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, 2005
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
NanoPierce Technologies, Inc.
(Former name, former address or former fiscal year,
if changed since last report)
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 20, 2006 there were 22,496,012 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
----
Report of Independent Registered Public Accounting Firm F-1
Condensed Consolidated Balance Sheet -December 31, 2005 F-2
Condensed Consolidated Statements of Operations -
Three and Six months ended December 31, 2005 and 2004 F-3
Condensed Consolidated Statements of Comprehensive
Loss - Three and Six months ended December 31,
2005 and 2004 F-4
Condensed Consolidated Statement of Changes in
Shareholders' Equity -Six months ended December 31, 2005 F-5
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 2005 and 2004 F-6
Notes to Condensed Consolidated Financial Statements F-8
Item 2. Management's Discussion and Analysis 1
Item 3. Controls and Procedures 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 6
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors
Vyta Corp
We have reviewed the accompanying condensed consolidated balance sheet of Vyta
Corp (formerly known as NanoPierce Technologies, Inc.) and subsidiaries as of
December 31, 2005, the related condensed consolidated statements of operations
and comprehensive loss for the three-month and six-month periods ended December
31, 2005 and 2004, the condensed consolidated statements of cash flows for the
six-month periods ended December 31, 2005 and 2004, and the condensed
consolidated statement of changes in shareholders' equity for the six-month
period ended December 31, 2005. These interim condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying interim condensed consolidated financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
/s/ GHP HORWATH, P.C.
Denver, Colorado
February 11, 2006
F-1
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Balance Sheet
December 31, 2005
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 247,412
Interest receivable 929
Note receivable, net (Note 2) 186,323
Prepaid expenses 44,976
-------------
Total current assets 479,640
-------------
Property and equipment:
Office equipment and furniture 66,357
Less accumulated depreciation (53,367)
-------------
12,990
-------------
Other assets:
Deposits and other 19,285
Notes receivable, affiliate (Note 2) 400,000
Investments in affiliates (Note 3) 1,269,988
-------------
1,689,273
-------------
Total assets $ 2,181,903
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 160,054
Accrued liabilities 10,427
Derivative warrant liability (Note 5) 154,098
Other liabilities (Note 6) 1,000,000
-------------
Total liabilities (all current) 1,324,579
-------------
Commitments and contingencies (Notes 4 and 8)
Shareholders' equity (Note 7):
Preferred stock; $0.0001 par value; 5,000,000 shares authorized;
none issued and outstanding
Common stock; $0.0001 par value; 200,000,000 shares authorized;
7,247,327 shares issued and outstanding 725
Additional paid-in capital 25,396,315
Accumulated other comprehensive income 122,857
Accumulated deficit (24,662,573)
-------------
Total shareholders' equity 857,324
-------------
Total liabilities and shareholders' equity $ 2,181,903
=============
See notes to condensed consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ------------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
Revenues $ - - - -
------------ ----------- ----------- -----------
General and administrative expense (216,188) (178,186) (441,027) (391,260)
------------ ----------- ----------- -----------
Loss from operations (216,188) (178,186) (441,027) (391,260)
------------ ----------- ----------- -----------
Other income (expense):
Other income - 322 28,585 10,508
Interest income 4,419 4,687 8,350 6,187
Equity losses of affiliates (Note 3) (129,747) ( 44,391) (389,654) (49,297)
Loss on revaluation of derivative
warrant liability (Note 5) (4,158) - (4,158) -
Interest expense - - (235,131) -
Interest expense, related party - - (219) -
------------ ----------- ----------- -----------
(129,486) (39,382) (592,227) (32,602)
------------ ----------- ----------- -----------
Net loss $ (345,674) (217,568) (1,033,254) (423,862)
============ =========== =========== ===========
Net loss per share, basic and diluted
(Note 1) $ (0.05) (0.05) (0.16) (0.09)
============ =========== =========== ===========
Weighted average number of common
shares outstanding (Note 1) 6,855,418 4,548,386 6,327,884 4,525,670
============ =========== =========== ===========
See notes to condensed consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net loss $ (345,674) (217,568) (1,033,254) (423,862)
Change in unrealized loss on
securities - (47) (14) (295)
------------ ------------ ------------ ------------
Comprehensive loss $ (345,674) (217,615) (1,033,268) (424,157)
============ ============ ============ ============
See notes to condensed consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended December 31, 2005
(Unaudited)
Common stock Additional Accumulated other Total
------------------ paid-in comprehensive Accumulated shareholders'
Shares Amount capital income deficit equity
--------- ------- ----------- ----------------- ------------ --------------
Balances, July 1, 2005
(Note 1) 4,662,952 $ 466 24,059,377 122,843 (23,629,319) 553,367
Common stock issued upon
exercise of warrants,
net of offering costs
(Notes 6 and 7) 1,535,000 154 734,846 - - 735,000
Common stock issued upon
issuance of notes
payable
(Notes 4 and 7) 455,000 46 117,840 - - 117,886
Common stock and
warrants issued for
cash (Notes 5 and 7) 544,375 54 316,107 - - 316,161
Common stock and
warrants to be issued - - 71,400 - - 71,400
Common stock issued as
payment of commission 50,000 5 89,995 - - 90,000
Forgiveness of accrued
payroll owed to
officer /shareholder - - 8,750 - - 8,750
Receivable for issuance
of common stock
(Note 7) - - (2,000) - - (2,000)
Net loss - - - - (1,033,254) (1,033,254)
Other comprehensive
loss:
Change in unrealized
gain on securities - - - 14 - 14
--------- ------- ----------- ----------------- ------------ --------------
Balances,
December 31, 2005 7,247,327 $ 725 25,396,315 122,857 (24,662,573) 857,324
========= ======= =========== ================= ============ ==============
See notes to condensed consolidated financial statements.
