce Card, dated February
1, 2000, at an annual salary of $160,000 (181,000 Euros). As of August 2003,
Dr. Wernle no longer is a paid employee of the company and/or its subsidiaries.
4 Kristi Kampmann has served as the Chief Financial Officer since October 1999.
She is compensated pursuant to a written Employment Agreement, dated March 15,
2004. During the year ended June 30, 2005, Ms. Kampmann received a gross
monthly salary of $7,500 for 7 months, in March 2005 it was reduced to $6,250
per month.
46
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the company makes available certain
non-monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
OPTION/SAR GRANTS TABLE
There were no grants of stock options to the company's executive officers
during the fiscal year ended June 30, 2005.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 2005 by the company's executive
officers and the 2005 fiscal year-end value of unexercised options (after giving
effect to the reverse stock split of our common stock that occurred on January
31, 2006 that is described elsewhere in this prospectus).
SHARES VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SAR
NAME EXERCISE (#) ($) AT FY-END AT FY-END ($)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------------- ---------------------------
Paul H. 0 0 125,000/0 $ 237,500/0
Metzinger
Dr. Herbert 0 0 67,500/0 $ 128,250/0
J. Neuhaus
Kristi 0 0 16,250/0 $ 30,875/0
J. Kampmann
--------------------
1 The average of the closing bid and asked price of our common stock on June 30,
2005 (after giving effect to the reverse stock split of our common stock that
occurred on January 31, 2006) ($1.90) was used to calculate the option value.
2 In December 2005 and January 2006, Mr. Metzinger agreed to cancel options
exercisable for 40,000 shares of our common stock. On January 2006, Mr.
Metzinger owned options exercisable for 85,000 shares.
3 In December 2005, Ms. Kampmann agreed to cancel options exercisable for 6,250
shares of our common stock.
STOCK OPTION PLANS
The company has two Stock Option Plans. As of June 30, 2005, 352,376
options are outstanding under the 1998 Compensatory Stock Option Plan and 87,000
options are outstanding under the 2000 Compensatory Stock Option Plan, for a
total of 439,377 options outstanding. A total of 431,877 options are
exercisable at June 30, 2005, under these plans. During the fiscal year ended
June 30, 2005, the company did not grant any options. The company has reserved
375,000 shares of common stock for issuance under the 1998 Compensatory Stock
Option Plan. In January 2002, our board of directors passed a resolution
closing the 1998 Compensatory Stock Option Plan for issuance of new options.
The
47
company has reserved 5,000,000 shares of common stock for issuance under the
2000 Compensatory Stock Option Plan.
During the fiscal year ended June 30, 2005, there was no action taken to
reprice any options held by any officers, directors or employees.
In December 2005, officers and a director of the company agreed to cancel
options under the company's 1998 Compensatory Stock Option Plan exercisable for
31,250 shares of the company's common stock. In January 2006, an officer and
director of the company agreed to cancel options under the company's 1998
Compensatory Stock Option Plan exercisable for 15,000 shares of the company's
common stock. The officers and director did not receive any consideration in
return for the cancellations.
EMPLOYMENT AGREEMENTS
On March 15, 2004, the company entered into an employment agreement with
Paul H. Metzinger to serve as President and Chief Executive Officer of the
company. The employment agreement with Mr. Metzinger expires March 14, 2008.
Pursuant to his employment agreement, the company agreed to pay Mr. Metzinger an
annual salary of $150,000. In March 2005, Mr. Metzinger took a salary cut to
receive an annual salary of $105,000.
On March 15, 2004, the company entered into an employment agreement with
Kristi J. Kampmann to serve as the Chief Financial Officer of the company. The
employment agreement with Ms. Kampmann expires on March 14, 2008. Pursuant to
her employment agreement, the company agreed to pay Ms. Kampmann an annual
salary of $30,000. During the year ended June 30, 2005, Ms. Kampmann received a
salary increase for an annual salary of $90,000, but in March 2005 took a salary
cut to receive an annual salary of $75,000.
In connection with the Employment Agreements, generally, the company or the
employee may terminate the Employment Agreement at any time with or without
cause. In the event the company terminates an Employment Agreement for cause or
the employee terminates his or her Employee Agreement without cause, all of such
employee's rights to compensation would cease upon the date of such termination.
If the company terminates an Employment Agreement without cause, then such
employee terminates his or her Employment Agreement for cause, or in the event
of a change in control, the company is required to pay to such employee all
compensation and other benefits that would have accrued and/or been payable to
that employee during the full term of the Employment Agreement.
A change of control is considered to have occurred when, as a result of any
type of corporate reorganization, execution of proxies, voting trusts or similar
arrangements, a person or group of persons (other than incumbent officers,
directors and principal shareholders of the company) acquires sufficient control
to elect more than a majority of the members of our board of directors, acquires
50% or more of the voting shares of the company, or the company adopts a plan of
dissolution of liquidation. The Employment Agreement also include a non-compete
and nondisclosure provisions in which each employee agrees not to compete with
or disclose confidential information regarding the company and its business
during the term of the Employment Agreement and for a period of one year
thereafter.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of the company's common stock as of June 28,
2006 on a fully diluted basis, by (a) each person known by the company to own
beneficially 5% or more of the outstanding shares of common stock, (b) the
company's directors, Chief Executive Officer and executive officers named in
48
"MANAGEMENT - Compensation of Executive Officers," and (c) all directors and
executive officers of the company as a group (in each case after giving effect
to the reverse stock split of our common stock that occurred on January 31, 2006
that is described elsewhere in this prospectus).
NAME, ADDRESS & NATURE OF
BENEFICIAL OWNER TITLE OF CLASS AMOUNT PERCENT OF CLASS(8)
---------------------------------- --------------- ------------- -------------------
Arizcan Properties, Ltd. Common Stock 9,510,331 (1) 31.68%
77 South Adams, Suite 906
Denver, CO 80209
The Paul H. Metzinger Trust Common Stock 186,585 (2) *
Paul H. Metzinger, President &
CEO, Director 370 17th Street,
Suite 3640 Denver, CO 80202
The Cheri L. Metzinger Trust Common Stock 186,585 (3) *
Cheri L. Metzinger, Wife of Paul
H. Metzinger
3236 Jellison Street
Wheatridge, CO 80033
Dr. Herbert J. Neuhaus, Director, Common Stock 67,500 (4) *
770 Maroonglen Court
Colorado Springs, CO 80906
Kristi J. Kampmann, Chief Common Stock 10,955 (5) *
Financial Officer & Secretary
370 17th Street, Suite 3640
Denver, CO 80202
Dr. Robert E. Shaw, Director Options to 20,000 (6) *
8 Nicklaus Court purchase Common
Florham Park, NJ 07932 Stock
John Hoback, Director Options to 20,000 (7) *
20 White purchase Common
Heron Lake Stock
East Stroudsburg, PA 18301
All Officers & Directors as a Common Stock 305,616 1.02%
Group (5 persons)
--------------------
* Less than 1%.
1 Arizcan Properties is wholly owned by Triumphant Partners, LLC, a Colorado
limited liability company, that is owned by Stan Richards. Includes 9,502,631
common shares held directly and beneficially 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 and options to purchase 75,000 shares exercisable at $6.50 per
share.
3 Cheri L. Metzinger is the wife of Mr. Paul H. Metzinger, the Chief Executive
Officer and President of the company. This includes 47,888 shares held directly
and beneficially and 53,697 common shares and 85,000 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 and options to purchase
25,000 shares exercisable at $4.00 per share.
49
5 Based on 954 common shares and options to purchase 5,000 shares exercisable at
$16.80 per share, options to purchase 2,500 shares exercisable at $10.40 per
share and options to purchase 2,500 shares exercisable at $6.50 per share.
6 Based on options to purchase 12,500 shares exercisable at $19.40 per share,
options to purchase 2,500 shares exercisable at $13.40 per share, and options to
purchase 5,000 shares exercisable at $40.00 per share.
7 Based on options to purchase 15,000 shares exercisable at $14.00 per share and
options to purchase 5,000 shares exercisable at $14.00 per share.
8 Based on 22,643,512 shares of common stock issued and outstanding on June 28,
2006, assuming exercise of all 398,127 presently exercisable options and
exercise of 6,121,342 outstanding warrants, and the issuance of 832,290 shares
of common stock reserved for the Harvest Court litigation there would be
29,995,271 shares outstanding. Mr. Metzinger's and Mrs. Metzinger's stock
ownership are not duplicated in this computation.
RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2005, the company executed a subscription agreement with
Arizcan to sell shares of the company's preferred stock. The subscription
agreement provides for the sale of 200,000 shares of Class A 8% cumulative and
participating preferred shares for $7.50 per share. In January 2006, Arizcan
purchased 200,000 shares of the company's Series A Convertible Preferred Stock
for $400,000 cash and an unsecured promissory note for $1,100,000. The
promissory note bears interest at 8% per annum and is due in January 2007. In
February 2006, Arizcan converted the 200,000 shares of preferred stock into
15,000,000 shares of the company's restricted common stock. In February 2006,
Arizcan made a payment of $11,281.90, of which $7,956 was applied to accrued
interest and $3,326 was applied to the outstanding principal. In May 2006, the
outstanding balance of the note was paid in full.
In November 2004, the company loaned $314,000 to Arizcan. In exchange for
the loan, the company received an unsecured, 7% promissory note, which was due
on October 31, 2005. The funds were loaned to facilitate Arizcan's purchase of
an option from certain of the company's warrant holders, to initiate the
exercise of certain existing warrants to purchase up to 785,000 shares of the
company's common stock. The note was paid in full in February 2006.
The company entered into an agreement with Arizcan on August 10, 2005,
whereby the company agreed to pay to Arizcan, 20% of any cash distributions paid
to the company by BioAgra, until such time as Arizcan shall be paid $800,000. On
March 10, 2006, Arizcan and the company terminated this agreement without any
such payments being made by the company.
In July 2005, the company entered into an agreement with Mr. Richards to
engage his services as a financial consultant for a monthly fee of $3,000. Mr.
Richards is the sole officer and director of Arizcan, the company's controlling
shareholder. The agreement has a term of 12 months and will expire in June 2006.
The company has paid Mr. Richards $27,000.
In December 2005, Mr. Metzinger, agreed to cancel options under the
company's 1998 Compensatory Stock Option Plan exercisable for 25,000 shares of
the company's common stock. Mr. Metzinger did not receive any consideration in
return for the cancellations.
In December 2005, Ms. Kampmann agreed to cancel options under the company's
1998 Compensatory Stock Option Plan exercisable for 5,000 shares of the
company's stock. Ms. Kampmann did not receive any consideration in return for
the cancellations.
In January 2006, Mr. Metzinger, agreed to cancel options under the
company's Compensatory Stock Option Plan exercisable for 15,000 shares of the
company's stock. Mr. Metzinger did not receive any consideration in return for
the cancellations.
50
In June 2005, Mr. Metzinger loaned the company $41,000, in exchange for an
unsecured 5% note payable due December 31, 2005. In August 2005, the company
paid the outstanding principal balance of this note and all accrued interest
thereon in full.
In March 2004, the company entered into employment agreements, as
previously discussed, with Mr. Metzinger, the President and Chief Executive
Officer and a Director of the company, and with Ms. Kampmann, the Chief
Financial Officer and Secretary of the company.
In September 2003, the company entered into a joint venture agreement with
Scimaxx, LLC to support the marketing of the company's technology. The owners of
Scimaxx, LLC include Dr. Neuhaus, a director and a former officer of the company
and several former employees of the company.
In June 2003, Mr. Metzinger loaned the company $10,000, in exchange for an
unsecured 7% note payable due in December 2003. In January 2004, the company
paid Mr. Metzinger the outstanding principal balance of this note and all
accrued interest thereon in full.
In September 2003, Mr. Metzinger, the President, Chief Executive Officer
and director of the company loaned the company $30,000, in exchange for an
unsecured 7% note payable due in September 2004. In January, 2004 the company
paid Mr. Metzinger the outstanding principal balance of this note, together with
all accrued interest, in full.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION
The General Corporation Law of the State of Nevada and our articles of
incorporation provide for indemnification of our directors for liabilities and
expenses that they may incur in such capacities. In general, our directors and
officers are indemnified with respect to actions taken in good faith and in a
manner such person believed to be in our best interests, and with respect to any
criminal action or proceedings, actions that such person has no reasonable cause
to believe were unlawful. Furthermore, the personal liability of our directors
is limited as provided in our articles of incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
EXPERTS
Our consolidated financial statements for the two year period ended June
30, 2005 included in this prospectus and registration statement have been
audited by GHP Horwath, P.C., an independent registered public accounting firm
("GHP"), for the periods and to the extent set forth in their report, which
describes an uncertainty related to our ability to continue as a going concern,
appearing herein and elsewhere in the Registration Statement. Such financial
statements have been so included in reliance upon the report of such firm given
upon their authority as experts in auditing and accounting.
