UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10Q
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(Mark One)
[ X ]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2008
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number : 33-19598-D
VYTA CORP
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(Exact name of registrant as specified in its charter)
NEVADA 84-0992908
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(State of Incorporation) (IRS Employer ID Number)
370 17TH STREET, SUITE 3640, DENVER, COLORADO 80202
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(Address of principal executive offices)
303-592-1010
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(Registrant's Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 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 the filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 18, 2008, there were 44,763,178 shares of the registrant's common
stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements PAGE
----
Condensed Consolidated Balance Sheets - September 30, 2008 (Unaudited)
and June 30, 2008 F-1
Condensed Consolidated Statements of Operations (Unaudited) -
Three months ended September 30, 2008 and 2007 F-2
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) -
Three months ended September 30, 2008 and 2007 F-3
Condensed Consolidated Statement of Changes in Shareholders' Equity
Deficiency (Unaudited) - September 30, 2008 F-4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three months ended September 30, 2008 and 2007 F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk - NOT APPLICABLE 3
Item 4. Controls and Procedures 3
Item 4T. Controls and Procedures 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -NOT APPLICABLE 5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities - NOT APPLICABLE 6
Item 4. Submission of Matters to a Vote of Security Holders - NOT APPLICABLE 6
Item 5. Other Information - NOT APPLICABLE 6
Item 6. Exhibits 6
SIGNATURES 7
PART I
ITEM 1. FINANCIAL STATEMENTS
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, June 30,
2008 2008
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 32,925 $ 54,550
Prepaid expenses and other 11,225 1,096
------------- --------------
Total current assets 44,150 55,646
------------- --------------
Property and equipment:
Office equipment and furniture 67,107 67,107
Less accumulated depreciation (66,527) (66,282)
------------ --------------
580 825
------------ --------------
Other assets:
Deposit 19,272 19,272
------------ --------------
Total assets $ 64,002 $ 75,743
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Accounts payable $ 131,314 $ 135,305
Advances payable, related parties (Note 4) 36,907 39,500
Advance payable (Note 4) 100,000 -
Accrued expenses 42,640 31,385
Obligation to unconsolidated investee (Notes 2 and 3) 341,631 173,153
------------- --------------
Total liabilities (all current) 652,492 379,343
------------- --------------
Commitments and contingencies (Note 6)
Shareholders' equity deficiency (Note 5):
Preferred stock; $0.0001 par value; 5,000,000 shares
authorized; Series A, 8%; deemed par value $1.00 per share; 500,000 shares
issued and outstanding; liquidation preference of $563,343 and $553,260, as
of September 30, 2008 and June 30, 2008, respectively 563,342 553,260
Common stock; $0.0001 par value; 200,000,000 shares
authorized; 44,763,178 and 37,518,178 shares issued
and outstanding as of September 30, 2008 and
June 30, 2008, respectively 4,476 3,752
Additional paid-in capital 31,706,604 31,567,860
Accumulated deficit (32,862,912) (32,428,472)
------------- --------------
Total shareholders' equity deficiency ( 588,490) ( 303,600)
------------- --------------
Total liabilities and shareholders'
equity deficiency $ 64,002 $ 75,743
============= ==============
See notes to the condensed consolidated financial statements.