F-5
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
---------------------------
2005 2004
------------- ------------
Cash flows from operating activities:
Net loss $ (1,033,254) (423,862)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization expense 45,370 -
Depreciation expense 2,853 3,628
Equity losses of affiliates 389,654 49,297
Amortization of discounts on notes payable 213,760 -
Loss on revaluation of derivative warrant
liability (Note 5) 4,158 -
Changes in operating assets and liabilities:
Decrease in interest receivable 2,894 2,061
Decrease in prepaid expenses 960 42,254
(Decrease) increase in accounts payable and accrued
liabilities (53,774) 12,496
------------- ------------
Total adjustments 605,875 109,736
------------- ------------
Net cash used in operating activities (427,379) (314,126)
------------- ------------
Cash flows from investing activities:
Increase in notes receivable (400,000) (349,000)
Increase in advance receivable - (150,000)
Payment on note receivable 89,119 -
Investment in joint venture (Note 3) (500,000) -
------------- ------------
Net cash used in investing activities (810,881) (499,000)
------------- ------------
Cash flows from financing activities:
Exercise of warrants and common stock and warrants
issued for cash 2,070,500 112,801
Proceeds to be applied to preferred stock
purchase (Note 6) 200,000 -
Payment of notes payable (960,663) (46,052)
Proceeds from issuance of notes payable and common stock 150,000 -
------------- ------------
Net cash provided by financing activities 1,459,837 66,749
------------- ------------
Net increase (decrease) in cash and cash equivalents 221,577 (746,377)
Cash and cash equivalents, beginning 25,835 1,018,408
------------- ------------
Cash and cash equivalents, ending $ 247,412 272,031
============= ============
(Continued)
F-6
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Continued
Six Months Ended
December 31,
---------------------
2005 2004
----------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,069 -
=========== ========
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of common stock in connection with notes payable $ 117,886 -
=========== ========
Issuance of common stock in exchange for accrued
commissions $ 90,000 -
=========== ========
Advances receivable applied to equity investment $ 405,000 -
=========== ========
Equity investment acquired in exchange for note payable $ 595,000 -
=========== ========
Liability recorded for offering costs of common
stock issuance $ 800,000 -
=========== ========
Forgiveness of accrued payroll owed to
officer/shareholder $ 8,750 -
=========== ========
Issuance of common stock in exchange for receivable $ 2,000 -
=========== ========
See notes to condensed consolidated financial statements.
F-7
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRESENTATION OF INTERIM INFORMATION:
The accompanying condensed consolidated financial statements include the
accounts of NanoPierce Technologies, Inc., a Nevada corporation, which on
January 31, 2006 changed its name to Vyta Corp (the Company), its wholly-owned
subsidiaries, NanoPierce Connection Systems, Inc., a Nevada corporation (NCOS),
and ExypnoTech, LLC (ET LLC), a Colorado limited liability company, which was
formed in June 2004. All significant intercompany accounts and transactions
have been eliminated in consolidation.
On January 19, 2006, the Company's Board of Directors (the "Board") approved an
amendment to the Company's Articles of Incorporation to effect a one-for-twenty
reverse stock split effective January 31, 2006. All references to shares,
options, and warrants in the three and six months ended December 31, 2005 and in
prior periods, have been adjusted to reflect the post-reverse split amounts. The
Company's common stock now trades on the Over-the-Counter Bulletin Board under
the trading symbol "VYTC".
As a result of the reverse split, the Company's authorized capital was reduced
from 200,000,000 shares to 10,000,000 shares. As part of the reverse split, the
Company amended and restated its Articles of Incorporation to increase the
authorized capital of the Company to 200,000,000 shares.
In the opinion of the management of the Company, the accompanying unaudited
condensed consolidated financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to present
fairly the financial position and operating results of the Company for the
periods presented. The financial statements and notes are presented as
permitted by Form 10-QSB, and do not contain certain information included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005.
It is the Company's opinion that when the interim financial statements are read
in conjunction with the June 30, 2005 Annual Report on Form 10-KSB, the
disclosures are adequate to make the information presented not misleading.
Interim results are not necessarily indicative of results for a full year or any
future period.
F-8
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
MANAGEMENT'S PLANS:
In the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
2005, the Report of the Independent Registered Public Accounting Firm includes
an explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern. The Company's interim financial
statements for the six and three months ended December 31, 2005 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. The Company reported a net loss of $1,033,254 for the six months
ended December 31, 2005, and an accumulated deficit of $24,662,573 as of
December 31, 2005. The Company has not recognized any revenues from its
business operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not contain any adjustments
relating to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Currently, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a further issuance of debt or equity in the Company.
RECENT EVENTS:
In August 2005, the Company was able to raise $1,535,000 through the exercise of
1,535,000 warrants with an exercise price of $1.00 per share. The Company used
$1,095,000 of the funds to complete its purchase of a 50% equity investment in a
joint venture, BioAgra, LLC, a Georgia limited liability company
("BioAgra")(Note 3), and the Company used approximately $366,000 to pay
outstanding notes payable (Note 4). The remaining $75,000 was used to support
operations.
In September 2005, the Company executed a subscription agreement with Arizcan
Properties, Ltd. ("Arizcan") to sell shares of the Company's preferred stock.
The sole director of Arizcan is related to a board member and officer of
Intercell International Corporation ("Intercell"), in which the Company has a
nominal interest. Ms. Kampmann, the Company's Chief Financial Officer, has
served as the Chief Financial Officer of Intercell since October 2003 and Mr.
Metzinger, the Company's Chief Executive Officer, served as the Chief Executive
Officer of Intercell from September 2004 until March 2005.
