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 March 31, 2007
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 May 19, 2007 there were 26,053,512 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 -March 31, 2007 F-1
Condensed Consolidated Statements of Operations - Three and Nine
months ended March 31, 2007 and 2006 F-2
Condensed Consolidated Statements of Comprehensive Loss - Three and
Nine months ended March 31, 2007 and 2006 F-3
Condensed Consolidated Statement of Changes in Shareholders' Equity
-Nine months ended March 31, 2007 F-4
Condensed Consolidated Statements of Cash Flows - Nine months ended
March 31, 2007 and 2006 F-5
Notes to Condensed Consolidated Financial Statements F-7
Item 2. Management's Discussion and Analysis 1
Item 3. Controls and Procedures 4
Item 3(A)T. Controls and Procedures 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -Not Applicable 4
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities - Not Applicable 5
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 5
Item 5. Other Information - Not Applicable 5
Item 6. Exhibits 6
SIGNATURES 7
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
March 31, 2007
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 249,688
Prepaid expenses 89,276
-------------
Total current assets 338,964
-------------
Property and equipment:
Office equipment and furniture 67,107
Less accumulated depreciation (60,323)
-------------
6,784
-------------
Other assets:
Deposits and other 19,543
Notes receivable, equity investee (Note 2) 1,526,899
Investments in equity investee(Note 3) 229,904
-------------
1,776,346
-------------
Total assets $ 2,122,094
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 59,464
Accounts payable, related party 22,713
Accrued liabilities 7,063
Note payable (Note 4) 50,000
-------------
Total liabilities (all current) 139,240
-------------
Commitments and contingencies (Notes 4 and 6)
Shareholders' equity:
Preferred stock; $0.0001 par value; 5,000,000 shares authorized;
Series A, 8%; deemed par value $1.00 per share;
500,000 shares issued and outstanding; liquidation preference
of $503,100 $ 503,100
Common stock; $0.0001 par value; 200,000,000 shares authorized;
25,753,512 shares issued and outstanding 2,575
Additional paid-in capital 29,734,222
Accumulated other comprehensive income 130,719
Accumulated deficit (28,387,762)
-------------
Total shareholders' equity 1,982,854
-------------
Total liabilities and shareholders' equity $ 2,122,094
=============
See notes to condensed consolidated financial statements.
F-1
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- ------------------------
2007 2006 2007 2006
------------ ----------- ----------- -----------
Revenues $ - - - -
------------ ----------- ----------- -----------
General and administrative expense,
including stock-based compensation
expense of $625,250 for the three
and nine months ended March 31, 2007 ( 879,058) ( 250,519) (1,425,825) ( 691,546)
------------ ----------- ----------- -----------
Loss from operations (879,058) ( 250,519) (1,425,825) (691,546)
------------ ----------- ----------- -----------
Other income (expense):
Other income - - - 28,585
Interest income 6 31,895 18 40,245
Equity losses of equity investees
(Note 3) ( 381,574) ( 40,242) ( 921,715) ( 429,896)
Loss on revaluation of derivative
warrant liability - ( 70,137) - ( 74,295)
Interest expense - - - ( 235,131)
Interest expense, related party - - - ( 219)
------------ ----------- ----------- -----------
(381,568) ( 78,484) ( 921,697) ( 670,711)
------------ ----------- ----------- -----------
Net loss (1,260,626) ( 329,003) (2,347,522) (1,362,257)
------------ ----------- ----------- -----------
Deemed dividends on preferred stock (3,100) - (3,100) -
Beneficial conversion feature - (1,500,000) - (1,500,000)
------------ ----------- ----------- -----------
Net loss applicable to common
shareholders $(1,263,726) (1,829,003) (2,350,622) (2,862,257)
============ =========== =========== ===========
Net loss per share, basic and diluted
(Note 1) $ (0.05) ( 0.11) ( 0.10) (0.29)
============ =========== =========== ===========
Weighted average number of common
shares outstanding (Note 1) 22,781,734 16,972,602 22,688,913 9,818,450
============ =========== =========== ===========
See notes to condensed consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Net loss $(1,260,626) ( 329,003) ( 2,347,522) ( 1,362,257)
Change in unrealized gain (loss) on
securities 189 ( 371) 360 (385)
------------ ------------ ------------ ------------
Comprehensive loss $(1,260,437) ( 329,374) ( 2,347,162) (1,362,642)
============ ============ ============ ============
See notes to condensed consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended March 31, 2007
(Unaudited)