F-1
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2008 and 2007
(Unaudited)
2008 2007
------------- --------------
General and administrative expense $ ( 180,780) $ ( 145,748)
------------- --------------
Loss from operations ( 180,780) ( 145,748)
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Other income (expense):
Equity losses of unconsolidated
investees (Note 3) ( 253,660) ( 380,825)
------------- --------------
Net loss ( 434,440) ( 526,573)
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Dividends on Series A
preferred stock (Note 5) ( 10,082) ( 9,452)
------------- --------------
Net loss applicable to common
shareholders $ ( 444,522) $ ( 536,025)
============= ==============
Net loss per common share, basic and
diluted (Note 1) $ ( 0.01) $ ( 0.02)
============= ==============
Weighted average number of common
shares outstanding (Note 1) 43,201,548 32,060,062
============= ==============
See notes to the condensed consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
Three Months Ended September 30, 2008 and 2007
(Unaudited)
2008 2007
------------ -----------
Net loss $( 434,440) $( 526,573)
Change in foreign currency
translation - 9,244
------------ -----------
Comprehensive loss $( 434,440) $( 517,329)
=========== ===========
See notes to the condensed consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders' Equity Deficiency
Three Months Ended September 30, 2008
(Unaudited)
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL SHAREHOLDERS'
---------------------- ----------------------- PAID IN EQUITY
SHARES DOLLARS SHARES DOLLARS CAPITAL DEFICIT DEFICIENCY
-------- ---------- ---------- --------- -------------- ------------- --------------
Balances, July 1, 2008 500,000 $ 553,260 37,518,178 $ 3,752 $ 31,567,860 $(32,428,472) $( 303,600)
Common stock issued for
cash - - 1,095,000 109 131,891 - 132,000
Common stock issued for
services - - 150,000 15 17,535 - 17,550
Common stock issued in
exchange for
cancellation of
warrants, related
party - - 6,000,000 600 (600) - -
Net loss - - - - - ( 434,440) ( 434,440)
Accumulated dividends on
Series A preferred
stock - 10,082 - - ( 10,082) - -
-------- ---------- ---------- --------- -------------- ------------- --------------
Balances,
September 30, 2008 500,000 $ 563,342 44,763,178 $ 4,476 $ 31,706,604 $(32,862,912) $ ( 588,490)
======== ========== ========== ========= ============== ============= ==============
See notes to the condensed consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2008 and 2007
(Unaudited)
2008 2007
------------- --------------
Cash flows from operating activities:
Net loss $ ( 434,440) $( 526,573)
------------- --------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation expense 245 1,153
Common stock issued for services 17,550 -
Equity in net losses of unconsolidated investees 253,660 380,825
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses (10,129) 653
Increase (decrease) in accounts payable and accrued expenses 7,264 ( 17,174)
------------- --------------
Total adjustments 268,590 365,457
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Net cash used in operating activities ( 165,850) ( 161,116)
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Cash flows from investing activities:
Increase in notes and advances receivable,
unconsolidated investee ( 85,182) ( 294,031)
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Net cash used in investing activities ( 85,182) ( 294,031)
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Cash flows from financing activities:
Common stock issued for cash 132,000 229,500
Proceeds from advance payable 110,907 -
Payment of advance ( 13,500) -
------------- --------------
Net cash provided by financing activities 229,407 229,500
------------- --------------
Net decrease in cash and cash equivalents ( 21,625) ( 225,647)
Cash and cash equivalents, beginning 54,550 354,702
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Cash and cash equivalents, ending $ 32,925 $ 129,055
============= ==============
See notes to the condensed consolidated financial statements.
F-5
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
1. BASIS OF PRESENTATION, MANAGEMENT'S PLAN AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
Presentation of Interim Information:
The accompanying unaudited condensed consolidated financial statements include
the accounts of Vyta Corp, a Nevada corporation, its wholly-owned subsidiaries,
NanoPierce Connection Systems, Inc., a Nevada corporation (NCOS), and
ExypnoTech, LLC (ET LLC), a Colorado limited liability company (collectively
referred to as the "Company"). The Company has two investments which are
accounted for using the equity method of accounting. These equity method
investments consist of BioAgra, LLC (BioAgra) and through December 27, 2007,
ExypnoTech, GmbH (EPT) (Note 3). The Company's equity investees, EPT and
BioAgra, operate in two segments, the RFID industry and the animal feed
industry, respectfully. All significant intercompany accounts and transactions
have been eliminated in consolidation.
On December 27, 2007, the Company sold its 49% equity interest in EPT to
TagStar, GmbH (TagStar), the 51% equity interest owner of EPT, for cash of
$250,000 (Note 3).
On September 15, 2008, the Company filed collection and foreclosure proceedings
against BioAgra in connection with the secured promissory notes it holds from
BioAgra (Notes 2 and 3). On October 31, 2008, the Company acquired the remaining
50% equity interest in BioAgra and as a result owns 100% of the equity in
BioAgra (Note 7). Subsequently, the Company has voluntarily dismissed the
collection and foreclosure proceedings.
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-Q, and do not contain certain information included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2008. It is the
Company's opinion that when the interim financial statements are read in
conjunction with the June 30, 2008 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,
2008, 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, 2008 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 $434,440 and a net loss applicable to common
shareholders of $444,522 for the three months ended September 30, 2008, and an
accumulated deficit of $32,862,912 as of September 30, 2008. The Company has not
recognized any revenues from its business operations.
