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 September 30, 2006
OR
[ ] TRANSITION REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-19598-D
VYTA CORP
---------
(Exact name of small business issuer as specified in its charter)
Nevada 84-0992908
------ ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
370 17th Street, Suite 3640
Denver, Colorado 80202
(Address of principal executive offices)
Issuer's telephone number, including area code: (303) 592-1010
Check whether the issuer (1) has filed all reports required to be filed by
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of November 15, 2006 there were 22,643,512 shares of the registrant's sole
class of common shares outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Condensed Consolidated Balance Sheet -September 30, 2006 F-1
Condensed Consolidated Statements of Operations -
Three months ended September 30, 2006 and 2005 F-2
Condensed Consolidated Statements of Comprehensive
Loss - Three months ended September 30, 2006 and 2005 F-3
Condensed Consolidated Statement of Changes in Shareholders'
Equity -Three months ended September 30, 2006 F-4
Condensed Consolidated Statements of Cash Flows -
Three months ended September 30, 2006 and 2005 F-5
Notes to Condensed Consolidated Financial Statements F-7
Item 2. Management's Discussion and Analysis 1
Item 3. Controls and Procedures 3
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -Not Applicable 4
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
- Not Applicable 4
Item 3. Defaults Upon Senior Securities - Not Applicable 4
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 4
Item 5. Other Information - Not Applicable 4
Item 6. Exhibits 5
SIGNATURES 6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
September 30, 2006
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 11,845
Prepaid expenses and other 321,383
-------------
Total current assets 333,228
-------------
Property and equipment:
Office equipment and furniture 67,107
Less accumulated depreciation (57,629)
-------------
9,478
-------------
Other assets:
Deposits and other 19,373
Notes receivable, equity investee(Note 2) 1,720,238
Investment in equity investee (Note 3) 198,747
-------------
1,938,358
-------------
Total assets $ 2,281,064
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 90,572
Advances payable, related party (Note 4) 240,000
Accrued liabilities 7,063
-------------
Total liabilities (all current) 337,635
-------------
Commitments and contingencies (Notes 4 and 6)
Shareholders' equity:
Preferred stock; $0.0001 par value; 5,000,000 shares authorized;
none issued and outstanding
Common stock; $0.0001 par value; 200,000,000 shares authorized;
22,643,512 shares issued and outstanding 2,264
Additional paid-in capital 28,390,883
Accumulated other comprehensive income 130,394
Accumulated deficit (26,580,112)
-------------
Total shareholders' equity 1,943,429
-------------
Total liabilities and shareholders' equity $ 2,281,064
=============
See notes to condensed consolidated financial statements.
F-1
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2006 and 2005
(Unaudited)
2006 2005
------------ -----------
Revenues $ - -
------------ -----------
General and administrative expense (275,414) (224,429)
------------ -----------
Loss from operations (275,414) (224,429)
------------ -----------
Other income (expense):
Other income - 28,585
Interest income - 3,931
Equity losses of equity investees
(Note 3) (267,558) (259,908)
Interest expense - (235,109)
Interest expense, related party - (219)
------------ -----------
(267,558) (462,720)
------------ -----------
Net loss $ (542,972) (687,149)
============ ===========
Net loss per share, basic and diluted
(Note 1) $ (0.02) (0.12)
============ ===========
Weighted average number of common
shares outstanding (Note 1) 22,643,512 5,776,593
============ ===========
See notes to condensed consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
Three Months Ended September 30, 2006 and 2005
(Unaudited)
2006 2005
------------ ------------
Net loss $ (542,972) (687,149)
Change in unrealized gain (loss) on
securities 35 (14)
------------ ------------
Comprehensive loss $ (542,937) (687,163)
============ ============
See notes to condensed consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders' Equity
Three Months Ended September 30, 2006
(Unaudited)
Accumulated
Common stock Additional other Total
------------------------- paid-in comprehensive Accumulated shareholders'
Shares Amount capital income deficit equity
----------- ------------ ------------ ------------- -------------- -------------
Balances, July 1, 2006 22,643,512 $ 2,264 $ 28,390,883 $ 130,359 $ (26,037,140) $ 2,486,366
Net loss - - - - (542,972) (542,972)
Change in unrealized
gain on securities - - - 35 - 35
