UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2006
OR
[ ] TRANSITION REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-19598-D
VYTA CORP
---------
(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 number)
370 17th Street, Suite 3640
Denver, Colorado 80202
(Address of principal executive offices)
Issuer's telephone number, including area code: (303) 592-1010
Check whether the issuer (1) has filed all reports required to be filed by
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of February 19, 2007 there were 22,643,512 shares of the registrant's sole
class of common shares outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Condensed Consolidated Balance Sheet - December 31, 2006 F-1
Condensed Consolidated Statements of Operations -
Three and Six months ended December 31, 2006 and 2005 F-2
Condensed Consolidated Statements of Comprehensive
Loss - Three and Six months ended December 31, 2006 and 2005 F-3
Condensed Consolidated Statement of Changes in Shareholders'
Equity -Six months ended December 31, 2006 F-4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 2006 and 2005 F-5
Notes to Condensed Consolidated Financial Statements F-7
Item 2. Management's Discussion and Analysis 1
Item 3. Controls and Procedures 3
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -Not Applicable 4
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 4
- Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable 4
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 4
Item 5. Other Information - Not Applicable 4
Item 6. Exhibits 5
SIGNATURES 6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
December 31, 2006
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 42,438
Prepaid expenses 202,401
-------------
Total current assets 244,839
-------------
Property and equipment:
Office equipment and furniture 67,108
Less accumulated depreciation (58,977)
-------------
8,131
-------------
Other assets:
Deposits and other 19,509
Notes receivable, equity investee (Note 2) 1,600,394
Investment in equity investee(Note 3) 242,125
-------------
1,862,028
-------------
Total assets $ 2,114,998
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 125,470
Advances payable, related parties (Note 4) 582,823
Accrued liabilities 7,063
-------------
Total liabilities (all current) 715,356
-------------
Commitments and contingencies (Notes 4 and 5)
Shareholders' equity:
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;
22,643,512 shares issued and outstanding 2,264
Additional paid-in capital 28,390,883
Accumulated other comprehensive income 130,530
Accumulated deficit (27,124,035)
-------------
Total shareholders' equity 1,399,642
-------------
Total liabilities and shareholders' equity $ 2,114,998
=============
See notes to condensed consolidated financial statements.
F - 1
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ------------------------
2006 2005 2006 2005
------------ ----------- ----------- -----------
Revenues $ - - - -
------------ ----------- ----------- -----------
General and administrative expenses (271,352) (216,188) (546,766) (441,027)
------------ ----------- ----------- -----------
Loss from operations (271,352) (216,188) (546,766) (441,027)
------------ ----------- ----------- -----------
Other income (expense):
Other income - - - 28,585
Interest income 12 4,419 12 8,350
Equity losses of equity investees
(Note 3) (272,583) (129,747) (540,141) (389,654)
Loss on revaluation of derivative
warrant liability - (4,158) - (4,158)
Interest expense - - - (235,131)
Interest expense, related party - - - (219)
------------ ----------- ----------- -----------
(272,571) (129,486) (540,129) (592,227)
------------ ----------- ----------- -----------
Net loss $ (543,923) (345,674) (1,086,895) (1,033,254)
============ =========== =========== ===========
Net loss per share, basic and diluted
(Note 1) $ (0.02) (0.05) (0.05) (0.16)
============ =========== =========== ===========
Weighted average number of common
shares outstanding (Note 1) 22,643,512 6,855,418 22,643,512 6,327,884
============ =========== =========== ===========
See notes to condensed consolidated financial statements.
F - 2
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net loss $ (543,923) (345,674) (1,086,895) (1,033,254)
Change in unrealized gain (loss) on
securities 136 - 171 ( 14)
------------ ------------ ------------ ------------
Comprehensive loss $ (543,787) (345,674) (1,086,724) (1,033,268)
============ ============ ============ ============
See notes to condensed consolidated financial statements.
F - 3
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended December 31, 2006
(Unaudited)
Common stock Additional Accumulated other Total
----------------------- paid-in comprehensive Accumulated shareholders'
Shares Amount capital income deficit equity
---------- ----------- ------------------ -------------- -------------- ---------------
Balances, July 1, 2006 22,643,512 $ 2,264 $ 28,390,883 $ 130,359 $ (26,037,140) $ 2,486,366
Net loss - - - - (1,086,895) (1,086,895)
Change in unrealized
gain on securities - - - 171 - 171
---------- ----------- ------------------ -------------- -------------- ---------------
Balances,
December 31, 2006 22,643,512 2,264 28,390,883 130,530 (27,124,035) 1,399,642
========== =========== ================== ============== ============== ===============
See notes to condensed consolidated financial statements.