F-9
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
The subscription agreement provides for the sale of 200,000 shares of Class A 8%
cumulative and participating preferred shares for $7.50 per share. In January
2006, Arizcan purchased 200,000 shares of the Company's Series A Convertible
Preferred Stock ("Preferred Stock") for $400,000 cash and an unsecured
promissory note for $1,100,000. The promissory note bears interest at 8% per
annum and is due in January 2007. In February 2006, Arizcan converted the
200,000 shares of preferred stock into 15,000,000 shares of the Company's
restricted common stock. Upon the conversion, Arizcan held approximately 67% of
the issued and outstanding common stock of the Company. The conversion feature
was deemend beneficial and accordingly resulted in a beneficial conversion
feature of $1,500,000. The intrinsic value of the beneficial conversion feature
is limited to the total amount of the proceeds received.
DEFERRED CONSULTING COSTS:
In June 2005, the Company entered into a twelve-month consulting services
agreement with a third party, in which this party agreed to provide public and
investor relation services and general business services for the twelve-month
term of the agreement. Compensation consisted of 50,000 shares of the Company's
restricted common stock with a market value of approximately $90,000 (based on
the closing market price of $1.80 per share at the date of the transaction). The
deferred cost is being amortized on a straight-line basis over the twelve-month
period from the date of the agreement. During the six months ended December 31,
2005, $45,370 was expensed.
LOSS PER SHARE:
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
requires dual presentation of basic and diluted earnings or loss per share (EPS)
with a reconciliation of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Loss per share of common stock is computed based on the
weighted average number of common shares outstanding during the period. Stock
options and warrants are not considered in the calculation, as the impact of the
potential common shares (1,926,877 shares at December 31, 2005 and 3,809,094
shares at December 31, 2004) would be to decrease loss per share. Therefore,
diluted loss per share is equivalent to basic loss per share.
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE COMPANY'S
COMMON STOCK:
The Company accounts for obligations and instruments potentially to be settled
in the Company's stock in accordance with EITF Issue No. 00-19, ACCOUNTING FOR
DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN A
COMPANY'S OWN STOCK. This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and potentially
settled in, the Company's stock.
F-10
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
Under EITF 00-19, contracts are initially classified as equity or as either
assets or liabilities, depending on the situation. All contracts are initially
measured at fair value and subsequently accounted for based on the then current
classification. Contracts initially classified as equity do not recognize
subsequent changes in fair value as long as the contracts continue to be
classified as equity. For contracts classified as assets or liabilities, the
Company reports changes in fair value in earnings and disclose these changes in
the financial statements as long as the contracts remain classified as assets or
liabilities. If contracts classified as assets or liabilities are ultimately
settled in shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
STOCK-BASED COMPENSATION:
SFAS No. 123, Accounting for Stock Based Compensation, allows companies to
choose whether to account for employee stock-based compensation on a fair value
method, or to continue accounting for such compensation under the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). The Company has chosen to
continue to account for employee stock-based compensation using APB 25.
No options were granted to employees during the six months ended December 31,
2005 or 2004.
RECENTLY ISSUED ACCOUNTING STANDARD:
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R), Share-Based Payment, which addresses the accounting for share-based
payment transactions. SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for
public companies that file as small business issuers as of the beginning of the
next annual reporting period that begins after December 15, 2005. Management is
currently evaluating the provisions of this standard. Depending upon the number
of and terms of options that may be granted in future periods, the
implementation of this standard could have a significant impact on the Company's
financial position and results of operations in future periods.
F-11
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
2. NOTES AND ADVANCES RECEIVABLE:
In December 2005, the Company loaned $400,000 to BioAgra (Note 3). In exchange
for the loan, the Company received a secured, 7.5% promissory note, due on June
30, 2006. The funds were loaned to facilitate BioAgra's completion of its first
production line and the purchase of inventory for production. The promissory
notes are collateralized by all equipment, furnishings, present and future
accounts, collateral securing such accounts, tangible and intangible personal
property and any proceeds from any of the foregoing located on BioAgra's
premises. Additionally, the promissory notes are to be paid in full prior to
any disbursements being made to the members of the joint venture. During January
2006, the Company loaned an additional $200,000 to BioAgra with the same terms
as the original promissory notes. During February 2006, the Company loaned
BioAgra an additional $100,000, with the same terms as the original promissory
notes.
In November 2004, the Company loaned $314,000 to Arizcan. In exchange for the
loan, the Company received an unsecured, 7% promissory note, which was due on
October 31, 2005. The funds were loaned to facilitate Arizcan's purchase of an
option from certain of the Company's warrant holders, to initiate the exercise
of certain existing warrants to purchase up to 785,000 shares of the Company's
common stock (Note 6). In June 2005, the Company received a payment of $50,000,
which included interest of $11,442. In December 2005, the Company received a
payment of $100,000, which included interest of $10,881. During February 2006,
the Company received a payment of $100,000, which included interest of $2,073.
The remaining balance of this note ($88,396) remains outstanding and is due on
demand.
In October and November 2004, the Company advanced a total of $150,000 to Xact
Resources International, Inc. ("Xact Resources"), which was applied to the
purchase of a 50% equity interest in BioAgra on August 15, 2005 (Note 3).
In December 2004, the Company loaned $35,000 to Intercell in return for an
unsecured, 7% promissory note, due in December 2005. The loan was made in order
to assist Intercell in its efforts to support operations. In March 2005,
Intercell filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
During the fiscal year ended June 30, 2005, the Company deemed the debt
uncollectible and created an allowance for the receivable of $35,000.
F-12
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
3. INVESTMENTS IN AFFILIATES:
INVESTMENT IN EXYPNOTECH, GMBH:
In December 2003, TagStar Systems, Gmbh, a German entity formed by former
employees of ExypnoTech, Gmbh ("EPT"), purchased a controlling 51% equity
interest in EPT in exchange for $98,000, of which $62,787 has been received
through December 31, 2005. The Company accounts for its investment in EPT under
the equity method of accounting. Under the equity method of accounting, the
carrying amount of the Company's investment in EPT ($112,404 at December 31,
2005) is adjusted to recognize the Company's proportionate share of EPT's income
(loss) each period.
