UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
Commission file number: 000-27866
Vyrex Corporation
(Name of small business issuer as specified in its charter)
Delaware | 88-0271109 | |
(State or other jurisdiction of corporation or organization) |
(IRS Employer Identification No.) |
21615 N. 2nd Avenue, Phoenix, Arizona
(Address of principal executive offices)
(623) 780-3321
(Issuer’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: | None | |
Securities registered pursuant to Section 12(g) of the Act: | Common Stock, Par Value $.0001 | |
Warrants | ||
(Title of Class) |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K SB or any amendment to this Form 10-K SB. ¨
Check if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State issuer’s revenues for its most recent year: $25,500
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and ask prices of such stock equity, as of June 29, 2007, the last business day of the issuer’s most recently completed second fiscal quarter: $96,315.
As of March 31, 2008, the issuer had 25,882,878 shares of common stock outstanding.
Explanatory Note
The purpose of this Amendment No. 1 on Form 10-K/A is to respond to comments received from the U.S. Securities and Exchange Commission’s Division of Corporation Finance in its letters dated July 17, 2008, August 20, 2008 and October 8, 2008, regarding our previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the U.S. Securities and Exchange Commission on March 31, 2008 (“Original Form 10-K”). This amendment amends the following:
• | Item 8A (Controls and Procedures) has been amended to include disclosure regarding the conclusions of our principal executive and principal financial officers regarding the effectiveness of our disclosure controls and procedures as of December 31, 2007 as required by Item 307 of Regulation S-B. |
• | The Report of Independent Registered Public Accounting Firm has been amended to cover only the Company’s financial statements as of and for the years ended December 31, 2007 and 2006. |
• | The financial statements have been amended to indicate that the financial information from prior to 2006 is unaudited. |
• | The certifications filed as Exhibits 31.1 and 31.2 to the Original Form 10-K have been revised to conform to the exact wording required by Item 601(b)(31) of Regulation S-B. |
There are no changes to the Original Form 10-K other than those outlined above. Except as required to reflect the changes noted above, this Amendment No. 1 on Form 10-K/A does not attempt to modify or update any other disclosures set forth in our Original Form 10-K. Furthermore, this Amendment No. 1 on Form 10-K/A does not purport to provide a general update or discussion of any other developments of the Company subsequent to the filing of the Original Form 10-K.
Annual Report on Form 10-KSB
Year Ended December 31, 2007
INDEX
PAGE | ||||
PART II | ||||
ITEM 7. | FINANCIAL STATEMENTS | 1 | ||
ITEM 8A. | CONTROLS AND PROCEDURES | 1 | ||
PART III | ||||
ITEM 13. | EXHIBITS | 2 | ||
SIGNATURES | 3 |
PART II
ITEM 7. | FINANCIAL STATEMENTS |
The financial statements of the Company and other information required by this Item are set forth herein in a separate section beginning with the Index to the Financial Statements on page F-1.
ITEM 8A. | CONTROLS AND PROCEDURES. |
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and President, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and President concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2007.
Management’s Annual Report on Internal Control Over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of financial statements.
All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding of controls. Therefore, even effective internal control over financial reporting can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. Because of its inherent limitations, internal controls over financial reporting may also fail to prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this evaluation, our management concluded that, as of December 31, 2007, our internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting.
There have been no changes in internal control over financial reporting.