F-6
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
During the 2009 fiscal year, the Company has continued its efforts to assist
BioAgra with the continuing development of its sales, nationally and
internationally in other animal feed markets, such as the equine and the swine
markets. The Company intends to continue to raise funds to support the efforts
through the sale of its equity securities.
Currently, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a further issuance of debt or equity in the Company.
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.
In addition, the United States is experiencing severe instability in the
commercial and investment banking systems which is likely to continue to have
far-reaching effects on the economic activity in the country for an
indeterminable period. The long-term impact on the United States economy and the
Company's operating activities and ability to raise capital cannot be predicted
at this time, but may be substantial.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 123 - revised 2004
("SFAS 123R"), SHARE-BASED PAYMENT. 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 did not grant any options during the three months ended
September 30, 2008 and 2007.
LOSS PER SHARE:
Basic loss per share of common stock is computed based on the average number of
common shares outstanding during the year. Stock options and warrants are not
considered in the calculation, as the impact of the potential common shares
(5,754,844 shares at September 30, 2008 and 14,859,844 shares at September 30,
2007) would be to decrease loss per share (anti-dilutive). Therefore, diluted
loss per share is equivalent to basic loss per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), BUSINESS
COMBINATIONS, ("SFAS No. 141R"). SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will also
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
F-7
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations the Company engages in will be recorded
and disclosed following existing GAAP until July 1, 2009. The Company's
management expects SFAS No. 141R will have an impact on accounting for business
combinations once adopted, but the effect is dependent upon acquisitions at that
time.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS--AN AMENDMENT OF ARB NO. 51, OR SFAS NO. 160.
SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. Management believes that SFAS 160 will not have a material
impact on the Company's financial position or results of operations.
In March 2008, the FASB issued Statement No. 161, "DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES--AN AMENDMENT OF FASB STATEMENT NO. 133"
(SFAS 161). The Statement requires companies to provide enhanced disclosures
regarding derivative instruments and hedging activities. It requires companies
to better convey the purpose of derivative use in terms of the risks that such
company is intending to manage. Disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect a company's financial
position, financial performance, and cash flows are required. This Statement
retains the same scope as SFAS No. 133 and is effective for fiscal years and
interim periods beginning after November 15, 2008, or January 1, 2009 for the
Company. The Company does not expect the adoption of SFAS 161 to have a material
effect on its results of operations and financial condition.
In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 "ACCOUNTING
FOR CONVERTIBLE DEBT INSTRUMENTS THAT MAY BE SETTLED IN CASH UPON CONVERSION
(INCLUDING PARTIAL CASH SETTLEMENT)" (FSP APB 14-1). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis and will be adopted by the Company in the first quarter of fiscal year
2009. The Company does not expect the adoption of FSP APB 14-1 to have a
material effect on its results of operations and financial condition.
2. NOTES AND ADVANCES RECEIVABLE - UNCONSOLIDATED INVESTEE:
Through June 30, 2008, the Company loaned $3,790,591 to BioAgra through a series
of secured, 7.5% promissory notes, some of which were due at various dates
through October 31, 2006 and some did not provide for scheduled payments. The
funds were loaned to facilitate BioAgra's completion of its first production
line and to support operations. The promissory notes are collateralized by all
BioAgra assets. Additionally, the promissory notes are to be paid in full prior
to any distributions being made to the members of the joint venture.
On July 14, 2008, BioAgra executed a fourth 7.5% promissory note for $195,164,
with BioAgra with the same terms as above, but the note did not provide for
scheduled payments. During the three months ended September 30, 2008, the
Company advanced an additional $85,182 in funds to BioAgra.
F-8
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
The Company is not accruing interest on these notes receivable, as they are
currently in default and non-performing.
The notes and advances receivable were reduced to $0 at June 30, 2008 by
applying the losses of BioAgra (Note 3). The losses of BioAgra for the year
ended June 30, 2008 were in excess of the carrying value of the notes by
$173,153. This amount was booked as an Obligation to unconsolidated investee in
the accompanying condensed consolidated balance sheet. The losses of BioAgra for
the three months ended September 30, 2008 were $253,660. Of this total $85,182
was recorded against advances receivable and $168,478 was recorded as an
increase to the Obligation to unconsolidated investee.