Accumulated
Additional other Total
Preferred stock Common stock paid in comprehensive Accumualted shareholders'
Shares Amount 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
Series A preferred
stock issued in
exchange for
advance payable
related party
and cash 500,000 500,000 - - - - - 500,000
Warrant issued
for cash - - - - 251,900 - - 251,900
Common stock
issued for cash - - 3,110,000 311 466,189 - - 466,500
Options issued
for compensation - - - - 625,250 - - 625,250
Net loss - - - - - - ( 2,347,522) (2,347,522)
Deemed dividends on
Series A
preferred stock - 3,100 - - - - (3,100) -
Change in
unrealized
gain on securities - - - - - 360 - 360
------- --------- ---------- ------- ----------- -------------- ------------- ---------------
Balances,
March 31, 2007 500,000 $ 503,100 25,753,512 $ 2,575 $29,734,222 $ 130,719 $(28,387,762) $ 1,982,854
======= ========= ========== ======= =========== ============== ============= ===============
See notes to condensed consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
---------------------------
2007 2006
------------- ------------
Cash flows from operating activities:
Net loss $ (2,347,522) (1,362,257)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization expense 349,068 67,561
Depreciation expense 4,041 4,281
Equity losses of equity investees 921,715 429,896
Options issued for compensation 625,250 -
Amortization of discounts on notes payable - 213,760
Loss on revaluation of derivative warrant
liability (Note 5) - 74,295
Changes in operating assets and liabilities:
Increase in interest and other receivable - ( 11,607)
Decrease (increase) in prepaid expenses 14,435 ( 15,623)
Increase (decrease) in accounts payable and accrued
liabilities 4,917 (52,473)
------------- ------------
Total adjustments 1,919,426 710,090
------------- ------------
Net cash used in operating activities ( 428,096) (652,167)
------------- ------------
Cash flows from investing activities:
Increase in notes receivable ( 682,975) ( 875,000)
Payment on note receivable - 275,442
Investment in joint venture - (500,000)
------------- ------------
Net cash used in investing activities ( 682,975) ( 1,099,558)
------------- ------------
Cash flows from financing activities:
Exercise of warrants, and common stock and warrants issued
for cash 466,500 2,167,372
Proceeds applied to preferred stock and
warrant purchase (Note 5) 651,900 494,922
Payment of notes payable - ( 960,663)
Proceeds from note payable 50,000 -
Proceeds from issuance of notes payable and common stock - 150,000
------------- ------------
Net cash provided by financing activities 1,168,400 1,851,631
------------- ------------
Net increase in cash and cash equivalents 57,329 99,906
Cash and cash equivalents, beginning 192,359 25,835
------------- ------------
Cash and cash equivalents, ending $ 249,688 125,741
============= ============
(Continued)
F-5
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Continued
Nine Months Ended
March 31,
-----------------------
2007 2006
----------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ - 23,569
=========== ==========
Supplemental disclosure of non-cash investing and financing
activities:
Advances, related party converted to preferred stock
(Note 5) $ 100,000 -
=========== ==========
Issuance of Series A Preferred Stock in exchange for note
receivable $ - 1,100,000
=========== ==========
Beneficial conversion feature $ - 1,500,000
=========== ==========
Reclassification of derivative warrant liability to
equity $ - 253,521
=========== ==========
Issuance of common stock 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 offering costs owed in connection with
common stock issuance $ - (800,000)
=========== ==========
Forgiveness of accrued payroll owed to
officer/shareholder $ - 8,750
=========== ==========
See notes to condensed consolidated financial statements.
F-6
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(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 2007 and 2006. 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 nine months ended March 31, 2007 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 $2,347,522 for the nine months ended March 31,
2007, and an accumulated deficit of $28,387,762 as of March 31, 2007. The
Company has not recognized any revenues from its business operations.
F-7
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(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 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 Technology Agreement to license
its NCOS(TM) technology.
The Company has raised funds through the issuance of a preferred stock, a
warrant and shares of its restricted common stock. The Company intends to
continue to raise funds to support operations through the sale of its equity
securities.