1
ITEM 13. | EXHIBITS |
Exhibit No. |
Description | |
31.1 |
Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 |
Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 |
Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 |
Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
2
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
VYREX INCORPORATED | ||||
Dated: November 14, 2008 | By: | /s/ George Konrad | ||
George Konrad | ||||
President and Principal Executive Officer |
In accordance with the Exchange Act, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date | ||
/S/ George Konrad |
President, Chief Executive Officer, Chief Financial Officer , Treasurer and Director (principal executive, financial and accounting officer) | November 14, 2008 | ||
/S/ Fred Barker |
Vice President, Secretary and Director | November 14, 2008 | ||
/S/ Richard H. Davis. |
Director | November14, 2008 |
3
Annual Report on Form 10-KSB/A
Year Ended December 31, 2007
INDEX TO FINANCIAL STATEMENTS
Page | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-8 | ||
F-9 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee, Board of Directors and Stockholders of Vyrex Corporation
We have audited the accompanying balance sheets of Vyrex Corporation (a development stage enterprise) as of December 31, 2007 and 2006, and the related statements of operations, changes in stockholders’ equity (deficiency), and cash flows for the years then ended. 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. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Vyrex Corporation (a development stage enterprise) as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses, has a working capital deficiency and a net capital deficiency. These conditions 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 1. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
/s/ Berenfeld Spritzer Shechter & Sheer, LLP
Certified Public Accountants and Advisors
Coral Gables, Florida
March 28, 2008
F-2
(a development stage enterprise)
Balance Sheets
For the years ended December 31, 2007 and 2006
December 31 | ||||||||
2007 | 2006 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 4,125 | $ | 3,721 | ||||
Accounts receivable |
5,736 | 5,265 | ||||||
Total assets |
$ | 9,861 | $ | 8,986 | ||||
Liabilities and stockholders’ deficiency |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 200,609 | $ | 126,158 | ||||
Accrued liabilities and accrued vacation |
85,372 | 63,995 | ||||||
Accrued payroll |
20,637 | 20,637 | ||||||
Notes payable |
200,000 | 217,000 | ||||||
Total liabilities |
506,618 | 427,790 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ deficiency: |
||||||||
Preferred stock, $.0001 par value; 50,000,000 shares authorized; none issued |
— | — | ||||||
Common stock, $.0001 par value; 200,000,000 shares authorized; 1,019,144 issued and outstanding |
102 | 102 | ||||||
Additional paid-in capital |
13,129,473 | 13,114,487 | ||||||
Deficit accumulated during the development stage |
(13,626,332 | ) | (13,533,393 | ) | ||||
Total stockholders’ deficiency |
(496,757 | ) | (418,804 | ) | ||||
Total liabilities and stockholders’ deficiency |
$ | 9,861 | $ | 8,986 | ||||
The accompanying notes are an integral part of these financial statements.
F-3
(a development stage enterprise)
Statements of Operations
For the years ended December 31, 2007 and 2006 and for the period
from January 2, 1991 (Date of Inception) through December 31, 2007 (Unaudited)
Years ended December 31, |
Cumulative from Inception through December 31, 2007 (Unaudited) |
|||||||||||
2007 | 2006 | |||||||||||
Licensing and royalty revenue |
$ | 25,465 | $ | 43,465 | $ | 922,129 | ||||||
Operating expenses: |
||||||||||||
Research and development |
7,500 | 7,525 | 6,493,778 | |||||||||
Marketing and selling |
438,664 | |||||||||||
General and administrative |
74,497 | 121,995 | 6,525,162 | |||||||||
Loss on disposal of fixed assets |
13,664 | |||||||||||
Total operating expenses |
81,997 | 129,520 | 13,471,268 | |||||||||
Loss from operations |
(56,532 | ) | (86,055 | ) | (12,549,139 | ) | ||||||
Other income (expense): |
||||||||||||
Interest income |
332 | 476,376 | ||||||||||
Other income |
4,434 | |||||||||||
Gain on sale of investment in available-for-sale securities |
13,878 | 13,878 | ||||||||||
Interest expense |
(36,407 | ) | (21,040 | ) | (221,981 | ) | ||||||
Charge from issuance of stock options for bridge financing |
(1,349,900 | ) | ||||||||||
Total other expense |
(36,407 | ) | (6,830 | ) | (1,077,193 | ) | ||||||
Net loss |
