Notes to Consolidated Financial Statements (continued)
41
Kraft
Agreement Summary
On December 5, 2006, the Company entered into a technology sublicense agreement with Kraft. Pursuant to this agreement Kraft is granted limited exclusive sublicense to use the Company´s know-how and related license and patents relating to the production of "functional foods" which treat and prevent parasites in humans through additives to foods, beverages and dietary supplements. Kraft is required to use commercially reasonable efforts to pursue the achievement of milestones set out in the agreement. The project for the development of licensed products is divided into four development stages. Within each stage certain designated milestones are to be accomplished in accordance with the development and implementation priorities agreed by the parties. The Company has the obligation to fund product development with a portion of the product development funded through an upfront payment and milestone payments. The Company and Kraft agreed to negotiate a supply agreement in "good faith" after commercial launch. In addition, Kraft has agreed to pay the Company royalties for any product sales related to the "functional foods" with the Company´s technology.
Accounting Summary
The Company considers its arrangement with Kraft to be a revenue arrangement with multiple deliverables. The Company´s deliverables under this collaboration include an exclusive license to its parasitic technologies, research and development services, and participation on a steering committee. The Company applied the provisions of EITF 00-21 to determine whether the performance obligations under this collaboration could be accounted for separately or should be accounted for as a single unit of accounting. The Company determined that the deliverables, specifically, the license, research and development services and steering committee participation, represented a single unit of accounting because the Company believes that the license, although delivered at the inception of the arrangement, does not have stand-alone value to Kraft without the Company´s research and development services and steering committee participation and because objective and reliable evidence of the fair value of the Company´s research and development services and steering committee participation could not be determined.
(12) Income Taxes
Beginning on May 24, 2007 the Company is subject to both federal and state income taxes. For the period prior to May 24, 2007, the Company operated as a pass through entity for tax purposes and tax liability was the responsibility of its members.
The difference between the "expected" tax benefit (computed by applying the federal corporate income tax rate of 34% to the loss before income taxes) and the actual tax benefit is primarily due to the effect of the valuation allowance described below.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts utilized for income tax purposes. The tax effects of temporary differences that give rise to significant portions of deferred taxes at December 31, 2008 are presented below:
2008
2007
Deferred tax assets:
Accrued compensation
$ 107,970
$ 184,024
Deferred revenue
—
10,229
Provisions for book
483,614
—
Net operating loss and
charitable contribution
carry forward
9,435,408
3,466,894
Basis in intangibles
4,476,372
4,810,014
Property and equipment
5,626
34,409
Warrants
—
1,535,893
Stock compensation
1,824,178
762,385
Total gross deferred
tax assets
16,333,168
10,803,848
Less valuation allowance
(16,232,168
)
(10,771,804
)
Net deferred tax assets
101,000
32,044
Deferred tax liabilities
Prepaid expenses
(101,000
)
(32,044
)
Net deferred tax liability
$ —
$ —
At December 31, 2008, the Company had federal and state net operating loss carry forwards of US$9.4 million (2007: US$3.5 million). The federal net operating loss carry forwards begin to expire in 2027 and state net operating loss carry forwards begin to expire in 2027, if not utilized.
TyraTech, Inc. Annual Report 2008