3. INVESTMENTS IN UNCONSOLIDATED INVESTEES:
INVESTMENT IN EPT:
On December 27, 2007, the Company executed a Share Purchase Agreement with
TagStar, GmbH, the holder of the 51% equity interest in EPT, pursuant to which
the Company sold its 49% equity interest to TagStar for cash of $250,000. The
Company recorded a gain of $164,234 in connection with the sale of the equity
interest in EPT.
During the three months ended September 30, 2007, EPT recognized revenues of
$828,632 and expenses of $856,590 for a net loss of $27,958. During the three
months ended September 30, 2007, the Company's proportionate loss was $13,670.
INVESTMENT IN BIOAGRA
Prior to October 31, 2008, the Company had a 50% equity interest in the joint
venture, BioAgra, which manufactures and sells a beta glucan product, YBG-2000
also known as AgraStim(TM), which can be used as a replacement for hormone
growth steroids and antibiotics in animal feed products such as poultry feed. As
of June 30, 2008, BioAgra (a development stage company) has completed
construction of a production line; however BioAgra has not yet recognized any
significant revenues from product sales. At each reporting period, management
makes an assessment to determine if the investment in BioAgra represents a
variable interest entity subject to consolidation. Through September 30, 2008,
management has determined that BioAgra was not subject to consolidation.
On September 15, 2008, the Company filed collection and foreclosure proceedings
against BioAgra in the City and County Court of Denver, Colorado. The collection
and foreclosure proceedings are directly related to principal and accrued
interest of approximately $4,001,769 in loans advanced to BioAgra, including the
$3,963,982 loaned through a series of secured promissory notes, and an
additional $37,788 for open advances not represented by a promissory note. As a
result of the Company's acquisition of the 50% equity ownership of Justin
Holdings, Inc. the Company has voluntarily dismissed the collection and
foreclosure proceedings (Note 7).
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. Net losses incurred by
BioAgra have exceeded the underlying equity attributed to BioAgra's other joint
venture investor. As a result, the excess of the losses attributable to the
other joint venture investor have been charged to the Company. Since September
30, 2006 and through September 30, 2008, the carrying value of the Company's
investment in BioAgra was $0. BioAgra losses for the three months ended
F-9
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
September 30, 2008 and 2007 were $253,660 and $367,155, respectively. Losses of
$85,182 and $367,155, respectively, were applied to reduce the value of the
notes receivable from BioAgra (Note 2).
Financial information of BioAgra as of September 30, 2008 and for the three
months ended September 30, 2008 and 2007, is as follows:
SEPTEMBER 30, 2008
--------------------
Assets:
Current assets $ 117,468
Land, building and equipment, net(2) 1,123,231
--------------------
Total assets $ 1,240,699
====================
Liabilities and members' deficiency:
Current liabilities(1) $ 4,590,394
Obligation under capital lease(2) 896,430
--------------------
Total liabilities 5,486,824
Members' deficiency ( 4,246,125)
--------------------
Total liabilities and members' $ 1,240,699
deficiency ====================
(1) Includes $4,322,266 owed to the Company. The Company has classified
this amount as a notes receivable in non-current assets on the balance sheet and
is not accruing interest on these notes receivable, as they are currently in
default and non-performing. The notes and advances receivable on the Company's
balance sheet were reduced to $0 at September 30, 2008 by applying the losses of
BioAgra.
(2) BioAgra leases land and a building under a ten-year lease expiring
in February 2015, which requires a monthly lease payment of $12,000.
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ -------------------
Revenues $ 12,006 $ 20,327
Expenses (265,666) (387,482)
------------------ -------------------
Net loss $ (253,660) $ (367,155)
================== ===================
4. ADVANCES PAYABLES:
RELATED PARTIES
At September 30, 2008, the Company owes its majority shareholder $32,000 for
advances. This amount is unsecured, non-interest bearing and is due on demand.
During the year ended June 30, 2008, the majority shareholder advanced $39,500.
During the three months ended September 30, 2008, the majority shareholder
advanced an additional $6,000 and the Company made payments of $13,500 against
the advances payable.
F-10
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
At September 30, 2008, the Company owes Mr. Metzinger, an officer and director
of the Company, $4,907 for advances. This amount is unsecured, non-interest
bearing and is due on demand.