$ | (92,939 | ) | $ | (92,885 | ) | $ | (13,626,332 | ) | |||
Net loss per share – basic and diluted |
$ | (0.09 | ) | $ | (0.09 | ) | ||||||
Weighted-average common shares outstanding – basic and diluted |
1,019,144 | 1,019,144 | ||||||||||
The accompanying notes are an integral part of these financial statements.
F-4
(a development stage enterprise)
Statements of Changes in Stockholders’ Equity (Deficiency)
For the Period from January 2, 1991 (Inception)
through December 31, 2007
Common Stock |
Additional paid-in capital |
Accumulated other comprehensive income |
Deficit accumulated during the development stage |
Total stockholders’ equity (deficiency) |
||||||||||||||||
Shares | Amount | |||||||||||||||||||
Issuance (at $.02 per share) for acquisition of technology retroactively reduced for 18,000 shares returned and retired on October 1, 1995 |
402,000 | $ | 40 | $ | 6,660 | $ | — | $ | — | $ | 6,700 | |||||||||
Issuance (at $.02 per share) for cash |
60,000 | 6 | 994 | — | 1,000 | |||||||||||||||
Issuance (at $8.33 per share) for cash |
96,000 | 10 | 799,990 | — | — | 800,000 | ||||||||||||||
Issuance as compensation (at $8.33 per share) |
3,900 | — | 32,500 | — | — | 32,500 | ||||||||||||||
Issuance (at $16.67 per share) upon conversion of note payable |
12,000 | 2 | 199,998 | — | — | 200,000 | ||||||||||||||
Issuance (at $25.00 per share) for cash, net of issuance costs of $4,086 |
3,960 | — | 94,914 | — | — | 94,914 | ||||||||||||||
Net loss |
— | — | — | — | (1,085,932 | ) | (1,085,932 | ) | ||||||||||||
Balance at December 31, 1993 (unaudited) |
577,860 | 58 | 1,135,056 | — | (1,085,932 | ) | 49,182 | |||||||||||||
Issuance (at $25.00 per share) for cash, net of issuance costs of $21,000 |
11,880 | 1 | 275,999 | — | — | 276,000 | ||||||||||||||
Issuance (at $25.00 per share) in lieu of finder’s fee |
840 | — | 21,000 | — | — | 21,000 | ||||||||||||||
Issuance (at $25.00 per share) in lieu of finder’s fee |
600 | — | 15,000 | — | — | 15,000 | ||||||||||||||
Issuance (at $25.00 per share) for cash, net of issuance costs of $41,844 |
2998 | — | 33,126 | — | — | 33,126 | ||||||||||||||
Net loss |
— | — | — | — | (467,683 | ) | (467,683 | ) | ||||||||||||
Balance at December 31, 1994 (unaudited) |
594,178 | 59 | 1,480,181 | — | (1,553,615 | ) | (73,375 | ) | ||||||||||||
Issuance (at $25.00 per share) for cash, net of issuance costs of $46,976 |
17,993 | 2 | 402,842 | — | — | 402,844 | ||||||||||||||
Issuance (at $25.00 per share) in settlement of account payable |
725 | — | 18,123 | — | — | 18,123 | ||||||||||||||
Issuance (at par value) as compensation for services related to prior issuances of common stock |
9,960 | 1 | (1 | ) | — | — | — | |||||||||||||
Issuance (at $25.00 per share) as compensation for services related to offering |
1,600 | — | 40,002 | — | — | 40,002 | ||||||||||||||
Issuance (at $25.00 per share) of options for 54,000 shares as compensation for arranging bridge financing |
— | — | 1,349,900 | — | — | 1,349,900 | ||||||||||||||
Net loss |
— | — | — | — | (1,854,584 | ) | (1,854,584 | ) | ||||||||||||
Balance at December 31, 1995 (unaudited) |
624,456 | 62 | 3,291,047 | — | (3,408,199 | ) | (117,090 | ) | ||||||||||||
Proceeds from initial public offering (at $54.17 per unit), net of issuance costs of $1,135,453 |
126,852 | 13 | 5,735,664 | — | — | 5,735,677 | ||||||||||||||
Sale of option to purchase 36,000 shares (at $25.00 per share) |
— | — | 50,000 | — | — | 50,000 | ||||||||||||||
Exercise of stock options (at $25.00 per share) for cash |
36,000 | 4 | 899,996 | — | — | 900,000 | ||||||||||||||
Conversion of notes payable and related accrued interest (at $25.00 per share) |
10,322 | 1 | 258,044 | — | — | 258,045 |
F-5
Vyrex Corporation
(a development stage enterprise)
Statements of Changes in Stockholders’ Equity (Deficiency)
For the Period from January 2, 1991 (Inception)
through December 31, 2007
Common Stock |
Additional paid-in capital |
Accumulated other comprehensive income |
Deficit accumulated during the development stage |
Total stockholders’ equity (deficiency) |
||||||||||
Shares | Amount | |||||||||||||
Exercise of stock options (at $.0019 per share) for cash |
54,000 | 5 | 95 | — | — | 100 | ||||||||
Issuance of units as compensation for legal services (at $37.92 per share) |
2,915 | — | 110,529 | — | — | 110,529 | ||||||||
Net loss |
— | — | — | — | (1,820,614 | ) | (1,820,614 | ) | ||||||
Balance at December 31, 1996 (unaudited) |
854,545 | 85 | 10,345,375 | — | (5,228,813 | ) | 5,116,647 | |||||||
Exercise of warrants, 24 shares at $66.67 per share |