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. 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 nine months ended
March 31, 2007, $349,068 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 nine months ended March 31, 2006, $67,561
was expensed.
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
F-8
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
warrants are not considered in the calculation, as the impact of the potential
common shares (15,392,134 shares at March 31, 2007 and 6,029,468 shares at March
31, 2006) 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 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 expenses 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. 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
2,863,000 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 March 31, 2007 are
fully-vested and exercisable.
During the nine months ended March 31, 2007, the Company granted 2,050,000 stock
options to an officer, directors and an employee at an exercise price of $0.32
per share. The fair value of stock options at the date of grant was $625,250 and
was recorded as compensation expense. The Company used the following
assumptions to determine the fair value of stock option grants during the nine
months ended March 31, 2007:
2007
----------
Expected life 5 years
Volatility 172%
Risk-free interest rate 4.94%
Dividend yield 0
The Company did not grant any options during the nine months ended March 31,
2006.
The expected term of stock options represents the period of time that the stock
options granted are expected to be outstanding based on historical exercise
trends. The expected volatility is based on the historical price volatility of
the Company's common stock. The risk-free interest rate represents the U.S.
Treasury bill rate for the expected life of the related stock options.
F-9
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
The dividend yield represents our anticipated cash dividend over the expected
life of the stock options.
A summary of stock option activity for the nine months ended March 31, 2007 is
presented below:
Weighed
Weighted Average
Shares Under Average Remaining Aggregate
Option Exercise Contractual Intrinsic
Price Life Value
------------------------------------------------
Outstanding at June 1, 2006 398,126 $ 22.00 4.60 years $ -
Granted 2,050,000 0.32 9.96 years -
Exercised - - - -
Expired - - - -
------------ --------- ----------- ----------
Outstanding at March 31, 2007 2,448,126 $ 4.00 3.87 years $ -
============ ========= =========== ==========
Exercisable at March 31, 2007 2,448,126 $ 4.00 3.87 years $ -
============ ========= =========== ==========
At March 31, 2007, all outstanding and exercisable options were fully vested.
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 BioAgra
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 nine
months ended March 31, 2007, the note was reduced by $882,903, which represents
the excess of the BioAgra losses recognized by the Company over
F-10
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
the adjusted basis of the Company's equity investment in BioAgra remaining at
March 31, 2007 (Note 3).
During the nine months ended March 31, 2007, the Company advanced an additional
$682,975 to BioAgra. On March 30, 2007, the Company executed a second 7.5%
promissory note for $682,975 with BioAgra with the same terms as the note above,
but the note did not provide for scheduled payments. The Company has classified
these notes receivable as long-term assets on the balance sheet and is not
accruing interest on these notes receivable, as they are currently in default
and non-performing.
3. INVESTMENTS IN AFFILIATES:
Investment in EPT:
The carrying amount of the Company's investment in EPT is $229,904 at March 31,
2007, and is adjusted to recognize the Company's proportionate share of EPT's
income (loss) each period.
Unaudited financial information of EPT as of March 31, 2007, and for the nine
and three-month periods ended March 31, 2007 and 2006 are as follows:
March 31,2007
--------------
Assets:
Current assets(1) $ 1,295,384
Equipment 26,376
--------------
Total assets $ 1,321,760
==============
Liabilities and members' equity:
Current liabilities(2) $ 978,436
Members' equity 343,324
--------------
Total liabilities and members' equity $ 1,321,760
==============
(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.
F-11
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
Three Three
Months Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2007 2006 2007 2007
------------ --------------- --------------- ------------
Revenues(1) 1,023,658 821,429 2,863,398 1,866,625
Expenses(2) (1,048,604) (638,675) (2,723,595) (1,780,275)
------------ --------------- --------------- ------------
Net income
(loss) $ (24,946) 182,754 139,803 86,350
============ =============== =============== ============
(1) Revenues for the nine months ended March 31, 2007 and 2006 include
$2,863,398 and $1,550,832, respectively ($1,023,658 and $505,710 for
the three months ended March 31, 2007 and 2006, respectively) of sales
to the 51% owner of EPT for each period presented.
(2) Expenses for the nine months ended March 31, 2007 and 2006 include
$148,456 and $83,525, respectively ($67,779 and $37,854 for the three
months ended March 31, 2007 and 2006, respectively) of charges paid to
the 51% owner of EPT for each period presented.