Unaudited financial information of EPT as of December 31, 2005, and for the six
and three-month periods ended December 31, 2005 and 2004 are as follows:
December 31,
2005
------------
Assets:
Current assets(1) $ 381,042
Equipment 135,336
------------
Total assets $ 516,378
============
Liabilities and members' equity:
Current liabilities(2) $ 438,301
Members' equity 78,077
------------
Total liabilities and members' equity $ 516,378
============
(1) Current assets include receivables of $44,117 due from the 51%
owner of EPT.
(2) Current liabilities include a payable of $14,412 due to the
51% owner of EPT.
Three Months Ended Six Months Ended
December 31, December 31,
2005 2004 2005 2004
-------------- ------------ ------------- ------------
Revenues(1) $ 645,460 60,434 1,045,196 144,859
Expenses(2) (707,287) (121,487) (1,141,600) (197,839)
-------------- ------------ ------------- ------------
Net loss $ (61,827) (61,053) (96,404) (52,980)
============== ============ ============= ============
(1) Revenues include $1,045,122 and $9,562 of sales to the 51% owner
of EPT for the six months ended December 31, 2005 and 2004,
respectively ($272,327 and $9,562 for the three months ended December
31, 2005 and 2004, respectively).
(2) Expenses include $45,671 and $19,070, respectively of charges
paid to the 51% owner of EPT for the six months ended December 31,
2005 and 2004, respectively ($37,756 and $19,070 for the three months
ended December 31, 2005 and 2004, respectively).
F-13
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
EPT operations are located in Germany. EPT transactions are conducted in
currencies other than the U.S. dollar, (the currency into which the
subsidiaries' historical financial statements have been translated) primarily
the Euro. As a result, the Company is exposed to adverse movements in foreign
currency exchange rates.
In addition, the Company is subject to risks including adverse developments in
the foreign political and economic environments, trade barriers, managing
foreign operations and potentially adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's financial condition or results of operations in the future.
INVESTMENT IN BIOAGRA:
On August 15, 2005, the Company entered into a joint venture with Xact
Resources, a privately held company. The Company purchased a 50% equity
interest in the joint venture, BioAgra, for $905,000 in cash (which includes
$405,000 previously advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is
to manufacture and sell a beta glucan product, YBG-2000 also known as
AgraStimTM, to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed.
BioAgra (a development stage company) is in the process of constructing a
production line. BioAgra expects to begin producing and shipping product during
the quarter ending March 31, 2006.
As consideration for Arizcan's efforts to assist NanoPierce with its efforts to
obtain equity financing, the Company entered into an agreement with Arizcan, in
which the Company is to pay to Arizcan 20% of any cash distributions paid to the
Company by and from BioAgra, until such time as Arizcan shall be paid $800,000
(Note 6).
The terms of the joint venture provide for the Company to share in 50% of joint
venture net income, if any, or net losses. The Company is accounting for its
investment in BioAgra as an equity method investment. At December 31, 2005, the
Company's investment in BioAgra is $1,157,584.
F-14
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
Unaudited financial information of BioAgra as of December 31, 2005 and for the
three month period ended December 31, 2005 and the period from August 15, 2005
through December 31, 2005, is as follows:
December 31,
2005
------------
Assets:
Current assets $ 137,417
Equipment, net 1,222,047
Land and building under capital lease, net 1,135,742
------------
Total assets $ 2,495,206
============
Liabilities and members' equity:
Current liabilities(1) $ 653,390
Obligation under capital lease(2) 1,026,648
------------
Total liabilities 1,680,038
Members' equity 815,168
------------
Total liabilities and members' equity $ 2,495,206
============
(1) Includes $400,000 owed to the Company.
(2) BioAgra leases land and a building under a ten-year lease
expiring in February 2015, which requires a monthly lease payment
of $12,000.
August 15, 2005
Three Months Ended through
December 31, 2005 December 31, 2005
------------------- -------------------
Revenues $ - $ -
Expenses (198,902) (684,832)
------------------- -------------------
Net loss $ (198,902) $ (684,832)
=================== ===================
INVESTMENT IN SCIMAXX SOLUTIONS, LLC:
On September 15, 2003, the Company entered into an agreement to receive a 50%
interest in a joint venture agreement with Scimaxx, LLC. The name of the joint
venture was Scimaxx Solutions, LLC (Scimaxx Solutions). The purpose of the
joint venture was to provide the electronics industry with technical solutions
to manufacturing problems based on the need for electrical connectivity.
At December 31, 2004, Scimaxx Solutions had total assets of $79,664 of which
$607 were current assets and $79,057 were equipment, total liabilities of
$61,619 and members' equity of $18,045.
F-15
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
For the three and six months ended December 31, 2004, Scimaxx Solutions recorded
revenues of $0 and $5,721, respectively, and expenses of $21,623 and $53,320,
respectively, resulting in a net loss of $21,623 and $47,599, respectively.
Scimaxx Solutions ceased operations in April 2005.
4. NOTES AND ADVANCES PAYABLE:
RELATED PARTIES:
In June 2005, an officer/director of the Company loaned $41,000 to the Company
in exchange for an unsecured, 5% note payable due in December 2005. In June
2005, the Company paid $337 plus accrued interest of $17. In August 2005, the
Company paid the remaining $40,663 plus accrued interest of $298.
OTHER:
In June 2005, an unrelated party loaned the Company $25,000 in exchange for an
unsecured, 8% promissory note due in December 2005 and 75,000 shares of the
Company's restricted common stock, which were issued in July 2005. The common
stock had a market value of $150,000 (based on the closing market price of $2.00
per share on the date of the transaction). The relative fair value of the common
stock ($21,428) was accounted for as a discount against the face amount of the
note. The effective interest rate on this note was 85%. On August 8, 2005, the
Company paid the $25,000, plus accrued interest of $208. Through that date, the
discount of $21,428 was fully amortized to interest expense.