24 | — | 1,600 | — | — | 1,600 | ||||||||
Warrants issued in conjunction with debenture offering |
— | — | 62,220 | — | — | 62,220 | ||||||||
Net loss |
— | — | — | — | (3,295,840 | ) | (3,295,840 | ) | ||||||
Balance at December 31, 1997 (unaudited) |
854,569 | 85 | 10,409,195 | — | (8,524,653 | ) | 1,884,627 | |||||||
Issuance of stock as partial consideration for placement of debentures |
960 | — | 50,000 | — | — | 50,000 | ||||||||
Issuance of stock on conversion of debentures |
27,267 | 3 | 807,638 | — | — | 807,641 | ||||||||
Issuance of shares upon cashless exercise of stock options |
8,019 | 1 | 396,579 | — | — | 396,580 | ||||||||
Issuance of 45,000 stock options for services |
— | — | 87,000 | — | — | 87,000 | ||||||||
Net loss |
— | — | — | — | (3,388,412 | ) | (3,388,412 | ) | ||||||
Balance at December 31, 1998 (unaudited) |
890,815 | 89 | 11,750,412 | — | (11,913,065 | ) | (162,564 | ) | ||||||
Issuance (at $2.83 per share) for cash |
14,329 | 1 | 40,599 | — | — | 40,600 | ||||||||
Issuance of 5,640 stock options for services |
— | — | 6,580 | — | — | 6,580 | ||||||||
Issuance of 30,000 warrants for services |
— | — | 30,500 | — | — | 30,500 | ||||||||
Net loss |
— | — | — | (788,548 | ) | (788,548 | ) | |||||||
Balance at December 31, 1999 (unaudited) |
905,144 | 90 | 11,828,091 | — | (12,701,613 | ) | (873,432 | ) | ||||||
Forgiveness of accrued compensation |
— | — | 422,559 | — | — | 422,559 | ||||||||
Issuance (at $7.50 per share) for cash |
36,000 | 4 | 269,996 | — | — | 270,000 | ||||||||
Exercise of stock options (at $.83 per share) for cash |
30,000 | 3 | 24,997 | — | — | 25,000 | ||||||||
Exercise of warrants (at $.83 per share) for cash |
12,000 | 1 | 9,999 | — | — | 10,000 | ||||||||
Issuance (at $8.33 per share) for cash |
18,000 | 2 | 149,998 | — | — | 150,000 | ||||||||
Reduction of exercise price for options and warrants |
148,000 | — | — | 148,000 | ||||||||||
Net loss |
— | (335,487 | ) | (335,487 | ) | |||||||||
Balance at December 31, 2000 (unaudited) |
1,001,144 | 100 | 12,853,640 | — | (13,037,100 | ) | (183,360 | ) | ||||||
Issuance of 6,000 stock options for services |
— | — | 18,500 | — | — | 18,500 | ||||||||
Issuance of 24,000 warrants for services |
— | — | 50,000 | — | — | 50,000 | ||||||||
Net loss |
— | — | — | — | (202,185 | ) | (202,185 | ) | ||||||
Balance at December 31, 2001 (unaudited) |
1,001,144 | 100 | 12,922,140 | — | (13,239,285 | ) | (317,045 | ) |
F-6
Vyrex Corporation
(a development stage enterprise)
Statement of Stockholders’ Equity (Deficiency)
For the Period from January 2, 1991 (Inception)
through December 31, 2007
Common Stock |
Additional paid-in capital |
Accumulated other comprehensive income |
Deficit accumulated during the development stage |
Total stockholders’ equity (deficiency) |
||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at December 31, 2001 (unaudited) |
1,001,144 | $ | 100 | $ | 12,922,140 | $ | (13,239,285 | ) | $ | (317,045 | ) | |||||||||
Modification of stock options |
2,000 | 2,000 | ||||||||||||||||||
Issuance of stock upon exercise of warrants at $.83 per share |
18,000 | 2 | 14,998 | 15,000 | ||||||||||||||||
Forgiveness of accrued compensation |
140,978 | 140,978 | ||||||||||||||||||
Issuance of 2,400 warrants for services |
2,000 | 2,000 | ||||||||||||||||||
Issuance of 600 warrants for services |
300 | 300 | ||||||||||||||||||
Net loss |
(3,763 | ) | (3,763 | ) | ||||||||||||||||
Balance at December 31, 2002 (unaudited) |
1,019,144 | 102 | 13,082,416 | (13,243,048 | ) | (160,530 | ) | |||||||||||||
Issuance of 12,000 warrants in connection with debt issuance |
6,000 | 6,000 | ||||||||||||||||||
Net loss |
(90,540 | ) | (90,540 | ) | ||||||||||||||||
Balance at December 31, 2003 (unaudited) |
1,019,144 | 102 | 13,088,416 | (13,333,588 | ) | (245,070 | ) | |||||||||||||
Forgiveness of accrued compensation |
26,071 | 26,071 | ||||||||||||||||||
Net loss |
(37,800 | ) | (37,800 | ) | ||||||||||||||||
Effect of change in fair value of available-for-sale securities |
$ | 12,231 | 12,231 | |||||||||||||||||
Comprehensive loss |
(25,569 | ) | ||||||||||||||||||
Balance at December 31, 2004 (unaudited) |
1,019,144 | 102 | 13,114,487 | 12,231 | (13,371,388 | ) | (244,568 | ) | ||||||||||||
Net loss |
(69,120 | ) | (69,120 | ) | ||||||||||||||||
Effect of change in fair value of available-for-sale securities |
3,515 | 3,515 | ||||||||||||||||||
Comprehensive loss |
(65,605 | ) | ||||||||||||||||||
Balance at December 31, 2005 (unaudited) |
1,019,144 | $ | 102 | $ | 13,114,487 | $ | 15,746 | $ | (13,440,508 | ) | $ | (310,173 | ) | |||||||