UNRELATED THIRD PARTY
On September 9, 2008, an unrelated third party advanced the Company $100,000 for
operations. This amount is unsecured, non-interest bearing and is due on demand
5. SHAREHOLDERS' EQUITY DEFICIENCY:
PREFERRED STOCK:
In February 2007, the Company sold 500,000 shares of Series A nonconvertible
preferred stock for $500,000 cash to Arizcan Properties, Ltd. (Arizcan), the
majority shareholder of the Company. Arizcan had advanced the funds to the
Company, prior to the issuance of the shares. The shares provide that when
voting as a single class, the shares have the votes and the voting power that at
all times is greater by 1% than the combined votes and voting power of all other
classes of securities entitled to vote on any matter. As a result of the
issuance, Arizcan acquired approximately 51% of the voting power of the Company.
The Company has a right, solely at the Company's discretion, to redeem the
shares in 2017 at 130% of deemed par value.
The holder of the Series A is entitled to a dividend equal to 8% per annum of
the deemed par value ($1.00 per share). Accumulated dividends for the period
from Series A issuance (February 2007) through September 30, 2008, were $63,342,
($10,082 and $9,452 during the three months ended September 30, 2008 and 2007,
respectively) which have been recorded as an increase to net loss per common
shareholder. Also, the holder is entitled to a liquidation preference of the
deemed par value for each outstanding share and any accrued but unpaid dividends
upon the liquidation of the Company.
COMMON STOCK:
2008 FISCAL YEAR
Between July 1, 2008 and September 30, 2008, the Company issued an aggregate of
1,095,000 shares of its restricted common stock for $132,000 cash. The shares
were sold for prices that range from $0.09 to $0.15 per share (based upon an
approximate 55% discount from the closing market price at the time of sale,
ranging from $0.06 to $0.17 per share on the dates of the transactions).
On August 22, 2008, the Company issued an aggregate of 150,000 shares of its
restricted common stock as payment for services worth $17,550. The shares were
issued for $0.117 per share, the closing market at the time of issuance.
On July 15, 2008, the Company issued 6,000,000 shares of its restricted common
stock upon the return of warrants exercisable for 9,000,000 shares by its
majority shareholder. The warrants, one exercisable for 6,000,000 shares of
common stock and the second exercisable for 3,000,000 shares were cancelled by
the Company.
F-11
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
STOCK OPTIONS:
The Company has two stock option plans which permit the grant of shares to
attract, retain and motivate employees, directors and consultants of up to
2,863,000 shares of common stock. Options are generally granted with an exercise
price equal to the Company's market price of its common stock on the date of the
grant and with vesting rates, as determined by the Board of Directors. All
options outstanding at July 1, 2008 and September 30, 2008 are fully-vested and
exercisable. The aggregate intrinsic value of outstanding fully-vested options
as of September 30, 2008 was approximately $155.
The Company did not grant any options during the three months ended September
30, 2008 and 2007.
The expected term of stock options represents the period of time that the stock
options granted are expected to be outstanding based on historical exercise
trends. The expected volatility is based on the historical price volatility of
the Company's common stock. The risk-free interest rate represents the U.S.
Treasury bill rate for the expected term of the related stock options. The
dividend yield represents our anticipated cash dividend over the expected term
of the stock options.
A summary of the stock option activity for the three months ended September 30,
2008 is as follows:
Weighted
Weighted Average
Average Remaining
Shares Under Exercise Contractual
Option Price Life
------------ --------- -----------
Outstanding at July 1, 2008 2,643,127 $ 3.00 2.86 years
Granted - - -
Exercised - - -
Expired - - -
----------- --------- -----------
Outstanding at September 30, 2008 2,643,127 $ 3.00 2.62 years
=========== ========= ===========
Exercisable at September 30, 2008 2,643,127 $ 3.00 2.62 years
=========== ========= ===========
6. COMMITMENTS AND CONTINGENCIES
FINANCING AGREEMENT SUIT:
The Company is a plaintiff and counter-claim defendant in a suit pending in the
United States District Court for the Southern District of New York (the
"District Court"). In this suit, the Company filed claims for securities fraud,
common-law fraud, and breach of contract against the defendants. One defendant,
Harvest Court, LLC ("Harvest Court"), has counterclaimed for alleged violations
of the federal securities laws. In January 2008 the Court granted summary
judgment against the Company on all of its claims, which the Company intends to
appeal when the judgment becomes final. The Court also dismissed certain
counterclaims against the Company. The Company intends to vigorously defend
itself against the remaining claims. In a disclosure statement filed by Harvest
Court, it set forth a damage computation of approximately $4.1 million, as well
as other categories of damages, such as out-of-pocket, statutory, punitive, and
other for unspecified amounts.