----------- ------------ ------------ ------------- -------------- -------------
Balances,
September 30, 2006 22,643,512 2,264 28,390,883 130,394 (26,580,112) 1,943,429
=========== ============ ============ ============= ============== =============
See notes to condensed consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2006 and 2005
(Unaudited)
2006 2005
------------- ------------
Cash flows from operating activities:
Net loss $ (542,972) (687,149)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization 117,689 22,500
Depreciation 1,346 1,425
Equity losses of equity investees 267,558 259,908
Amortization of discounts on notes payable - 213,760
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and other 15,143 (2,907)
Increase (decrease) in accounts payable 11,722 (39,353)
Increase in accrued liabilities - 1,034
------------- ------------
Total adjustments 413,458 456,367
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Net cash used in operating activities (129,514) (230,782)
------------- ------------
Cash flows from investing activities:
Increase in notes receivable, equity investee (191,000) -
Investment in joint venture - (500,000)
------------- ------------
Net cash used in investing activities (191,000) (500,000)
------------- ------------
Cash flows from financing activities:
Exercise of warrants for cash - 1,535,000
Proceeds to be applied to subscribed preferred stock 140,000 -
Payment of notes payable - (960,663)
Proceeds from issuance of notes payable and common stock - 150,000
------------- ------------
Net cash provided by financing activities 140,000 724,337
------------- ------------
Net decrease in cash and cash equivalents (180,514) (6,445)
Cash and cash equivalents, beginning 192,359 25,835
------------- ------------
Cash and cash equivalents, ending $ 11,845 19,390
============= ============
(Continued)
F-5
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Continued)
2006 2005
------------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ - 1,069
============= ============
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of common stock in connection with notes payable $ - 117,886
============= ============
Advances receivable applied to equity investment $ - 405,000
============= ============
Equity investment acquired in exchange for note payable $ - 595,000
============= ============
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
Three Months Ended September 30, 2006 and 2005
(Unaudited)
1. BASIS OF PRESENTATION, MANAGEMENT'S PLANS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Presentation of Interim Information:
The accompanying condensed consolidated financial statements include the
accounts of Vyta Corp, a Nevada corporation (the Company), its wholly-owned
subsidiaries, NanoPierce Connection Systems, Inc., a Nevada corporation (NCOS),
and ExypnoTech, LLC (ET LLC). All significant intercompany accounts and
transactions have been eliminated in consolidation. NCOS and ET LLC had no
revenues or operations in 2006 and 2005. The Company has two investments which
are accounted for using the equity method of accounting. These equity method
investments consist of ExypnoTech, GmbH (EPT) and BioAgra, LLC (BioAgra)(Note
3). The Company's equity investees, EPT and BioAgra, operate in two segments,
the RFID industry and the animal feed industry, respectively.
In the opinion of the management of the Company, the accompanying unaudited
condensed consolidated financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to present
fairly the financial position and operating results of the Company for the
periods presented. The financial statements and notes are presented as permitted
by Form 10-QSB, and do not contain certain information included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006. It is
management's opinion that when the interim financial statements are read in
conjunction with the June 30, 2006 Annual Report on Form 10-KSB, the disclosures
are adequate to make the information presented not misleading. Interim results
are not necessarily indicative of results for a full year or any future period.
Management's Plans:
In the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
2006, the Report of the Independent Registered Public Accounting Firm includes
an explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern. The Company's interim financial
statements for the three months ended September 30, 2006 have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company reported a net loss of $542,972 for the three months ended September 30,
2006, and an accumulated deficit of $26,580,112 as of September 30, 2006. The
Company also has a working capital deficiency at September 30, 2006 and the
Company has not recognized any revenues from its business operations.