Net loss |
(92,885 | ) | (92,885 | ) | ||||||||||||||||
Effect of securities sold Dec 2006 |
(15,746 | ) | (15,746 | ) | ||||||||||||||||
Comprehensive loss |
(108,631 | ) | ||||||||||||||||||
Balance at December 31, 2006 |
1,019,144 | $ | 102 | $ | 13,114,487 | $ | — | $ | (13,533,393 | ) | $ | (418,804 | ) | |||||||
Net loss |
(92,939 | ) | (92,939 | ) | ||||||||||||||||
Issuance of 25,000 warrants in connection with debt issuance |
14,986 | $ | 14,986 | |||||||||||||||||
Balance at December 31, 2007 |
1,019,144 | $ | 102 | $ | 13,129,473 | $ | — | $ | (13,626,332 | ) | $ | (496,757 | ) | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-7
(a development stage enterprise)
Statements of Cash Flows
For the years ended December 31, 2007 and 2006 and for the period
from January 2, 1991 (Date of Inception) through December 31, 2007 (Unaudited)
Years ended December 31, |
Cumulative from Inception to December 31, 2007 (unaudited) |
|||||||||||
2007 | 2006 | |||||||||||
Operating activities |
||||||||||||
Net loss |
$ | (92,939 | ) | $ | (92,885 | ) | $ | (13,626,332 | ) | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||||||
Depreciation, amortization and impairment charges |
336,329 | |||||||||||
Accretion of debt discount |
14,986 | 20,986 | ||||||||||
Interest receivable |
3,506 | |||||||||||
Loss on disposal of fixed assets |
13,664 | |||||||||||
Issuance of compensatory notes, stock, stock options and warrants |
2,302,512 | |||||||||||
Gain on sale of available-for-sale securities |
(13,878 | ) | (13,878 | ) | ||||||||
Other income |
(4,434 | ) | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable and other assets |
(471 | ) | 17,235 | 94,264 | ||||||||
Accounts payable and accrued liabilities |
95,828 | 55,688 | 805,272 | |||||||||
Net cash provided by (used in) operating activities |
17,404 | (33,840 | ) | (10,068,111 | ) | |||||||
Investing activities |
||||||||||||
Sale of available-for-sale securities |
18,311 | 18,311 | ||||||||||
Purchase of short-term investments |
(8,440,442 | ) | ||||||||||
Sale of short-term investments |
8,467,931 | |||||||||||
Purchases of fixed assets |
(209,595 | ) | ||||||||||
Proceeds on sale of fixed assets |
10,000 | |||||||||||
Patent, trademark and copyright costs |
(133,519 | ) | ||||||||||
Other assets, including notes receivable from related parties |
(4,202 | ) | ||||||||||
Net cash provided by (used in) investing activities |
18,311 | (291,516 | ) | |||||||||
Financing activities |
||||||||||||
Net proceeds from issuance of common stock |
7,889,808 | |||||||||||
Exercise of stock options and sale of options |
975,100 | |||||||||||
Exercise of warrants |
25,000 | |||||||||||
Proceeds from short-term loan |
875,230 | |||||||||||
Proceeds from notes payable |
17,000 | 808,114 | ||||||||||
Repayment of notes payable |
(17,000 | ) | (209,500 | ) | ||||||||
Advances from potential investors |
100,000 | |||||||||||
Repayment of advances |
(100,000 | ) | ||||||||||
Net cash provided by (used in) financing activities |
(17,000 | ) | 17,000 | 10,363,752 | ||||||||
Net increase in cash and cash equivalents |
404 | 1,471 | 4,125 | |||||||||
Cash and cash equivalents, beginning of period |
3,721 | 2,250 | — | |||||||||
Cash and cash equivalents, end of period |
$ | 4,125 | $ | 3,721 | $ | 4,125 | ||||||
Supplemental cash flow information |
||||||||||||
Forgiveness of debt |
$ | 589,608 | ||||||||||
Conversion of notes payable and related accrued interest |
$ | 258,045 | ||||||||||
Issuance of stock as consideration for conversion of debentures |
$ | 857,641 | ||||||||||
Issuance of stock upon cashless exercise of stock options |
$ | 396,580 | ||||||||||
Warrants issued in connection with convertible debentures and notes payable |
$ | 68,220 |
The accompanying notes are an integral part of these financial statements.
F-8
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION AND THE COMPANY
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of Vyrex Corporation (the “Company”) as a going concern and the realization of the Company’s assets and the satisfaction of its liabilities in the normal course of business. As of December 31, 2007, the Company has an accumulated deficit of $13,626,332 and stockholders’ deficiency of $496,757. Due to the Company’s recurring losses and stockholders’ deficiency, there can be no assurance that the Company will be able to obtain additional operating capital, which may impact the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the potential inability of the Company to continue as a going concern.