Investment in BioAgra:
The terms of the BioAgra 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 to the
other joint venture investor have been charged to the Company. Since September
30, 2006 and through March 31, 2007 the carrying value of the Company's
investment in BioAgra was $0. BioAgra losses for the three months ended March
31, 2007 ($369,351) were applied to reduce the value of the note receivable from
BioAgra.
F-12
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
Unaudited financial information of BioAgra as of March 31, 2007 and for the
three months ended March 31, 2007, and the period from August 15, 2005
(inception) through March 31, 2006 and the three months ended March 31, 2006, is
as follows:
March 31, 2007
----------------
Assets:
Current assets $ 189,654
Land, building and equipment, net(2) 1,871,966
Other assets, net 994,754
----------------
Total assets $ 3,056,374
================
Liabilities and members' equity:
Current liabilities(1) $ 2,967,422
Obligation under capital lease(2) 971,854
----------------
Total liabilities 3,939,276
Members' deficiency ( 882,902)
----------------
Total liabilities and members' deficiency $ 3,056,374
================
(1) Includes $2,406,002 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 Nine Months August 15,
Ended Ended Ended 2005 through
March 31, March 31, March 31, March 31,
2007 2006 2007 2006
------------- ------------- -------------- -------------
Revenues 1,675 - $ 33,317 -
Expenses ( 371,026) ( 259,584) ( 1,023,536) (944,416)
------------- ------------- -------------- -------------
Net loss ( 369,351) ( 259,584) $ (990,219) ( 944,416)
============= ============= ============== =============
4. NOTES PAYABLE, RELATED PARTY:
In March 2007, a shareholder of the Company loaned $50,000 to the Company in
exchange for an unsecured, 8% note payable due in March 2008.
5. SHAREHOLDERS' EQUITY
Preferred Stock
In February 2007, the Company sold 500,000 shares of Series A Nonconvertible
Preferred Stock for $500,000 cash to Arizcan Properties, Ltd. (Arizcan). Arizcan
had advanced the funds to the Company, prior to the issuance of the shares. The
shares provide that when voting as a single class, the shares have the votes and
the voting power that at all times is greater by 1% than the combined votes and
voting power of all other classes of securities entitled to vote on any
F-13
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
matter. As a result of the issuance, Arizcan acquired approximately 51% of the
voting power of the Company. The Company has a right, solely at the Company's
discretion, to redeem the shares in ten years at 130% of deemed par value.
The holder of the Series A Nonconvertible Preferred Stock is entitled to a
dividend equal to 8% per annum of the Deemed Par Value ($1.00 per share). Also,
the holder is entitled to a liquidation preference of the Deemed Par Value for
each outstanding share and any accrued but unpaid dividends upon the liquidation
of the Company.
Common Stock
In March 2007, the Company issued 3,110,000 shares of its restricted common
stock for $466,500 cash. The shares were sold for $0.15 per share (based upon a
50% discount from the closing market price, $0.30 per share, on the date of the
transaction).
In April 2007, the Company issued 300,000 shares of its restricted common stock
for $45,000 cash. The shares were sold for $0.15 per share (based upon a 53%
discount from the closing market price, $0.32 per share, on the date of the
transaction).
Warrant
In February 2007, the Company sold to Arizcan, a warrant exercisable immediately
for up to 6,000,000 shares of restricted common stock for $251,900. The warrant
has an exercise price of $0.50 per share and provides for cashless exercise. The
warrant has a term of 5 years.
6. 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 has filed an appeal to overturn the motion to dismiss the
lawsuit.
Financing Agreement Suit:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various
F-14
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2007 and 2006
(Unaudited)
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 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 (832,029 shares).
The Company has filed counterclaims seeking various forms of relief against
Harvest Court, LLC.
The Company intends to vigorously prosecute this litigation and does not believe
the outcome of this litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
F-15
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 nine months ended March 31, 2007 and
2006.
Total general and administrative expenses during the nine months ended
March 31, 2007 were $1,425,825 compared to $691,546 for the nine months ended
March 31, 2006 ($879,058 and $250,519 for the three months ended March 31, 2007
and 2006, respectively). The nine-month increase of $734,279, is primarily
attributable as set forth on the table below.