F-12
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
Harvest Court has also sued the Company in New York state court (the "State
Court") for breach of contract relating to its failure to issue certain shares
of stock allegedly due under a pre-2007 financing agreement. The Company has
counterclaimed in this case for fraud. The State Court issued an injunction
requiring the company to reserve and set aside a certain amount of stock, which
the Company has done. The Company intends to vigorously defend itself and
prosecute its counterclaims.
If management believes that a loss arising from these matters is probable and
can reasonably be estimated, the Company records the amount of the loss, or the
minimum estimated liability when the loss is estimated using a range, and no
point within the range is more probable than another. As additional information
becomes available, any potential liability related to these matters is assessed
and the estimates are revised, if necessary. Based on currently available
information, management does not believe that a loss from the matters described
above is probable, and therefore has not accrued for any asserted damages.
Management believes that the ultimate outcome of these matters, individually and
in the aggregate, will not have a material adverse effect on the Company's
financial position or overall trends in results of operations. However,
litigation is subject to inherent uncertainties, and an unfavorable ruling could
result in a material adverse impact on the financial position and results of
operations of the period in which the outcome is determined.
7. SUBSEQUENT EVENT:
On October 31, 2008, the Company and BioAgra entered into an Agreement with
Justin Holdings, Inc. ("Justin Holdings") and Neal Bartoletta ("Mr. Bartoletta")
to transfer the 50% equity interest in BioAgra held by Justin Holdings to the
Company.
As a result of the transfer, the Company now owns 100% of the equity in BioAgra.
Prior to the transfer of Justin Holdings' equity interest in BioAgra, the
Company had accounted for its interest using the equity method. As a result of
the transfer, BioAgra has become a wholly-owned subsidiary of the Company.
Mr. Bartoletta will receive a monthly payment of $6,000, with payments
commencing on the first of the month immediately following the closing and
continuing for a period of sixty (60) months from the closing. Mr. Bartoletta
has agreed to serve as a consultant to BioAgra for a period of five (5) years
from the closing date, and he shall be available to BioAgra on an as needed
basis, for up to a maximum of ten (10) hours per week, to provide advice to, and
consult with, BioAgra concerning its business and relationship with its
employees, contractors, vendors and customers.
Justin Holdings is to receive ten percent (10%) of all profits generated by
BioAgra, until a maximum aggregate payment to Justin Holdings of $500,000 has
been paid. The payments are to be made on an annual basis.
F-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, 2008, 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.
GENERAL
At September 30, 2008, we had cash, on hand, of $32,925. We intend to use our
cash funds to continue to support operations. We intend to continue to develop
the business opportunity presented by our equity investee, BioAgra and the
AgriStim product. The development of the business opportunity includes continued
marketing efforts and product testing over the next twelve months.
On October 31, 2008, the Company and BioAgra entered into an Agreement with
Justin Holdings, Inc. ("Justin Holdings") and Neal Bartoletta ("Mr. Bartoletta")
to transfer the 50% equity interest in BioAgra held by Justin Holdings to the
Company. As a result of the transfer, the Company now owns 100% of the equity in
BioAgra. As a result of the transfer, BioAgra has become a wholly-owned
subsidiary of the Company.
In the continuance of our business operations we do not intend to purchase or
sell any significant assets, and we do not expect a significant change in the
number of employees of the Company.
We are dependent on raising additional equity and/or debt to fund any negotiated
settlements with our outstanding creditors and meet our ongoing operating
expenses. There is no assurance that we will be able to raise the necessary
equity and/or debt that we will need to be able to negotiate acceptable
settlements with our outstanding creditors or fund our ongoing operating
expenses. We cannot make any assurances that we will be able to raise funds
through such activities.
RESULTS OF OPERATIONS
During the three months ended September 30, 2008 and 2007, we did not have any
revenues from operations.