With respect to the unaudited financial information for the periods ended
March 31, 2006 and 2005, GHP has applied limited procedures in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
However, as stated in their separate report included in our Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2006 they did not audit and they do
not express an opinion on that interim financial information. Because of the
limited nature of the review procedures applied, the degree of reliance on their
report on such information should be restricted. GHP is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the
51
unaudited interim financial information because that report in not a "report" or
a "part" of the Registration Statement prepared or certified by GHP within the
meaning of Section 7 and 11 of the 1933 Act.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and, in compliance with this act, file periodic reports and other
information with the Securities and Exchange Commission ("SEC"). These reports
and the other information we file with the SEC can be inspected and copied at
the public reference room facilities maintained by the SEC in Washington, D.C.
at 100 F Street, N.E., Washington, D.C. 20549. The SEC's telephone number to
obtain information on the operation of the public reference room is (800)
SEC-0330. In addition, the SEC maintains a World Wide Web site that contains
reports, proxy statements and other information regarding registrants like the
company that file electronically with the SEC at the following Internet address:
(http://www.sec.gov). The SEC's telephone number is (800) SEC-0330.
We have filed with the SEC in Washington, D.C. a registration statement on
Form SB-2 under the Securities Act of 1933 with respect to the shares of our
common stock offered by this prospectus.
ADDITIONAL INFORMATION
We file annual, quarterly and other reports, and other information with the
SEC. You may read and copy the materials we file at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission
at 1 800 SEC 0330 for further information on the operation of the Public
Reference Rooms. Our SEC filings are also available to the public from the
SEC's World Wide Web site on the Internet at http://www.sec.gov. This site
------------------
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
Our commission file number is 033-19598-D.
We maintain a site at www.vytacorp.com. The information contained in our
----------------
website is not part of this prospectus and you should not rely on it in deciding
whether to invest in our common stock.
52
FINANCIAL STATEMENTS
VYTA CORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
On January 19, 2006 the company's board of directors approved an amendment
to our Articles of Incorporation to affect a one-for-twenty reverse stock split
of our common stock effective January 31, 2006. All references to shares,
options, warrants and conversion and exercise prices in the three and nine
months ended March 31, 2006 and in prior periods in the Financial Statements
have been adjusted to reflect the post-reverse split amounts.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2005 AND 2004 PAGE
Report of Independent Registered Public Accounting Firm. . . . . . . . F-1
Consolidated Financial Statements:
Consolidated Balance Sheet-June 30, 2005 . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations -
Years ended June 30, 2005 and 2004 . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Comprehensive Loss -
Years ended June 30, 2005 and 2004 . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Shareholders' Equity -
Years ended June 30, 2005 and 2004 . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows -
Years ended June 30, 2005 and 2004 . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-9
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2006 AND 2005 PAGE
Report of Independent Registered Public Accounting Firm. . . . . . . . F-25
Condensed Consolidated Balance Sheet -
March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Condensed Consolidated Statements of Operations -
Nine and three months ended March 31, 2006 and 2005. . . . . . . . . F-27
Condensed Consolidated Statements of Comprehensive Loss -
Nine and three months ended March 31, 2006 and 2005. . . . . . . . . F-28
Condensed Consolidated Statement of Changes in Shareholders' Equity -
Nine months ended March 31, 2006 . . . . . . . . . . . . . . . . . . F-29
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 2006 and 2005. . . . . . . . . . . . . . F-30
Notes to Condensed Consolidated Financial Statements . . . . . . . . . F-32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Nanopierce Technologies, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Nanopierce
Technologies, Inc. and subsidiaries as of June 30, 2005, 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, 2005. 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 Nanopierce
Technologies, Inc. and subsidiaries as of June 30, 2005, and the results of
their operations and their cash flows for each of the years in the two-year
period ended June 30, 2005, 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 of
$997,616 for the year ended June 30, 2005, and an accumulated deficit of
$23,629,319 as of June 30, 2005. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ GHP HORWATH, P.C.
Denver, Colorado
September 26, 2005, except for the second paragraph of Note 1, as to which the
date is February 11, 2006
F-1
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
ASSETS
Current Assets:
Cash and Cash Equivalents $ 25,835
Interest Receivable 3,823
Notes Receivable, Net (Note 5) 275,442
Prepaid Expenses 91,306
-------------
Total Current Assets 396,406
-------------
Property and Equipment:
Office Equipment and Furniture 66,356
Less Accumulated Depreciation (50,514)
-------------
Other Assets: 15,842
-------------
Advances Receivable (Note 5) 405,000
Deposits and Other 19,285
Investments in Affiliates (Note 6) 159,642
-------------
583,927
-------------
Total Assets $ 996,175
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 214,891
Accrued Liabilities 18,227
Other Liability(Note 8) 90,000
Notes Payable, Net of Discount of $95,874 (Note 7) 119,690
-------------
Total Liabilities (All Current) 442,808
-------------
Commitments and Contingencies (Notes 4, 7 and 9)
Shareholders' Equity (Notes 7 and 8):
Preferred Stock; $0.0001 Par Value; 5,000,000 Shares Authorized;
None Issued and Outstanding
Common Stock; $0.0001 Par Value; 200,000,000 Shares Authorized;
4,662,952 Shares Issued and Outstanding 466
Additional Paid-In Capital 24,059,377
Accumulated Other Comprehensive Income 122,843
Accumulated Deficit (23,629,319)
-------------
Total Shareholders' Equity 553,367
-------------
Total Liabilities and Shareholders' Equity $ 996,175
=============
-------------------
See notes to consolidated financial statements for the fiscal year ended June
30, 2005.
F-2
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2005 AND 2004
2005 2004
Revenues $ - $ 34,258
----------- ------------
Operating Expenses:
General and Administrative 872,203 1,312,519
Research and Development - 41,849
Selling and Marketing - 37,033
Impairment of Intellectual Property (Note 1) - 608,061
----------- ------------
872,203 1,999,462
----------- ------------
Loss from operations (872,203) (1,965,204)
----------- ------------
Other Income (Expense):
Other Income 10,618 -
Interest Income 17,672 2,550
Extinguishment of Liabilities (Note 7) - 52,500
Equity Losses of Affiliates (Note 6) (144,323) (99,922)
Interest Expense (9,301) (1,683)
Interest Expense, Related Party (79) (1,206)
----------- ------------
(125,413) (47,761)
----------- ------------
Loss From Continuing Operations (997,616) (2,012,965)
----------- ------------
Discontinued Operations; Income From Operations of
Subsidiary (Note 3) - 454,882
----------- ------------
Net Loss $ (997,616) $(1,558,083)
=========== ============
Basic and diluted loss per share:
Loss from continuing operations $ (0.22) $ (0.54)
Income from Discontinued Operations - 0.12
----------- ------------
Net Loss Per Share, Basic and Diluted $ (0.22) $ (0.42)
=========== ============
Weighted Average Number of Common Shares
Outstanding 4,544,980 3,755,836
=========== ============
----------------
See notes to consolidated financial statements for the fiscal year ended June
30, 2005.
F-3
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2005 AND 2004
2005 2004
Net Loss $(997,616) $(1,558,083)
Change in Unrealized Loss on Securities (379) (141)
Change in Foreign Currency Translation
Adjustments - (66,727)
---------- ------------
Comprehensive Loss $(997,995) $(1,624,951)
========== ============
----------------
See notes to consolidated financial statements for the fiscal year ended June
30, 2005.
F-4
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2005 AND 2004
COMMON STOCK
-------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID-IN COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL INCOME DEFICIT EQUITY
--------- -------- ------------ --------------- ------------- ---------------
Balances, July 1, 2003 3,252,737 $ 325 $21,573,987 $ 190,090 $(21,073,620) $ 690,782
Common Stock and Warrants Issued for
Cash (Net of offering Costs of $272,000) 1,038,462 104 1,827,896 - - 1,828,000
Common Stock Issued In Satisfaction of
Payable 10,000 1 3,634 - - 3,635
Common Stock Issued Upon Exercise of
Warrants (Net of offering Costs of
$37,050) 192,500 19 347,931 - - 347,950
Common Stock Issued Upon Cashless
Exercise of Warrants 9,253 1 (1) - - -
Net Loss - - - - (1,558,083) (1,558,083)
Other Comprehensive Loss
Change in Unrealized Gain on Securities - - - (141) - (141)
Foreign Currency Translation Adjustments - - - (66,727) - (66,727)
--------- -------- ------------ --------------- ------------- ---------------
Balances, June 30, 2004 4,502,952 $ 450 $23,753,447 $ 123,222 $(22,631,703) $ 1,245,416
========= ======== ============ =============== ============= ===============
---------------
See notes to consolidated financial statements for the fiscal year ended June
30, 2005.
F-5
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2005 AND 2004
COMMON STOCK
-------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID-IN COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL INCOME DEFICIT EQUITY
--------- -------- ----------- --------------- ------------- ---------------
Balances, July 1, 2004 4,502,952 $ 450 $23,753,447 $ 123,222 $(22,631,703) $ 1,245,416
Common Stock Issued Upon
Exercise of Warrants (Net of
offering Costs of $7,200) 60,000 6 112,794 - - 112,800
Common Stock Issued for Deferred
Consulting Costs 50,000 5 89,995 - - 90,000
Common Stock Issued Upon
Issuance of Note Payable 50,000 5 102,891 - - 102,896
Common Stock to be Issued - - 250 - - 250
Net Loss - - - (997,616) (997,616)
Other Comprehensive Loss:
Change in Unrealized Gain on
Securities - - - (379) - (379)
--------- -------- ----------- --------------- ------------- ---------------
Balances, June 30, 2005 4,662,952 $ 466 $24,059,377 $ 122,843 $(23,629,319) $ 553,367
========= ======== =========== =============== ============= ===============
---------------
See notes to consolidated financial statements for the fiscal year ended June
30, 2005.
F-6
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2005 AND 2004
2005 2004
Cash Flows From Operating Activities:
Net Loss $ (997,616) $ (1,558,083)
---------------- ---------------
Adjustments To Reconcile Net Loss to Net Cash Used in Operating Activities
From Continuing Operations:
Income From Discontinued Operations - (454,882)
Amortization Expense 7,500 158,674
Depreciation Expense 7,258 10,657
Equity Losses of Affiliates 144,323 99,922
Gain On Extinguishment of Liabilities - (52,500)
Provision for Losses On Receivables 35,000 58,074
Amortization of Discount On Note Payable 7,272 -
Amortization of Deferred Consulting Costs - 122,459
Impairment of Intellectual Property and Equipment - 608,061
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Accounts Receivable 1,986 (11,883)
Decrease in Prepaid Expenses 35,921 8,646
Increase (Decrease) in Accounts Payable 105,935 (188,359)
Increase in Accrued Liabilities 18,227 -
Increase in Other Liability 90,000 -
---------------- ---------------
Total Adjustments 453,422 358,869
---------------- ---------------
Net Cash Used in Operating Activities From Continuing Operations (544,194) (1,199,214)
---------------- ---------------
Cash Flows From Investing Activities:
Advances To Equity Investee - (50,000)
Increase in Notes Receivable (349,000) -
Repayment of Note Receivable 38,558 -
Increase in Advances Receivable (405,000) -
Increase in Patent and Trademark Applications - (68,189)
Purchases of Property and Equipment - (1,575)
Cash Effect of Exypnotech Deconsolidation - (115,151)
---------------- ---------------
Net Cash Used in Investing Activities From Continuing Operations (715,442) (234,915)
---------------- ---------------
Cash Flows From Financing Activities:
Exercise of Warrants and Common Stock Issued for Cash 112,800 2,175,950
Payment of Notes Payable (61,737) (205,700)
Proceeds From Issuance of Notes Payable and Common Stock 216,000 165,000
---------------- ---------------
Net Cash Provided by Financing Activities From Continuing Operations 267,063 2,135,250
---------------- ---------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents - 127,038
---------------- ---------------
Net Cash Used in Discontinued Operations - (10,492)
---------------- ---------------
Net (Decrease) Increase in Cash and Cash Equivalents (992,573) 817,667
---------------- ---------------
Cash and Cash Equivalents, Beginning 1,018,408 200,741
---------------- ---------------
Cash and Cash Equivalents, Ending $ 25,835 $ 1,018,408
---------------- ---------------
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest 17 2,851
================ ===============
F-7
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Issuance of Common Stock and Common Stock to be Issued in Connection
with Notes Payable $ 103,146 $ -
================ ===============
Issuance of Common Stock in Exchange for deferred Consulting Costs $ 90,000 $ -
================ ===============
Offering Costs Recorded in Accounts Payable $ 7,200 $ -
================ ===============
Issuance of Common Stock in Satisfaction of Payable $ - $ 3,635
================ ===============
Investment In Joint Venture in Exchange for Equipment $ - $ 132,000
================ ===============
Issuance of Note Payable in Exchange for Accounts Payable $ - $ 92,100
================ ===============
Patent Costs Incurred on Behalf of Equity Investee in Exchange for Receivable $ - $ 8,074
================ ===============
---------------
See notes to consolidated financial statements for the fiscal year ended June
30, 2005.
F-8
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
1. BASIS OF PRESENTATION, BUSINESS, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements for the fiscal year
ended June 30, 2005 include the accounts of NanoPierce Technologies, Inc., a
Nevada corporation (the Company), its wholly-owned subsidiaries, NanoPierce
Connection Systems, Inc., a Nevada corporation (NCOS) which was incorporated in
November 2001, ExypnoTech, LLC (ET LLC), a Colorado limited liability company,
which was formed in June 2004, and through December 11, 2003, ExypnoTech, GmbH
(EPT, formed in February 2002) (Note 6). Through June 30, 2004, the
consolidated financial statements for the fiscal year ended June 30, 2005 also
included the wholly-owned foreign subsidiary, NanoPierce Card Technologies GmbH,
(NCT). NCT was dissolved in June 2004, and is presented as discontinued
operations (Note 3). All significant intercompany accounts and transactions
have been eliminated in consolidation.