F - 4
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
---------------------------
2006 2005
------------- ------------
Cash flows from operating activities:
Net loss $ (1,086,895) (1,033,254)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization expense 234,411 45,370
Depreciation expense 2,694 2,853
Equity losses of equity investees 540,141 389,654
Amortization of discounts on notes payable - 213,760
Loss on revaluation of derivative warrant
liability - 4,158
Changes in operating assets and liabilities:
Decrease in interest receivable - 2,894
Decrease in prepaid expenses 15,967 960
Increase (decrease) in accounts payable and accrued
liabilities 54,879 (53,774)
------------- ------------
Total adjustments 848,092 605,875
------------- ------------
Net cash used in operating activities (238,803) (427,379)
------------- ------------
Cash flows from investing activities:
Increase in notes receivable (387,118) (400,000)
Payment on note receivable - 89,119
Investment in joint venture - (500,000)
------------- ------------
Net cash used in investing activities (387,118) (810,881)
------------- ------------
Cash flows from financing activities:
Exercise of warrants, and common stock and warrants issued
for cash - 2,070,500
Proceeds to be applied to preferred stock
purchase (Note 4) 476,000 200,000
Payment of notes payable - (960,663)
Proceeds from issuance of notes payable and common stock - 150,000
------------- ------------
Net cash provided by financing activities 476,000 1,459,837
------------- ------------
Net (decrease) increase in cash and cash equivalents (149,921) 221,577
Cash and cash equivalents, beginning 192,359 25,835
------------- ------------
Cash and cash equivalents, ending $ 42,438 247,412
============= ============
(Continued)
F - 5
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Continued
Six Months Ended
December 31,
----------------------
2006 2005
----------- ---------
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.
F - 6
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
1. BASIS OF PRESENTATION, MANAGEMENT'S PLANS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Presentation of Interim Information:
The accompanying condensed consolidated financial statements include the
accounts of Vyta Corp, a Nevada corporation (the Company), its wholly-owned
subsidiaries, NanoPierce Connection Systems, Inc., a Nevada corporation (NCOS),
and ExypnoTech, LLC (ET LLC). All significant intercompany accounts and
transactions have been eliminated in consolidation. NCOS and ET LLC had no
revenues or operations in 2006 and 2005. The Company has two investments which
are accounted for using the equity method of accounting. These equity method
investments consist of ExypnoTech, GmbH (EPT) and BioAgra, LLC (BioAgra)(Note
3). The Company's equity investees, EPT and BioAgra, operate in two
segments, the RFID industry and the animal feed industry, respectively.
In the opinion of the management of the Company, the accompanying unaudited
condensed consolidated financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to present
fairly the financial position and operating results of the Company for the
periods presented. The financial statements and notes are presented as
permitted by Form 10-QSB, and do not contain certain information included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006.
It is management's opinion that when the interim financial statements are read
in conjunction with the June 30, 2006 Annual Report on Form 10-KSB, the
disclosures are adequate to make the information presented not misleading.
Interim results are not necessarily indicative of results for a full year or any
future period.
Management's Plans:
In the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
2006, 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 months ended December 31, 2006 have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company reported a net loss of $1,086,895 for the six months ended December 31,
2006, and an accumulated deficit of $27,124,035 as of December 31, 2006. The
Company also has a working capital deficiency at December 31, 2006 and the
Company has not recognized any revenues from its business operations.
F - 7
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
The Company's ability to continue as a going concern may be dependent on the
success of management's plans discussed below. 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. During the 2007
fiscal year, the Company intends to continue its efforts to assist BioAgra (Note
3) with the continuing development of its sales, nationally and internationally
in other animal feed markets, such as the equine and the swine markets. In
addition, in January 2007 the Company signed a six-month Technology Agreement to
permit a prospective licensee the opportunity to conduct a market survey
relating to its NCOS(TM) technology. Management believes that if the market
survey is favorable, the Technology Agreement may mature into a royalty paying
commercial license, the terms and conditions of which are under negotiation
between the Company and the perspective licensee.