General and $Increase or
Administrative Expense (Decrease)
---------------------------------- -----------------------
Stock-based compensation $ 625,250
Consulting expenses 296,350
Accounting expenses 12,214
Commission fees (70,010)
Legal expense (23,254)
Rent expense (24,974)
Public relations (23,857)
In the three months ended March 31, 2007, the Company granted 2,050,000
stock options to an officer, directors and an employee at an exercise price of
$0.19 per share. The fair value of stock options at the date of grant during the
three months ended March 31, 2007 was $625,250, which has been expensed by the
Company.
The Company recognized $40,245 in interest income during the nine months
ended March 31, 2006. ($31,895 during the three months ended March 31, 2006).
During the nine months ended March 31, 2006, the Company recognized $28,585 in
other income, which represented a gain on the extinguishment of certain
liabilities.
1
The Company recognized interest expense of $235,350 for the nine months
ended March 31, 2006 ($0 for the three months ended March 31, 2006). 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
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 nine months ended March 31, 2007, the Company recognized a net loss
of $2,347,522 compared to a net loss of $1,362,257 during the nine months ended
March 31, 2006 ($1,260,626 and $329,003 for the three months ended March 31,
2007 and 2006, respectively). The increase of $985,265, during the nine months
ended March 31, 2007, is primarily attributable to the increase of $734,279 in
general and administrative expenses and the net increase of $491,819 in the
losses of the Company's equity investments.
LIQUIDITY AND FINANCIAL CONDITION
During the nine months ended March 31, 2007, the Company used $428,096 in
operating activities. Net cash provided by financing activities was $1,168,400,
of which $400,000 was from the sale of preferred stock, $718,400 was from the
sale of common stock and a warrant, and $50,000 was from a note payable. Net
cash used in investing activities was $682,975, which was advanced to BioAgra to
be used to support its operations. The Company had $249,688 of cash and cash
equivalents at March 31, 2007, which is being used to support operations. During
the nine months ended March 31, 2006, the Company used $652,167 in operating
activities. During the nine months ended March 31, 2006, net cash provided by
financing activities was $1,851,631; of which $2,167,372 was from the exercise
of warrants, $494,922 was from the sale of preferred stock, $150,000 was 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 nine months ended March 31, 2007, BioAgra
had limited sales of its product. During the nine months ended March 31, 2007,
BioAgra has been working with potential customers on field testing trials of the
AgriStim product. In April 2007, BioAgra signed an agreement with a customer
for the purchase and resale of its AgriStim product.
As of March 31, 2007, 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
2
Agreement Litigation), would have 41,145,646 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
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
offerings of the Company's common stock.
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.
3
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 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 March 31, 2007 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
ITEM 3(A)T. CONTROLS AND PROCEDURES
There have been no changes in the small business issuer's internal control over
financial reporting identified in connection with the evaluation required by
paragraph (d) of Rule 240.15d-15 that occurred during the small business
issuer's last fiscal quarter that has materially affected, or is reasonable
likely to materially affect, the small business issuer's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NO CHANGE.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company made the following unregistered sales of its securities from
January 1, 2007 through March 31, 2007.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
------------ ------------------- ------------- -------------- -------------------
-------------------------------------------------------------------------------------
2/27/07 Preferred Stock 500,000 $ 500,000 Business Associate
-------------------------------------------------------------------------------------
3/2/07 Warrant 6,000,000 $ 251,900 Business Associate
-------------------------------------------------------------------------------------
3/27/07 Common Stock 3,110,000 $ 466,500 Business Associates
Exemption From Registration Claimed
All of the sales by the Company of its unregistered securities were made by
the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). The entity listed above that purchased the
unregistered securities was an existing shareholder, known to the Company and
its management, through pre-existing business relationships, as a long standing
business associate. The entity was provided access to all material information,
which it requested, and all information necessary to verify such information and
was afforded access to management of the Company in connection with the
purchases. The purchaser of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends, prohibiting further
transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE.
ITEM 5. OTHER INFORMATION - NONE.
5
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 32.1 Certification of Principal Executive 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: May 20, 2007 /s/ Paul H. Metzinger
----------------------------------------
Paul H. Metzinger,
President & CEO
(Principle Executive Officer)
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