On January 19, 2006, the Company's Board of Directors (the "Board")
approved an amendment to the Company's Articles of Incorporation to effect a
one-for-twenty reverse stock split of the Company's common stock effective
January 31, 2006. All references to shares, options, warrants, exercise and
conversion prices as of June 30, 2005 and for each of the years ended June 30,
2005 and 2004, have been adjusted to reflect the post-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
The Company was engaged in the design, development and licensing of
products using its intellectual property, the PI Technology through its
subsidiaries and joint venture arrangements. The PI Technology consists of
patents, pending patent applications, patent applications in preparation, trade
secrets, trade names, and trademarks. The Company has designated its PI
Technology as the NanoPierce Connection System (NCS(TM)) and marketed the PI
Technology to companies in various industries for a wide range of applications,
specifically RFID applications. As discussed below, the Company made a decision
to abandon its PI Technology during the year ended June 30, 2004.
Through June 30, 2005, NCOS had no operational activities. Through June 30,
2005, EPT, an equity investment, had activities primarily consisting of
manufacturing inlay components used in, among other things, Smart Labels, which
is a paper sheet holding a chip-containing module that is capable of memory
storage and/or processing. Scimaxx Solutions, LLC, which is an equity investment
(Note 6), was primarily involved in research and development and marketing
functions through April 2005, at which time it ceased operations. ET LLC
business activities included the marketing and sales of RFID (Radio Frequency
Identification) products in North America. ET LLC had no revenues or operations
through June 30, 2005.
In August 2005, the Company entered into a joint venture with Xact
Resources International, Inc. ("Xact Resources"), a privately held company. The
Company purchased a 50% equity interest in the joint venture, BioAgra, LLC
("BioAgra") (a Georgia limited liability company) for $905,000 in cash (which
includes the $405,000 advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is to
manufacture and sell a beta glucan product,
F-9
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
AgraStim, to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed.
Additionally, in August 2005, the Company entered into an agreement with
Arizcan Properties, Ltd. ("Arizcan") by which the Company agreed to pay to
Arizcan 20% of the cash distributions paid to the Company by and from BioAgra,
until such time as Arizcan shall be paid $800,000. On March 10, 2006, Arizcan
and the Company terminated this agreement without any such payments being made
by the Company.
Currently, BioAgra is in the process of constructing the production line.
BioAgra expects to begin producing and shipping product at the beginning of
2006. As the production line is being completed, management of BioAgra is
developing marketing plans for the sale and distribution of the product,
marketing strategies and hiring administrative and manufacturing staff.
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, notes
receivable, accounts payable, other liabilities and notes payable approximate
their carrying amounts due to the short maturities of these instruments.
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 2005, the Company entered into a twelve-month consulting services
agreement with a third party, in which this party agreed to provide public and
investor relation services and general business services for the twelve-month
term of the agreement. Compensation consisted of 50,000 shares of the Company's
restricted common stock with a market value of approximately $90,000 (based on
the closing market price of $1.80 per share at the date the transaction was
entered into). The deferred cost is being amortized on a straight-line basis
over the twelve-month period from the date of the agreement. During the year
ended June 30, 2005, $7,500 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 ($12 at June 30, 2005) based upon quoted market prices,
and are included in other long-term assets in the Company's June 30, 2005
consolidated balance sheet.
F-10
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
Unrealized gains and losses are computed on the basis of specific
identification and are reported as a separate component of comprehensive income
(loss), included as a separate item in shareholders' equity. The Company
reported a decrease in the unrealized loss on available for sale securities of
$379 in 2005 and $141 in 2004.
At June 30, 2005, the unrealized loss on available for sale securities was
$12. Realized gains, realized losses, and declines in value, judged to be
other-than-temporary, are included in other income (expense). During the years
ended June 30, 2005 and 2004, the Company did not sell any available for sale
securities.
IMPAIRMENT OF INTELLECTUAL PROPERTY RIGHTS
AND PATENT AND TRADEMARK APPLICATIONS
During the year ended June 30, 2004, the Company had recorded intellectual
property rights and patent and trademark applications. During the year ended
June 30, 2004, the intellectual property was amortized using a useful life of
2.5 years, which was consistent with the remaining average patent protection
period of the remaining intellectual property.
During the fourth quarter ended June 30, 2004, the Company made a decision
to abandon its intellectual property rights, patents and patent applications,
and trademarks. This decision was based on factors including the Company's
evaluation of past and current operating results, and potential changes in the
Company's business plan, which involve investigating potential acquisition
candidates outside of the technology industry (Note 2). As a result of this
decision, the Company recorded an impairment charge of $608,061 in the fourth
quarter ended June 30, 2004.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
provided by use of accelerated and straight-line methods over the estimated
useful lives of the assets, which range from five to seven years.
REVENUE RECOGNITION
Revenues from the sales of product are recognized at time of shipment.
Revenues are deferred if significant future obligations are to be fulfilled or
if collection is not probable. At June 30, 2005, there were no deferred
revenues related to contract services in progress.
The Company grants credit, without collateral, to its customers. Management
reviews trade receivables on an ongoing basis to determine if any receivables
will potentially be uncollectible. The Company includes trade receivable
balances that are determined to be uncollectible in an overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance.
RESEARCH AND DEVELOPMENT
The Company includes in research and development expense: payroll, facility
rent, lab supplies and other expense items directly attributable to research and
development. The Company does not contract its research and development work,
nor does it, at this time, perform research and development work for others.
F-11
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock Based Compensation, allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to continue
accounting for such compensation under the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). The Company has chosen to continue to account for employee
stock-based compensation using APB 25.
Had compensation cost for the Company's stock plans been determined based
on fair value at the grant dates for awards under the plans consistent with the
method prescribed under SFAS No. 123, the Company's net loss and net loss per
share would have changed to the pro forma amounts indicated below:
2005 2004
Net Loss, as Reported $(997,616) $(1,558,083)
Total Stock-Based Employee Compensation Expense Determined
Under Fair Value Based Method for all Awards - -
---------- ------------
Net Loss, Pro Forma $(997,616) $(1,558,083)
========== ============
Net Loss Per Share as Reported $ (0.22) $ (0.42)
Net Loss Per Share Pro Forma $ (0.22) $ (0.42)
No options were granted during the years ended June 30, 2005 and 2004.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign equity investments
(subsidiaries in 2004) are measured using the local currency (the Euro) as the
functional currency. Assets and liabilities of the entities 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.
The cumulative translation adjustment was approximately $123,000 at June
30, 2005 and 2004. In June 2004, a $74,814 reduction of other comprehensive
income to net income was recorded and recognized as a component of gain on
discontinued operations as a result of the liquidation of NCT.
FOREIGN CURRENCY TRANSACTIONS
Gains and losses from foreign currency transactions are included in net
income (loss). Foreign currency transaction gains and losses were not
significant during the years ended June 30, 2005 and 2004.
COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, Reporting Comprehensive Income, requires the reporting and
display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains and losses on the Company's foreign currency translation
adjustments to be included in comprehensive income (loss).
F-12
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
LOSS PER SHARE
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss per share (EPS) with a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
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
(3,809,089 shares at June 30, 2005 and 3,869,089 shares at June 30, 2004) would
be to decrease loss per share. Therefore, diluted loss per share is equivalent
to basic loss per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), Share-Based Payment, which addresses the accounting for
share-based payment transactions. SFAS No. 123(R) eliminates the ability to
account for share-based compensation transactions using APB 25, and generally
requires instead that such transactions be accounted and recognized in the
statement of operations based on their fair value. SFAS No. 123(R) will be
effective for public companies that file as small business issuers as of the
first interim or annual reporting period that begins after December 15, 2005.
The Company is currently evaluating the provisions of this standard. Depending
upon the number and terms of options that may be granted in future periods, the
implementation of this standard could have a significant impact on the Company's
financial position and results of operations in future periods.
In December 2003, the FASB issued Interpretation No. 46R ("FIN 46R"), a
revision to SFAS Interpretation No. 46, Consolidation of Variable Interest
Entities. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain
entities from its requirements. FIN 46R requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns or both. FIN 46R also
requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. FIN
46R became effective for variable interest entities or potential variable
interest entities for periods ending after December 15, 2003 for public
companies (other than small business issuers), and became effective by the end
of the first annual reporting period ending after December 15, 2004 for
companies that are small business issuers. FIN 46R did not have an impact on the
Company's financial position or results of operations.
2. GOING CONCERN AND MANAGEMENT'S PLANS
The Company's financial statements for the year ended June 30, 2005 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 $997,616 for the year ended June
30, 2005, and an accumulated deficit of $23,629,319 as of June 30, 2005. The
Company did not recognize revenues from its PI technology during the year ended
June 30, 2005. The Company's subsidiary NCT was dissolved in June 2004 and in
December 2003, the Company sold a controlling 51% interest in EPT. In addition,
the Company has abandoned and recorded an impairment to its intellectual
property.
F-13
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
These factors raise substantial doubt about the Company's ability to
continue as a going concern. 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.
In August 2005, the Company was able to raise $1,535,000 through the
exercise of 1,535,000 warrants with an exercise price of $1.00 per share. The
Company subsequently purchased a 50% equity investment in the BioAgra joint
venture for $905,000 cash (which includes the $405,000 advanced to Xact
Resources as of June 30, 2005) and a note payable of $595,000, which was paid in
full in September 2005. The Company also entered into an agreement with Arizcan
by which the Company agreed to pay to Arizcan 20% of the cash distributions paid
to the Company by and from BioAgra, until such time as Arizcan shall be paid
$800,000. On March 10, 2006, Arizcan and the Company terminated this agreement
without any such payments being made by the Company.
In September 2005, the Company executed a subscription agreement to sell
shares of the Company's preferred stock with Arizcan. The sole director of
Arizcan is related to a board member of Intercell. The Subscription Agreement
provides for the sale of 200,000 shares of a Class A 8% cumulative and
participating preferred shares with a sale's price of $7.50 per share. The
preferred shares are convertible into 60% of the Company's issued and
outstanding post-split shares of the Company's common stock on the date of
conversion.
Additionally, the Company intends to change its corporate name and most
likely to institute a reverse split in connection with recent business events.
Currently, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a further issuance of debt or equity in the Company.
3. DISCONTINUED OPERATIONS
On April 1, 2003, NCT filed insolvency with the Courts of Munich, Germany.
The insolvency filing was necessary in order to comply with specific German
legal requirements. In June 2004, NCT completed its plan of self-liquidation,
and the German court legally dissolved NCT.
At June 30, 2005, NCT has no remaining assets or liabilities. NCT's
revenues for the years ended June 30, 2005 and 2004 as reported in discontinued
operations, were $0. The Company recorded a $454,882 gain on the disposal of NCT
in 2004, which was primarily due to the extinguishment of NCT liabilities and
gains recognized from the sales of equipment. NCT did not incur any income taxes
during the periods presented.
4. RISK CONSIDERATIONS
BUSINESS RISK
The Company is subject to risks and uncertainties common to
technology-based companies, including rapid technological change, dependence on
principal products and third party technology, new product introductions and
other activities of competitors, dependence on key personnel, and limited
operating history.
F-14
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
INTERNATIONAL OPERATIONS
The Company's foreign equity investment (EPT) operations are located in
Germany. EPT transactions are conducted in currencies other than the U.S.
dollar (the currency into which EPT's historical financial statements have been
translated) primarily the Euro. As a result, the Company is exposed to adverse
movements in foreign currency exchange rates.
In addition, the Company is subject to risks including adverse developments
in the foreign political and economic environment, trade barriers, managing
foreign operations and potentially adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's financial condition or results of operations in the future.
5. NOTES AND ADVANCES RECEIVABLE
Through June 30, 2005, the Company advanced a total of $405,000 to Xact
Resources, which was applied to the August 2005 purchase of the 50% equity
interest in the joint venture, BioAgra with Xact Resources.
In December 2004, the Company loaned $35,000 to Intercell in return for an
unsecured, 7% promissory note, due in December 2005. The loan was made in order
to assist Intercell in its efforts to support operations. From September 30,
2004 to March 17, 2005, Mr. Metzinger, the President and Chief Executive Officer
of the Company, served as the Chief Executive Officer of Intercell. The
Company's Chief Financial Officer also serves as the Chief Financial Officer of
Intercell. On March 16, 2005, Intercell filed for protection under Chapter 11 of
the U.S. Bankruptcy Laws. The Company does not believe that it will be able to
fully collect this receivable and during the third quarter of the year ended
June 30, 2005, recorded an allowance of $35,000 in connection with the note
receivable.
In November 2004, the Company loaned $314,000 to Arizcan. In exchange for
the loan, the Company received an unsecured, 7% promissory note, due on October
31, 2005. The funds were loaned to facilitate Arizcan's purchase of an option
from certain of the Company's warrant holders, to initiate the exercise of
certain existing warrants to purchase up to 785,000 shares of the Company's
common stock. The warrants were initially issued as part of a January 2004
equity placement (Note 8). In June 2005, the Company received a payment of
$50,000, which included interest of $11,442. In August 2005, Arizcan exercised
its option on all 785,000 shares (Note 8). The note was paid in full in February
2006.