In June 2005, an unrelated third party loaned the Company $150,000 in exchange
for an unsecured, promissory note due in September 2005 with interest at 15% per
quarter and 100,000 shares of the Company's restricted common stock (50,000
shares were issued in June 2005 and the remaining 50,000 shares were issued in
July 2005). At the date of issuance, the common stock had a market value of
$180,000 (based on the closing market price of $1.80 per share on the date of
the transaction). The relative fair value of the common stock($81,718) was
accounted for as a discount applied against the face amount of the note. The
effective interest rate on this note was 54%. As of June 30, 2005, $7,272 of
the discount had been amortized to interest expense. On September 8, 2005, the
Company paid the $150,000, plus accrued interest of $22,500. Through that date,
the remaining discount of $74,446 was fully amortized to interest expense.
F-16
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
During July and August 2005, six unrelated third parties loaned the Company a
total of $150,000 in exchange for unsecured, 8% promissory notes due in December
2005 and a total of 330,000 shares of the Company's restricted common stock.
The common stock had a total market value of $574,000 (based on the closing
market prices which ranged from $1.60 to $1.80 per share at the date of each
transaction). The relative fair value of the common stock ($117,886) was
accounted for as a discount applied against the face amount of the notes. The
discount was amortized over the terms of the promissory notes as additional
interest expense. The effective interest rate on these notes is 85%. On August
8, 2005, the Company paid the $150,000, plus accrued interest of $642. Through
that date, the discount of $117,886 was fully amortized to interest expense.
5. DERIVATIVE WARRANT LIABILITY:
During November and December 2005, the Company sold 500,625 shares of its
restricted common stock for $400,500. In connection with the sale of the
restricted common shares, the Company agreed to issue warrants exercisable into
500,625 shares of the Company's common stock. The common stock had a total
market value of $714,125 (based on the closing market prices which ranged from
$1.00 to $1.60 per share at the date of each transaction). The warrants had an
aggregate estimated fair value of $312,167 (using the Black-Scholes model). The
relative fair value of the warrants ($119,339) was accounted for as a liability
in accordance with EITF 00-19, as the Company's authorized and unissued shares
available to settle the warrants (after considering all other commitments that
may require the issuance of stock during the maximum period the warrant could
remain outstanding) were determined to be insufficient.
During December 2005, the Company sold 127,500 shares of its restricted common
stock for $102,000. These shares of common stock were not issued until January
2006. In connection with the sale of the restricted common shares, the Company
agreed to issue warrants exercisable for 127,500 shares of the Company's common
stock. The common stock had a total market value of $178,000 (based on the
closing market prices which ranged from $1.20 to $1.60 per share at the date of
each transaction). The warrants had an aggregate estimated fair value of $76,657
(using the Black-Scholes model). The relative fair value of the warrants
($30,600) was accounted for as a liability in accordance with EITF 00-19, as the
Company's authorized and unissued shares available to settle the warrants (after
considering all other commitments that may require the issuance of stock during
the maximum period the warrant could remain outstanding) were determined to be
insufficient.
In February 2006, after the effectiveness of the reverse split and the increase
in authorized shares, the fair value of the warrants was reclassified to equity
in accordance with EITF 00-19.
F-17
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
The fair value of the warrants are evaluated at each reporting period with any
resulting change in fair value being reflected in the condensed consolidated
statement of operations. The Company recognized a loss of $4,158 for the six
months ended December 31, 2005, due to the change in the fair value of the
warrants from the date of issuance. At December 31, 2005, the warrants fair
value is estimated to be $154,098.
6. OTHER LIABILITIES
The Company has recorded an $800,000 payable to Arizcan, which represents the
costs incurred in connection with a $1.5 million offering of equity securities.
In December 2005, the Company received an advance payment of $200,000 on the
purchase of 200,000 shares of its Series A Convertible Preferred Shares from
Arizcan. The Company recorded the advance as a liability and agreed to apply
the advance to the final purchase of the Preferred Shares. In January 2006,
Arizcan completed the purchase of the Preferred Shares.
7. SHAREHOLDERS' EQUITY:
COMMON STOCK:
Current Year Transactions
In connection with the issuance of a $150,000 promissory note in June 2005, the
Company agreed to issue 100,000 shares of its restricted common stock, valued at
$81,718, of which 50,000 shares were issued in June 2005, and 50,000 shares were
issued in July 2005.
In connection with the issuance of a $25,000 promissory note in June 2005, the
Company agreed to issue 75,000 shares of its restricted common stock, valued at
$21,428, which were issued in July 2005.
During July and August 2005, in connection with the issuance of promissory notes
totaling $150,000, the Company issued 330,000 shares of its restricted common
stock, valued at $117,886.
In August 2005, warrants to purchase 1,535,000 shares of common stock were
exercised for cash proceeds of $1,535,000 in exchange for 1,535,000 shares of
common stock. The exercise price of these warrants was lowered from $2.00 and
$3.00 per share to $1.00 per share in connection with the exercise.
In October 2005, the Company issued 50,000 shares of its restricted common
stock, valued at $90,000, in satisfaction of a $90,000 liability incurred in
connection with the Company's financing efforts.
During October 2005, the Company issued 43,750 shares of its restricted common
stock in exchange for $35,000. The shares had a purchase price of $0.80 per
share (based on a 50% discount from the closing market price, $1.60 per share,
on the date of each transaction).
F-18
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
During November and December 2005, the Company issued 500,625 shares of its
restricted common stock and warrants to purchase 500,625 shares of its
restricted common stock for $400,500, of which $2,000 was recorded as receivable
for the issuance of common stock at December 31, 2005. The warrants have an
exercise price of $1.00 per share and a term of 3 years. The shares of common
stock had a purchase price of $0.80 share and are to be registered by the
Company with the Securities and Exchange Commission (SEC).