The Company's ability to continue as a going concern may be dependent on the
success of management's plans discussed below. The financial statements do not
contain any adjustments relating to the recoverability and classification of
assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. During the 2007
fiscal year, the Company intends to continue its efforts to assist BioAgra (Note
3) with the continuing development of its sales, nationally and internationally
in other animal feed markets, such as the equine and the swine markets. In
addition, the Company has begun negotiations
F-7
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Three Months Ended September 30, 2006 and 2005
(Unaudited)
with interested parties, to license its NCOS(TM) technology. At this time, no
terms have been finalized.
The Company also intends to raise funds to support operations of the Company
during the 2007 fiscal year through a private offering of preferred stock, the
terms of which are being negotiated.
Currently, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a further issuance of debt or equity in the Company.
Deferred Consulting Costs:
In June 2006, the Company entered into a twelve-month consulting services
agreement with two third parties, in which the parties agreed to provide
lobbying and public relation services. Compensation consisted of 200,000 shares
of the Company's common stock with a market value of approximately $182,000
(based on a closing market price of $0.91 per share at the date the transaction
was entered into) and a warrant to purchase 500,000 shares of the Company's
common stock, with an exercise price of $0.91 per share and a term of 3 years.
The warrant was valued at $283,000 using the Black-Scholes pricing model method.
The deferred cost is being amortized on a straight-line basis as earned over the
twelve-month period from the date of the agreement. During the three months
ended September 30, 2006, $117,689 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 three months ended September 30, 2005,
$22,500 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 warrants are not
considered in the calculation, as the impact of the potential common shares
(6,519,469 shares at September 30, 2006 and 2,273,094 shares at September 30,
2005) would be to decrease loss per share. Therefore, diluted loss per share is
equivalent to basic loss per share.
Stock-Based Compensation:
Beginning July 1, 2006, the Company adopted the provisions of and accounts for
stock-based compensation in accordance with the Financial Accounting
F-8
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Three Months Ended September 30, 2006 and 2005
(Unaudited)
Standards Board's ("FASB") Statement of Financial Accounting Standards No. 123 -
revised 2004 ("SFAS 123R") "Share-Based Payment" which replaced Statement of
Financial Accounting Standards No. 123("SFAS 123"), "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees". Under the fair value recognition provisions of this
statement, stock-based compensation cost is measured at the grant date based on
the fair value of the award and is recognized as expense on a straight-line
basis over the requisite service period, which is the vesting period. The
Company elected the modified-prospective method, under which prior periods are
not revised for comparative purposes. The valuation provisions of SFAS 123R
apply to new grants and to grants that were outstanding as of the effective date
and are subsequently modified. There were no options granted during the three
months ended September 30, 2006 and 2005, and all options granted prior to the
adoption of SFAS 123R and outstanding during the periods presented were
fully-vested.
The Company has two stock option plans which permit the grant of shares to
attract, retain and motivate employees, directors and consultants of up to
625,000 shares of common stock. Options are generally granted with an exercise
price equal to the Company's market price of its common stock on the date of the
grant and with vesting rates, as determined by the Board of Directors. All
options outstanding at July 1, 2006 and September 30, 2006 are fully-vested and
exercisable. A summary of outstanding balances at July 1, 2006 and September
30, 2006 is as follows:
Weighted Weighted
average average Aggregate
exercise remaining intrinsic
Options price life value
------- --------- ---------- ----------
Outstanding at
July 1, 2006 and
September 30, 2006 398,127 $ 22.00 4.61 years $ 0
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
F-9
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Three Months Ended September 30, 2006 and 2005
(Unaudited)
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. At September 30,
2006, the note was reduced by $197,589, which represents the excess of the
BioAgra losses recognized by the Company over the adjusted basis of the
Company's equity investment in BioAgra remaining at September 30, 2006 (Note 3).