6. INVESTMENTS IN AFFILIATES
INVESTMENT IN EPT
On December 11, 2003, a German entity, formed by former employees of EPT,
purchased a controlling 51% equity interest in EPT in exchange for $98,000, of
which $62,787 has been received through June 30, 2005. No gain or loss was
incurred by the Company as a result of this transaction. As a result of the
Company's reduced ownership interest and loss of control of EPT, the Company
deconsolidated EPT as of December 11, 2003, and began accounting for its
investment in EPT under the equity method of accounting at that time. Under the
equity method of accounting, the carrying amount of the Company's investment in
EPT ($159,642 at June 30, 2005) is adjusted to recognize the Company's
proportionate share of EPT's income (loss) each period.
F-15
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
Financial information of EPT as of June 30, 2005, and for the year ended
June 30, 2005 and the period from December 11, 2003 through June 30, 2004 is as
follows:
JUNE 30, 2005
Assets:
Current Assets (1) $ 302,189
Equipment 188,622
--------------
Total Assets $ 490,811
==============
Liabilities and Members' Equity:
Current Liabilities (2) $ 362,496
Members' Equity 128,315
--------------
Total Liabilities and Members' Equity $ 490,811
==============
---------------
(1) Current assets include receivables in the amount of $177,372 due from the
51% owner of EPT.
(2) Current liabilities include a payable of $60,723 to the 51% owner of EPT.
DECEMBER 11, 2003
YEAR ENDED THROUGH
JUNE 30, 2005 JUNE 30, 2004
Revenues (1) $ 586,480 $ 42,143
Expenses (2) (676,222) (144,094)
--------------- -------------------
Net loss $ (89,742) $ (101,951)
=============== ===================
--------------
(1) Revenues include $570,584 and $32,180, respectively, of sales to the 51%
owner of EPT for each period presented.
(2) Expenses include $60,723 and $0, respectively, of charges paid to the 51%
owner of EPT for each period presented.
Pro forma results of the Company's operations for the fiscal year ended
June 30, 2004, assuming the deconsolidation of EPT occurred as of July 1, 2003,
are as follows:
Revenues $ 5,809
Operating expenses $(1,869,029)
Net loss $(1,427,650)
INVESTMENT IN JOINT VENTURE INTEREST
On September 15, 2003, the Company entered into a joint venture agreement
with Scimaxx, LLC, an entity related to the Company in that a member of Scimaxx,
LLC is a director of the Company. The name of the joint venture was Scimaxx
Solutions, LLC (Scimaxx Solutions, a Colorado Limited Liability company formed
in September 2003). The purpose of the joint venture was to provide the
electronics industry with technical solutions to manufacturing problems based on
the need for electrical connectivity.
The Company received a 50% interest in the joint venture in exchange for a
contribution of NCOS equipment with a carrying value of approximately $132,000
at September 15, 2003. The Company also granted Scimaxx Solutions a ten-year,
non-exclusive, non-royalty bearing worldwide license to use the Company's
intellectual property. Scimaxx, LLC was to invest $50,000 cash, of which $22,900
was received. The Company has a 49% voting interest in the joint venture. The
Company determined that
F-16
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
Scimaxx LLC was the controlling financial interest holder and therefore, the
Company has accounted for its investment in Scimaxx Solutions as an equity
method investment.
During the third quarter of the fiscal year ended June 30, 2005, the
Company made the decision to impair the value of its investment in Scimaxx
Solutions to $0. In performing the quarterly assessment, management considered
the operational history and status of the joint venture, combined with cash flow
projections and other operating information. As a result of this decision, the
Company recorded an impairment charge of $63,544, which is included in equity
losses of affiliates.
Unaudited financial information of Scimaxx Solutions as of June 30, 2005,
and for the year ended June 30, 2005 and the period from September 15, 2003
(inception) through June 30, 2004, is as follows:
JUNE 30, 2005
Assets:
Current assets $ 76
Equipment 70,455
---------------
Total Assets $ 70,531
===============
Liabilities and Members' Deficit:
Current Liabilities $ 73,295
Members' Deficit (2,764)
---------------
Total Liabilities and Members' Deficit $ 70,531
===============
SEPTEMBER 15, 2003
YEAR ENDED THROUGH
JUNE 30, 2005 JUNE 30, 2004
Revenues $ 5,773 $ 17,458
Expenses (80,781) (245,850)
--------------- --------------------
Net loss $ (75,008) $ (228,392)
=============== ====================
7. NOTES PAYABLE
RELATED PARTIES
In June 2005, an officer/director of the Company loaned $41,000 to the
Company in exchange for an unsecured, 5% note payable due in December 2005. In
June 2005, the Company paid $336 plus accrued interest of $17. In August 2005,
the Company paid the remaining $40,664 plus accrued interest of $298.
In June 2003, an officer/director of the Company loaned $10,000 to the
Company in exchange for an unsecured, 7% note payable due in December 2003. In
September 2003, the same officer/director loaned the Company $30,000 in exchange
for an unsecured, 7% promissory note, due in September 2004. In January 2004,
the Company paid the $40,000 plus accrued interest of $1,247.
In September 2003, Intercell, an affiliate of the Company at the time,
loaned the Company $35,000 in exchange for an unsecured, 7% promissory note due
in September 2004. In November 2003, Intercell loaned the Company $100,000 in
exchange for a 7%, promissory note due in November 2004. This promissory note
was collateralized by an assignment of a 51% interest in the proceeds, if any,
the
F-17
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
Company may have received in connection with the Financing Agreement litigation
(Note 9). In January 2004, the Company paid the $135,000, plus accrued interest
of $2,493.
OTHER
In June 2005, an unrelated third party loaned the Company $150,000 in
exchange for an unsecured, promissory note due in September 2005 with interest
at 15% per quarter and 100,000 shares of the Company's restricted common stock
(50,000 shares were issued in June 2005 and the remaining 50,000 shares were
issued in July 2005). At the date of issuance, the common stock had a market
value of $180,000 (based on the closing market price of $1.80 per share on the
date of the transaction). The relative fair value of the common stock, ($81,718)
was accounted for as a discount applied against the face amount of the note.
The discount is being amortized over the term of the promissory note. The
effective interest rate on this note is 54%. On June 30, 2005, the Company
recognized $2,000 of accrued interest and amortized $7,272 of the discount as
additional interest expense. On September 8, 2005, the Company paid the
$150,000, plus accrued interest of $22,500. At that time the remaining discount
of $74,446 was fully amortized to interest expense.
On June 30, 2005, an unrelated third party loaned the Company $25,000 in
exchange for an unsecured, 8% promissory note due in December 2005 and 75,000
shares of the Company's restricted common stock which were issued in July 2005.
At the date of issuance, the common stock had a market value of $150,000 (based
on the closing market price of $2.00 per share on the date of the transaction).
The relative fair value of the common stock ($21,428) was accounted for as a
discount against the face amount of the note. The discount is being amortized
over the term of the promissory note as additional interest expense. The
effective interest rate on this note is 85%. As the promissory note was issued
on June 30, 2005, the Company did not recognize any interest expense. On August
8, 2005, the Company paid the $25,000, plus accrued interest of $208. At that
time the discount of $21,428 was fully amortized to interest expense.
In July and August 2005, unrelated parties loaned the Company a total of
$150,000 in exchange for unsecured, 8% promissory notes due in December 2005 and
330,000 shares of the Company's restricted common stock. The common stock had an
aggregate market value of $574,000 (based on the closing market prices which
ranged from $1.60 to $1.80 per share at the date of the transaction). The
relative fair value of the common stock ($117,786) was accounted for as a
discount applied against the amount of the over the promissory notes and is to
be amortized over the terms of the notes. On August 8, 2005, the Company paid
the $150,000 plus accrued interest of $1,132. At that time the discounts
totaling $117,786 were fully amortized to interest expense. The approximate
effective interest rates on these notes is 79%.
In 2004, the Company converted vendor payables of $92,100 into an
unsecured, non-interest bearing note payable which was repaid in March 2005.
This vendor along with one other vendor agreed to forgive $52,500 of the
liabilities owed, and as a result the Company recognized a gain on the
extinguishment of liabilities in 2004.
F-18
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
8. SHAREHOLDERS' EQUITY
COMMON STOCK
2005 TRANSACTIONS
In November 2004, the Company issued 60,000 shares of common stock upon the
exercise of warrants. The Company received cash proceeds of $112,800 (net of
$7,200 of offering costs).
In June 2005, the Company issued 50,000 shares of its restricted common
stock as consideration for a twelve-month consulting agreement. These shares of
common stock had a market value of $90,000.
In June 2005, in connection with the issuance of a $150,000 promissory
note, the Company agreed to issue 100,000 shares of its restricted common stock,
valued at $81,718, of which 50,000 shares were issued in June 2005, and 50,000
shares were issued in July 2005.
In June 2005, in connection with the issuance of a $25,000 promissory note,
the Company agreed to issue 75,000 shares of its restricted common stock, which
were issued in July 2005. The shares were valued at $21,428.
In June 2005, in connection with the Company's financing efforts, the
Company committed to issuing 50,000 shares of its restricted common stock to an
unrelated third party. The market value of the shares was $90,000 (based on a
closing market price of $1.80 per share at the date of the transaction). The
Company recognized $90,000 of expense in June 2005 and recorded a liability of
$90,000 at June 30, 2005. The shares were issue din July 2005.
In July and August 2005, the Company issued a total of 330,000 shares of
its restricted common stock in connection with the issuance of promissory notes
totaling $150,000. These shares were valued at $117,786.
In August 2005, the Company issued 1,535,000 shares of its common stock in
connection with the exercise of warrants for $1,535,000 in cash. (Note 8 -
Warrants).
2004 TRANSACTIONS
On January 20, 2004, the Company sold 1,000,000 units at a price of $2.00
per unit for $1.8 million in cash, pursuant to a Securities Purchase Agreement
(net of $272,000 of offering costs, discussed below). A unit consists of (i)
one share of the Company's common stock, (ii) a warrant to purchase one share of
common stock at an exercise price of $2.00 per share, and (iii) a warrant to
purchase two shares of the Company's common stock at an exercise price of $5.00
per share. All warrants have an expiration date of January 20, 2009. As a
result of the sale, the Company issued 1,000,000 shares of its common stock,
warrants to purchase 1,000,000 shares of common stock at an exercise price of
$2.00 per share, and warrants to purchase 2,000,000 shares of common stock at an
exercise price of $5.00 per share.
In connection with the sale of the units, the placement agent received a
fee consisting of a cash payment equal to 3% of the gross proceeds from the
transaction ($60,000) and warrants to purchase 3% of the total number of shares
of common stock issued to the investors on the closing date. The Company issued
to the placement agent warrants to purchase 30,000 shares of common stock with
an exercise price of $2.00 per share. The warrants expire on January 20, 2009.
The placement agent is also entitled to
F-19
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
receive an additional cash payment equal to 3% of the gross proceeds, if any,
received by the Company as a result of the exercise of the $2.00 warrants and
additional warrants to purchase 3% of the total number of shares issued as a
result of the exercise of the $2.00 warrants. The Company also paid a $200,000
finders fee to a third party (the "finder") and issued warrants to purchase
100,000 shares of common stock with an exercise price of $2.00 per share. The
warrants expire on January 20, 2009. This third party is also entitled to
receive an additional cash payment of 10% of the gross proceeds, if any,
received by the Company as a result of the exercise of the $2.00 warrants and
additional warrants to purchase 10% of the total number of shares issued as a
result of the exercise of the $2.00 warrants. The Company also incurred an
additional $12,000 of offering costs, primarily legal costs.
During the year ended June 30, 2004, the Company issued 192,500 shares of
its common stock upon the exercise of 192,500 warrants, which included 50,000 of
the warrants issued to the finder as described above. The Company received
$347,950 cash (net of $37,050 of offering costs, of which $11,050 is accrued at
June 30, 2004) for the exercise. As described above, the Company granted to the
placement agent and finder, warrants purchasing an additional 18,525 shares. The
warrants are exercisable at $2.00 per share and expire January 20, 2009. The
Company also issued 9,254 of its common stock upon the cashless exercise of
20,167 warrants.
During the year ended June 30, 2004, the Company also sold 38,462 shares of
restricted common stock for cash of $100,000, and the Company issued 10,000
shares of restricted common stock in satisfaction of a $3,635 payable.
STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company has established two Compensatory Stock Option Plans (the
"Option Plans") and has reserved 625,000 shares of common stock for issuance
under the Option Plans. Vesting provisions are determined by the Board of
Directors. All stock options expire 10 years from the date of grant.
A summary of the Option Plans is as follows:
2005 2004
-------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
Outstanding, Beginning of Year 439,377 $ 20.00 439,377 $ 20.00
Granted - - - -
Expired - - - -
Exercised - - - -
Outstanding, End of Year 439,377 20.00 439,377 20.00
Options Exercisable at End of
Year 431,877 20.00 426,877 20.00
The following table summarizes information about stock options outstanding
as of June 30, 2005:
F-20
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER OF CONTRACTUAL WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
PRICES OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
$4.00-10.00 162,750 3.37 $ 6.40 162,750 $ 6.40
10.20-20.00 124,777 7.11 13.40 127,777 12.80
20.20-40.00 43,000 5.45 30.60 32,500 31.60
40.20-60.00 108,350 3.74 45.60 108,350 45.60
100.20-120.00 500 4.67 120.00 500 120.00
--------- ----------------- ----------------- --------- -----------------
439,377 5.67 $ 20.00 431,877 $ 20.00
========= ================= ================= ========= =================
WARRANTS
At June 30, 2005, the following warrants to purchase common stock were
outstanding:
NUMBER OF COMMON
SHARES COVERED BY WARRANTS EXERCISE PRICE EXPIRATION DATE
1,000 $ 25.00 August to September 2005
76,301 6.00-51.60 October to December 2005
3,750 6.00-7.20 January 2006
10,000 13.00 May 2006
10,000 25.00 January 2007
172,000 10.00-12.00 October to November 2007
66,667 3.00 April 2008
877,500 2.00 January 2009
2,000,000 3.00 January 2009
22,500 12.00 January 2010
--------------------------
3,239,718 *
==========================
----------------
* Does not include 130,000 of warrants that are issuable pursuant to the
securities purchase agreement described above.