The Company also intends to raise funds to support operations of the Company
during the 2007 fiscal year through a private offering of preferred stock, the
terms of which are being negotiated.
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.
Deferred Consulting Costs:
In June 2006, the Company entered into a twelve-month consulting services
agreement with two third parties, in which the parties agreed to provide
lobbying and public relation services. Compensation consisted of 200,000 shares
of the Company's common stock with a market value of approximately $182,000
(based on a closing market price of $0.91 per share at the date the transaction
was entered into) and a warrant to purchase 500,000 shares of the Company's
common stock, with an exercise price of $0.91 per share and a term of 3 years.
The warrant was valued at $283,000 using the Black-Scholes pricing model method.
The deferred cost is being amortized on a straight-line basis as earned over the
twelve-month period from the date of the agreement. During the six months ended
December 31, 2006, $234,411 was expensed.
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 1,000,000 shares of the
Company's restricted common stock with a market value of approximately $90,000
(based on the closing market price of $0.09 per share at the date of the
transaction). The deferred cost was amortized on a straight-line basis as
earned over the twelve-month period from the date of the agreement and therefore
has been fully-amortized. During the six months ended December 31, 2005,
$45,370 was expensed.
F - 8
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
Loss Per Share:
Basic Earnings Per Share (EPS) excludes dilution. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. Loss
per share of common stock is computed based on the weighted average number of
common shares outstanding during the period. Stock options and warrants are not
considered in the calculation, as the impact of the potential common shares
(6,519,469 shares at December 31, 2006 and 1,926,877 shares at December 31,
2005) would be to decrease loss per share. Therefore, diluted loss per share is
equivalent to basic loss per share.
Stock-Based Compensation:
Beginning July 1, 2006, the Company adopted the provisions of and accounts for
stock-based compensation in accordance with the Financial Accounting Standards
Board's ("FASB") Statement of Financial Accounting Standards No. 123 - revised
2004 ("SFAS 123R"), "Share-Based Payment", which replaced Statement of Financial
Accounting Standards No. 123("SFAS 123"), "Accounting for Stock-Based
Compensation", and supersedes APB Opinion No. 25 ("APB 25"), Accounting for
Stock Issued to Employees". Under the fair value recognition provisions of this
statement, stock-based compensation cost is measured at the grant date based on
the fair value of the award and is recognized as expense on a straight-line
basis over the requisite service period, which is the vesting period. The
Company elected the modified-prospective method, under which prior periods are
not revised for comparative purposes. The valuation provisions of SFAS 123R
apply to new grants and to grants that were outstanding as of the effective date
and are subsequently modified. There were no options granted during the six
months ended December 31, 2006 and 2005, and all options granted prior to the
adoption of SFAS 123R and outstanding during the periods presented were
fully-vested.
The Company has two stock option plans which permit the grant of shares to
attract, retain and motivate employees, directors and consultants of up to
625,000 shares of common stock. Options are generally granted with an exercise
price equal to the Company's market price of its common stock on the date of the
grant and with vesting rates, as determined by the Board of Directors. All
options outstanding at July 1, 2006 and December 31, 2006 are fully-vested and
exercisable. A summary of outstanding balances at July 1, 2006 and December 31,
2006 is as follows:
Weighted- Weighted-
average average Aggregate
exercise remaining intrinsic
Options price life value
-------------------------------------------
Outstanding at:
July 1, 2006 398,127 $ 22.00 4.61 years $ 0
December 31, 2006 398,127 $ 22.00 4 years $ 0
F - 9
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
Recently Issued Accounting Standards:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 is
effective for the Company for its fiscal year beginning on July 1, 2008. The
Company is currently assessing the impact the adoption of SFAS No. 157 will have
on its consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 in
order to eliminate the diversity of practice surrounding how public companies
quantify financial statement misstatements. In SAB 108, the SEC staff
established an approach that requires quantification of financial statement
misstatements based on the effects of the misstatements on each of the Company's
financial statements and the related financial statement disclosures. SAB No.
108 is effective for the Company for its current fiscal year. The adoption of
SAB No. 108 did not have an impact on the Company's consolidated financial
statements.