General and administrative expenses during the three months ended September 30,
2008 were $180,780 compared to $145,748 for the three months ended September 30,
2007. The increase of $35,032 is mainly attributable to an increase of $13,265
in consulting expenses, a $7,842 increase in legal expenses and a $9,765
increase in public relation expense.
During the three months ended September 30, 2008, we recognized a net loss of
$434,440 compared to a net loss of $526,573 during the three months ended
September 30, 2007. The $92,133 decrease is primarily a result of the $127,165
1
decrease in equity losses of unconsolidated investees and offset by the $35,032
increase in general and administrative expenses, discussed above.
We recorded a net loss applicable to common shareholders of $444,522 during the
three months ended September 30, 2008 compared to $536,025 during the three
months ended March 31, 2007. The decrease of $91,503 was a result of the
$127,165 decrease in equity losses of unconsolidated investees and offset by the
$630 increase in the accumulated dividends recognized in connection with the
outstanding Series A Preferred Stock and the increase in general and
administrative expenses of $35,032.
LIQUIDITY AND FINANCIAL CONDITION
Net cash used in operating activities during the three months ended September
30, 2008 was $165,850, compared to net cash used in operating activities during
the three months ended September 30, 2007 of $161,116. During the three months
ended September 30, 2008, the net cash used represented a net loss of $434,440,
adjusted for certain non-cash items consisting of depreciation expense of $245,
common stock issued for services of $17,550 and equity in losses of
unconsolidated investees of $253,660.
During the three months ended September 30, 2007, the net cash used represented
a net loss of $526,573, adjusted for certain non-cash items consisting of
depreciation expense of $1,153 and equity in losses of unconsolidated investees
of $380,825.
During the three months ended September 30, 2008, we raised $132,000 cash
through the sale of 1,095,000 shares of restricted common stock.
During the three months ended September 30, 2007, we received $229,500 cash,
through the sale of 1,530,000 shares of restricted common stock.
During the year ended June 30, 2008, the majority shareholder advanced $39,500.
During the three months ended September 30, 2008, the majority shareholder
advanced an additional $6,000 and the Company made payments of $13,500 against
the advances payable. In addition, an officer and director of the Company
advanced $4,907 to the Company.
During the three months ended September 30, 2008, an unrelated third party
advanced $100,000.
Through June 30, 2008, the Company loaned $3,790,591 to BioAgra through a series
of secured, 7.5% promissory notes, some of which were due at various dates
through October 31, 2006 and some did not provide for scheduled payments. The
funds were loaned to facilitate BioAgra's completion of its first production
line and to support operations. The promissory notes are collateralized by all
BioAgra assets. Additionally, the promissory notes are to be paid in full prior
to any distributions being made to the members of the joint venture.
On July 14, 2008, BioAgra executed a fourth 7.5% promissory note for $195,164,
with BioAgra with the same terms as above, but the note did not provide for
scheduled payments. During the three months ended September 30, 2008, the
Company advanced an additional $85,182 in funds to BioAgra.
During the 2009 fiscal year, we intend to continue our 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 United States is experiencing severe instability in the
commercial and investment banking systems which is likely to continue to have
far-reaching effects on the economic activity in the country for an
2
indeterminable period. The long-term impact on the United States economy and the
Company's operating activities and ability to raise capital cannot be predicted
at this time, but may be substantial.
To the extent our operations are not sufficient to fund our capital
requirements; we 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 we do not have a
revolving loan agreement with any financial institution nor can we provide any
assurance that we 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), BUSINESS
COMBINATIONS, ("SFAS") No. 141R. SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be recorded and
disclosed following existing GAAP until July 1, 2009. The Company expects SFAS
No. 141R will have an impact on accounting for business combinations once
adopted, but the effect is dependent upon acquisitions at that time.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS--AN AMENDMENT OF ARB NO. 51, OR SFAS NO. 160.
SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company believes that SFAS 160 will not have a material
impact on the Company's financial position or results of operations.
In March 2008, the FASB issued SFAS No. 161 DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 161 requires additional disclosure
related to derivatives instruments and hedging activities. The provisions of
SFAS No. 161 are effective as of July 1, 2009 and the Company is currently
evaluating the impact of adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - NOT
APPLICABLE
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer/Acting Chief
Financial Officer, performed an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures as of June 30,
2008. Based on that evaluation, the Chief Executive Officer/Acting Chief
Financial Officer concluded that, because of the material weakness in internal
control over financial reporting described below, the Company's disclosure
controls and procedures were not effective as of September 30, 2008.
3
ITEM 4T. INTERNAL CONTROLS AND PROCEDURES
MANAGEMENT'S QUARTERLY REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in the Securities
Exchange Act of 1934 Rule 13a-15(f). Our Chief Executive Officer/Acting Chief
Financial Officer conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control -
Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO Framework").
Based on this evaluation, management has concluded that our internal control
over financial reporting was not effective as of September 30, 2008. Our
principal Chief Executive Officer/Acting Chief Financial Officer concluded we
have a material weakness in our ability to produce financial statements free
from material misstatements. Management reported a material weakness resulting
from the combination of the following significant deficiencies:
- a lack of segregation of duties in accounting and financial reporting
activities; and
- a lack of a sufficient number of qualified accounting personnel; and
- a lack of documentation and review of financial information by
accounting personnel with direct oversight responsibility.
Our Chief Executive Officer has also served as our Chief Financial Officer since
February 2007. We believe that the lack of a full-time Chief Financial Officer
has resulted in a significant deficiency in internal controls over financial
reporting due to the lack of qualified accounting personnel with sufficient time
to regularly and adequately review complex, nonrecurring transactions. In
addition, the Company employs only one individual that is responsible for the
processing of all recurring transactions. While management is actively involved
in the daily activities of the Company, including the review of transactions, it
is difficult to adequately segregate accounting duties within the Company in a
manner to prevent a material weakness in internal controls over financial
reporting.
Subsequent to the discovery of the material weakness in internal control over
financial reporting described above and beginning in the fiscal quarter ending
September 30, 2007, we initiated and plan to undertake changes to our internal
control over financial reporting to remediate the aforementioned deficiency and
to strengthen our internal control processes, including the seeking of
additional accounting staff and/or the consultation with outside resources as we
deem appropriate. While the costs of remediation are unknown at this time, we
expect that the costs may exceed $300,000, which would include the hiring of a
new Chief Financial Officer and, in the interim, the contracting of accounting
staff and/or the consultation with outside resources. Our ability to initiate
and undertake changes is confined by our financial resources.
This quarterly report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management's report on internal control in this annual report.
4
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in internal control over financial reporting that occurred
during the last fiscal quarter covered by this report that have materially
affected, or are reasonably likely to affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company made the following unregistered sales of its securities from July 1,
2008 to September 30, 2008.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
-------------- ------------------- ---------------- ----------------------- ------------------
7/7/08 Common stock 150,000 $22,500 Affiliate
-------------- ------------------- ---------------- ----------------------- ------------------
7/10/08 Common stock 160,000 $24,000 Affiliate
-------------- ------------------- ---------------- ----------------------- ------------------
7/11/08 Common Stock 180,000 $27,500 Affiliate
-------------- ------------------- ---------------- ----------------------- ------------------
7/15/08 Common Stock 6,000,000 Exchange of Warrants Affiliate
-------------- ------------------- ---------------- ----------------------- ------------------
8/22/08 Common Stock 150,000 $17,550 Services Business Associate
-------------- ------------------- ---------------- ----------------------- ------------------
8/27/08 Common Stock 405,000 $40,500 Affiliate
-------------- ------------------- ---------------- ----------------------- ------------------
9/26/08 Common Stock 200,000 $18,000 Affiliates
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 Act. The affiliate listed above
that purchased the unregistered securities was known to the Company and its
management, through pre-existing business relationships. The purchaser was
provided access to all material information, which they requested, and all
information necessary to verify such information and was afforded access to
management of the Company in connection with the purchases. The purchaser of the
unregistered securities acquired such securities for investment and not with a
view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
5
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE.
ITEM 5. OTHER INFORMATION - NONE.
ITEM 6. EXHIBITS
EXHIBITS. The following is a complete list of exhibits filed as part
of this Form 10-Q. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-K.
------------ ---------------------------------------------------------
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
------------ ---------------------------------------------------------
Exhibit 32.1 Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
------------ ---------------------------------------------------------
6
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 19, 2008 /s/ Paul H. Metzinger
-------------------------------------------
Paul H. Metzinger,
President & CEO & Principal Accounting Officer
(Principle Executive Officer)
7