No warrants were issued during the year ended June 30, 2005.
During the year ended June 30, 2005, warrants to purchase 60,000 shares of
common stock were exercised for net cash proceeds of $112,800 (net of commission
of $7,200).
In August 2005, warrants to purchase 1,535,000 shares of common stock were
exercised for cash proceeds 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 the
BioAgra joint venture. 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 August and September 2005, warrants to purchase 1,000 shares of common
stock expired.
During the year ended June 30, 2004, warrants to purchase 192,500 shares of
common stock were exercised for net cash proceeds of $347,950 (net of commission
of $37,050) in exchange for 192,500
F-21
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
shares of common stock. In addition, warrants to purchase 20,167 shares of
common stock were exercised on a cashless basis in exchange for 9,254 shares of
common stock.
During the year ended June 30, 2004, warrants to purchase 36,625 shares of
common stock with exercise prices ranging from $6.00 to $56.20 per share
expired.
9. COMMITMENTS AND CONTINGENCIES
LITIGATION
DEPOSITORY TRUST SUIT
In May 2004, the Company filed suit against the Depository Trust and
Clearing Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the
National Securities Clearing Corporation ("NSCC") in the Second Judicial
District Court of the County of Washoe, State of Nevada. The suit alleges
multiple claims under the Nevada Revised Statutes 90.570, 90.580, 90.660 and
598A.060 and on other legal bases. The complaint alleges, among other things,
that the DTCC, DTC and NSCC acted in concert to operate the "Stock Borrow
Program," originally created to address short term delivery failures by sellers
of securities in the stock market. According to the complaint, the DTCC, NSCC
and DTC conspired to maintain significant open fail deliver positions of
millions of shares of the Company's common stock for extended periods of time by
using the Stock Borrow Program to cover these open and unsettled positions. The
Company was seeking damages in the amount of $25,000,000 and treble damages.
Responsive pleadings were filed by the defendants. On April 27, 2005, the court
granted a motion to dismiss the lawsuit. The Company has filed an appeal to
overturn the motion to dismiss the lawsuit.
FINANCING AGREEMENT SUIT
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company and certain officers and
former board members of the Company, and a number of unrelated third parties.
The counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the
Supreme Court of the State of New York, County of New York. The suit alleges
that the Company breached an October 20, 2000 Stock Purchase Agreement, by not
issuing 370,945 free trading shares of the Company's common stock in connection
with the reset provisions of the Purchase Agreement due on the second reset date
and approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. The Company has
filed counterclaims seeking various forms of relief against Harvest Court, LLC.
F-22
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
The Company intends to vigorously prosecute all litigation and does not
believe the outcome of the litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
LEASES
The Company has entered into certain facilities and equipment leases. The
leases are non-cancelable operating leases that expire through September 30,
2006. Future minimum lease payments under these operating leases are as
follows:
YEAR ENDING JUNE 30, AMOUNT
2006 $83,401
2007 14,550
-------
$97,951
=======
Aggregate rental expense in continuing operations under operating leases
was $113,380 and $96,969 for the years ended June 30, 2005 and 2004,
respectively.
10. INCOME TAXES
The Company and its subsidiaries did not incur income tax expense for the
years ended June 30, 2005 and 2004. The reconciliation between taxes computed
at the statutory federal tax rate of 34% applied to the loss from continuing
operations and the effective tax rate for the years ended June 30, 2004 and 2003
is as follows:
2005 2004
Expected Income Tax Benefit $(339,000) $(684,000)
Increase in Valuation Allowance 339,000 684,000
---------- ----------
$ - $ -
========== ==========
The tax effects of temporary differences that give rise to substantially all
deferred tax assets at June 30, 2005 are as follows:
Deferred Tax Assets:
Net Operating Loss $ 4,623,000
Intangible Assets 207,000
Allowance for Receivables 32,000
Less Valuation Allowance (4,862,000)
------------
Net Deferred Tax Assets $ -
============
As of June 30, 2005, the Company has net operating loss carry forwards of
approximately $14,300,000, which expire between 2013 and 2025. The Company's
net operating loss carry forwards may be subject to annual limitations, which
could reduce or defer the utilization of the losses as a result of an ownership
change as defined in Section 382 of the Internal Revenue Code.
F-23
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
11. FOREIGN AND DOMESTIC OPERATIONS
Operating results and long-lived assets of continuing operations as of June
30, 2005 and for the years ended June 30, 2005 and 2004, by geographic area, are
presented in the table below. There were no revenues in 2005 from continuing
operations and no significant amounts of transfers between geographic areas in
2005 or 2004.
UNITED STATES GERMANY TOTAL
Revenues for year ended
June 30, 2004 $ 5,809 28,449 34,258
Long-lived assets at June 30,
2005 $ 15,842 - 15,842
F-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Vyta Corp
We have reviewed the accompanying condensed consolidated balance sheet of
Vyta Corp (formerly known as NanoPierce Technologies, Inc.) and subsidiaries as
of March 31, 2006, the related condensed consolidated statements of operations
and comprehensive loss for the three-month and nine-month periods ended March
31, 2006 and 2005, the condensed consolidated statements of cash flows for the
nine-month periods ended March 31, 2006 and 2005, and the condensed consolidated
statement of changes in shareholders' equity for the nine-month period ended
March 31, 2006. These interim condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying interim condensed consolidated financial
statements for them to be in conformity with accounting principles generally
accepted in the United States of America.
/s/ GHP HORWATH, P.C.
Denver, Colorado
May 16, 2006
F-25
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2006
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 125,741
Interest and other receivables 1,586
Prepaid expenses 39,368
Note receivable, related party (Note 2) 1,005,078
-------------
Total Current Assets 1,171,773
-------------
Property and Equipment:
Office equipment and furniture 66,357
Less accumulated depreciation (54,793)
-------------
11,564
-------------
Other Assets: 13,844
Interest receivable 19,330
Deposits and other 1,229,746
Investments in affiliates (Note 3) 875,000
-------------
Notes receivable, affiliate (Note 2) 2,149,484
-------------
Total Assets $ 3,321,257
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 161,032
Accrued liabilities 10,427
-------------
Total Liabilities (all current) 171,459
-------------
Commitments and Contingencies (Notes 4, 5 and 8)
Shareholders' Equity (Note 7):
Preferred Stock; $0.0001 Par Value; 5,000,000 Shares Authorized;
None Issued and Outstanding
Common Stock; $0.0001 Par Value; 200,000,000 Shares Authorized;
4,662,952 Shares Issued and Outstanding 2,250
Additional Paid-In Capital 28,015,896
Accumulated Other Comprehensive Income 123,228
Accumulated Deficit (24,991,576)
-------------
Total Shareholders' Equity 3,149,798
-------------
Total Liabilities and Shareholders' Equity $ 3,321,257
=============
See notes to condensed consolidated financial statements.
F-26
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- ----------------------------------
2006 2005 2006 2005
--------------- -------------- ----------------- ---------------
Revenues $ - $ - $ - $ -
--------------- -------------- ----------------- ---------------
General and administrative expense (250,519) (213,036) (691,546) (604,296)
--------------- -------------- ----------------- ---------------
Loss from operations (250,519) (213,036) (691,546) (604,296)
--------------- -------------- ----------------- ---------------
Other income (expense):
Other income - 30 28,585 10,538
Interest income, related party 31,895 5,720 40,245 11,907
Equity losses of affiliates (Note 3) (40,242) (64,918) (429,896) (114,215)
Loss on revaluation of derivative
warrant liability (Note 5) (70,137) - (74,295) -
Interest expense - - (235,131) -
Interest expense, related party - - (219) -
--------------- -------------- ----------------- ---------------
(78,484) (59,168) (670,711) (91,770)
--------------- -------------- ----------------- ---------------
Net loss (329,003) (272,204) (1,362,257) (696,066)
--------------- -------------- ----------------- ---------------
Beneficial conversion feature
(Note 1) (1,500,000) - (1,500,000) -
--------------- -------------- ----------------- ---------------
Net loss applicable to common
shareholders $ (1,829,003) (272,204) (2,862,257) (696,066)
=============== ============== ================= ===============
Net loss per share, basic and diluted
(Note 1) $ (0.11) (0.06) (0.29) (0.15)
=============== ============== ================= ===============
Weighted average number of common
shares outstanding (Note 1) 16,972,602 4,562,952 9,818,450 4,537,697
=============== ============== ================= ===============
See notes to condensed consolidated financial statements.
F-27
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
2006 2005 2006 2005
---------- --------- ----------- ---------
Net loss $(329,003) (272,204) (1,362,257) (696,066)
Change in unrealized loss on
securities (371) (72) (385) (367)
---------- --------- ----------- ---------
Comprehensive loss $(329,374) (272,276) (1,362,642) (696,433)
========== ========= =========== =========
See notes to condensed consolidated financial statements.
F-28
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
ACCUMU-
LATED
ADDITI OTHER TOTAL
ONAL COMPRE SHARE
PREFERRED STOCK COMMON STOCK PAID-IN HENSIVE ACCUMULATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME DEFICIT EQUITY
--------- ------------ ---------- -------- ----------- --------- ------------ ------------
Balances, July 1, 2005
(Note 1) - $ - 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
(Notes 6 and 7) - - 1,535,000 154 734,846 - - 735,000
Forgiveness of offering
cost liability (Note 6) - - - - 800,000 - - 800,000
Common stock issued upon
issuance of notes payable
(Notes 4 and 7) - - 455,000 46 117,840 - - 117,886
Common stock and
warrants issued for cash
(Notes 5 and 7) - - 790,467 79 453,067 - - 453,146
Common stock issued as
payment of commission - - 50,000 5 89,995 - - 90,000
Series A preferred stock
issued for cash and note
receivable 200,000 1,500,000 - - - - - 1,500,000
Common stock issued
upon conversion of
Series A preferred
stock (200,000) (1,500,000) 15,000,000 1,500 1,498,500 - - -
Reclassification of
derivative warrant
liability to equity
(Note 5) - - - - 253,521 - - 253,521
Forgiveness of accrued
payroll owed to
officer/shareholder - - - 8,750 - - 8,750
Net loss - - - - - - (1,362,257) (1,362,257)
Other comprehensive
loss:
Change in unrealized
gain on securities - - - - - 385 - 385
--------- ------------ ---------- -------- ----------- --------- ------------ ------------
Balances, March 31,
2006 - - 22,493,512 $ 2,250 28,015,896 123,228 (24,991,576) 3,149,798
========= ============ ========== ======== =========== ========= ============ ============
See notes to condensed consolidated financial statements.
F-29
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
-------------------------
2006 2005
------------ -----------
Cash flows from operating activities:
Net loss $(1,362,257) $ (696,066)
------------ -----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization expense 67,561 -
Depreciation expense 4,281 5,441
Equity losses of affiliates 429,896 114,215
Amortization of discounts on notes payable 213,760 -
Provision for losses on note receivable - 35,000
Loss on revaluation of derivative warrant liability (Note 5) 74,295 -
Changes in operating assets and liabilities:
Increase in interest and other receivables (11,607) (3,359)
(Increase) Decrease in prepaid expenses (15,623) 40,968
(Decrease) increase in accounts payable and accrued liabilities (52,473) 50,607
------------ -----------
Total adjustments 710,090 242,872
------------ -----------
Net cash used in operating activities (652,167) (453,194)
------------ -----------
Cash flows from investing activities:
Increase in notes receivable (875,000) (349,000)
Increase in advance receivable - (225,000)
Payment on note receivable 275,442 -
Investment in joint venture (Note 3) (500,000) -
------------ -----------
Net cash used in investing activities (1,099,558) (574,000)
------------ -----------
Cash flows from financing activities:
Exercise of warrants and common stock and warrants issued for cash 2,167,372 112,801
Proceeds to be applied to preferred stock purchase (Note 6) 494,922 -
Payment of notes payable (960,663) (61,400)
Proceeds from issuance of notes payable and common stock 150,000 -
------------ -----------
Net cash provided by financing activities 1,851,631 51,401
------------ -----------
Net increase (decrease) in cash and cash equivalents 99,906 (975,793)
Cash and cash equivalents, beginning 25,835 1,018,408
------------ -----------
Cash and cash equivalents, ending $ 125,741 $ 42,615
============ ===========
(Continued)
F-30
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Nine Months Ended
March 31,
----------------------
2006 2005
----------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 23,569 -
=========== =========
Supplemental disclosure of non-cash investing and financing activities:
Issuance of Series A Preferred Stock in exchange for note receivable 1,100,000 -
=========== =========
Beneficial conversion feature 1,500,000 -
=========== =========
Reclassification of Derivative warrant liability to equity 253,521 -
=========== =========
Issuance of common stock i connection with notes payable 117,886 -
=========== =========
Issuance of common stock in exchange for accrued commissions 90,000 -
=========== =========
Advances receivable applied to equity investment 405,000 -
=========== =========
Equity investment acquired in exchange for note payable 595,000 -
=========== =========
Liability recorded for offering costs of common stock issuance 800,000 -
=========== =========
Forgiveness of offering costs owed in connection with common stock
issuance (800,000) -
=========== =========
Forgiveness of accrued payroll owed to officer/shareholder 8,750 -
=========== =========
See notes to condensed consolidated financial statements.