2. NOTES RECEIVABLE - EQUITY INVESTEE:
During the year ended June 30, 2006, the Company loaned $1,726,827 to BioAgra
(Note 3) in exchange for a secured, 7.5% promissory note with payments to be
made monthly starting October 31, 2006, through October 31, 2007. The funds were
loaned to facilitate BioAgra's completion of its first production line and to
support operations. The promissory note is collateralized by all of BioAgra's
assets. Additionally, the promissory note is to be paid in full prior to any
distributions being made to the members of the joint venture. During the six
months ended December 31, 2006, the note was reduced by $513,551, which
represents the excess of the BioAgra losses recognized by the Company over the
adjusted basis of the Company's equity investment in BioAgra at December 31,
2006 (Note 3).
During the six months ended December 31, 2006, the Company advanced an
additional $387,118 to BioAgra under the same terms as the promissory note,
described above. In January 2007, the Company advanced an additional $53,500 to
BioAgra under the same terms as the promissory note, described above. The
Company has classified these notes receivable as non-current assets on the
balance sheet and is not accruing interest on these notes receivable as they are
currently in default and non-performing. The scheduled payments under the
promissory note have not been made.
3. INVESTMENTS IN AFFILIATES:
Investment in EPT:
The carrying amount of the Company's investment in EPT is $242,125 at December
31, 2006, and 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, 2006, and for the
three and six-month periods ended December 31, 2006 and 2005 are as follows:
F - 10
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
December 31,
2006
-------------
Assets:
Current assets(1) $ 673,924
Equipment 47,151
-------------
Total assets $ 721,075
=============
Liabilities and members' equity:
Current liabilities(2) $ 357,087
Members' equity 363,988
-------------
Total liabilities and members' equity $ 721,075
=============
(1) Current assets include receivables of $641,722 due from the 51%
owner of EPT.
(2) Current liabilities include a payable of $29,473 due to the 51%
owner of EPT.
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
-------------- ------------- ------------- -------------
Revenues(1) $ 1,271,198 645,460 1,839,740 1,045,196
Expenses(2) (1,182,660) (707,287) (1,674,991) (1,141,600)
-------------- ------------- ------------- -------------
Net income
(loss) $ 88,538 (61,827) 164,749 (96,404)
============== ============= ============= =============
(1) Revenues for the six months ended December 31, 2006 and 2005
include $1,839,740 and $1,045,196, respectively ($1,271,198 and
$645,460 for the three months ended December 31, 2006 and 2005,
respectively) of sales to the 51% owner of EPT for each period
presented.
(2) Expenses for the six months ended December 31, 2006 and 2005
include $80,677 and $45,671, respectively ($42,399 and $37,756 for the
three months ended December 31, 2006 and 2005, respectively) of
charges paid to the 51% owner of EPT for each period presented.
Investment in BioAgra:
On August 15, 2005, the Company entered into a joint venture with Xact
Resources, a privately-held company. The Company purchased a 50% equity
interest in the joint venture, BioAgra, for $905,000 in cash (which includes
$405,000 previously advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is
to manufacture and sell a beta glucan product, YBG-2000 also known as
AgraStimTM, to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed. As of December 31, 2006, BioAgra
(a development stage company) has completed construction of a production line
and has produced and shipped product in limited quantities.
The terms of the joint venture provide for the Company to share in 50% of joint
venture net income, if any, or net losses. Net losses incurred by BioAgra have
exceeded the underlying equity attributed to BioAgra's other joint venture
investor. As a result, the excess of the losses attributable
F - 11
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
to the other joint venture investor have been charged to the Company. BioAgra
incurred a net loss of $620,867 for the six months ended December 31, 2006
($315,962 for the three months ended December 31, 2006). At September 30, 2006
the carrying value of the Company's investment in BioAgra was $0. The losses for
the three months ended December 31, 2006 ($315,962) were applied to reduce the
value of the note receivable from BioAgra.
Unaudited financial information of BioAgra as of December 31, 2006 and for the
three and six months ended December 31, 2006, and the period from August 15,
2005 (inception) through December 31, 2005 and the three months ended December
31, 2005, is as follows:
December 31, 2006
-------------------
Assets:
Current assets $ 183,514
Land, building and equipment, net(2) 2,859,259
Other assets, net 93,123
-------------------
Total assets $ 3,135,896
===================
Liabilities and members' equity:
Current liabilities(1) $ 2,666,080
Obligation under capital lease(2) 983,367
-------------------
Total liabilities 3,649,447
Members' deficiency (513,551)
-------------------
Total liabilities and members' deficiency $ 3,135,896
===================
(1) Includes $2,113,945 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.