During December 2005, the Company sold 127,500 shares of its restricted common
stock for $102,000. These shares of common stock were not issued until January
2006. In connection with the sale of the restricted common shares, the Company
agreed to issue three-year warrants to purchase 127,500 shares of the Company's
common stock at $1.00 per share. The shares of common stock had a purchase price
of $0.80 share and are to be registered by the Company with the SEC.
In January 2006, the Company issued 118,592 shares of its restricted common
stock and warrants to purchase 118,592 shares of its restricted common stock for
$94,873. The warrants have an exercise price of $1.00 per share and a term of
three years. The shares of common stock had a purchase price of $0.80 per share
and are to be registered by the Company with the SEC.
Six Months Ended December 31, 2004
During the six months ended December 31, 2004, the Company issued 60,000 shares
of common stock upon the exercise of warrants. The Company received net cash
proceeds of $112,801 (net of $7,200 of offering costs).
WARRANTS:
During the six months ended December 31, 2005, warrants to purchase 117,709
shares of common stock expired.
In December 2005 warrants to purchase 238,667 shares of common stock were
canceled by their holders. The warrants were cancelled to reduce the total
dilutive securities below the authorized share limit, to allow the Company to
enter into additional equity financing in December 2005. In return for the
cancellation of such warrants, the Company agreed to issue warrants to purchase
3,500,000 common shares. The warrants have an exercise price of $1.00 and have
a term of 3 years. These warrants were issued in February 2006.
OPTIONS:
In December 2005, officers and a director of the Company agreed to cancel
options under the Company's 1998 Compensatory Stock Option Plan exercisable for
31,250 shares of the Company's stock.
F-19
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
In January 2006, an officer and director of the Company agreed to cancel options
under the Company's 1998 Compensatory Stock Option Plan exercisable for 15,000
shares of the Company's stock.
The officers and director did not receive any consideration in return for the
cancellations.
CAPITAL TRANSACTION:
In August 2005, an officer/shareholder of the Company forgave $8,750 of accrued
salary, which has been accounted for as a capital transaction and has resulted
in an increase in additional paid in capital.
8. COMMITMENTS AND CONTINGENCIES
LITIGATION:
Depository Trust Suit:
In May 2004, the Company filed suit against the Depository Trust and Clearing
Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the National
Securities Clearing Corporation ("NSCC") in the Second Judicial District Court
of the County of Washoe, State of Nevada. The suit alleges multiple claims
under the Nevada Revised Statutes 90.570, 90.580, 90.660 and 598A.060 and on
other legal bases. The complaint alleges, among other things, that the DTCC,
DTC and NSCC acted in concert to operate the "Stock Borrow Program," originally
created to address short term delivery failures by sellers of securities in the
stock market. According to the complaint, the DTCC, NSCC and DTC conspired to
maintain significant open fail deliver positions of millions of shares of the
Company's common stock for extended periods of time by using the Stock Borrow
Program to cover these open and unsettled positions. The Company was seeking
damages in the amount of $25,000,000 and treble damages. Responsive pleadings
have been filed by the defendants. On April 27, 2005, the court granted a
motion to dismiss the lawsuit. The Company has filed an appeal to overturn the
motion to dismiss the lawsuit.
F-20
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Six Months Ended December 31, 2005 and 2004
(Unaudited)
Financing Agreement Suit:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company and certain officers and
former board members of the Company, and a number of unrelated third parties.
The counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the Supreme
Court of the State of New York, County of New York. The suit alleges that the
Company breached an October 20, 2000 Stock Purchase Agreement, by not issuing
370,945 free trading shares of the Company's common stock in connection with the
reset provisions of the Purchase Agreement due on the second reset date and
approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. In February 2006,
the Supreme Court of the State of New York, County of New York issued an
injunction ordering the Company to reserve 3.7% of the Company's issued and
outstanding common stock (832,029 shares at February 13, 2006). The Company has
set aside these shares. The Company has filed counterclaims seeking various
forms of relief against Harvest Court, LLC.
The Company intends to vigorously prosecute this litigation and does not believe
the outcome of this litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
F-21
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, 2005, 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.
RECENT EVENTS
On January 19, 2006, the Company's Board approved an amendment to our
Articles of Incorporation to change the name of the Company from NanoPierce
Technologies, Inc. to Vyta Corp.
On January 19, 2006 the Company's Board of Directors (the "Board") approved
an amendment to our Articles of Incorporation to affect a one-for-twenty reverse
stock split effective January 31, 2006. All references to shares, options, and
warrants in the three and six months ended December 31, 2005 and in prior
periods, have been adjusted to reflect the post-reverse split amounts. The
Company's common stock now trades on the Over-the-Counter Bulletin Board under
the trading symbol "VYTC".
On January 19, 2006, the Company's Board approved an amendment to the
Articles of Incorporation to increase the authorized capital of 10,000,000
common shares to 200,000,000 common shares.
RESULTS OF OPERATIONS
The Company had no revenues during the three and six months ended December
31, 2005 and 2004.
The Company recognized $28,585 of other income, of which $28,250
represented a gain on the extinguishment of liabilities. The Company recognized
$8,350 in interest income during the six months ended December 31, 2005 compared
to $6,187 during the six months ended December 31, 2004 ($4,419 and $4,687 for
the three months ended December 31, 2005 and 2004, respectively).
1
Total general and administrative expenses during the six months ended
December 31, 2005 were $441,027 compared to $391,260 for the six months ended
December 31, 2004 ($216,188 and $178,186 for the three months ended December 31,
2005 and 2004, respectively). The increase of $49,767 is primarily attributable
to a $68,210 increase in commission fees, a $22,720 increase in consulting fees,
offset by a $24,581 decrease in public relations expense.