During the quarter ended September 30, 2006, the Company advanced an additional
$191,000 to BioAgra under the same terms as the promissory note, described
above. In October 2006, the Company advanced an additional $67,450 to BioAgra
under the same terms as the promissory note, described above. 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. The scheduled October 2006 payment under the
promissory note was not made.
3. INVESTMENTS IN AFFILIATES:
Investment in EPT:
The carrying amount of the Company's investment in EPT is $198,747 at September
30, 2006, and is adjusted to recognize the Company's proportionate share of
EPT's income (loss) each period.
Unaudited financial information of EPT as of September 30, 2006, and for the
three-month periods ended September 30, 2006 and 2005 are as follows:
September 30,
2006
--------------
Assets:
Current assets(1) $ 553,125
Equipment 66,257
--------------
Total assets $ 619,382
==============
Liabilities and members' equity:
Current liabilities(2) $ 355,888
Members' equity 263,494
--------------
Total liabilities and members' equity $ 619,382
==============
(1) Current assets include receivables of $226,905 due from the 51%
owner of EPT.
(2) Current liabilities include a payable of $30,544 due to the 51%
owner of EPT.
F-10
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Three Months Ended September 30, 2006 and 2005
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
2006 2005
--------------- ---------------
Revenues(1) $ 568,551 $ 399,736
Expenses(2) (492,331) (434,313)
--------------- ---------------
Net income
(loss) $ 76,220 $ (34,577)
=============== ===============
(1) Revenues include $568,551 and $272,327, respectively of sales to
the 51% owner of EPT for each period presented.
(2) Expenses include $38,278 and $7,915, respectively of charges paid
to the 51% owner of EPT for each period presented.
Investment in BioAgra:
On August 15, 2005, the Company entered into a joint venture with Xact
Resources, a privately-held company. The Company purchased a 50% equity
interest in the joint venture, BioAgra, for $905,000 in cash (which includes
$405,000 previously advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is
to manufacture and sell a beta glucan product, YBG-2000 also known as
AgraStimTM, to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed. As of September 30, 2006, BioAgra
(a development stage company) has completed construction of a production line
and has produced and shipped product in limited quantities.
The terms of the joint venture provide for the Company to share in 50% of joint
venture net income, if any, or net losses. Net losses incurred by BioAgra have
exceeded the underlying equity attributed to BioAgra's other joint venture
investor. As a result, the excess of the losses attributable to the other joint
venture investor have been charged to the Company. BioAgra incurred a net loss
of $304,905 for the three months ended September 30, 2006. As a result, the
carrying value of the Company's investment in BioAgra at September 30, 2006 was
reduced from $107,316 to $0. The remaining portion of the losses ($197,589)
were applied to reduce the value of the notes due from BioAgra.
Unaudited financial information of BioAgra as of September 30, 2006 and for the
three months ended September 30, 2006, and the period from August 15, 2005
(inception) through September 30, 2005, is as follows:
September 30,2006
-------------------
Assets:
Current assets $ 168,033
Land, building and equipment, net 2,935,340
Other assets, net 94,384
-------------------
Total assets $ 3,197,757
===================
Liabilities and members' equity:
Current liabilities(1) $ 2,404,111
Obligation under capital lease(1) 991,233
-------------------
Total liabilities 3,395,344
Members' deficiency (197,587)
-------------------
Total liabilities and members' deficiency $ 3,197,757
===================
(1) Includes $1,951,536 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.