Three Months Three Months Six Months August 15,
Ended Ended Ended 2005 through
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
-------------- ------------- ------------- -------------
Revenues $ - - 31,642 -
Expenses (315,962) (198,902) (652,509) (684,832)
-------------- ------------- ------------- -------------
Net loss $ (315,962) (198,902) (620,867) (684,832)
============== ============= ============= =============
4. ADVANCES PAYABLE - RELATED PARTIES:
In June 2006, the Company received an advance of $100,000 from Arizcan
Properties, Ltd. (Arizcan). During the six months ended December 31, 2006, the
Company received additional advances of $476,000 from Arizcan. Total advances
at December 31, 2006 are $576,000. The advances are to be applied to an equity
placement that the Company and Arizcan have not yet finalized. The proceeds were
used to fund the Company's operations.
F - 12
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
During the six months ended December 31, 2006, the Company received an advance
of $6,823 from Paul H. Metzinger, the President and Chief Executive Officer of
the Company.
5. 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. In April 2005, the court granted a motion to dismiss the
lawsuit. The Company filed an appeal to the Supreme Court of the State of Nevada
to overturn the motion to dismiss the lawsuit. Oral argument on the appeal was
presented before the Nevada State Supreme Court in February 2007. The Company is
awaiting a decision on the appeal, at this time.
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
7,418,895 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 4,500,225 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
F - 13
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2006 and 2005
(Unaudited)
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 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 - 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain statements contained in this Form 10-QSB contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve risks and uncertainties that could cause actual results to
differ materially from the results, financial or otherwise, or other
expectations described in such forward-looking statements. Any forward-looking
statement or statements speak only as of the date on which such statements were
made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statements are made or reflect the occurrence of unanticipated events.
Therefore, forward-looking statements should not be relied upon as prediction of
actual future results.
The independent registered public accounting firm's report on the Company's
consolidated financial statements as of June 30, 2006, and for each of the years
in the two-year period then ended, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to the factors
prompting the explanatory paragraph are discussed below and also in Note 1 to
the unaudited quarterly financial statements.
RESULTS OF OPERATIONS
The Company had no revenues during the six months ended December 31, 2006
and 2005.
Total general and administrative expenses during the six months ended
December 31, 2006 were $546,766 compared to $441,027 for the six months ended
December 31, 2005 ($271,352 and $216,188 for the three months ended December 31,
2006 and 2005, respectively). The six-month increase of $105,739, is primarily
attributable as set forth on the table below.
General and $ Increase or
Administrative Expense (Decrease)
---------------------- -------------
Consulting expenses $ 204,596
Accounting expenses 20,768
Commission fees (68,210)
Rent expense (24,868)
Public relations (23,339)
The Company recognized $8,350 in interest income during the six months
ended December 31, 2005 ($4,419 during the three months ended December 31,
2005). During the six months ended December 31, 2005, the Company recognized
$28,585 in other income, which represented a gain on the extinguishment of
certain liabilities.
No interest expense was recorded during the six months ended December 31,
2006, as no debt was outstanding during the period. The Company recognized
interest expense of $235,350 for the six months ended December 31, 2005 ($0 for
the three months ended December 31, 2005). Of the $235,350 in interest expense,
$219 represented related party interest. The remaining $235,131 was incurred in
connection with the issuance of promissory notes, which were discounted for the
fair value of warrants included with debt at the time of issuance. The
resulting discounts ($213,760) were amortized over
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the term of the promissory notes. The promissory notes were paid in full during
the three months ended September 30, 2005, and at that time the discounts were
fully amortized.
During the six months ended December 31, 2006, the Company recognized a net
loss of $1,086,895 compared to a net loss of $1,033,254 during the six months
ended December 31, 2005 ($543,923 and $345,674 for the three months ended
December 31, 2006 and 2005, respectively). The increase of $53,641, during the
six months ended December 31, 2006, is primarily attributable to the decrease of
$235,350 in interest expenses, offset by the increase of $105,739 in general and
administrative expenses.