F-31
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRESENTATION OF INTERIM INFORMATION:
The accompanying condensed consolidated financial statements include the
accounts of NanoPierce Technologies, Inc., a Nevada corporation, which on
January 31, 2006 changed its name to Vyta Corp (the Company), its wholly-owned
subsidiaries, NanoPierce Connection Systems, Inc., a Nevada corporation (NCOS),
and ExypnoTech, LLC (ET LLC), a Colorado limited liability company, which was
formed in June 2004. All significant intercompany accounts and transactions
have been eliminated in consolidation.
On January 19, 2006, the Company's Board of Directors (the "Board")
approved an amendment to the Company's Articles of Incorporation to effect a
one-for-twenty reverse stock split effective January 31, 2006. All references to
shares, options, and warrants in the three and nine months ended March 31, 2005
and in prior periods, have been adjusted to reflect the post-reverse split
amounts. The Company's common stock now trades on the Over-the-Counter Bulletin
Board under the trading symbol "VYTC".
As a result of the reverse split, the Company's authorized capital was
reduced from 200,000,000 shares to 10,000,000 shares. As part of the reverse
split, the Company amended and restated its Articles of Incorporation to
increase the authorized capital of the Company to 200,000,000 shares.
In the opinion of the management of the Company, the accompanying unaudited
condensed consolidated financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to present
fairly the financial position and operating results of the Company for the
periods presented. The financial statements and notes are presented as permitted
by Form 10-QSB, and do not contain certain information included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005. It is the
Company's opinion that when the interim financial statements are read in
conjunction with the June 30, 2005 Annual Report on Form 10-KSB, the disclosures
are adequate to make the information presented not misleading. Interim results
are not necessarily indicative of results for a full year or any future period.
MANAGEMENT'S PLANS:
In the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2005, the Report of the Independent Registered Public Accounting Firm
includes an explanatory paragraph that describes substantial doubt about the
Company's ability to continue as a going concern. The Company's interim
financial statements for the nine and three months ended March 31, 2006 have
been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company reported a net loss of $1,362,257 and a net loss
applicable to common shareholders of $2,862,257 for the nine months ended March
31, 2006, and an accumulated deficit of $24,991,576 as of March 31, 2006. The
Company has not recognized any revenues from its business operations.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not contain any
adjustments relating to the recoverability and classification of
F-32
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Currently, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a further issuance of debt or equity in the Company.
RECENT EVENTS:
In August 2005, the Company was able to raise $1,535,000 through the
exercise of 1,535,000 warrants with an exercise price of $1.00 per share. The
Company used $1,095,000 of the funds to complete its purchase of a 50% equity
investment in a joint venture, BioAgra, LLC, a Georgia limited liability company
("BioAgra")(Note 3), and the Company used approximately $366,000 to pay
outstanding notes payable (Note 4). The remaining $75,000 was used to support
operations.
In September 2005, the Company executed a subscription agreement with
Arizcan Properties, Ltd. ("Arizcan") to sell shares of the Company's preferred
stock. The sole director of Arizcan is related to a board member and officer of
Intercell International Corporation ("Intercell"), in which the Company has a
nominal interest. Ms. Kampmann, the Company's Chief Financial Officer, has
served as the Chief Financial Officer of Intercell since October 2003 and Mr.
Metzinger, the Company's Chief Executive Officer, served as the Chief Executive
Officer of Intercell from September 2004 until March 2005.
The subscription agreement provided for the sale of 200,000 shares of Class
A 8% cumulative and participating preferred shares for $7.50 per share. In
January 2006, Arizcan purchased 200,000 shares of the Company's Series A
Convertible Preferred Stock ("Preferred Stock") for $400,000 cash and an
unsecured promissory note for $1,100,000. The promissory note bears interest at
8% per annum and is due in January 2007. In February 2006, Arizcan converted the
200,000 shares of preferred stock into 15,000,000 shares of the Company's
restricted common stock. Upon the conversion, Arizcan held approximately 67% of
the issued and outstanding common stock of the Company. The conversion feature
was deemed beneficial and accordingly resulted in a beneficial conversion
feature of $1,500,000. The intrinsic value of the beneficial conversion feature
is limited to the total amount of the proceeds received. As a result of the
beneficial conversion feature, net loss applicable to common shareholders was
increased by $1,500,000 during the three and nine months ended March 31, 2006.
Through May 2006, Arizcan paid the Company cash of $1,100,000 to repay the note
in full. Since the note was paid in full prior to the issuance of the March 31,
2006 financial statements, the note receivable has been presented as an asset at
March 31, 2006.
DEFERRED CONSULTING COSTS:
In June 2005, the Company entered into a twelve-month consulting services
agreement with a third party, in which this party agreed to provide public and
investor relation services and general business services for the twelve-month
term of the agreement. Compensation consisted of 50,000 shares of the Company's
restricted common stock with a market value of approximately $90,000 (based on
the closing market price of $1.80 per share at the date of the transaction).
The deferred cost is being amortized on a straight-line basis over the
twelve-month period from the date of the agreement. During the nine months
ended March 31, 2006, $67,561 was expensed.
F-33
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
LOSS PER SHARE:
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share, requires dual presentation of basic and diluted earnings or loss per
share (EPS) with a reconciliation of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Loss per share of common stock is computed based on the
weighted average number of common shares outstanding during the period. Stock
options and warrants are not considered in the calculation, as the impact of the
potential common shares (6,029,468 shares at March 31, 2006 and 3,809,094 shares
at March 31, 2005) would be to decrease loss per share. Therefore, diluted loss
per share is equivalent to basic loss per share.
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE COMPANY'S
COMMON STOCK:
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 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.
STOCK-BASED COMPENSATION:
SFAS No. 123, Accounting for Stock Based Compensation, allows companies to
choose whether to account for employee stock-based compensation on a fair value
method, or to continue accounting for such compensation under the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). The Company has chosen to
continue to account for employee stock-based compensation using APB 25.
No options were granted to employees during the nine months ended March 31,
2006 or 2005.
F-34
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
RECENTLY ISSUED ACCOUNTING STANDARD:
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123(R), Share Based Payment, which addresses the accounting for share
based payment transactions. SFAS No. 123(R) eliminates the ability to account
for share based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for the
Company beginning on July 1, 2006. Management is currently evaluating the
provisions of this standard. Depending upon the number of and terms of options
that may be granted in future periods, the implementation of this standard could
have a significant impact on the Company's financial position and results of
operations in future periods.
2. NOTES AND ADVANCES RECEIVABLE:
In January 2006, the Company sold 200,000 shares of Class A 8% cumulative
and participating preferred shares for $400,000 cash and an unsecured promissory
note for $1,100,000 to Arizcan. The promissory note has a due date of January
17, 2007 and a 8% annual interest rate. During the three months ended March 31,
2006, the Company received payments totaling $110,000, which included interest
of $11,729. On March 31, 2006, the note had an outstanding balance of
$1,005,298, of which $220 was accrued interest. During April and May 2006, the
Company received payments totaling $1,010,097, of which $5,019 was accrued
interest. The note was paid in full in May 2006.
During the nine months ended March 31, 2006, the Company loaned $875,000 to
BioAgra (Note 3). In exchange for the loans, the Company received secured, 7.5%
promissory notes, of which $700,000 are due on June 30, 2006 and $175,000 are
due on August 31, 2006. The funds were loaned to facilitate BioAgra's completion
of its first production line and the purchase of inventory for production. The
promissory notes are collateralized by all equipment, furnishings, present and
future accounts, collateral securing such accounts, tangible and intangible
personal property and any proceeds from any of the foregoing located on
BioAgra's premises. Additionally, the promissory notes are to be paid in full
prior to any disbursements being made to the members of the joint venture.
During April 2006, the Company loaned an additional $600,000 to BioAgra with the
same terms as the original promissory notes, which is due on October 31, 2006.
During May 2006, the Company loaned BioAgra an additional $186,570, with the
same terms as the original promissory notes, which is due on October 31, 2007.
In November 2004, the Company loaned $314,000 to Arizcan. In exchange for
the loan, the Company received an unsecured, 7% promissory note, which was due
on October 31, 2005. The funds were loaned to facilitate Arizcan's purchase of
an option from certain of the Company's warrant holders, to initiate the
exercise of certain existing warrants to purchase up to 785,000 shares of the
Company's common stock (Note 6). In June 2005, the Company received a payment of
$50,000, which included interest of $11,442. In December 2005, the Company
received a payment of $100,000, which included interest of $10,881. In February
2006, the Company received payments totaling $188,718, which included interest
of $2,395. The note was paid in full at that time.
In October and November 2004, the Company advanced a total of $150,000 to
Xact Resources International, Inc. ("Xact Resources"), which was applied to the
purchase of a 50% equity interest in BioAgra on August 15, 2005 (Note 3).
F-35
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
In December 2004, the Company loaned $35,000 to Intercell in return for an
unsecured, 7% promissory note, due in December 2005. The loan was made in order
to assist Intercell in its efforts to support operations. During the fiscal
year ended June 30, 2005, the Company deemed the debt uncollectible and created
an allowance for the receivable of $35,000.
3. INVESTMENTS IN AFFILIATES:
INVESTMENT IN EXYPNOTECH, GMBH:
In December 2003, TagStar Sytems, Gmbh, a German entity formed by former
employees of ExypnoTech, Gmbh ("EPT"), purchased a controlling 51% equity
interest in EPT in exchange for $98,000, of which $62,787 has been received
through March 31, 2006. The Company accounts for its investment in EPT under
the equity method of accounting. Under the equity method of accounting, the
carrying amount of the Company's investment in EPT ($201,954 at March 31, 2006)
is adjusted to recognize the Company's proportionate share of EPT's income
(loss) each period.
Unaudited financial information of EPT as of March 31, 2006, and for the
nine and three-month periods ended March 31, 2006 and 2005 are as follows:
March 31, 2006
---------------
Assets:
Current assets(1) $ 648,944
Equipment 111,950
---------------
Total assets $ 760,894
===============
Liabilities and members' equity:
Current liabilities(2) $ 496,649
Members' equity 264,245
---------------
Total liabilities and members' equity $ 760,894
===============
(1) Current assets include receivables of $222,246 due from the 51% owner of
EPT.
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
2006 2005 2006 2005
----------- ---------- ----------- ----------
Revenues(1) $ 821,429 171,716 1,866,625 34,885
Expenses(2) (638,675) (147,112) (1,780,275) (246,556)
----------- ---------- ----------- ----------
Net income (loss) $ 182,754 24,604 86,350 (211,671)
=========== ========== =========== ==========
(1) Revenues include $1,550,832 and $9,562 of sales to the 51% owner of EPT for
the nine months ended March 31, 2006 and 2005, respectively ($505,710 and
$9,562 for the three months ended December 31, 2006 and 2005,
respectively).
(2) Expenses include $83,525 and $19,070, respectively of charges paid to the
51% owner of EPT for the nine months ended March 31, 2006 and 2005,
respectively.
EPT operations are located in Germany. EPT transactions are conducted in
currencies other than the U.S. dollar, (the currency into which the
subsidiaries' historical financial statements have been
F-36
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
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 environments, trade barriers, managing
foreign operations and potentially adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's financial condition or results of operations in the future.
INVESTMENT IN BIOAGRA:
On August 15, 2005, the Company entered into a joint venture with Xact
Resources, a privately held company. The Company purchased a 50% equity
interest in the joint venture, BioAgra, for $905,000 in cash (which includes
$405,000 previously advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is
to manufacture and sell a beta glucan product, YBG-2000 also known as
AgraStimTM, to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed.
BioAgra (a development stage company) has completed construction of a
production line. BioAgra began producing and shipping product during the quarter
ending June 30, 2006.
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. At March 31, 2006, the
Company's investment in BioAgra is $1,027,792.
Unaudited financial information of BioAgra as of March 31, 2006 and for the
three month period ended March 31, 2006 and the period from August 15, 2005
through March 31, 2006, is as follows:
March 31, 2006
---------------
Assets:
Current assets $ 5,828
Equipment, net 1,791,087
Land and building under capital lease, net 1,107,531
---------------
Total assets $ 2,904,446
===============
Liabilities and members' equity:
Current liabilities(1) $ 1,345,617
Obligation under capital lease(2) 1,003,246
---------------
Total Liabilities 2,348,863
Members' equity 555,583
---------------
Total liabilities and members' equity $ 2,904,446
===============
(1) Includes $875,000 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.
F-37
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
August 15, 2005
Three Months Ended Through
March31, 2006 March31, 2006
-------------------- -----------------
Revenues $ - $ -
Expenses (259,584) (944,416)
-------------------- -----------------
Net loss $ (259,584) $ (944,416)
==================== =================
INVESTMENT IN SCIMAXX SOLUTIONS, LLC:
On September 15, 2003, the Company entered into an agreement to receive a
50% interest in a joint venture agreement with Scimaxx, LLC. The name of the
joint venture was Scimaxx Solutions, LLC (Scimaxx Solutions). The purpose of
the joint venture was to provide the electronics industry with technical
solutions to manufacturing problems based on the need for electrical
connectivity.