The Company’s principal activities during 2007 involved seeking a merger partner for its public shell. The sought-after Merger occurred in February 2008. See Note 8 – “Subsequent Event.” The Company’s activities, both during its biotech phase and since the Merger, have not generated any significant revenues; accordingly, the Company has been in the development stage since its inception. Successful completion of the Company’s development program and its transition, ultimately, to attaining profitable operations is dependent upon obtaining additional financing adequate to fulfill its research and development activities, and achieving a level of revenue adequate to support the Company’s cost structure. There can be no assurance that the Company will be successful in these areas. To supplement its existing resources, the Company will require additional capital through the sale of debt or equity. There can be no assurance that such capital will be available on favorable terms, or at all, and if additional funds are raised by issuing equity securities, dilution to existing stockholders is likely to result.
The Company
The Company was incorporated in Nevada on January 2, 1991. Its initial biotech operations ceased in all material respects in October 2005. Since the February 2008 Merger, the Company’s primary focus has been to develop, commercialize and market the proprietary PowerVerde renewable energy power systems.
In October 2005, the Company reincorporated its domicile from Nevada to Delaware. The new Delaware Company had an authorized capitalization of 250,000,000 shares of capital stock, consisting of 200,000,000 shares of common stock, $0.0001 par value per share, and 50,000,000 shares of preferred stock, $0.0001 par value per share. Pursuant to the reincorporation merger agreement, the Delaware Company issued 12/100th of a share of common stock of the Delaware Company for each share of common stock of the Company outstanding as of the date of the merger, and the Delaware Company was the surviving corporation of the merger with the same board members as the Company.
As a result of the reincorporation transaction, the Company increased its authorized capital stock from 60,000,000 (50,000,000 of common stock and 10,000,000 of preferred stock) to 250,000,000 (200,000,000 of common stock and 50,000,000 of preferred stock), and the par value of the Company’s capital stock changed from $0.001 per share to $0.0001 per share.
The Company cannot assure that its current cash reserves and other resources will fund the business through at least December 31, 2008. The Company cannot assure that it will be able to continue the business through December 31, 2008 unless additional funds are received.
F-9
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock Options and Warrants
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards 123 (revised 2004), ‘Share-Based Payments: (SFAS 123(R)’). The Company adopted SFAS 123(R) using the modified prospective basis. Under this method, compensation costs recognized beginning January 1, 2006 included in costs related to 1) all share-based payments granted prior to but not yet vested as of January 1, 2006, based on previously estimated grant-date fair values, and 2) all share-based payments granted subsequent to December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123 (R). The Company has used the Black-Scholes option pricing model to estimate the fair value of stock options granted subsequent to the date of adoption of SFAS 123(R).Options and warrants granted to consultants and other non-employees are valued based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable, and expensed over the term of the consulting or other agreements.
Revenue Recognition
Licensing and royalty revenue from royalty agreements is recognized in accordance with the terms of the specific agreement, which generally includes a quarterly minimum payment by the licensee.
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in future periods based on enacted laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Accounting for Uncertainty in Income Taxes
We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109, “Accounting for Income Taxes”, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the tax years ended December 31, 2004, 2005 and 2006, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2007.
We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense.
Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of common shares outstanding during the periods presented. Diluted earnings per share have not been presented because the assumed conversion of convertible notes payable and the exercise of the Company’s outstanding options and warrants would have been antidilutive. Options and warrants will have a dilutive effect only
F-10
when the average market price of the common stock during the period exceeds the exercise price of the options or warrants. The number of shares potentially issuable at December 31, 2007 and 2006 upon the conversion or exercise that were not included in the computation of net loss per share totaled 264,275 and 276,875, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Recent Accounting Developments
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures its financial statements in the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 141R will have on our financial position and results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 160 will have on our financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 permits entities to choose to measure eligible financial instruments at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value options is determined on an instrument by instrument basis, it should be applied to an entire instrument, and it is irrevocable. Assets and liabilities measured at fair value pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using another measurement attribute. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company is currently analyzing the potential impact of adoption of SFAS No. 159 to its financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements , (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not anticipate that adoption of this standard will have a material impact on its financial statements.