F-11
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Three Months Ended September 30, 2006 and 2005
(Unaudited)
August 15, 2005
Three Months Ended through
September 30, 2006 September 30, 2005
-------------------- -------------------
Revenues $ 31,642 -
Expenses ( 336,547) ( 485,930)
-------------------- -------------------
Net loss $ ( 304,905) ( 485,930)
==================== ===================
4. ADVANCES PAYABLE - RELATED PARTY:
In June 2006, the Company received an advance of $140,000 from Arizcan
Properties, Ltd. (Arizcan). Total advances received at September 30, 2006 are
$240,000. The advances are to be applied to an equity placement that the Company
and Arizcan have not yet finalized. The proceeds were used to fund the Company's
operations.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION:
Depository Trust Suit:
In May 2004, the Company filed suit against the Depository Trust and Clearing
Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the National
Securities Clearing Corporation ("NSCC") in the Second Judicial District Court
of the County of Washoe, State of Nevada. The suit alleges multiple claims
under the Nevada Revised Statutes 90.570, 90.580, 90.660 and 598A.060 and on
other legal bases. The complaint alleges, among other things, that the DTCC,
DTC and NSCC acted in concert to operate the "Stock Borrow Program," originally
created to address short term delivery failures by sellers of securities in the
stock market. According to the complaint, the DTCC, NSCC and DTC conspired to
maintain significant open fail deliver positions of millions of shares of the
Company's common stock for extended periods of time by using the Stock Borrow
Program to cover these open and unsettled positions. The Company was seeking
damages in the amount of $25,000,000 and treble damages. Responsive pleadings
have been filed by the defendants. 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.
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
F-12
VYTA CORP AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
Three Months Ended September 30, 2006 and 2005
(Unaudited)
Investments, LLC, Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd.
for violations of federal and state securities laws, conspiracy, aiding and
abetting and common law fraud among other claims. As a result of various
procedural rulings, in January 2002, the United States District Court for the
District of Colorado transferred the case to the United States District Court
for the Southern District of New York, New York City, New York. In this
litigation, Harvest Court, LLC filed counterclaims against the Company and
certain officers and former board members of the Company, and a number of
unrelated third parties. The counterclaims allege violations of federal
securities laws and other laws. Harvest Court, LLC is seeking various forms of
relief including compensatory and punitive damages. Responsive pleadings have
been filed and the litigation is currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the Supreme
Court of the State of New York, County of New York. The suit alleges that the
Company breached an October 20, 2000 Stock Purchase Agreement, by not issuing
7,418,895 free trading shares of the Company's common stock in connection with
the reset provisions of the Purchase Agreement due on the second reset date and
approximately 4,500,225 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. The Company has
filed counterclaims seeking various forms of relief against Harvest Court, LLC.
The Company intends to vigorously prosecute this litigation and does not believe
the outcome of this litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
F-13
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 three months ended September 30,
2006 and 2005.
Total general and administrative expenses during the three months ended
September 30, 2006 were $275,414 compared to $224,429 for the three months ended
September 30, 2005. The increase of $50,985, is primarily attributable to a
$84,891 increase in consulting fees and a $20,630 increase in accounting fees,
offset by a $33,160 decrease in commission expense.
The Company recognized $3,931 in interest income during the three months
ended September 30, 2005. During the three months ended September 30, 2005, the
Company recognized $28,585 in other income, which represented a gain on the
extinguishment of certain liabilities.
No interest expense was recorded during the three months ended September
30, 2006, as no debt was outstanding during the period. The Company recognized
interest expense of $235,328 for the three months ended September 30, 2005. Of
the $235,328 in interest expense, $219 represented related party interest. The
remaining $235,109 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 three months ended September 30, 2006, the Company recognized a
net loss of $542,972 compared to a net loss of $687,149 during the three months
ended September 30, 2005. The decrease of $144,177, during the three months
ended September 30, 2006, is primarily attributable to the decrease of $235,109
in interest expenses, offset by the increase of $50,985 in general and
administrative expenses.