At March 31, 2005, Scimaxx Solutions had total assets of $70,531 of which
$76 were current assets and $70,455 were equipment, total liabilities of $73,295
and members' deficit of $2,764.
For the three and nine months ended March 31, 2005, Scimaxx Solutions
recorded revenues of $0 and $5,773, respectively, and expenses of $27,461 and
$80,781, respectively, resulting in a net loss of $27,461 and $75,008,
respectively. Scimaxx Solutions ceased operations in April 2005.
4. NOTES AND ADVANCES PAYABLE:
RELATED PARTIES:
In June 2005, an officer/director of the Company loaned $41,000 to the
Company in exchange for an unsecured, 5% note payable due in December 2005. In
June 2005, the Company paid $337 plus accrued interest of $17. In August 2005,
the Company paid the remaining $40,663 plus accrued interest of $298.
OTHER:
In June 2005, an unrelated party loaned the Company $25,000 in exchange for
an unsecured, 8% promissory note due in December 2005 and 75,000 shares of the
Company's restricted common stock, which were issued in July 2005. The common
stock had a market value of $150,000 (based on the closing market price of $2.00
per share on the date of the transaction). The relative fair value of the common
stock ($21,428) was accounted for as a discount against the face amount of the
note. The effective interest rate on this note was 85%. On August 8, 2005, the
Company paid the $25,000, plus accrued interest of $208. Through that date, the
discount of $21,428 was fully amortized to interest expense.
In June 2005, an unrelated third party loaned the Company $150,000 in
exchange for an unsecured, promissory note due in September 2005 with interest
at 15% per quarter and 100,000 shares of the Company's restricted common stock
(50,000 shares were issued in June 2005 and the remaining 50,000 shares were
issued in July 2005). At the date of issuance, the common stock had a market
value of $180,000 (based on the closing market price of $1.80 per share on the
date of the transaction). The
F-38
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
relative fair value of the common stock ($81,718) was accounted for as a
discount applied against the face amount of the note. The effective interest
rate on this note was 54%. As of June 30, 2005, $7,272 of the discount had been
amortized to interest expense. On September 8, 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.
During July and August 2005, six unrelated third parties loaned the Company
a total of $150,000 in exchange for unsecured, 8% promissory notes due in
December 2005 and a total of 330,000 shares of the Company's restricted common
stock. The common stock had a total market value of $574,000 (based on the
closing market prices which ranged from $1.60 to $1.80 per share at the date of
each transaction). The relative fair value of the common stock ($117,886) was
accounted for as a discount applied against the face amount of the notes. The
discount was amortized over the terms of the promissory notes as additional
interest expense. The effective interest rate on these notes is 85%. On August
8, 2005, the Company paid the $150,000, plus accrued interest of $642. Through
that date, the discount of $117,886 was fully amortized to interest expense.
5. DERIVATIVE WARRANT LIABILITY:
During November and December 2005, the Company sold 500,625 shares of its
restricted common stock for $400,500. In connection with the sale of the
restricted common shares, the Company issued warrants exercisable into 500,625
shares of the Company's common stock. The common stock had a total market value
of $714,125 (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 $312,167 (using the Black-Scholes model). The relative
fair value of the warrants ($119,339) 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
may require the issuance of stock during the maximum period the warrant could
remain outstanding) were determined to be insufficient.
During December 2005, the Company sold 127,500 shares of its restricted
common stock for $102,000. These shares of common stock were not issued until
January 2006. In connection with the sale of the restricted common shares, the
Company issued warrants exercisable for 127,500 shares of the Company's common
stock. The common stock had a total market value of $178,000 (based on the
closing market prices which ranged from $1.20 to $1.60 per share at the date of
each transaction). The warrants had an aggregate estimated fair value of $76,657
(using the Black-Scholes model). The relative fair value of the warrants
($30,600) 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 may require the issuance of stock during
the maximum period the warrant could remain outstanding) were determined to be
insufficient.
During January 2006, the Company sold 118,592 shares of its restricted
common stock for $94,872. In connection with the sale of the restricted common
shares, the Company issued warrants exercisable into 118,592 shares of the
Company's common stock. The common stock had a total market value $166,028
(based on a closing market price of $1.40 per share at the date of each
transaction). The warrants had an aggregate estimated fair value of $74,141
(using the Black-Scholes model). The relative fair value of the warrants
($29,287) 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
F-39
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
commitments that may require the issuance of stock during the maximum period the
warrant could remain outstanding) were determined to be insufficient.
At December 31, 2005, 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 was reclassified to additional paid-in capital. During the three
and nine months ended March 31, 2006 the Company recorded a loss of $70,137 and
$74,295, respectively, on these contracts. The appropriateness of the
classification of these contracts is reassessed at each balance sheet date.
6. OTHER LIABILITIES
The Company had recorded an $800,000 payable to Arizcan, which represents
the costs incurred in connection with a $1.5 million 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 has
reclassified the liability to equity.
7. SHAREHOLDERS' EQUITY:
COMMON STOCK:
Current Year Transactions
In connection with the issuance of a $150,000 promissory note in June 2005,
the Company agreed to issue 100,000 shares of its restricted common stock,
valued at $81,718, of which 50,000 shares were issued in June 2005, and 50,000
shares were issued in July 2005.
In connection with the issuance of a $25,000 promissory note in June 2005,
the Company agreed to issue 75,000 shares of its restricted common stock, valued
at $21,428, which were issued in July 2005.
During July and August 2005, in connection with the issuance of promissory
notes totaling $150,000, the Company issued 330,000 shares of its restricted
common stock, valued at $117,886.
In August 2005, warrants to purchase 1,535,000 shares of common stock were
exercised for cash proceeds 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.
In October 2005, the Company issued 50,000 shares of its restricted common
stock, valued at $90,000, in satisfaction of a $90,000 liability incurred in
connection with the Company's financing efforts.
During October 2005, the Company issued 43,750 shares of its restricted
common stock in exchange for $35,000. The shares had a purchase price of $0.80
per share (based on a 50% discount from the closing market price, $1.60 per
share, on the date of each transaction).
F-40
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
During November and December 2005, the Company issued 500,625 shares of its
restricted common stock and warrants to purchase 500,625 shares of its
restricted common stock for $400,500. The warrants have an exercise price of
$1.00 per share and a term of 3 years. The shares of common stock had a
purchase price of $0.80 share.
During December 2005, the Company sold 127,500 shares of its restricted
common stock for $102,000. In connection with the sale of the restricted common
shares, the Company issued three-year warrants to purchase 127,500 shares of the
Company's common stock at $1.00 per share. The shares of common stock had a
purchase price of $0.80 share.
In January 2006, the Company issued 118,592 shares of its restricted common
stock and warrants to purchase 118,592 shares of its restricted common stock for
$94,872. The warrants have an exercise price of $1.00 per share and a term of
three years. The shares of common stock had a purchase price of $0.80 per share.
In January 2006, the Company sold 200,000 shares of Class A 8% cumulative
and participating preferred shares for $400,000 cash and an unsecured promissory
note for $1,100,000, which was repaid in cash in May 2006. Each preferred share
was convertible into 75 shares of the Company's common stock. In February 2006,
the 200,000 shares of the preferred shares were converted into 15,000,000 shares
of the Company's restricted common stock.
Nine Months Ended March 31, 2005
During the nine months ended March 31, 2005, the Company issued 1,200,000
shares of common stock upon the exercise of warrants. The Company received cash
proceeds of $112,801 (net of $7,200 of offering costs).
WARRANTS:
During the nine months ended March 31, 2006, warrants to purchase 192,709
shares of common stock expired.
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.
In February 2006, the Company issued warrants to purchase 746,717 shares of
common stock. The warrants were issued to full fill 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.
OPTIONS:
In December 2005, officers and a director of the Company agreed to cancel
options under the Company's 1998 Compensatory Stock Option Plan exercisable for
31,250 shares of the Company's stock.
F-41
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
In January 2006, an officer and director of the Company agreed to cancel
options under the Company's 1998 Compensatory Stock Option Plan exercisable for
15,000 shares of the Company's stock.
The officers and director did not receive any consideration in return for
the cancellations.
CAPITAL TRANSACTION:
In August 2005, an officer/shareholder of the Company forgave $8,750 of
accrued salary, which has been accounted for as a capital transaction and has
resulted in an increase in additional paid in capital.
8. COMMITMENTS AND CONTINGENCIES
LITIGATION:
Depository Trust Suit:
In May 2004, the Company filed suit against the Depository Trust and
Clearing Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the
National Securities Clearing Corporation ("NSCC") in the Second Judicial
District Court of the County of Washoe, State of Nevada. The suit alleges
multiple claims under the Nevada Revised Statutes 90.570, 90.580, 90.660 and
598A.060 and on other legal bases. The complaint alleges, among other things,
that the DTCC, DTC and NSCC acted in concert to operate the "Stock Borrow
Program," originally created to address short term delivery failures by sellers
of securities in the stock market. According to the complaint, the DTCC, NSCC
and DTC conspired to maintain significant open fail deliver positions of
millions of shares of the Company's common stock for extended periods of time by
using the Stock Borrow Program to cover these open and unsettled positions. The
Company was seeking damages in the amount of $25,000,000 and treble damages.
Responsive pleadings have been filed by the defendants. On April 27, 2005, the
court granted a motion to dismiss the lawsuit. The Company has filed an appeal
to overturn the motion to dismiss the lawsuit.
FINANCING AGREEMENT SUIT:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company and certain officers and
former board members of the Company, and a number of unrelated third parties.
The counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the
Supreme Court of the State of New York, County of New York. The suit alleges
that the Company breached an October 20, 2000 Stock Purchase Agreement, by not
issuing 370,945 free trading shares of the Company's common stock in connection
with the reset provisions of the Purchase Agreement due on the second reset date
and
F-42
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
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. In February 2006,
the Supreme Court of the State of New York, County of New York issued an
injunction ordering the Company to reserve 3.7% of the Company's issued and
outstanding common stock (832,029 shares at February 13, 2006). The Company has
set aside these shares. The Company has filed counterclaims seeking various
forms of relief against Harvest Court, LLC.
The Company intends to vigorously prosecute this litigation and does not
believe the outcome of this 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.
F-43
THE ONLY SOURCES OF INFORMATION GIVEN TO YOU BY US ABOUT YOUR INVESTMENT
DECISION ARE THIS PROSPECTUS AND ANY DOCUMENTS REFERRED TO IN THIS PROSPECTUS.
WE DID NOT AUTHORIZE ANYONE TO GIVE YOU ANY OTHER INFORMATION ABOUT YOUR
INVESTMENT DECISION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND IS NOT MEANT TO
INDUCE THE SALE OF SECURITIES IF IT WOULD VIOLATE STATE LAW. IF THE PERSONS WHO
ARE TRYING TO OFFER THE SECURITIES FOR SALE, OR THE PERSONS WHO RECEIVE THOSE
OFFERS FOR SALE ARE PROHIBITED FROM DOING SO UNDER STATE LAW, THIS PROSPECTUS IS
NOT MEANT TO INDUCE SALE OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS.
1,230,000 SHARES OF COMMON STOCK
VYTA CORP
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2006
-------- --
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the registrant's Articles of Incorporation, as amended,
provides that the registrant shall indemnify its directors, officers, employees
and agents to the maximum extent and in accordance with the provisions of the
Nevada General Corporation Law, as in effect from time to time. Sections
78.7502 and 78.751 of the Nevada General Corporation Law provide generally and
in pertinent part that a Nevada corporation may indemnify its directors and
officers against expenses, judgments, fines and settlements actually and
reasonably incurred by them in connection with any civil suit or action or any
administrative or investigative proceeding, except actions by or in the right of
the corporation, if, in connection with the matters in issue, they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, and in connection with any criminal suit or
proceeding, if in connection with the matters in issue, they had no reasonable
cause to believe their conduct was unlawful. Section 78.7502 further provides
that in connection with the defense or settlement of any action by or in the
right of the corporation, a Nevada corporation may indemnify its directors and
officers against expenses actually and reasonably incurred by them in connection
therewith, provided that they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation. Section 78.751 permits a Nevada corporation to grant its directors
and officers additional rights of indemnification through bylaw provisions and
otherwise and Section 78.752 permits a Nevada corporation to purchase indemnity
insurance or make other financial arrangements on behalf of its directors and
officers.
Article VIII of the registrant's Articles of Incorporation provides that
directors shall not be liable to the registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability arising
from (a) any breach of the director's loyalty to the registrant or its
stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) any transaction from
which the director receives an improper personal benefit, or (d) any other act
expressly proscribed or for which directors are otherwise liable under the
Nevada General Corporation Law. See Item 28 "Undertakings" herein.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the registration and
distribution of the shares of the registrant's common stock:
Securities and Exchange Commission
Registration Fee $ 5,023.40
Printing and Engraving Expenses 3,000
Accounting Fees and Expenses 7,500
Legal Fees and Expenses 40,000
Miscellaneous 5,000
----------
Total $60,523.40
All the expenses will be incurred by the registrant and not by the selling
stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth unregistered sales of the Company's
securities for the three fiscal years ended June 30, 2003, 2004 and 2005 and the
period from July 1, 2005 to March 31, 2006 (all share
II-1
numbers prior to January 31, 2006 do not reflect the 1 for 20 reverse split of
our common stock that occurred on January 31, 2006):
Date Title Number of Shares Purchase/Holder Consideration
---------- ------------------ ---------------- ------------------- ---------------------------------------
8/1/2002 Common Stock 7,000 DJI Partners, LLC Inv Banking Services
9/4/2002 Common Stock 7,000 DJI Partners, LLC Inv Banking Services
10/2/2002 Common Stock 50,000 Neptune $24,960
Investments, Ltd.
