As filed with the Securities and Exchange Commission on March 29, 2006
Registration No. 333-______
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_______________
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.
_______________
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. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================================
Proposed Proposed
Title of each class Amount maximum maximum Amount of
of securities to to be offering price aggregate offering registration
be registered registered(1) per share(2) price(2) fee(3)
------------------------------------------------------------------------------------------------
Common stock, $.0001 par
value per share 16,345,467 $ 1.135 $ 18,552,105 $ 1,985
------------------------------------------------------------------------------------------------
Common stock, $.0001 par
value per share issuable
upon exercise of warrants 746,717 $ 1.135 $ 847,524 $ 91
------------------------------------------------------------------------------------------------
TOTAL: 17,092,184 $ 1.135 $ 19,399,629 $ 2,076
================================================================================================
____________________
(1) Pursuant to Rule 416 under the Securities Act of 1933, this registration statement shall be
deemed to cover or to proportionally reduce, as applicable, an indeterminate number of shares of
common stock of the Registrant issuable in the event the number of shares of the Registrant is
increased, or reduced, as applicable, by reason of any stock split, reverse stock split, stock
dividend or other similar transaction.
(2) Estimated solely for the purpose of calculating the registration fee in accordance with
Rule 457(c) under the Securities Act of 1933 based on the average of the closing bid and asked
prices of the common stock on March 23, 2006, as reported on the OTC Bulletin Board.
(3) Registration fee calculations are based on the filing fee of $107.00 per $1,000,000 of
securities registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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 MARCH 29, 2006
PROSPECTUS
VYTA CORP
---------
370 17th Street, Suite 3640
Denver, Colorado 80202
17,092,184 SHARES OF COMMON STOCK, INCLUDING:
16,345,467 SHARES CURRENTLY OUTSTANDING
746,717 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. 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 of these warrants. See "USE OF PROCEEDS" for
more information.
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 March 28, 2006, the last reported sale price of our common
stock on the over-the-counter bulletin board was $1.10 per share
(rounded to the nearest penny). See "DESCRIPTION OF COMMON
STOCK-Common Stock."
RISK
FACTORS: INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5.
As of March 28, 2006, we had 22,493,512 shares of our common stock issued
and outstanding. The shares of common stock offered by this prospectus
represent about 76% 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
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risks Relating to Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
We have a history of losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
We may not be able to continue as a going concern. . . . . . . . . . . . . . . . . . . . . . . . . 5
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
License to AgraStim is limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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. . . . . . . . . 6
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Operations of BioAgra may be delayed or cost more than we anticipate . . . . . . . . . . . . . . . 6
We cannot guarantee the quality, performance or reliability of BioAgra's products. . . . . . . . . 6
There may be insufficient demand for AgraStim. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
We may be unable to meet our ongoing needs for additional capital. . . . . . . . . . . . . . . . . 7
We may be unable to hire and retain key personnel. . . . . . . . . . . . . . . . . . . . . . . . . 7
We may be unable to obtain and retain appropriate patent, copyright and trademark
protection of our products or manufacturing process. . . . . . . . . . . . . . . . . . . . 8
Economic factors outside our control may have an adverse affect on BioAgra's revenues
and our income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The market for feed additives is competitive . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
If BioAgra was unable to use their manufacturing facility, they may not be able to
manufacture AgraStim for an extended period of time. . . . . . . . . . . . . . . . . . . . 9
BioAgra's use of a single manufacturing facility may restrict their ability to attract
customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Manufacturing capacity restraints and limited experience may have an adverse affect on
BioAgra. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Replacing BioAgra's sole source of suppliers for key materials could result in unexpected
delays and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risks Relating to this Offering and Ownership of Our Common Stock. . . . . . . . . . . . . . . . . 10
This offering and the sale of securities by current stockholders could cause dilution of
existing holders of our common stock by decreasing the price of our common stock . . . . . 10
Common stock price could be effected by the ability of holders of our common stock to
sell their stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
We could issue preferred stock that could adversely effect the rights of our common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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 . . . . . . . . . 11
We do not expect to pay dividends in the foreseeable future. . . . . . . . . . . . . . . . . . . . 12
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DETERMINATION OF OFFERING PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . 13
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ii
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
DESCRIPTION OF COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
iii
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 AgraStimTM(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 at
www.nanopierce.com, and are in the process of constructing a new website at
------------------
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.
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 17,092,184 shares of our common stock, including:
- 16,345,467 shares outstanding as of the date of this prospectus
- 746,717 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 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 six months ended December
31, 2005 and related notes and the information under "FINANCIAL STATEMENTS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS" included elsewhere in this prospectus.
3
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------------- -------------------------
2005 2004
(UNAUDITED) (UNAUDITED) 2005 2004
------------ ------------ ----------- ------------
Revenues $ - $ - $ - $ 34,258
------------ ------------ ----------- ------------
Operating expenses:
Research and development - - - 41,849
General and administrative 441,027 391,260 872,203 1,312,519
Selling and marketing - - - 37,033
Impairment of intellectual property(1) - - - 608,061
------------ ------------ ----------- ------------
(441,027) (391,260) (872,203) (1,999,462)
------------ ------------ ----------- ------------
Loss from operations (441,027) (391,260) (872,203) (1,965,204)
------------ ------------ ----------- ------------
Other income (expense):
Other income 28,585 10,508 10,618 -
Interest income 8,350 6,187 17,672 2,550
Extinguishment of liabilities (2) - - - 52,500
Equity losses of affiliates (3) (389,654) (49,297) (144,323) (99,922)
Loss on revaluation of
derivative warrant liablility (4) (4,158) - - -
Interest expense (235,131) - (9,301) (1,683)
Interest expense, related party (219) - (79) (1,206)
------------ ------------ ----------- ------------
(592,227) (32,602) (125,413) (47,761)
------------ ------------ ----------- ------------
Loss from continuing operations (1,033,254) (423,862) (997,616) (2,012,965)
------------ ------------ ----------- ------------
Discontinued operations,
income from operations
of subsidiary (5) - - - 454,882
------------ ------------ ----------- ------------
Net loss $(1,033,254) $ (423,862) $ (997,616) $(1,558,083)
============ ============ =========== ============
Basic and diluted loss per share:
Loss from continuing operations $ (0.16) $ (0.09) $ (0.22) $ (0.54)
Income from discontinued operations $ - $ - $ - $ 0.12
------------ ------------ ----------- ------------
Net loss per share, basic and diluted(6) $ (0.16) $ (0.09) $ (0.22) $ (0.42)
============ ============ =========== ============
Weighted average number of
common shares outstanding (6) 6,327,884 4,525,670 4,544,980 3,755,836
============ ============ =========== ============
______
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 six months ended December 31, 2005 in
"FINANCIAL STATEMENTS."
4 See Note 5 to our unaudited quarterly financial statements for the six months ended December 31, 2005
in "FINANCIAL STATEMENTS."
5 See Note 3 to our consolidated financial statements for the fiscal year ended June 30, 2005 in
"FINANCIAL STATEMENTS."
6 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 six months ended
December 31, 2005 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 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 of $1,033,254 for the six-month period ended
December 31, 2005.
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 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.
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.
7
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 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
8
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, 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.
9
MANUFACTURING CAPACITY RESTRAINTS AND LIMITED EXPERIENCE MAY HAVE AN ADVERSE
AFFECT ON BIOAGRA
BioAgra has limited manufacturing capacity and experience. We may encounter
some difficulties, such as significant unexpected costs and delays, in scaling
up the manufacturing operations of BioAgra to produce quantities required for us
to achieve profitability. The failure to scale-up manufacturing operations in a
timely and cost-effective way may adversely affect our income. We believe that
BioAgra has adequate capacity to meet anticipated demand for 2006. However, in
the event the demand for AgraStim rapidly increases or spikes in a certain
period, BioAgra may not have the manufacturing ability to fulfill demand, either
in their our own facilities or through agreements with third parties. This lack
of manufacturing capacity may materially affect BioAgra's and our reputation,
prospects, revenue, income and results of operation.
REPLACING BIOAGRA'S SOLE SOURCE OF SUPPLIERS FOR KEY MATERIALS COULD RESULT IN
UNEXPECTED DELAYS AND EXPENSES.
BioAgra obtains some key materials and services for AgraStim from sole
source suppliers, primarily with respect to spent 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
THIS OFFERING AND THE SALE OF SECURITIES BY CURRENT STOCKHOLDERS COULD CAUSE
DILUTION OF EXISTING HOLDERS OF OUR COMMON STOCK BY DECREASING THE PRICE OF OUR
COMMON STOCK
The market price of our common stock could be adversely affected by sales
of substantial amounts of common stock in the public market as a result of this
offering, 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 March 28, 2006, we had 22,493,512 shares of our 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 29,353,494 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 March 28, 2006, approximately
5,718,859 shares of our common stock were freely transferable and constitute the
"float" in the public market for our common stock. If all of our outstanding
options and warrants were exercised and all of our reserved shares were issued,
the "float" for our common stock could increase to a total of 24,039,683 shares
(including the shares of our common stock registered under the registration
statement to which this prospectus relates). As of March 28, 2006,
approximately 16,774,653 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
10
"control" shares of our common stock could increase to a total of 5,313,811
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.
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.
11
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.
With respect to the shares of our common stock offered by this prospectus,
we previously received $1,500,000 ($400,000 in cash and an unsecured promissory
note for the remaining $1,100,000) from the sale of series A preferred stock
described in "THE COMPANY." All of these shares were converted into shares of
our common stock and we did not receive any additional proceeds upon conversion.
We are registering shares of our common stock that will be issued to
investors upon exercise of warrants issued to a number of selling stockholders
described in "SELLING STOCKHOLDERS." Assuming that all of these warrants were
exercised, we expect to receive an additional $746,717, substantially all of
which we expect to use for general working capital purposes, to acquire a
revenue generating company or to acquire technology complimentary to our current
technology, our ownership interests in ExypnoTech and any other licensing
agreements or joint venture agreements that we may enter in the future. However,
no assurance can be given that any of these warrants will be exercised.
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."
12
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
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
As of March 28, 2006, there were approximately 399 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
13
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.
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
exercise of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
Plan Category warrants and rights and rights reflected in column (a)
(A) (B) (C)
Equity compensation plans
approved by security holders 0 - 0
Equity compensation plans not
approved by security holders (1) 396,350 $ 20.00 3,712,476
Total 396,350 $ 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."
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.nanopierce.com, and are in the process of constructing a new website at
------------------
www.vytacorp.com, which is not incorporated in and is not a part of this
----------------
prospectus.
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
14
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 NCSTM 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:
- 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.
15
- 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 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
16
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 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
17
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. It is anticipated that
the plant will go through a shakedown period in which we will begin to evaluate
and understand the controls and efficiencies of the plant. It is expected that
by April 2006, we will be able to start operating on a full-scale capacity. 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 intends to hire administrative staff and production
staff. It expects to initially hire 12 production employees for a two-shift
production cycle beginning April 2006.
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:
18
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. Bartolleta is a gradate 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 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 contact
less 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.
19
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.
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.
20
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 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.
21
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, 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 six months ended December 31, 2005.
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 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
22
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 December 31, 2005, 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 currently has a 3-year lease on
the property, expiring in March 2006. The base rent is $2,600 per month through
March 30th, with a $100 per month increase in base rent each year thereafter for
the remaining term of the lease, plus utilities and maintenance expenses. The
facility is approximately 4,800 square feet consisting of office space and a
small laboratory. The facility also has a clean room. The facility has been
abandoned and NanoPierce Connection settled with the landlord for a total
payment of $30,000 to be paid in monthly payments of $5,000 per month for six
months. As of March 2006, we are current on these settlement payments and our
remaining obligation on the lease is approximately $5,000.
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,
23
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.
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.
24
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 a 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. As of March 28, 2006, the note receivable had an outstanding principal
balance of $1,096,674. Arizcan Properties is wholly owned by Triumphant
Partners, LLC, a Colorado limited liability company, that is owned by Stan
Richards.
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.
25
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 six months ended December 31, 2005 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, the Company's Board 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.
On January 19, 2006 the Company's Board of Directors (the "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 six
months ended December 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."
On January 19, 2006, the Company's 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
SIX MONTHS ENDED DECEMBER 31, 2005
The Company had no revenues during the three and six months ended December
31, 2005 and 2004.
The Company recognized $28,585 of other income, of which $28,250
represented a gain on the extinguishment of liabilities. The Company recognized
$8,350 in interest income during the six months ended December 31, 2005 compared
to $6,187 during the six months ended December 31, 2004 ($4,419 and $4,687 for
the three months ended December 31, 2005 and 2004, respectively).
Total general and administrative expenses during the six months ended
December 31, 2005 were $441,027 compared to $391,260 for the six months ended
December 31, 2004 ($216,188 and $178,186 for the three months ended December 31,
2005 and 2004, respectively). The increase of $49,767 is primarily attributable
to a $68,210 increase in commission fees, a $22,720 increase in consulting fees,
offset by a $24,581 decrease in public relations expense.
26
The Company recognized interest expense of $235,350 for the six months
ended December 31, 2005 (no interest expense was recognized in the three months
ended December 31, 2005). No interest expense was recorded during the three and
six months ended December 31, 2004. 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 six months ended December 31, 2005, the Company recognized a net
loss of $1,033,254 compared to a net loss of $423,862 during the six months
ended December 31, 2004 ($345,674 and $217,568 for the three months ended
December 31, 2005 and 2004, respectively). The increase of $609,392, during the
six months ended December 31, 2005, is primarily attributable to the increase of
$235,350 in interest expense, as explained above and the increase of $389,654 in
losses of equity investments.
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
27
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.
LIQUIDITY AND FINANCIAL CONDITION
SIX MONTHS ENDED DECEMBER 31, 2005
During the six months ended December 31, 2005, the Company was able to
raise $537,500 cash through the sale of 671,875 shares of its restricted common
stock and warrants to purchase 628,125 shares of its restricted common stock.
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.
In August 2005, the Company purchased a 50% equity interest in BioAgra for
$905,000 cash (which includes the $405,000 advanced to Xact Resources during the
fiscal year ended June 30, 2005) and a note payable of $595,000 which was paid
in full in September 2005. BioAgra plans to manufacture and sell a beta glucan
product, AgraStim to be marketed as AgraStimTM, to be used as a replacement for
hormone growth steroids and antibiotics in products such as poultry feed.
BioAgra anticipates beginning production and sale of the beta glucan product
AgraStim during the quarter ended March 31, 2006.
Additionally, the Company entered into an agreement with Arizcan
Properties, Ltd. ("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 September 2005, the Company executed a subscription agreement
("Subscription Agreement") to sell shares of the Company's preferred stock to
Arizcan. 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 December 2005, the Company received an advance payment of
$200,000 in connection with the purchase of the Preferred Shares. On January 19,
2006, the Company completed the sale of 200,000 Preferred Shares for $400,000
cash ($200,000 of which was received in December 2005) and an unsecured
corporate promissory note of $1,100,000. The promissory note is due on January
18, 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
conversion, Arizcan held approximately 67% of the issued and outstanding common
stock of the Company.
During the six months ended December 31, 2005, the Company used $427,379 in
operating activities. Net cash provided by financing activities was $1,459,337;
$960,663 was used to pay notes payable, $2,070,500 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
$810,881; $500,000 was used to purchase the 51% equity interest in the BioAgra
joint venture. The
28
Company had $247,412 of cash and cash equivalents at December 31, 2005, which is
being used to support operations and activities of BioAgra, in which the Company
owns a 50% equity interest. During the six months ended December 31, 2004, the
Company used $314,126 in operating activities from continuing operations.
During the six months ended December 31, 2004, the Company used $46,052 to pay a
note payable.
As of December 31, 2005, if all existing outstanding warrants issued in a
January 2004 private placement were exercised, the Company 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), would have 29,353,494 shares of
common stock issued and outstanding.
If the warrants issued to investors in the private placement described
above are all exercised, the Company 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, the Company has decided that it may
use the additional funds received from the exercise of these warrants to acquire
a revenue generating company or to acquire technology complementary to the
current technology of the Company, its ownership interests in ExypnoTech and
BioAgra and any other licensing agreements or joint venture agreements that the
Company may enter in the future.
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 for.
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.
29
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 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.
30
PLAN OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2005
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 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.
31
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
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
SIX MONTHS ENDED DECEMBER 31, 2005
The Company's Critical Accounting Policies during this period also include
those outlined below for the fiscal year ended June 30, 2005.
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE
COMPANY'S COMMON STOCK:
The Company accounts for obligations and instruments potentially to be
settled in the Company's 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, the Company's 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
32
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.
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.
33
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.
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 six months ended December 31,
2005.
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
34
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.
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
35
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 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
BACKGROUND
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 under "-Selling Stockholders Table." The background for the
registration for each selling stockholder is set forth below.
- In January 2006, we sold 200,000 shares of our series A preferred
stock to Arizcan Properties as described in "THE
COMPANY-Corporate Restructuring." Based on the subscription
agreement between us and Arizcan Properties, we are obligated to
register for resale under the Securities Act of 1933, a total of
15,000,000 shares of our common stock that were issued to Arizcan
Properties upon conversion of all 200,000 shares of our series A
preferred stock.
- Between June 2005 and August 2005, we issued 505,000 shares of
our common stock to various business associates as additional
consideration for lending us $325,000 in the form of notes
payable and we agreed to register these shares for resale by this
prospectus.
- Between October 2005 and December 31, 2005, we issued 43,751
shares of our common stock to various business associates for
$35,000 and we agreed to register these shares for resale by this
prospectus.
- Between November 2005 and January 31, 2006 we issued 746,716
shares of our common stock, together with warrants to purchase
746,716 shares of our common stock to various business associates
for a total of $572,373 and we agreed to register the shares of
our common stock that will be held by each of these stockholders
assuming they exercise all of these warrants.
- In June 2005, we agreed to issue 50,000 shares of our common
stock to business associates for a commission on efforts in
aiding our capital raising efforts and we agreed to register the
shares for resale by this prospectus.
SELLING STOCKHOLDERS TABLE
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.
The information in the following table and footnotes is based solely on
information furnished to us by the selling stockholders which, for each selling
stockholder, includes:
(a) the name and address of the selling stockholder,
36
(b) any position, office or other material relationship, if any,
which the selling stockholder has had with us, our predecessors or our
affiliates within the past three years,
(c) 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 March 28, 2006 (on a fully-diluted basis),
(d) the number of shares of our common stock offered by the
selling stockholder, and
(e) 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 (d) 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. Each selling stockholder has
represented to us that it is not a broker-dealer nor is affiliated with a
broker-dealer.
(A) (B) (C) (D) (E)
MATERIAL AMOUNT OF COMMON
RELATIONSHIP STOCK/PERCENTAGE OF AMOUNT OF
WITH VYTA CORP OUR COMMON STOCK AMOUNT OF COMMON STOCK
NAME AND ADDRESS OF WITHIN THE LAST 3 OWNED BEFORE COMMON OWNED AFTER
SELLING STOCKHOLDER YEARS OFFERING STOCK OFFERED OFFERING(1)
Arizcan Properties, Ltd.(2)
77 South Adams, Suite 906
Denver, CO 80209 (2) 15,007,770/51.13% 15,000,000 7,770
Terry Allen
10414 Ashcroft Way
Fairfax, VA 22032 None 30,000(3)/0.10% 30,000(3) 0
Steve Anderson
6770 E. Exposition Avenue
Denver, CO 80224 None 250,000(3)/0.85% 250,000(3) 0
Dr. Robert Belihar
912 Saddleview Court
Franklin, TN 37067 None 12,500(3)/0.04% 12,500(3) 0
Bottom Line Advisors Inc. (4)
13314 Lost Key Place
Bradenton, FL 34202-5002 None 62,500(3)/0.21% 62,500(3) 0
Dennis Cionetti and Jeanette
Cionetti, JTTEN
334 Clermont Street Parkway
Denver, CO 80220 None 25,000(3)/0.09% 25,000(3) 0
Vic Cionetti
94 South Rosemary Street
Denver, CO 80230 None 25,000(3)/0.09% 25,000(3) 0
37
(A) (B) (C) (D) (E)
MATERIAL AMOUNT OF COMMON
RELATIONSHIP STOCK/PERCENTAGE OF AMOUNT OF
WITH VYTA CORP OUR COMMON STOCK AMOUNT OF COMMON STOCK
NAME AND ADDRESS OF WITHIN THE LAST 3 OWNED BEFORE COMMON OWNED AFTER
SELLING STOCKHOLDER YEARS OFFERING STOCK OFFERED OFFERING(1)
Zuni Kitchen LLC (5)
450 Dahlia Street
Denver, CO 80220 None 12,500(3)/0.04% 12,500(3) 0
Jose Davila
2183 Pamplona Court
Escondido, CA 92025 None 25,000/0.09% 25,000 0
Marty Estes
6753 Norris Farm Road
Trussville, AL 35173 None 25,000/0.09% 25,000 0
Gerald Dooher
PO Box 2408
Edwards, CO 81635 None 29,167(3)/0.10% 25,000(3) 4,167
Terrence Dooher
5939 S. Franklin Street
Littleton, CO 80121 None 26,250(3)/0.09% 25,000(3) 1,250
Dennis Ferraro
11643 Shoshone Way
Denver, CO 80294-2630 None 69,600(3)/0.24% 62,500(3) 7,100
Christopher Gilbert
2963 Albion Street
Denver, CO 80207 None 12,500(3)/0.04% 12,500(3) 0
Marty Ida
8776 N. 107th Street, PO Box 94
Longmont, CO 80502-0094 None 194,000(3)/0.66% 187,500(3) 6,500
Robert Ida
1615 W. 113th Avenue
Denver, CO 80234-2603 None 187,500(3)/0.64% 187,500(3) 0
Leigh Kalin
541 High Street
Denver, CO 80218 None 25,000(3)/0.09% 25,000(3) 0
Kent Kloock
82 Glenwood Terrace Ext.
Stuart, VA 24171 None 131,384(3)/0.45% 118,434(3) 12,950
John Krupa
c/o Mallory Smith
11211 E. Arapahoe Road, Ste. 116
Centennial, CO 80112 None 112,500/0.38% 100,000 12,500
38
(A) (B) (C) (D) (E)
MATERIAL AMOUNT OF COMMON
RELATIONSHIP STOCK/PERCENTAGE OF AMOUNT OF
WITH VYTA CORP OUR COMMON STOCK AMOUNT OF COMMON STOCK
NAME AND ADDRESS OF WITHIN THE LAST 3 OWNED BEFORE COMMON OWNED AFTER
SELLING STOCKHOLDER YEARS OFFERING STOCK OFFERED OFFERING(1)
LZF, LLC (6)
c/o Robert S. Hoover
Krabacher & Sanders, P.C.
201 N. Mill Street, Ste. 201
Aspen, CO 81611-1557 None 50,000(3)/0.17% 50,000(3) 0
James T. McDonnell
801 Garfield Street
Denver, CO 80206 None 12,500(3)/0.04% 12,500(3) 0
Jeff Ploen
6590 E. Lake Place
Centennial, CO 80111 None 107,500(3)/0.37% 107,500(3) 0
John Provazek
6510 50th Avenue Dr. NE
Marysville, WA 98270 None 126,107/0.43% 50,000 76,107
Blanche Richards
14001 E. Marina Drive
Aurora, CO 80014 None 78,112(3)/0.27% 57,500(3) 20,612
Irrevocable Trust of Blanche
Richards (7)
PO Box 388
Hudson, CO 80642 None 60,000/0.20% 60,000 0
Ralph Riggs
1520 Wazee Street
Denver, CO 80202 None 93,750(3)/0.32% 93,750(3) 0
Dan Rudden
5200 S. Ulster Street, Unit 1319
Englewood, CO 80111 None 62,500(3)/0.21% 62,500(3) 0
Dr. Ben Sandoval
PO Box 6295
Santa Fe, NM 87502-6295 None 20,000(3)/0.07% 20,000(3) 0
Allen G. Schroeder
PO Box 1646
Janesville, WI 53547 None 8,375(3)/0.03% 6,250(3) 2,125
Stephen G. Schroeder
PO Box 1646
Janesville, WI 53547 None 35,625(3)/0.12% 18,750(3) 16,875
Stephen Seitz
1117 County Highway 5
Otega, NY 13825 None 129,535/0.44% 62,500 67,035
Michael Sheppard
4229 Warren Road
Franklin, Tennessee 37067 None 272,500/0.93% 100,000 172,500
39
(A) (B) (C) (D) (E)
MATERIAL AMOUNT OF COMMON
RELATIONSHIP STOCK/PERCENTAGE OF AMOUNT OF
WITH VYTA CORP OUR COMMON STOCK AMOUNT OF COMMON STOCK
NAME AND ADDRESS OF WITHIN THE LAST 3 OWNED BEFORE COMMON OWNED AFTER
SELLING STOCKHOLDER YEARS OFFERING STOCK OFFERED OFFERING(1)
Leslie G. Smith and Randy Smith,
JTTEN
3004 N.E. 47th Avenue
Portland, OR 97213 None 25,000(3)/0.09% 25,000(3) 0
Beverly Sweeney
2400 E. Alameda Avenue
Denver, CO 80209 None 5,000(3)/0.02% 5,000(3) 0
David Weilage
285 Potato Patch Circle
Evergreen, CO 80439 None 271,339(3)/0.92% 150,000(3) 121,339
_____________________
(1) 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 of common stock offered by this prospectus.
(2) Arizcan Properties is wholly owned by Triumphant Partners, LLC, a Colorado limited liability company
that is owned by Stan Richards. Mr. Richards has voting and dispositive power over the shares of common
stock being offered. As a result of the acquisition of our series A preferred stock on January 17, 2006
described in the section of the prospectus titled "THE COMPANY-Corporate Restructuring-Private Placement,"
which shares of series A preferred stock were all converted into shares of our common stock on February 2,
2006, Arizcan Properties is now our controlling shareholder. The transactions between Arizcan Properties,
its principals and us are described elsewhere in this prospectus. See "RELATIONSHIPS AND RELATED
TRANSACTIONS," "MANAGEMENT'S DISCUSSION AND ANALYSIS" and "FINANCIAL STATEMENTS."
(3) Assumes the exercise of all of the warrants to purchase shares of our common stock at an exercise
price of $1.00 per share expiring on February 2, 2009 issued to the named selling stockholder.
(4) Bottom Line Advisors Inc. is beneficially owned by Bobbi A. Norris. David L. Norris and Bobbi A.
Norris have voting and dispositive power over the shares of common stock being offered.
(5) Zuni Kitchen LLC is beneficially owned by Todd Coleman, who has voting and dispositive power over the
shares of common stock being offered.
(6) LZF, LLC is beneficially owned by Robert S. Hoover, who has voting and dispositive power over the
shares of common stock being offered.
(7) The beneficiaries of the Irrevocable Trust of Blanche Richards include Rochelle M. Richards, Danielle
Richards, Ethan Smith and Jasper Smith. R. Mark Richards, Trustee, has voting and dispositive power over
the shares of common stock being offered.
PLAN OF DISTRIBUTION
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
40
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.
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
41
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.
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 March 28, 2006 we had 22,493,512 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 6,027,692 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 29,353,494 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.
42
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 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
------------ -------- ------
Director, President, and
Chief Executive Officer, December 1998 to present
General Manager of
Paul H. Metzinger (67) NanoPierce Card January 2000 to June 2003
Director, Former Executive
Vice President of
Technology & Marketing, January 1999 to present
President & Chief
Dr. Herbert J. Neuhaus (44)
43
Executive Officer of January 2002 to September
NanoPierce Connection 2003
Chief Financial Officer, October 1999 to present
Kristi J. Kampmann (33) 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.
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
44
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; 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 $1,000 per meeting, plus reasonable travel
expenses. During the fiscal year ended June 30, 2005, the officers and
directors were not compensated for attendance at board meetings.
45
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer and the Company's three most
highly compensated executive officers for the fiscal years ended June 30, 2005,
2004 and 2003 (the "Named Executive Officers") (after giving effect to the
reverse stock split of our common stock that occurred on January 31, 2006 that
is described elsewhere in this prospectus):
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
----------- ----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME & PRINCIPAL SALARY BONUS COMPENSA- STOCK OPTIONS/ PAYOUTS COMPENSA-
POSITION YEAR ($) ($) TION AWARDS ($) SARS (#) ($) TION
Paul H.
Metzinger,
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
46
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
$6,250 per month.
The foregoing compensation table does not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain
non-monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer listed in the above table, which cannot be precisely ascertained but
which is less than 10% of the cash compensation paid to each such executive
officer, is not included in such table.
OPTION/SAR GRANTS TABLE
There were no grants of stock options to the Company's executive officers
during the fiscal year ended June 30, 2005.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table provides information relating to the exercise of stock
options during the fiscal year ended June 30, 2005 by the Company's executive
officers and the 2005 fiscal year-end value of unexercised options (after giving
effect to the reverse stock split of our common stock that occurred on January
31, 2006 that is described elsewhere in this prospectus).
SHARES VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SAR
NAME EXERCISE (#) ($) AT FY-END AT FY-END ($)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------------- ---------------------------
Paul H.
Metzinger 0 0 125,000/0 $ 237,500/0
Dr. Herbert
J. Neuhaus 0 0 67,500/0 $ 128,250/0
Kristi
J. Kampmann 0 0 16,250/0 $ 30,875/0
____________________
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.
47
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, the Company's Board of Directors passed a resolution closing the
1998 Compensatory Stock Option Plan for issuance of new options. The Company has
reserved 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 Company's Board of Directors, acquires 50%
or more of the voting shares of the Company, or the Company adopts a plan of
dissolution of liquidation. The Employment Agreement also include a non-compete
and nondisclosure provisions in which each
48
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 December 31,
2005 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
"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 15,007,700 (1) 51.00%
77 South Adams, Suite 906
Denver, CO 80209
The Paul H. Metzinger Trust Common Stock 186,585 (2) 0.64%
Paul H. Metzinger, President &
CEO, Director 370 17th Street,
Suite 3640 Denver, CO 80202
The Cheri L. Metzinger Trust Common Stock 186,585 (3) 0.64%
Cheri L. Metzinger, Wife of Paul
H. Metzinger
3236 Jellison Street
Wheatridge, CO 80033
Dr. Herbert J. Neuhaus, Director, Common Stock 67,500 (4) 0.23%
770 Maroonglen Court
Colorado Springs, CO 80906
Kristi J. Kampmann, Chief Common Stock 10,955 (5) 0.04%
Financial Officer & Secretary
370 17th Street, Suite 3640
Denver, CO 80202
Dr. Robert E. Shaw, Director Options to 20,000 (6) 0.07%
8 Nicklaus Court purchase Common
Florham Park, NJ 07932 Stock
John Hoback, Director Options to 20,000 (7) 0.07%
20 White purchase Common
Heron Lake Stock
East Stroudsburg, PA 18301
All Officers & Directors as a Common Stock 305,616 1.04%
Group (5 persons)
____________________
1 Arizcan Properties is wholly owned by Triumphant Partners, LLC, a Colorado limited
liability company, that is owned by Stan Richards. Includes 15,000,000 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
49
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.
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 22,493,512 shares of common stock issued and outstanding on March 28, 2006,
assuming exercise of all 396,350 presently exercisable options and exercise of 5,631,342
outstanding warrants, and the issuance of 832,290 shares of common stock reserved for
the Harvest Court litigation there would be 29,353,494 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. At March 28, 2006,
the outstanding balance of the note was $1,096,674.
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.
50
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.
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.
51
With respect to the unaudited financial information for the periods ended
December 31, 2005 and 2004, 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 the Company's
Quarterly Report on Form 10-QSB for the quarter ended December 31, 2005, 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 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 on the World Wide Web at www.nanopierce.com, and are in
------------------
the process of constructing a new website 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 six months
ended December 31, 2005 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 SIX MONTHS ENDED DECEMBER 31, 2005 and 2004 PAGE
Report of Independent Registered Public Accounting Firm . . . . . . . F-25
Condensed Consolidated Balance Sheet -
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Condensed Consolidated Statements of Operations -
Six and three months ended December 31, 2005 and 2004 . . . . . . . F-27
Condensed Consolidated Statements of Comprehensive Loss -
Six and three months ended December 31, 2005 and 2004 . . . . . . . F-28
Condensed Consolidated Statement of Changes in Shareholders' Equity -
Six months ended December 31, 2005. . . . . . . . . . . . . . . . . F-29
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 2005 and 2004 . . . . . . . . . . . . F-30
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)
-------------
15,842
-------------
Other Assets:
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 (Note1) - 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
OTHER TOTAL
ADDITIONAL COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT PAID-IN 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
------------ ------------
F-7
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest 17 2,851
============ ============
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, 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
F-9
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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.
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.
F-10
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock Based Compensation, allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to continue
accounting for such compensation under the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). The Company has chosen to continue to account for employee
stock-based compensation using APB 25.
F-11
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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).
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
F-12
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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.
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
F-13
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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.
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.
F-14
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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.
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:
F-15
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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 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.
F-16
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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 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.
F-17
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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.
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).
F-18
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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 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.
F-19
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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 431,377 20.00 426,877 20.00
The following table summarizes information about stock options outstanding
as of June 30, 2005:
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
========= ================= ================= ========= =================
F-20
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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 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
F-21
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
("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.
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:
F-22
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
YEAR ENDING JUNE 30, AMOUNT
2006 $83,401
2007 14,550
-------
$97,951
=======
Aggrgate 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.
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.
F-23
NANOPIERCE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 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 December 31, 2005, the related condensed consolidated statements of
operations and comprehensive loss for the three-month and six-month periods
ended December 31, 2005 and 2004, the condensed consolidated statements of cash
flows for the six-month periods ended December 31, 2005 and 2004, and the
condensed consolidated statement of changes in shareholders' equity for the
six-month period ended December 31, 2005. 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
February 11, 2006
F-25
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005
(UNAUDITED)
Assets
------
Current assets:
Cash and cash equivalents $ 247,412
Interest receivable 929
Note receivable, net (Note 2) 186,323
Prepaid expenses 44,976
-------------
Total current assets 479,640
-------------
Property and equipment:
Office equipment and furniture 66,357
Less accumulated depreciation (53,367)
-------------
12,990
-------------
Other assets:
Deposits and other 19,285
Notes receivable, affiliate (Note 2) 400,000
Investments in affiliates (Note 3) 1,269,988
-------------
1,689,273
-------------
Total assets $ 2,181,903
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 160,054
Accrued liabilities 10,427
Derivative warrant liability (Note 5) 154,098
Other liabilities (Note 6) 1,000,000
-------------
Total liabilities (all current) 1,324,579
-------------
Commitments and contingencies (Notes 4 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; 7,247,327
shares issued and outstanding 725
Additional paid-in capital 25,396,315
Accumulated other comprehensive income 122,857
Accumulated deficit (24,662,573)
-------------
Total shareholders' equity 857,324
-------------
Total liabilities and shareholders' equity $ 2,181,903
=============
See notes to condensed consolidated financial statements for six months ended
December 31, 2005.
F-26
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2005 2004 2005 2004
-------------- --------------- -------------- --------------
Revenues $ - - - -
-------------- --------------- -------------- --------------
General and administrative expense (216,188) (178,186) (441,027) (391,260)
-------------- --------------- -------------- --------------
Loss from operations (216,188) (178,186) (441,027) (391,260)
-------------- --------------- -------------- --------------
Other income (expense):
Other income - 322 28,585 10,508
Interest income 4,419 4,687 8,350 6,187
Equity losses of affiliates
(Note 3) (129,747) (44,391) (389,654) (49,297)
Loss on revaluation of derivative
warrant liability (Note 5) (4,158) - (4,158) -
Interest expense - - (235,131) -
Interest expense, related party - - (219) -
-------------- --------------- -------------- --------------
(129,486) (39,382) (592,227) (32,602)
-------------- --------------- -------------- --------------
Net loss $ (345,674) (217,568) (1,033,254) (423,862)
============== =============== ============== ==============
Net loss per share, basic and diluted
(Note 1) $ (0.05) (0.05) (0.16) (0.09)
============== =============== ============== ==============
Weighted average number of
common shares outstanding
(Note 1) 6,855,418 4,548,386 6,327,884 4,525,670
============== =============== ============== ==============
See notes to condensed consolidated financial statements for six months ended
December 31, 2005.
F-27
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2005 2004 2005 2004
--------------- --------------- --------------- ---------------
Net loss $ (345,674) (217,568) (1,033,254) (423,862)
Change in unrealized loss on
securities - (47) (14) (295)
--------------- --------------- --------------- ---------------
Comprehensive loss $ (345,674) (217,615) (1,033,268) (424,157)
=============== =============== =============== ===============
See notes to condensed consolidated financial statements for six months ended
December 31, 2005.
F-28
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 2005
(UNAUDITED)
Accumulated
Common stock other Total
--------------------- Additional comprehensive Accumulated shareholders'
Shares Amount paid-in capital income deficit equity
------------ ------- ---------------- ------------- ------------ --------------
Balances, July 1, 2005 (Note 1) 4,662,952 $ 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
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) 544,375 54 316,107 - - 316,161
Common stock and warrants
to be issued - - 71,400 - - 71,400
Common stock issued as
payment of commission 50,000 5 89,995 - - 90,000
Forgiveness of accrued payroll
owed to officer/shareholder - - 8,750 - - 8,750
Receivable for issuance of
common stock (Note 7) - - (2,000) - - (2,000)
Net loss - - - - (1,033,254) (1,033,254)
Other comprehensive loss:
Change in unrealized gain
on securities - - - 14 - 14
------------ ------- ---------------- ------------- ------------ --------------
Balances,
December 31, 2005 7,247,327 $ 725 25,396,315 122,857 (24,662,573) 857,324
============ ======= ================ ============= ============ ==============
See notes to condensed consolidated financial statements for six months ended December 31, 2005.
F-29
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31,
-------------
2005 2004
------------ ----------
Cash flows from operating activities:
Net loss $(1,033,254) (423,862)
------------ ----------
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization expense 45,370 -
Depreciation expense 2,853 3,628
Equity losses of affiliates 389,654 49,297
Amortization of discounts on notes payable 213,760 -
Loss on revaluation of derivative warrant liability (Note 5) 4,158 -
Changes in operating assets and liabilities:
Decrease in interest receivable 2,894 2,061
Decrease in prepaid expenses 960 42,254
(Decrease) increase in accounts payable and accrued liabilities (53,774) 12,496
------------ ----------
Total adjustments 605,875 109,736
------------ ----------
Net cash used in operating activities (427,379) (314,126)
------------ ----------
Cash flows from investing activities:
Increase in notes receivable (400,000) (349,000)
Increase in advance receivable - (150,000)
Payment on note receivable 89,119 -
Investment in joint venture (Note 3) (500,000) -
------------ ----------
Net cash used in investing activities (810,881) (499,000)
------------ ----------
Cash flows from financing activities:
Exercise of warrants and common stock and warrants issued for cash 2,070,500 112,801
Proceeds to be applied to preferred stock purchase (Note 6) 200,000 -
Payment of notes payable (960,663) (46,052)
Proceeds from issuance of notes payable and common stock 150,000 -
------------ ----------
Net cash provided by financing activities 1,459,837 66,749
------------ ----------
Net increase (decrease) in cash and cash equivalents 221,577 (746,377)
Cash and cash equivalents, beginning 25,835 1,018,408
------------ ----------
Cash and cash equivalents, ending $ 247,412 272,031
============ ==========
(Continued)
F-30
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONTINUED
Six Months Ended
December 31,
-------------
2005 2004
---- ----
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,069 -
============= ============
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock in 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 accrued payroll owed to officer/shareholder $ 8,750 -
============= ============
Issuance of common stock in exchange for receivable $ 2,000 -
============= ============
See notes to condensed consolidated financial statements for six months ended
December 31, 2005.
F-31
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation of Interim Information:
The accompanying condensed consolidated financial statements for six months
ended December 31, 2005 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 of our common stock effective January 31,
2006. All references to shares, options, warrants, exercise and conversion
prices in the three and six months ended December 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 for six months ended December 31,
2005 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.
F-32
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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 six and three months ended December 31, 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 $1,033,254 for the six months ended
December 31, 2005, and an accumulated deficit of $24,662,573 as of December 31,
2005. 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 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.
F-33
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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 ("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.
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 six months ended
December 31, 2005, $45,370 was expensed.
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 (1,926,877 shares at December 31, 2005 and 3,809,094
shares at December 31, 2004) would be to decrease loss per share. Therefore,
diluted loss per share is equivalent to basic loss per share.
F-34
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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 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.
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 six months ended December
31, 2005 or 2004.
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 public companies that file as small business issuers as of the
beginning of the next annual reporting period that begins after December 15,
2005. 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.
F-35
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
2. NOTES AND ADVANCES RECEIVABLE:
In December 2005, the Company loaned $400,000 to BioAgra (Note 3). In
exchange for the loan, the Company received a secured, 7.5% promissory note, due
on June 30, 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 January 2006, the Company loaned an additional $200,000 to BioAgra with
the same terms as the original promissory notes. During February 2006, the
Company loaned BioAgra an additional $100,000, with the same terms as the
original promissory notes.
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. During
February 2006, the Company received a payment of $100,000, which included
interest of $2,073. The note was paid in full in February 2006.
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).
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. In March 2005,
Intercell filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
During the fiscal year ended June 30, 2005, the Company deemed the debt
uncollectible and created an allowance for the receivable of $35,000.
F-36
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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 December 31, 2005. 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 ($112,404 at December 31,
2005) is adjusted to recognize the Company's proportionate share of EPT's income
(loss) each period.
Unaudited financial information of EPT as of December 31, 2005, and for the
six and three-month periods ended December 31, 2005 and 2004 are as follows:
December 31, 2005
------------------
Assets:
Current assets(1) $ 381,042
Equipment 135,336
------------------
Total assets $ 516,378
==================
Liabilities and members' equity:
Current liabilities(2) $ 438,301
Members' equity 78,077
------------------
Total liabilities and members' equity $ 516,378
==================
(1) Current assets include receivables of $44,117 due from the 51% owner of
EPT.
(2) Current liabilities include a payable of $14,412 due to the 51% owner of
EPT.
Three Months Ended Six Months Ended
December 31, December 31,
------------- -------------
2005 2004 2005 2004
-------------- -------------- --------------- --------------
Revenues(1) $ 645,460 60,434 1,045,196 144,859
Expenses(2) (707,287) (121,487) (1,141,600) (197,839)
-------------- -------------- --------------- --------------
Net loss $ (61,827) (61,053) (96,404) (52,980)
============== ============== =============== ==============
(1) Revenues include $1,045,122 and $9,562 of sales to the 51% owner of EPT for
the six months ended December 31, 2005 and 2004, respectively ($272,327 and
$9,562 for the three months ended December 31, 2005 and 2004,
respectively).
(2) Expenses include $45,671 and $19,070, respectively of charges paid to the
51% owner of EPT for the six months ended December 31, 2005 and 2004,
respectively ($37,756 and $19,070 for the three months ended December 31,
2005 and 2004, respectively).
F-37
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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 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, AgraStim also known as AgraStim(TM),
to be used as a replacement for hormone growth steroids and antibiotics in
products such as poultry feed.
BioAgra (a development stage company) is in the process of constructing a
production line. BioAgra expects to begin producing and shipping product during
the quarter ending March 31, 2006.
As consideration for Arizcan's efforts to assist the Company with its
efforts to obtain equity financing, the Company entered into an agreement with
Arizcan, in which the Company is to pay to Arizcan 20% of any cash distributions
paid to the Company by and from BioAgra, until such time as Arizcan shall be
paid $800,000 (Note 6).
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 December 31, 2005,
the Company's investment in BioAgra is $1,157,584.
F-38
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
Unaudited financial information of BioAgra as of December 31, 2005 and for
the three month period ended December 31, 2005 and the period from August 15,
2005 through December 31, 2005, is as follows:
December 31, 2005
------------------
Assets:
Current assets $ 137,417
Equipment, net 1,222,047
Land and building under capital lease, net 1,135,742
------------------
Total assets $ 2,495,206
==================
Liabilities and members' equity:
Current liabilities(1) $ 653,390
Obligation under capital lease(2) 1,026,648
------------------
Total Liability 1,680,038
Members' equity 815,168
------------------
Total liabilities and members' equity $ 2,495,206
==================
(1) Includes $400,000 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.
August 15, 2005
Three Months Ended Through
December 31, 2005 December 31, 2005
-------------------- -------------------
Revenues $ - $ -
Expenses (198,902) (684,832)
-------------------- -------------------
Net loss $ (198,902) $ (684,832)
==================== ===================
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 December 31, 2004, Scimaxx Solutions had total assets of $79,664 of
which $607 were current assets and $79,057 were equipment, total liabilities of
$61,619 and members' equity of $18,045.
F-39
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
For the three and six months ended December 31, 2004, Scimaxx Solutions
recorded revenues of $0 and $5,721, respectively, and expenses of $21,623 and
$53,320, respectively, resulting in a net loss of $21,623 and $47,599,
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 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.
F-40
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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 agreed to issue 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 agreed to issue 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.
In February 2006, after the effectiveness of the reverse split and the
increase in authorized shares, the fair value of the warrants was reclassified
to equity in accordance with EITF 00-19.
F-41
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
The fair value of the warrants are evaluated at each reporting period with
any resulting change in fair value being reflected in the condensed consolidated
statement of operations. The Company recognized a loss of $4,158 for the six
months ended December 31, 2005, due to the change in the fair value of the
warrants from the date of issuance. At December 31, 2005, the warrants fair
value is estimated to be $154,098.
6. OTHER LIABILITIES
The Company has recorded an $800,000 payable to Arizcan, which represents
the costs incurred in connection with a $1.5 million offering of equity
securities.
In December 2005, the Company received an advance payment of $200,000 on
the purchase of 200,000 shares of its Series A Convertible Preferred Shares from
Arizcan. The Company recorded the advance as a liability and agreed to apply the
advance to the final purchase of the Preferred Shares. In January 2006, Arizcan
completed the purchase of the Preferred Shares.
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.
F-42
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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).
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, of which $2,000 was recorded as a
receivable for the issuance of common stock at December 31, 2005. 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 and are to be registered by the
Company with the Securities and Exchange Commission (SEC).
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 agreed to issue 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 and are to be registered by the Company with the
SEC.
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
$94,873. 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
and are to be registered by the Company with the SEC.
Six Months Ended December 31, 2004
During the six months ended December 31, 2004, the Company issued 60,000
shares of common stock upon the exercise of warrants. The Company received net
cash proceeds of $112,801 (net of $7,200 of offering costs).
WARRANTS:
During the six months ended December 31, 2005, warrants to purchase 117,709
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.
F-43
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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.
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.
F-44
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
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. 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-45
=============================================== ===================================
THE ONLY SOURCES OF INFORMATION GIVEN TO YOU
BY US ABOUT YOUR INVESTMENT DECISION ARE THIS 17,092,184 SHARES OF COMMON STOCK
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. VYTA CORP
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 COMMON STOCK
IS NOT MEANT TO INDUCE SALE OF THE SECURITIES
DESCRIBED IN THIS PROSPECTUS.
_____________________
PROSPECTUS
_____________________
________ __, 2006
=============================================== ===================================
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Article VII of the registrant's Articles of
Item 24. Incorporation, as amended, provides that the registrant
INDEMNIFICATION shall indemnify its directors, officers, employees and
OF DIRECTORS AND agents to the maximum extent and in accordance with the
OFFICERS. 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 The following are the estimated expenses in connection
EXPENSES OF with the registration and distribution of the shares of the
ISSUANCE AND registrant's common stock:
DISTRIBUTION.
Securities and Exchange Commission
Registration Fee $2,076
Printing and Engraving Expenses *
Accounting Fees and Expenses *
Legal Fees and Expenses *
Miscellaneous *
Total $ *
All the expenses will be incurred by the registrant and not
by the selling stockholders.
_______________
*Estimated; to be filed by amendment.
II-1
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 February 1, 2006 (all share 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):
Number of
Date Title 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 Investments, Ltd. $24,960
10/10/2002 Common Stock 220,000 Neptune Investments, Ltd. $100,000
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 Emergency Phys Profit $10,000
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 Emergency Cashless Exercise of
Physicians Warrant
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
II-2
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
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
Warrant 12,500 of common stock and
warrant for 12,500 shares
11/10/2005 Common Stock 125,000 Business Associate $5,000 for 125,000 shares of
Warrant 6,250 common stock and warrant
for 6,250 shares
11/30/2005 Common Stock 1,250,000 Business Associate $50,000 for 1,250,000
Warrant 62,500 shares of common stock and
warrant for 62,500 shares
12/2/2005 Common Stock 625,000 Business Associate $25,000 for 625,000 shares
Warrant 31,250 of common stock and
warrant for 31,250 shares
12/2/2005 Common Stock 625,000 Business Associate $25,000 for 625,000 shares
Warrant 31,250 of common stock and
warrant for 31,250 shares
12/2/2005 Common Stock 625,000 Business Associate $25,000 for 625,000 shares
Warrant 31,250 of common stock and
warrant for 31,250 shares
12/6/2005 Common Stock 1,875,000 Business Associate $75,000 for 1,875,000
Warrant 93,750 shares of common stock and
warrant for 93,750 shares
12/6/2005 Common Stock 1,875,000 Business Associate $75,000 for 1,875,000
Warrant 93,750 shares of common stock and
warrant for 93,750 shares
12/7/2005 Common Stock 625,000 Business Associate $25,000 for 625,000 shares
Warrant 31,250 of common stock and
warrant for 31,250 shares
12/7/2005 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and
warrant for 12,500 shares
II-3
12/12/2005 Common Stock 200,000 Business Associate $8,000 for 200,000 shares of
Warrant 10,000 common stock and warrant
for 10,000 shares
12/20/2005 Common Stock 375,000 Business Associate $15,000 for 375,000 shares
Warrant 18,750 of common stock and
warrant for 18,750 shares
12/22/2005 Common Stock 125,000 Business Associate $5,000 for 125,000 shares of
Warrant 6,250 common stock and warrant
for 6,250 shares
12/22/2005 Common Stock 937,500 Business Associate $37,500 for 937,500 shares
Warrant 46,875 of common stock and
warrant for 46,875 shares
12/22/2005 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and
warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and
warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and
warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and
warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and a
warrant for 12,500 shares
1/3/2006 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common 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
Warrant 62,500 of common stock and a
warrant for 62,500 shares
1/5/2006 Common Stock 450,000 Business Associate $18,000 for 450,000 shares
Warrant 22,500 of common stock and a
warrant for 22,500 shares
1/5/2006 Common Stock 625,000 Business Associate $25,000 for 625,000 shares
Warrant 31,250 of common stock and a
warrant for 31,250 shares
1/5/2006 Common Stock 187,500 Business Associate $7,500 for 187,500 shares of
Warrant 9,375 common stock and a warrant
for 9,375 shares
1/10/2006 Common Stock 300,000 Business Associate $12,000 for 300,000 shares
Warrant 15,000 of common stock and a
warrant for 15,000 shares
1/13/2006 Common Stock 62,500 Business Associate $2,500 for 62,500 shares of
Warrant 3,125 common stock and a warrant
for 3,125 shares
1/17/2006 Common Stock 371,823 Business Associate $14,873 for 371,823 shares
Warrant 18,592 of common stock and a
warrant for 18,592 shares
1/17/2006 Preferred 200,000 Arizcan Properties, Ltd. $400,000 and a note payable
Stock(1) for $1,100,000
1/26/2006 Common Stock 250,000 Business Associate $10,000 for 250,000 shares
Warrant 12,500 of common stock and a
warrant for 12,500 shares
_____________________
(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, 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)
II-4
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)
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
*11.01 Statement regarding Computation of Per Share Loss
*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 (included on page II-8)
____________________
*Filed herewith.
# To be filed by amendment.
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:
II-5
(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.
(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-6
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
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on March 29, 2006.
VYTA CORP
By /s/ Paul H. Metzinger
---------------------
Paul H. Metzinger, President, Chief
Executive Officer and Director
II-7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, whose signatures
appear below, hereby constitute and appoint Paul H. Metzinger and Kristi J.
Kampmann, or either of them, as their true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for them and in their
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full and to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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 March 29, 2006
----------------------- Officer and Director
PAUL H. METZINGER (Principal Executive
Officer)
/s/ Herbert J. Neuhaus Director March 29, 2006
-----------------------
Herbert J. Neuhaus
/s/ Kristi J. Kampmann Chief Financial Officer March 29, 2006
----------------------- (Principal Accounting
Kristi J. Kampmann Officer) and Secretary
/s/ Robert Shaw Director March 29, 2006
-----------------------
Robert Shaw
/s/ John Hoback Director March 29, 2006
-----------------------
JOHN HOBACK
II-8
INDEX TO EXHIBITS
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
*11.01 Statement regarding Computation of Per Share Loss
*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 (included on page II-8)
____________________
*Filed herewith.
# To be filed by amendment.