LIQUIDITY AND FINANCIAL CONDITION
During the six months ended December 31, 2006, the Company used $238,803 in
operating activities. Net cash provided by financing activities was $476,000,
which is a prepayment on a series of preferred stock the terms of which are
being negotiated. Net cash used in investing activities was $387,118, which was
advanced to BioAgra to be used to support its operations. The Company had
$42,438 of cash and cash equivalents at December 31, 2006, which is being used
to support operations. During the six months ended December 31, 2005, the
Company used $427,379 in operating activities. During the six months ended
December 31, 2005, net cash provided by financing activities was $1,459,837; of
which $2,070,500 was from the exercise of warrants, $200,000 were proceeds from
the prepayment on the sale of a preferred stock, $150,000 were proceeds from the
issuance of notes payable and common stock and $960,663 was used to pay notes
payable.
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 during the fiscal year ended June 30, 2005)
and a note payable of $595,000 which was paid in full in September 2005. BioAgra
is to manufacture and sell a beta glucan product, YBG-2000 marketed as AgriStim,
to be used as a replacement for hormone growth steroids and antibiotics in
animal feed products. BioAgra has completed the construction of its production
line, and during the six months ended December 31, 2006, BioAgra had limited
sales of its product. During the six months ended December 31, 2006, BioAgra has
been working with potential customers on field testing trials of the AgriStim
product.
As of December 31, 2006, 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 would receive $192,125,
and the Company, on a fully diluted basis (including the reservation of 832,029
shares as required by the court in the Financing Agreement Litigation), would
have 29,995,271 shares of common stock issued and outstanding.
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 support
the operations of the Company and its investments.
During the 2007 fiscal year, the Company intends to continue its efforts to
aid BioAgra with the continuing development of its sales, nationally and
internationally in other animal feed markets, such as the equine and the swine
markets. In addition, in January 2007 the Company signed a six-month
2
Technology Agreement to permit a prospective licensee the opportunity to conduct
a market survey relating to its NCOS(TM) technology. We believe that if the
market survey is favorable the Technology Agreement may mature into a royalty
paying commercial license the terms and conditions of which are under
negotiation between the Company and the perspective licensee.
The Company intends to raise additional funds to support operations of the
Company during the 2007 fiscal year. Such funds are to be raised through an
offering of a preferred stock, the terms of which are in the process of being
finalized.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 is
effective for the Company for its fiscal year beginning on July 1, 2008. The
Company is currently assessing the impact the adoption of SFAS No. 157 will have
on its consolidated financial statements.
In September 2006, the SEC issued SAB No. 108 in order to eliminate the
diversity of practice surrounding how public companies quantify financial
statement misstatements. In SAB 108, the SEC staff established an approach that
requires quantification of financial statement misstatements based on the
effects of the misstatements on each of the Company's financial statements and
the related financial statement disclosures. SAB No. 108 is effective for the
Company for its current fiscal year. The adoption of SAB No. 108 did not have
an impact on the Company's consolidated financial statements.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-QSB,
the Company carried out an evaluation, under the supervision and with the
participation of the Company's President and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon
such evaluation, such officers have concluded that the Company's disclosure
controls and procedures are effective as of the end of the period covered by
this quarterly report on Form 10-QSB in alerting them, on a timely basis, to
material information relating to the Company required to be included in the
Company's periodic SEC filings and to ensure that information required to be
disclosed in the Company's periodic SEC filings is accumulated and communicated
to the Company's management, including its
3
President and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
There was no change to the Company's internal controls over financial
reporting during the fiscal quarter ended September 30, 2006 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NO CHANGE.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE.
ITEM 5. OTHER INFORMATION - NONE.
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ITEM 6. EXHIBITS
EXHIBITS. The following is a complete list of exhibits filed as part
of this Form 10-QSB. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-B.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2 Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VYTA CORP
(REGISTRANT)
Date: February 20, 2007 /s/ Paul H. Metzinger
----------------------------------------
Paul H. Metzinger,
President & CEO
(Principle Executive Officer)
Date: February 20, 2007 /s/ Kristi J. Kampmann
----------------------------------------
Kristi J. Kampmann,
Chief Financial Officer
(Principle Financial Officer)
6