10/10/2002 Common Stock 220,000 Neptune $100,000
Investments, Ltd.
10/17/2002 Common Stock 83,333 David Weilage $25,000
10/17/2002 Common Stock 383,333 Martin Ida $115,000
10/17/2002 Common Stock 383,333 Robert Ida $115,000
10/28/2002 Common Stock 18,796 John Krupa Exercise Warrant
10/28/2002 Common Stock 18,796 Mallory Smith Exercise Warrant
10/28/2002 Common Stock 18,796 Robert Lovell Exercise Warrant
11/18/2002 Common Stock 70,000 Patricia Shonebaum $21,000
11/20/2002 Common Stock 50,000 Dennis Ferraro $15,000
11/20/2002 Common Stock 166,667 Gerald Dooher $50,000
11/20/2002 Common Stock 50,000 Paul Demott $15,000
11/20/2002 Common Stock 50,000 Rodney Hock $15,000
11/20/2002 Common Stock 50,000 Dennis McGuire $15,000
11/20/2002 Common Stock 83,333 Larry S. Pisciotta $25,000
11/20/2002 Common Stock 33,333 Vail Valley $10,000
Emergency Phys
Profit
11/21/2002 Common Stock 3,750,000 GrunesSchild, LLC $1 Million
11/26/2002 Common Stock 142,858 David Schulze $50,000
12/11/2002 Common Stock 125,000 John Provazek $50,000
1/10/2003 Common Stock 41,667 John Krupa $15,000
1/28/2003 Common Stock 33,333 William Fritz $10,000
4/3/2003 Common Stock 1,333,334 Neptune Investments $200,000
6/20/2003 Common Stock 240,824 John Provazek $31,307
7/21/2003 Common Stock 769,231 Neptune Investments $100,000
7/22/2003 Common Stock 100,000 Gary Thompson Outstanding Invoice
7/22/2003 Common Stock 100,000 Charles Lowe Outstanding Invoice
1/16/2004 Common Stock 16,565 Patricia Schonebaum Cashless Exercise of Warrant
2/2/2004 Common Stock 17,901 Vail Valley Cashless Exercise of Warrant
Emergency
Physicians
6/27/2005 Common Stock 1,000,000 Lyons Capital Consulting Agreement
6/27/2005 Common Stock 1,000,000 Davila Marketing & 150,000 promissory note
Capital Group
7/8/2005 Common Stock 1,000,000 Business Associate Additional Consideration for Promissory
Note for $150,000
7/11/2005 Common Stock 1,500,000 Business Associate Additional Consideration for Promissory
Note for $25,000
7/11/2005 Common Stock 1,000,000 Business Associate Additional Consideration for Promissory
Note for $25,000
7/15/2005 Common Stock 1,200,000 Business Associate Additional Consideration for Promissory
Note for $15,000
7/22/2005 Common Stock 400,000 Business Associate Additional Consideration for Promissory
Note for $10,000
7/25/2005 Common Stock 1,000,000 Business Associate Additional Consideration for Promissory
Note for $25,000
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8/4/2005 Common Stock 2,000,000 Business Associate Additional Consideration for Promissory
Note for $50,000
8/12/2005 Common Stock 1,000,000 Business Associate Additional Consideration for Promissory
Note for $25,000
10/28/2005 Common Stock 625,000 Business Associate $25,000
10/31/2005 Common Stock 250,000 Business Associate $10,000
11/2/2005 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
11/10/2005 Common Stock 125,000 Business Associate 5,000 for 125,000 shares of common
Warrant 6,250 stock and warrant for 6,250 shares
11/30/2005 Common Stock 1,250,000 Business Associate 50,000 for 1,250,000 shares of common
Warrant 62,500 stock and warrant for 62,500 shares
12/2/2005 Common Stock 625,000 Business Associate 25,000 for 625,000 shares of common
Warrant 31,250 stock and warrant for 31,250 shares
12/2/2005 Common Stock 625,000 Business Associate 25,000 for 625,000 shares of common
Warrant 31,250 stock and warrant for 31,250 shares
12/2/2005 Common Stock 625,000 Business Associate 25,000 for 625,000 shares of common
Warrant 31,250 stock and warrant for 31,250 shares
12/6/2005 Common Stock 1,875,000 Business Associate 75,000 for 1,875,000 shares of common
Warrant 93,750 stock and warrant for 93,750 shares
12/6/2005 Common Stock 1,875,000 Business Associate 75,000 for 1,875,000 shares of common
Warrant 93,750 stock and warrant for 93,750 shares
12/7/2005 Common Stock 625,000 Business Associate 25,000 for 625,000 shares of common
Warrant 31,250 stock and warrant for 31,250 shares
12/7/2005 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
12/12/2005 Common Stock 200,000 Business Associate 8,000 for 200,000 shares of common
Warrant 10,000 stock and warrant for 10,000 shares
12/20/2005 Common Stock 375,000 Business Associate 15,000 for 375,000 shares of common
Warrant 18,750 stock and warrant for 18,750 shares
12/22/2005 Common Stock 125,000 Business Associate 5,000 for 125,000 shares of common
Warrant 6,250 stock and warrant for 6,250 shares
12/22/2005 Common Stock 937,500 Business Associate 37,500 for 937,500 shares of common
Warrant 46,875 stock and warrant for 46,875 shares
12/22/2005 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
1/3/2006 Common Stock 1,250,000 Business Associate 50,000 for 1,250,000 shares of common
Warrant 62,500 stock and a warrant for 62,500 shares
1/5/2006 Common Stock 450,000 Business Associate 18,000 for 450,000 shares of common
Warrant 22,500 stock and a warrant for 22,500 shares
1/5/2006 Common Stock 625,000 Business Associate 25,000 for 625,000 shares of common
Warrant 31,250 stock and a warrant for 31,250 shares
1/5/2006 Common Stock 187,500 Business Associate 7,500 for 187,500 shares of common
Warrant 9,375 stock and a warrant for 9,375 shares
1/5/2006 Common Stock 62,500 Business Associate 50,000 for 62,250 shares of common
Warrant 62,500 stock and warrant for 62,500 shares
II-3
1/5/2006 Common Stock 12,500 Business Associate 10,000 for 12,500 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
1/5/2006 Common Stock 12,500 Business Associate 10,000 for 12,500 shares of common
Warrant 12,500 stock and warrant for 12,500 shares
1/5/2006 Common Stock 12,500 Business Associate 10,000 for 12,500 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
1/5/2006 Common Stock 6,250 Business Associate 5,000 for 6,250 shares of common stock
Warrant 6,250 and a warrant for 6,250 shares
1/5/2006 Common Stock 2,500 Business Associate 2,000 for 2,500 shares of common stock
Warrant 2,500 and a warrant for 2,500 shares
1/6/2006 Common Stock 22,500 Business Associate 18,000 for 22,500 shares of common
Warrant 22,500 stock and a warrant for 22,500 shares
1/9/2006 Common Stock 31,250 Business Associate 25,000 for 31,250 shares of common
Warrant 31,250 stock and a warrant for 31,250 shares
1/9/2006 Common Stock 3,125 Business Associate 2,500 for 3,125 shares of common stock
Warrant 3,125 and a warrant for 3,125 shares
1/9/2006 Common Stock 6,250 Business Associate 5,000 for 6,250 shares of common stock
Warrant 6,250 and a warrant for 6,250 shares
1/10/2006 Common Stock 300,000 Business Associate 12,000 for 300,000 shares of common
Warrant 15,000 stock and a warrant for 15,000 shares
1/11/2006 Common Stock 12,500 Business Associate 10,000 for 12,500 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
1/12/2006 Common Stock 12,500 Business Associate 10,000 for 12,500 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
1/12/2006 Common Stock 15,000 Business Associate 12,000 for 15,000 shares of common
Warrant 15,000 stock and a warrant for 15,000 shares
1/13/2006 Common Stock 62,500 Business Associate 2,500 for 62,500 shares of common
Warrant 3,125 stock and a warrant for 3,125 shares
1/17/2006 Common Stock 371,823 Business Associate 14,873 for 371,823 shares of common
Warrant 18,592 stock and a warrant for 18,592 shares
1/17/2006 Preferred 200,000 Arizcan Properties, 400,000 and a note payable for
Stock(1) Ltd. $1,100,000
1/17/2006 Common Stock 3,125 Business Associate 2,500 for 3,125 shares of common stock
Warrant 3,125 and a warrant for 3,125 shares
1/18/2006 Common Stock 18,592 Business Associate 14,872 for 18,592 shares of common
Warrant 18,592 stock and a warrant for 18,592 shares
1/18/2006 Common Stock 12,500 Business Associate 10,000 for 12,500 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
1/26/2006 Common Stock 250,000 Business Associate 10,000 for 250,000 shares of common
Warrant 12,500 stock and a warrant for 12,500 shares
2/2/2006 Common Stock 15,000,000 Business Associate Conversion of 200,000 shares of Series
A Preferred Stock
--------------------
(1) Each share of preferred stock is convertible into 75 shares of common stock
(the conversion ratio as adjusted from the reverse stock split of the Company's
common stock that occurred in January of 2006).
The above issuances by the Company of its unregistered securities was made
by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and/or Regulation D promulgated thereunder. The
entities/individuals that purchased the unregistered securities were known to
the Company and its management, through pre-existing business relationships,
friends and employees. All purchasers were provided access to all material
information which they requested, and all information necessary to verify such
information and was afforded access to management of the Company in connection
with their purchases. All holders of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends,
II-4
prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise
exempt from registration under the Act in any further resale or disposition.
ITEM 27. EXHIBITS.
The following is a complete list of Exhibits filed as part of this
registration statement and this list is intended to comprise the exhibit index.
Exhibit numbers correspond to the numbers in the exhibit table of Item 601 of
Regulation S-B.
EXHIBIT NO. DESCRIPTION
2.01 Agreement dated February 26, 1998, by and among the Company, Particle
Interconnect Corporation and Intercell Corporation (Incorporated by reference to
the Company's Current Report on Form 8-K, dated February 26, 1998)
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 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)
#5.01 Opinion of Kutak Rock LLP
10.01 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)
10.02 Employment Agreement, dated March 15, 2004, between Kristi J. Kampmann and the
Company
(Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended March 31, 2004)
10.03 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)
10.04 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)
II-5
10.05 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)
10.06 Technology License Agreement dated April 18, 2005 by and between Progressive
Bioactives, Inc. and Bioagra LLC (Incorporated by reference to Exhibit 10.06 to the
Company's Registration Statement on Form SB-2 filed March 29, 2006)
*15.01 Acknowledgement of independent registered public accounting firm, GHP Horwath,
P.C.
#21.01 Subsidiaries of the Company
*23.01 Consent of independent registered public accounting firm, GHP Horwath, P.C.
#23.03 Consent of Kutak Rock LLP (included in Exhibit 5.01)
#24.00 Power of Attorney
--------------------
*Filed herewith.
# Previously filed.
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to:
(i) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(1) include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(2) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding the
forgoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospects filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(3) include any additional or changed material information on
the plan of distribution.
(ii) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
II-6
(iii) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on June 30, 2006.
VYTA CORP
By /s/ Paul H. Metzinger
----------------------
PAUL H. METZINGER, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registration Statement on Form SB-2 is
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Paul H. Metzinger President, Chief Executive June 30, 2006
----------------------- Officer and Director
PAUL H. METZINGER (Principal Executive
Officer)
*** Director June 30, 2006
-----------------------
HERBERT J. NEUHAUS
/s/ Kristi J. Kampmann Chief Financial Officer June 30, 2006
----------------------- (Principal Accounting
KRISTI J. KAMPMANN Officer) and Secretary
*** Director June 30, 2006
-----------------------
ROBERT SHAW
*** Director June 30, 2006
-----------------------
JOHN HOBACK
*** By: /s/ Paul H. Metzinger
---------------------
Paul H. Metzinger, As attorney-in-fact
II-8
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.01 Agreement dated February 26, 1998, by and among the Company, Particle
Interconnect Corporation and Intercell Corporation (Incorporated by reference to
the Company's Current Report on Form 8-K, dated February 26, 1998)
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 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)
#5.01 Opinion of Kutak Rock LLP
10.01 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)
10.02 Employment Agreement, dated March 15, 2004, between Kristi J. Kampmann and the
Company (Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the fiscal quarter ended March 31, 2004)
10.03 Operating Agreement, dated August 15, 2005, between the Company and Xact
Resources International (now known as Justin Holdings, Inc.), Inc. for BioAgra, LLC
(Incorporated by reference to the Company's Current Report on Form 8-K, dated
August 12, 2005)
10.04 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)
10.05 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)
10.06 Technology License Agreement dated April 18, 2005 by and between Progressive
Bioactives, Inc. and Bioagra LLC (Incorporated by reference to Exhibit 10.06 to the
Company's Registration Statement on Form SB-2 filed March 29, 2006)
*15.01 Acknowledgement of independent registered public accounting firm, GHP Horwath,
P.C.
#21.01 Subsidiaries of the Company
*23.01 Consent of independent registered public accounting firm, GHP Horwath, P.C.
#23.03 Consent of Kutak Rock LLP (included in Exhibit 5.01)
#24.00 Power of Attorney
-------------------
*Filed herewith.
# Previously filed.