The Company recognized interest expense of $235,350 for the six months
ended December 31, 2005 (no interest expense was recognized in the three months
ended December 31, 2005). No interest expense was recorded during the three and
six months ended December 31, 2004. Of the $235,340 in interest expense, $219
represented related party interest. The remaining $235,131 was incurred in
connection with the issuance of promissory notes, which were discounted at the
time of issuance. The resulting discounts ($213,760) were amortized over the
term of the promissory notes. The promissory notes were paid in full in August
2005, and at that time the discounts were fully amortized.
During the six months ended December 31, 2005, the Company recognized a net
loss of $1,033,254 compared to a net loss of $423,862 during the six months
ended December 31, 2004 ($345,674 and $217,568 for the three months ended
December 31, 2005 and 2004, respectively). The increase of $609,392, during the
six months ended December 31, 2005, is primarily attributable to the increase of
$235,350 in interest expense, as explained above and the increase of $389,654 in
losses of equity investments.
LIQUIDITY AND FINANCIAL CONDITION
During the six months ended December 31, 2005, the Company was able to
raise $537,500 cash through the sale of 671,875 shares of its restricted common
stock and warrants to purchase 628,125 shares of its restricted common stock.
In August 2005, the Company was able to raise $1,535,000 cash through the
exercise of 1,535,000 warrants with an exercise price of $1.00 per share.
In August 2005, the Company purchased a 50% equity interest in BioAgra for
$905,000 cash (which includes the $405,000 advanced to Xact Resources during the
fiscal year ended June 30, 2005) and a note payable of $595,000 which was paid
in full in September 2005. BioAgra plans to manufacture and sell a beta glucan
product, YBG-2000 to be marketed as AgraStimTM, to be used as a replacement for
hormone growth steroids and antibiotics in products such as poultry feed.
BioAgra anticipates beginning production and sale of the beta glucan product
AgraStim during the quarter ending March 31, 2006.
Additionally, the Company entered into an agreement with Arizcan
Properties, Ltd. ("Arizcan") whereby the Company will pay to Arizcan, 20% of any
cash distributions paid to the Company by BioAgra, until such time as Arizcan
shall be paid $800,000.
2
In September 2005, the Company executed a Subscription Agreement to sell
shares of the Company's preferred stock with Arizcan. The Subscription Agreement
provides for the sale of 200,000 shares of a Class A 8% cumulative and
participating preferred shares with a sales price of $7.50 per share. The
preferred shares are convertible into 60% of the Company's issued and
outstanding post-split shares of the Company's common stock on the date of
conversion. In December 2005, the Company received an advance payment of
$200,000 in connection with the purchase of the Preferred Shares. On January 19,
2006, the Company completed the sale of 200,000 Preferred Shares for $400,000
cash ($200,000 of which was received in December 2005) and an unsecured
corporate promissory note of $1,100,000. The promissory note is due on January
18, 2007. In February 2006, Arizcan converted the 200,000 shares of preferred
stock into 15,000,000 shares of the Company's restricted common stock. Upon
conversion, Arizcan held approximately 67% of the issued and outstanding common
stock of the Company.
During the six months ended December 31, 2005, the Company used $427,379 in
operating activities. Net cash provided by financing activities was $1,459,337;
$960,663 was used to pay notes payable, $2,070,500 was received from the
exercise of warrants and the issuance of common stock and warrants and $150,000
was received from notes payable. Net cash used in investing activities was
$810,881; $500,000 was used to purchase the 51% equity interest in the BioAgra
joint venture. The Company had $247,412 of cash and cash equivalents at December
31, 2005, which is being used to support the operations and activities of
BioAgra, in which the Company owns a 50% equity interest. During the six months
ended December 31, 2004, the Company used $314,126 in operating activities from
continuing operations. During the six months ended December 31, 2004, the
Company used $46,052 to pay a note payable.
As of December 31, 2005, if all existing outstanding warrants issued in a
January 2004 private placement were exercised, the Company will be required to
issue an additional 1,342,500 shares of common stock, and the Company, on a
fully diluted basis (including the reservation of 832,029 shares as required by
the court in the Financing Agreement Litigation), would have 29,347,244 shares
of common stock issued and outstanding.
As of December 31, 2005, if the warrants issued to investors in the
private placement described above are all exercised, the Company would
receive approximately an additional $2,842,500. However, no assurance can be
given that any of these warrants will be exercised. If the warrants are
exercised, the Company has decided that it may use the additional funds received
from the exercise of these warrants to acquire a revenue generating company or
to acquire technology complementary to the current technology of the Company,
its ownership interest in ExypnoTech and any other licensing agreements or joint
venture agreements that the Company may enter in the future.
The Company intends to use the funds raised through recent sales of its
restricted common shares and preferred shares to support the operations of the
Company over the next 12 months. Operational plans include a corporate
restructuring in January 2006, as discussed above, and administrative support
provided to BioAgra. The Company expects to receive funds from BioAgra in the
form of payment of outstanding promissory notes and through payments as
specified in the operating agreement for BioAgra. The Company initially plans
to use such funds to support administrative activities. The Company continues
to evaluate additional merger and acquisition opportunities.
3
CRITICAL ACCOUNTING POLICY
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE COMPANY'S
COMMON STOCK:
The Company accounts for obligations and instruments potentially to be settled
in the Company's own stock in accordance with EITF Issue No. 00-19, ACCOUNTING
FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN A
COMPANY'S OWN STOCK. This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and potentially
settled in, the Company's own stock.
Under EITF 00-19 contracts are initially classified as equity or as either
assets or liabilities, depending on the situation. All contracts are initially
measured at fair value and subsequently accounted for based on the then current
classification. Contracts initially classified as equity do not recognize
subsequent changes in fair value as long as the contracts continue to be
classified as equity. For contracts classified as assets or liabilities, the
Company reports changes in fair value in earnings and disclose these changes in
the financial statements as long as the contracts remain classified as assets or
liabilities. If contracts classified as assets or liabilities are ultimately
settled in shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
ITEM 3. CONTROLS AND PROCEDURES
A review and evaluation was performed by the Company's management,
including the Company's Chief Executive Officer (the "CEO") and Chief Financial
Officer (the "CFO"), of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of December 31, 2005. Based on
that review and evaluation, the CEO and CFO have concluded that, as of the date
of their evaluation, the Company's current disclosure controls and procedures,
as designed and implemented, were effective. There have been no significant
changes in the Company's internal controls that could significantly affect such
internal controls subsequent to the date of their evaluation. There were no
material weaknesses identified in the course of such review and evaluation and,
therefore, no corrective measures were taken by the Company.
4
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Financing Agreement Suit:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company and certain officers and
former board members of the Company, and a number of unrelated third parties.
The counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the Supreme
Court of the State of New York, County of New York. The suit alleges that the
Company breached an October 20, 2000 Stock Purchase Agreement, by not issuing
370,945 free trading shares of the Company's common stock in connection with the
reset provisions of the Purchase Agreement due on the second reset date and
approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. In February 2006,
the Supreme Court of the State of New York, County of New York issued an
injunction ordering the Company to reserve 3.7% of the Company's issued and
outstanding common stock (832,029 shares at February 13, 2006). The Company has
set aside and reserved these shares. The Company has filed counterclaims seeking
various forms of relief against Harvest Court, LLC.
5
PART II - OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company made the following unregistered sales of its securities from
October 1, 2005 through December 31, 2005.
DATE OF TITLE OF NO. OF
SALE SECURITIES SHARES CONSIDERATION CLASS OF PURCHASER
-------- ------------ --------- --------------------------- ------------------
10/28/05 Common Stock 625,000 $25,000 Business Associate
----------------------------------------------------------------------------------
10/31/05 Common Stock 250,000 $10,000 Business Associate
----------------------------------------------------------------------------------
11/2/05 Common Stock 250,000 $10,000 for 250,000 shares
Warrant 12,500 of common stock and Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
11/10/05 Common Stock 125,000 $5,000 for 125,000 shares
Warrant 6,250 of common stock and Business Associate
warrant for 6,250 shares
----------------------------------------------------------------------------------
11/30/05 Common Stock 1,250,000 $50,000 for 1,250,000
Warrant 62,500 shares of common stock and Business Associate
warrant for 62,500 shares
----------------------------------------------------------------------------------
12/2/05 Common Stock 625,000 $25,000 for 625,000 shares
Warrant 31,250 of common stock and a Business Associate
warrant for 31,250 shares
----------------------------------------------------------------------------------
12/2/05 Common Stock 625,000 $25,000 for 625,000 shares
Warrant 31,250 of common stock and a Business Associate
warrant for 31,250 shares
----------------------------------------------------------------------------------
12/2/05 Common Stock 625,000 $25,000 for 625,000 shares
Warrant 31,250 of common stock and a Business Associate
warrant for 31,250 shares
----------------------------------------------------------------------------------
12/6/05 Common Stock 1,875,000 $75,000 for 1,875,000
Warrant 93,750 shares of common stock and
a warrant for 93,750 Business Associate
shares
----------------------------------------------------------------------------------
12/6/05 Common Stock 1,875,000 $75,000 for 1,875,000
Warrant 93,750 shares of common stock and
a warrant for 93,750 Business Associate
shares
----------------------------------------------------------------------------------
12/7/05 Common Stock 625,000 $25,000 for 625,000 shares
Warrant 31,250 of common stock and a Business Associate
warrant for 31,250 shares
----------------------------------------------------------------------------------
12/7/05 Common Stock 250,000 $10,000 for 250,000 shares
Warrant 12,500 of common stock and a Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
12/12/05 Common Stock 200,000 $8,000 for 200,000 shares
Warrant 10,000 of common stock and a Business Associate
warrant for 10,000 shares
----------------------------------------------------------------------------------
12/20/05 Common Stock 375,000 $15,000 for 375,000 shares
Warrant 18,750 of common stock and a Business Associate
warrant for 18,750 shares
----------------------------------------------------------------------------------
12/22/05 Common Stock 125,000 $5,000 for 125,000 shares
Warrant 6,250 of common stock and a Business Associate
warrant for 6,250 shares
----------------------------------------------------------------------------------
12/22/05 Common Stock 937,500 $37,500 for 937,500 shares
Warrant 46,875 of common stock and a Business Associate
warrant for 46,875 shares
----------------------------------------------------------------------------------
12/22/05 Common Stock 250,000 $10,000 for 250,000 shares
Warrant 12,500 of common stock and a Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
The warrants have an exercise price of $1.00 per share and a term of 3 years.
6
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"). All of the individuals and/or entities listed above
that purchased the unregistered securities were almost all existing
shareholders, all known to the Company and its management, through pre-existing
business relationships, as long standing business associates, friends, and
employees. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information
and were afforded access to management of the Company in connection with their
purchases. All purchasers 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.
7
ITEM 6. EXHIBITS
(a) 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 11 Computation of Net Loss Per Share
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
5
(b) CURRENT REPORTS ON FORM 8-K. The registrant filed the following
current reports on Form 8-K during the quarter ended December 31,
2005:
- Current Report on Form 8-K dated, October 7, 2005, filed
with the Securities and Exchange Commission on October 7, 2005
(Item 7.01 Regulation FD Disclosure - Shareholder Letter and Item
9.01 Financial Statements and Exhibits - copy of October 7, 2005
Shareholder Letter)
8
SIGNATURES
Pursuant to 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 21, 2006 /s/Paul H. Metzinger
------------------------------
Paul H. Metzinger,
President & CEO
Date: February 21, 2006 /s/Kristi J. Kampmann
------------------------------
Kristi J. Kampmann,
Chief Financial Officer
9