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LIQUIDITY AND FINANCIAL CONDITION
During the three months ended September 30, 2006, the Company used $129,514
in operating activities. Net cash provided by financing activities was $140,000,
which is a prepayment on a series of preferred stock the terms of which are
being negotiated. Net cash used in investing activities was $191,000, which was
advanced to BioAgra to be used to support its operations. The Company had
$11,845 of cash and cash equivalents at September 30, 2006, which is being used
to support operations. During the three months ended September 30, 2005, the
Company used $230,782 in operating activities. During the three months ended
September 30, 2005, net cash provided by financing activities was $724,337; of
which $1,535,000 was from the exercise of warrants, $150,000 were proceeds from
the issuance of notes payable and common stock and $960,663 was used to pay note
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 plans 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 three months ended September 30, 2006,
BioAgra had limited sales of its product.
As of September 30, 2006, if all existing outstanding warrants issued in a
January 2004 private placement were exercised, the Company will be required to
issue an additional 1,342,500 shares of common stock and would receive $192,125,
and the Company, on a fully diluted basis (including the reservation of 832,029
shares as required by the court in the Financing Agreement Litigation), would
have 29,995,271 shares of common stock issued and outstanding.
However, no assurance can be given that any of these warrants will be
exercised. If the warrants are exercised, the Company has decided that it may
use the additional funds received from the exercise of these warrants to support
the operations of the Company and its investments.
During the 2007 fiscal year the Company intends to continue its efforts to
aid BioAgra with the continuing development of its sales, nationally and
internationally in other animal feed markets, such as the equine and the swine
markets. In addition, the Company has begun negotiations with interested
parties, to license its NCOS(TM) technology. At this time, no terms have been
finalized, though the Company believes that by the end of the quarter ended
December 31, 2006, a license will have been finalized and granted.
The Company intends to raise additional funds to support operations of the
Company during the 2007 fiscal year. Such funds are to be raised through an
offering of a preferred stock, the terms of which are in the process of being
finalized.
To the extent the Company's operations are not sufficient to fund the
Company's capital requirements the Company may enter into a revolving loan
agreement with financial institutions or attempt to raise capital through the
sale of additional capital stock or through the issuance of debt. At the
present time the Company does not have a revolving loan agreement with any
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financial institution nor can the Company provide any assurance that it will be
able to enter into any such agreement in the future or be able to raise funds
through the further issuance of debt or equity in the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 is
effective for the Company for its fiscal year beginning on July 1, 2008. The
Company is currently assessing the impact the adoption of SFAS No. 157 will have
on its consolidated financial statements.
In September 2006, the SEC issued SAB No. 108 in order to eliminate the
diversity of practice surrounding how public companies quantify financial
statement misstatements. In SAB 108, the SEC staff established an approach that
requires quantification of financial statement misstatements based on the
effects of the misstatements on each of the Company's financial statements and
the related financial statement disclosures. SAB No. 108 is effective for the
Company for its current fiscal year. The adoption of SAB No. 108 did not have
an impact on the Company's consolidated financial statements.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-QSB,
the Company carried out an evaluation, under the supervision and with the
participation of the Company's President and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon
such evaluation, such officers have concluded that the Company's disclosure
controls and procedures are effective as of the end of the period covered by
this quarterly report on Form 10-QSB in alerting them, on a timely basis, to
material information relating to the Company required to be included in the
Company's periodic SEC filings and to ensure that information required to be
disclosed in the Company's periodic SEC filings is accumulated and communicated
to the Company's management, including its President and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
There was no change to the Company's internal controls over financial
reporting during the fiscal quarter ended September 30, 2006 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NO CHANGE.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE.
ITEM 5. OTHER INFORMATION - NONE.
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ITEM 6. EXHIBITS
EXHIBITS. The following is a complete list of exhibits filed as part
of this Form 10-QSB. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-B.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2 Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VYTA CORP
(REGISTRANT)
Date: November 20, 2006 /s/ Paul H. Metzinger
-------------------------------------
Paul H. Metzinger,
President & CEO
(Principle Executive Officer)
Date: November 20, 2006 /s/ Kristi J. Kampmann
-------------------------------------
Kristi J. Kampmann,
Chief Financial Officer
(Principle Financial Officer)
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