F-11
NOTE 3—WARRANTS
Activity with respect to warrants for the purchase of the Company’s common stock is summarized as follows:
Warrants Outstanding |
Exercise Price | Weighted Average Exercise Price | ||||||
Balance at January 1, 2006 |
12,000 | $ | 0.92 | $ | 0.92 | |||
Issued in 2006 |
25,000 | $ | 0.87 | $ | 0.87 | |||
Balance at December 31, 2006 |
37,000 | $ | 0.87 - $0.92 | $ | 0.89 | |||
Balance at December 31, 2007 |
25,000 | $ | 0.87 | $ | 0.87 |
The 12,000 warrants issued prior to January 1, 2006 expired in 2007. The 25,000 warrants outstanding at December 31, 2007 will expire in October 2009.
NOTE 4—CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to accounts receivable are significant due to the Company only having one customer, although the payment terms are generally short. No write-offs have been initiated during the course of the contract.
NOTE 5—INCOME TAXES
At December 31, 2007, the Company had net operating loss carryforwards available to reduce future taxable income, if any, of approximately $16,285,911 and $3,969,755 for Federal and California income tax purposes, respectively; however, $3,313,914 of the net operating loss carryforwards for California expired in 2007. The Federal net operating loss begins to expire in 2011. The difference between the Federal and California tax loss carryforwards is primarily related to the expiration of California loss carryforwards. At December 31, 2007, the Company also had research and development credit carryforwards of approximately $486,000 and $250,000 for Federal and state income tax reporting purposes, respectively. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within a three year period.
Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes (the loss and tax credit carryforwards described above) give rise to the Company’s deferred income taxes. The components of the Company’s deferred tax assets as of December 31, 2007 and 2006 are as follows:
2007 | 2006 | |||||||
Net operating loss carryforwards |
$ | 5,888,000 | $ | 6,134,000 | ||||
Research and development credit carryforwards |
736,000 | 736,000 | ||||||
Other |
27,000 | 30,000 | ||||||
6,651,000 | 6,900,000 | |||||||
Valuation allowance |
(6,651,000 | ) | (6,900,000 | ) | ||||
$ | — | $ | — | |||||
As the ultimate realization of the potential benefits of the Company’s net operating loss carryforwards is considered unlikely by management, the Company has offset the deferred tax assets attributable to those potential benefits through valuation allowances in 2007 and 2006 and, accordingly, the Company did not recognize any benefit from income taxes in the accompanying statements of operations to offset its pre-tax losses. The valuation allowance decreased by $249,000 as a result of the expiration of a portion of the net operating loss carryforwards.
NOTE 6—STOCK OPTION PLAN
The Company’s 1993 Stock Option Plan (the “Plan”) was adopted by the Board of Directors in February 1994. Pursuant to the Plan, the Company may grant both incentive stock options and nonqualified stock options. Incentive stock options may be granted only to employees, while consultants, employees, officers and directors are eligible for the grant of nonqualified options. The total number of shares of common stock of the Company reserved and available for grant under the Plan is 465,000 shares.
F-12
The maximum term of stock options granted under the Plan is ten years, but if the optionee at the time of the grant has voting power over more than 10% of the Company’s outstanding capital stock, the maximum term is five years. The exercise price of incentive stock options granted under the Plan must be at least equal to the fair market value of such shares on the date of grant. The exercise price of nonqualified stock options granted under the Plan must be at least 85%, or 110% with respect to holders of 10% of the voting power of the Company’s outstanding capital stock, of the fair market value of the stock subject to the option on the date of the grant. At December 31, 2007, a total of 264,275 stock options are exercisable.
Activity with respect to the stock option plan is summarized as follows:
Stock Options Outstanding |
Option Exercise Price |
Weighted- Average Exercise Price | |||||||
Balance at January 1, 2006 |
311,471 | $ | 11.04 | ||||||
Expired |
(34,596 | ) | $ | 3.39 - $62.50 | $ | 3.39 - $62.50 | |||
Balance at December 31, 2006 |
276,875 | $ | 10.73 | ||||||
Expired |
(12,600 | ) | $ | 2.85 - $49.38 | $ | 3.39 - $62.50 | |||
Balance at December 31, 2007 |
264,275 | $ | 9.40 | ||||||
Shares available for grant at December 31, 2007 |
200,725 | ||||||||
The following is a further breakdown of the options outstanding as of December 31, 2007:
Range of Exercise Prices |
Outstanding Options |
Weighted- Average Remaining Life in Years |
Weighted- Average Exercise Price |
Options Exercisable |
Weighted- Average Exercise Price of Options Exercisable | |||||||
$ 0.83 - $4.67 |
216,000 | 3.83 | $ | 2.86 | 216,000 | $ | 2.86 | |||||
$25.00 |
21,000 | 2.32 | 25.00 | 21,000 | 25.00 | |||||||
$47.92 - $50.00 |
27,275 | 1.17 | 49.16 | 27,275 | 49.16 | |||||||
264,275 | 3.44 | 9.40 | 264,275 | 9.40 | ||||||||
NOTE 7—NOTES PAYABLE AND RELATED CONVERSION AND STOCK OPTIONS
At December 31, 2007, the Company had an outstanding note payable with a principal balance of $200,000 which bore interest at an annual rate of 10%. The note was collateralized by substantially all of the assets of the Company and was due on March 10, 2006. The investor had the option to convert the principal amount into Vyrex common shares at a price of $2.08 during the first year, $4.17 the second year and $6.25 the third year. Further in connection with the Promissory Note, the investor was issued warrants, exercisable within three years from the date of issuance, entitling the investor to purchase 12,000 Vyrex common shares at an exercise price of $0.917 per share. The Company determined the fair market value of these warrants were $0.50 per warrant utilizing the Black-Scholes option pricing model. The $6,000 was treated as a discount to the note and was accreted over the term of the loan. As further consideration for the loan, the Company agreed to amend the strike price terms of the right to convert the principal amount of the Promissory Note into Vyrex common shares from $4.17 to $2.08 the second year and from $6.25 to $4.17 the third year. In March of 2006 the private investor agreed to extend the note an additional six months to September 2006. The right to convert the principal amount into Vyrex Common Shares at a strike price of $4.17 in the third year was extended to September of 2006. In September of 2006, the private investor agreed to extend the note to March 2007. The right to convert the principal amount into Vyrex Corporation common shares at a strike price of $2.917 per share in the third year was extended to March 2007. The private investor was issued a warrant exercisable within three (3) years from the date of issuance entitling the Lender to purchase Vyrex Corporation common
F-13
shares in the amount of twelve thousand (12,000) shares at an exercise price of $0.92 per share. Interest on the unpaid balance continued to accrue at the rate of 10% per year. In March of 2007, the private investor agreed to extend the maturity date of the note until June of 2007. The right to convert the principal amount into Vyrex Corporation common shares at a strike price of $2.917 per share in the third year was extended to June 2007. In July 2007 the private investor agreed to extend the maturity date of the principal sum of $200,000 to September 2007. The private investor had again agreed to extend the maturity date of the note together with all accrued interest from September 30, 2007 to March 31, 2008. The $200,000 note was paid in full pursuant to the issuance of 250,000 shares of the Company’s common stock immediately prior to the Merger.
During October 2006, the Company obtained a note from a private investor group to loan the Company $17,000. The note along with the accrued interest was due and payable at the time of Vyrex Corporation receipt of funds from a merger or acquisition or no later than one year from the date of the note. The note bears a rate of 10% interest per year. Further in connection with the Promissory Note warrants were issued in the total amount of 25,000, split equally between the partners, exercisable within three years from the date of issuance at an exercise price per share of $0.87. The Company determined the fair value of these warrants to be $14,986 ($0.60 per warrant) utilizing the Black-Scholes option pricing model. The warrants were recorded as an increase to additional paid-in-capital with a corresponding discount to the note payable to be accreted over the term of the loan. The note was paid in full during the fourth quarter 2007.
NOTE 8—SUBSEQUENT EVENT
On February 11, 2008, Vyrex Corporation (“Vyrex” or the “Company”), PowerVerde, Inc. (“PowerVerde”) and Vyrex Acquisition Corporation (“VAC”), a wholly-owned subsidiary of Vyrex, all Delaware corporations, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on February 12, 2008, VAC merged with and into PowerVerde, with PowerVerde remaining as the surviving corporation and a wholly-owned subsidiary of Vyrex (the “Merger”). As consideration for the Merger, as of the closing of the Merger, each issued and outstanding share of common stock of PowerVerde was converted into the right to receive 1.2053301 shares of the common stock of Vyrex and each share of VAC was converted into one share of PowerVerde common stock. As a result of the Merger, the former shareholders of PowerVerde hold 95% of the common stock of Vyrex. Pursuant to the Merger Agreement, PowerVerde paid $233,000 in accounts payable and other liabilities owed by Vyrex.
In addition, immediately prior to execution of the Merger Agreement, Vyrex paid a $200,000 promissory note through issuance of 250,000 shares of common stock and issued an additional 25,000 shares of common stock as payment for certain consulting and administrative services.
In connection with the Merger, all of the Company’s officers and directors resigned, and the following individuals were appointed to their respective positions set forth beside their names below:
Name |
Title |
|||
George Konrad | President, Treasurer and Director | |||
Fred Barker | Vice President, Secretary and Director | |||
Richard H. Davis | Director |
The merger transaction will be accounted for as a recapitalization of Vyrex and the financial statements just subsequent to the merger transaction will consist of the historical balance sheet of both companies, the historical results of operations of Vyrex, and the operations of the legal parent, PowerVerde.
F-14
Exhibit Index
Exhibit No. |
Description | |
31.1 |
Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 |
Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 |
Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 |
Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |