UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
NanoPierce Technologies, Inc.
(Former name, former address or former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of May 19, 2006 there were 22,493,512 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
----
Report of Independent Registered Public Accounting Firm F-1
Condensed Consolidated Balance Sheet -March 31, 2006 F-2
Condensed Consolidated Statements of Operations -
Three and Nine months ended March 31, 2006 and 2005 F-3
Condensed Consolidated Statements of Comprehensive
Loss - Three and Nine months ended March 31, 2006 and 2005 F-4
Condensed Consolidated Statement of Changes in Shareholders'
Equity -Nine months ended March 31, 2006 F-5
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 2006 and 2005 F-7
Notes to Condensed Consolidated Financial Statements F-9
Item 2. Management's Discussion and Analysis 1
Item 3. Controls and Procedures 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 6
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits 8
SIGNATURES 9
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors
Vyta Corp
We have reviewed the accompanying condensed consolidated balance sheet of Vyta
Corp (formerly known as NanoPierce Technologies, Inc.) and subsidiaries as of
March 31, 2006, the related condensed consolidated statements of operations and
comprehensive loss for the three-month and nine-month periods ended March 31,
2006 and 2005, the condensed consolidated statements of cash flows for the
nine-month periods ended March 31, 2006 and 2005, and the condensed consolidated
statement of changes in shareholders' equity for the nine-month period ended
March 31, 2006. These interim condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying interim condensed consolidated financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
/s/ GHP HORWATH, P.C.
Denver, Colorado
May 16, 2006
F-1
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Balance Sheet
March 31, 2006
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 125,741
Interest and other receivables 1,586
Prepaid expenses 39,368
Note receivable, related party (Note 2) 1,005,078
-------------
Total current assets 1,171,773
-------------
Property and equipment:
Office equipment and furniture 66,357
Less accumulated depreciation (54,793)
-------------
11,564
-------------
Other assets:
Interest receivable 13,844
Deposits and other 19,330
Notes receivable, affiliate (Note 2) 875,000
Investments in affiliates (Note 3) 1,229,746
-------------
2,149,484
-------------
Total assets $ 3,321,257
=============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 161,032
Accrued liabilities 10,427
-------------
Total liabilities (all current) 171,459
-------------
Commitments and contingencies (Notes 4, 5 and 8)
Shareholders' equity (Note 7):
Preferred stock; $0.0001 par value; 5,000,000 shares authorized;
none issued and outstanding
Common stock; $0.0001 par value; 200,000,000 shares authorized;
22,493,512 shares issued and outstanding 2,250
Additional paid-in capital 28,015,896
Accumulated other comprehensive income 123,228
Accumulated deficit (24,991,576)
-------------
Total shareholders' equity 3,149,798
-------------
Total liabilities and shareholders' equity $ 3,321,257
=============
See notes to condensed consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- ------------------------
2006 2005 2006 2005
------------ ----------- ----------- -----------
Revenues $ - - - -
------------ ----------- ----------- -----------
General and administrative expense (250,519) (213,036) (691,546) (604,296)
------------ ----------- ----------- -----------
Loss from operations (250,519) (213,036) (691,546) (604,296)
------------ ----------- ----------- -----------
Other income (expense):
Other income - 30 28,585 10,538
Interest income, related party 31,895 5,720 40,245 11,907
Equity losses of affiliates (Note 3) (40,242) (64,918) (429,896) (114,215)
Loss on revaluation of derivative
warrant liability (Note 5) (70,137) - (74,295) -
Interest expense - - (235,131) -
Interest expense, related party - - (219) -
------------ ----------- ----------- -----------
(78,484) (59,168) (670,711) (91,770)
------------ ----------- ----------- -----------
Net loss (329,003) (272,204) (1,362,257) (696,066)
------------ ----------- ----------- -----------
Beneficial conversion feature (Note 1) (1,500,000) - (1,500,000) -
------------ ----------- ----------- -----------
Net loss applicable to common
shareholders $(1,829,003) (272,204) (2,862,257) (696,066)
============ =========== =========== ===========
Net loss per share, basic and diluted
(Note 1) $ (0.11) (0.06) (0.29) (0.15)
============ =========== =========== ===========
Weighted average number of common
shares outstanding (Note 1) 16,972,602 4,562,952 9,818,450 4,537,697
============ =========== =========== ===========
See notes to condensed consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net loss $ (329,003) (272,204) (1,362,257) (696,066)
Change in unrealized loss on
securities (371) (72) (385) (367)
------------ ------------ ------------ ------------
Comprehensive loss $ (329,374) (272,276) (1,362,642) (696,433)
============ ============ ============ ============
See notes to condensed consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended March 31, 2006
(Unaudited)
Preferred stock Common stock Additional Accumulated other Total
---------------------- ------------------- paid-in comprehensive Accumulated shareholders'
Shares Amount Shares Amount capital income deficit equity
--------- ----------- ---------- ------- ---------- ---------------- ------------- -------------
Balances, July 1, 2005
(Note 1) - - 4,663,045 $ 466 24,059,377 122,843 (23,629,319) 553,367
Common stock issued upon
exercise of warrants,
net of offering costs
(Notes 6 and 7) - - 1,535,000 154 734,846 - - 735,000
Forgiveness of offering
cost liability
(Note 6) - - - - 800,000 - - 800,000
Common stock issued upon
issuance of notes
payable
(Notes 4 and 7) - - 455,000 46 117,840 - - 117,886
Common stock and
warrants issued for
cash (Notes 5 and 7) - - 790,467 79 453,067 - - 453,146
Common stock issued as
payment of commission - - 50,000 5 89,995 - - 90,000
Series A preferred stock
issued for cash and
note receivable 200,000 1,500,000 - - - - - 1,500,000
Common stock issued upon
conversion of Series A
preferred stock (200,000) (1,500,000) 15,000,000 1,500 1,498,500 - - -
Reclassification of
derivative warrant
liability to equity
(Note 5) - - - - 253,521 - - 253,521
Forgiveness of accrued
payroll owed to
officer /shareholder - - - 8,750 - - 8,750
Net loss - - - - - - (1,362,257) (1,362,257)
(continued)
F-5
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended March 31, 2006
(Unaudited)
(Continued)
Preferred stock Common stock Additional Accumulated other Total
---------------- -------------------- paid-in comprehensive Accumulated shareholders'
Shares Amount Shares Amount capital income deficit equity
------- ------- ---------- -------- ---------- ----------------- ------------- ------------
Other comprehensive
loss:
Change in unrealized
gain on securities - - - - - 385 - 385
------- ------- ---------- -------- ---------- ----------------- ------------- ------------
Balances,
March 31, 2006 - - 22,493,512 $ 2,250 28,015,896 123,228 (24,991,576) 3,149,798
======= ======= ========== ======== ========== ================= ============= ============
See notes to condensed consolidated financial statements.
F-6
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
---------------------------
2006 2005
------------- ------------
Cash flows from operating activities:
Net loss $ (1,362,257) (696,066)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization expense 67,561 -
Depreciation expense 4,281 5,441
Equity losses of affiliates 429,896 114,215
Amortization of discounts on notes payable 213,760 -
Provision for losses on note receivable - 35,000
Loss on revaluation of derivative warrant
liability (Note 5) 74,295 -
Changes in operating assets and liabilities:
Increase in interest and other receivables (11,607) (3,359)
(Increase) decrease in prepaid expenses (15,623) 40,968
(Decrease) increase in accounts payable and accrued
liabilities (52,473) 50,607
------------- ------------
Total adjustments 710,090 242,872
------------- ------------
Net cash used in operating activities (652,167) (453,194)
------------- ------------
Cash flows from investing activities:
Increase in notes receivable (875,000) (349,000)
Increase in advances receivable - (225,000)
Payment on note receivable 275,442 -
Investment in joint venture (Note 3) (500,000) -
------------- ------------
Net cash used in investing activities (1,099,558) (574,000)
------------- ------------
Cash flows from financing activities:
Exercise of warrants and common stock and warrants issued
for cash 2,167,372 112,801
Proceeds from preferred stock purchase (Note 6) 494,922 -
Payment of notes payable (960,663) (61,400)
Proceeds from issuance of notes payable and common stock 150,000 -
------------- ------------
Net cash provided by financing activities 1,851,631 51,401
------------- ------------
Net increase (decrease) in cash and cash equivalents 99,906 (975,793)
Cash and cash equivalents, beginning 25,835 1,018,408
------------- ------------
Cash and cash equivalents, ending $ 125,741 42,615
============= ============
(Continued)
F-7
VYTA CORP AND SUBSIDIARIES
(FORMERLY KNOWN AS NANOPIERCE TECHNOLOGIES, INC.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Continued
Nine Months Ended
March 31,
------------------------
2006 2005
------------ ----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 23,569 -
============ ==========
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of Series A Preferred Stock in exchange for note
receivable $ 1,100,000 -
============ ==========
Beneficial conversion feature $ 1,500,000 -
============ ==========
Reclassification of derivative warrant liability to
equity $ 253,521 -
============ ==========
Issuance of common stock in connection with notes payable $ 117,886 -
============ ==========
Issuance of common stock in exchange for accrued
commissions $ 90,000 -
============ ==========
Advances receivable applied to equity investment $ 405,000 -
============ ==========
Equity investment acquired in exchange for note payable $ 595,000 -
============ ==========
Liability recorded for offering costs of common stock
issuance $ 800,000 -
============ ==========
Forgiveness of offering costs owed in connection with
common stock issuance $ (800,000) -
============ ==========
Forgiveness of accrued payroll owed to
officer/shareholder $ 8,750 -
============ ==========
See notes to condensed consolidated financial statements.
F-8
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRESENTATION OF INTERIM INFORMATION:
The accompanying condensed consolidated financial statements include the
accounts of NanoPierce Technologies, Inc., a Nevada corporation, which on
January 31, 2006 changed its name to Vyta Corp (the Company), its wholly-owned
subsidiaries, NanoPierce Connection Systems, Inc., a Nevada corporation (NCOS),
and ExypnoTech, LLC (ET LLC), a Colorado limited liability company, which was
formed in June 2004. All significant intercompany accounts and transactions
have been eliminated in consolidation.
On January 19, 2006, the Company's Board of Directors (the "Board") approved an
amendment to the Company's Articles of Incorporation to effect a one-for-twenty
reverse stock split effective January 31, 2006. All references to shares,
options, and warrants in the three and nine months ended March 31, 2005 and in
prior periods, have been adjusted to reflect the post-reverse split amounts.
The Company's common stock now trades on the Over-the-Counter Bulletin Board
under the trading symbol "VYTC".
As a result of the reverse split, the Company's authorized capital was reduced
from 200,000,000 shares to 10,000,000 shares. As part of the reverse split, the
Company amended and restated its Articles of Incorporation to increase the
authorized capital of the Company to 200,000,000 shares.
In the opinion of the management of the Company, the accompanying unaudited
condensed consolidated financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to present
fairly the financial position and operating results of the Company for the
periods presented. The financial statements and notes are presented as
permitted by Form 10-QSB, and do not contain certain information included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005.
It is the Company's opinion that when the interim financial statements are read
in conjunction with the June 30, 2005 Annual Report on Form 10-KSB, the
disclosures are adequate to make the information presented not misleading.
Interim results are not necessarily indicative of results for a full year or any
future period.
F-9
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
MANAGEMENT'S PLANS:
In the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
2005, the Report of the Independent Registered Public Accounting Firm includes
an explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern. The Company's interim financial
statements for the nine and three months ended March 31, 2006 have been prepared
on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company reported a net loss of $1,362,257 and a net loss applicable to common
shareholders of $2,862,257 for the nine months ended March 31, 2006, and an
accumulated deficit of $24,991,576 as of March 31, 2006. The Company has not
recognized any revenues from its business operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not contain any adjustments
relating to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Currently, the Company does not have a revolving loan agreement with any
financial institution, nor can the Company provide any assurance it will be able
to enter into any such agreement in the future, or be able to raise funds
through a further issuance of debt or equity in the Company.
RECENT EVENTS:
In August 2005, the Company was able to raise $1,535,000 through the exercise of
1,535,000 warrants with an exercise price of $1.00 per share. The Company used
$1,095,000 of the funds to complete its purchase of a 50% equity investment in a
joint venture, BioAgra, LLC, a Georgia limited liability company
("BioAgra")(Note 3), and the Company used approximately $366,000 to pay
outstanding notes payable (Note 4). The remaining $75,000 was used to support
operations.
In September 2005, the Company executed a subscription agreement with Arizcan
Properties, Ltd. ("Arizcan") to sell shares of the Company's preferred stock.
The sole director of Arizcan is related to a board member and officer of
Intercell International Corporation ("Intercell"), in which the Company has a
nominal interest. Ms. Kampmann, the Company's Chief Financial Officer, has
served as the Chief Financial Officer of Intercell since October 2003 and Mr.
Metzinger, the Company's Chief Executive Officer, served as the Chief Executive
Officer of Intercell from September 2004 until March 2005.
F-10
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
The subscription agreement provided for the sale of 200,000 shares of Class A 8%
cumulative and participating preferred shares for $7.50 per share. In January
2006, Arizcan purchased 200,000 shares of the Company's Series A Convertible
Preferred Stock ("Preferred Stock") for $400,000 cash and an unsecured
promissory note for $1,100,000. The promissory note bears interest at 8% per
annum and is due in January 2007. In February 2006, Arizcan converted the
200,000 shares of preferred stock into 15,000,000 shares of the Company's
restricted common stock. Upon the conversion, Arizcan held approximately 67% of
the issued and outstanding common stock of the Company. The conversion feature
was deemed beneficial and accordingly resulted in a beneficial conversion
feature of $1,500,000. The intrinsic value of the beneficial conversion feature
is limited to the total amount of the proceeds received. As a result of the
beneficial conversion feature, net loss applicable to common shareholders was
increased by $1,500,000 during the three and nine months ended March 31, 2006.
Through May 2006, Arizcan paid the Company cash of $1,100,000 to repay the note
in full. Since the note was paid in full prior to the issuance of the March 31,
2006 financial statements, the note receivable has been presented as an asset at
March 31, 2006.
DEFERRED CONSULTING COSTS:
In June 2005, the Company entered into a twelve-month consulting services
agreement with a third party, in which this party agreed to provide public and
investor relation services and general business services for the twelve-month
term of the agreement. Compensation consisted of 50,000 shares of the Company's
restricted common stock with a market value of approximately $90,000 (based on
the closing market price of $1.80 per share at the date of the transaction).
The deferred cost is being amortized on a straight-line basis over the
twelve-month period from the date of the agreement. During the nine months
ended March 31, 2006, $67,561 was expensed.
LOSS PER SHARE:
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
requires dual presentation of basic and diluted earnings or loss per share (EPS)
with a reconciliation of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Loss per share of common stock is computed based on the
weighted average number of common shares outstanding during the period. Stock
options and warrants are not considered in the calculation, as the impact of the
potential common shares (6,029,468 shares at March 31, 2006 and 3,809,094 shares
at March 31, 2005) would be to decrease loss per share. Therefore, diluted loss
per share is equivalent to basic loss per share.
F-11
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE COMPANY'S
COMMON STOCK:
The Company accounts for obligations and instruments potentially to be settled
in the Company's stock in accordance with EITF Issue No. 00-19, ACCOUNTING FOR
DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN A
COMPANY'S OWN STOCK. This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and potentially
settled in, the Company's stock.
Under EITF 00-19, contracts are initially classified as equity or as either
assets or liabilities, depending on the situation. All contracts are initially
measured at fair value and subsequently accounted for based on the then current
classification. Contracts initially classified as equity do not recognize
subsequent changes in fair value as long as the contracts continue to be
classified as equity. For contracts classified as assets or liabilities, the
Company reports changes in fair value in earnings and discloses these changes in
the financial statements as long as the contracts remain classified as assets or
liabilities. If contracts classified as assets or liabilities are ultimately
settled in shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
STOCK-BASED COMPENSATION:
SFAS No. 123, Accounting for Stock Based Compensation, allows companies to
choose whether to account for employee stock-based compensation on a fair value
method, or to continue accounting for such compensation under the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). The Company has chosen to
continue to account for employee stock-based compensation using APB 25.
No options were granted to employees during the nine months ended March 31, 2006
or 2005.
RECENTLY ISSUED ACCOUNTING STANDARD:
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R), Share-Based Payment, which addresses the accounting for share-based
payment transactions. SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for the
Company beginning on July 1, 2006. Management is currently evaluating the
provisions of this standard. Depending upon the number of and terms of options
that may be granted in future periods, the implementation of this standard could
have a significant impact on the Company's financial position and results of
operations in future periods.
F-12
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
2. NOTES AND ADVANCES RECEIVABLE:
In January 2006, the Company sold 200,000 shares of Class A 8% cumulative and
participating preferred shares for $400,000 cash and an unsecured promissory
note for $1,100,000 to Arizcan. The promissory note has a due date of January
17, 2007 and a 8% annual interest rate. During the three months ended March 31,
2006, the Company received payments totaling $110,000, which included interest
of $11,729. On March 31, 2006, the note had an outstanding balance of
$1,005,298, of which $220 was accrued interest. During April and May 2006, the
Company received payments totaling $1,010,097, of which $5,019 was accrued
interest. The note was paid in full in May 2006.
During the nine months ended March 31, 2006, the Company loaned $875,000 to
BioAgra (Note 3). In exchange for the loans, the Company received secured, 7.5%
promissory notes, of which $700,000 are due on June 30, 2006 and $175,000 are
due on August 31, 2006. The funds were loaned to facilitate BioAgra's
completion of its first production line and the purchase of inventory for
production. The promissory notes are collateralized by all equipment,
furnishings, present and future accounts, collateral securing such accounts,
tangible and intangible personal property and any proceeds from any of the
foregoing located on BioAgra's premises. Additionally, the promissory notes are
to be paid in full prior to any disbursements being made to the members of the
joint venture. During April 2006, the Company loaned an additional $600,000 to
BioAgra with the same terms as the original promissory notes, which is due on
October 31, 2006. During May 2006, the Company loaned BioAgra an additional
$186,570, with the same terms as the original promissory notes, which is due on
October 31, 2007.
In November 2004, the Company loaned $314,000 to Arizcan. In exchange for the
loan, the Company received an unsecured, 7% promissory note, which was due on
October 31, 2005. The funds were loaned to facilitate Arizcan's purchase of an
option from certain of the Company's warrant holders, to initiate the exercise
of certain existing warrants to purchase up to 785,000 shares of the Company's
common stock (Note 6). In June 2005, the Company received a payment of $50,000,
which included interest of $11,442. In December 2005, the Company received a
payment of $100,000, which included interest of $10,881. In February 2006, the
Company received payments totaling $188,718, which included interest of $2,395.
The note was paid in full at that time.
In October and November 2004, the Company advanced a total of $150,000 to Xact
Resources International, Inc. ("Xact Resources"), which was applied to the
purchase of a 50% equity interest in BioAgra on August 15, 2005 (Note 3).
In December 2004, the Company loaned $35,000 to Intercell in return for an
unsecured, 7% promissory note, due in December 2005. The loan was made in order
to assist Intercell in its efforts to support operations. During the fiscal
year ended June 30, 2005, the Company deemed the debt uncollectible and created
an allowance for the receivable of $35,000.
F-13
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
3. INVESTMENTS IN AFFILIATES:
INVESTMENT IN EXYPNOTECH, GMBH:
In December 2003, TagStar Sytems, Gmbh, a German entity formed by former
employees of ExypnoTech, Gmbh ("EPT"), purchased a controlling 51% equity
interest in EPT in exchange for $98,000, of which $62,787 has been received
through March 31, 2006. The Company accounts for its investment in EPT under
the equity method of accounting. Under the equity method of accounting, the
carrying amount of the Company's investment in EPT ($201,954 at March 31, 2006)
is adjusted to recognize the Company's proportionate share of EPT's income
(loss) each period.
Unaudited financial information of EPT as of March 31, 2006, and for the nine
and three-month periods ended March 31, 2006 and 2005 are as follows:
March 31,
2006
----------
Assets:
Current assets(1) $ 648,944
Equipment 111,950
----------
Total assets $ 760,894
==========
Liabilities and members' equity:
Current liabilities $ 496,649
Members' equity 264,245
----------
Total liabilities and members' equity $ 760,894
==========
(1) Current assets include receivables of $222,246 due from the
51% owner of EPT.
Three Months Ended Nine Months Ended
March 31, March 31,
2006 2005 2006 2005
-------------- ------------ ------------- ------------
Revenues(1) $ 821,429 171,716 1,866,625 34,885
Expenses(2) (638,675) (147,112) (1,780,275) (246,556)
-------------- ------------ ------------- ------------
Net income
(loss) $ 182,754 24,604 86,350 (211,671)
============== ============ ============= ============
(1) Revenues include $1,550,832 and $9,562 of sales to the 51% owner
of EPT for the nine months ended March 31, 2006 and 2005, respectively
($505,710 and $9,562 for the three months ended March 31, 2006 and
2005, respectively).
(2) Expenses include $83,525 and $19,070, respectively of charges
paid to the 51% owner of EPT for the nine months ended March 31, 2006
and 2005, respectively ($37,854 and $19,070 for the three months ended
March 31, 2006 and 2005, respectively).
F-14
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
EPT operations are located in Germany. EPT transactions are conducted in
currencies other than the U.S. dollar, (the currency into which the
subsidiaries' historical financial statements have been translated) primarily
the Euro. As a result, the Company is exposed to adverse movements in foreign
currency exchange rates.
In addition, the Company is subject to risks including adverse developments in
the foreign political and economic environments, trade barriers, managing
foreign operations and potentially adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's financial condition or results of operations in the future.
INVESTMENT IN BIOAGRA:
On August 15, 2005, the Company entered into a joint venture with Xact
Resources, a privately held company. The Company purchased a 50% equity
interest in the joint venture, BioAgra, for $905,000 in cash (which includes
$405,000 previously advanced to Xact Resources as of June 30, 2005) and a note
payable of $595,000, which was paid in full on September 15, 2005. BioAgra is
to manufacture and sell a beta glucan product, YBG-2000 also known as
AgraStimTM, to be used as a replacement for hormone growth steroids and
antibiotics in products such as poultry feed.
BioAgra (a development stage company) has completed construction of a production
line. BioAgra began producing and shipping product during the quarter ending
June 30, 2006.
The terms of the joint venture provide for the Company to share in 50% of joint
venture net income, if any, or net losses. The Company is accounting for its
investment in BioAgra as an equity method investment. At March 31, 2006, the
Company's investment in BioAgra is $1,027,792.
F-15
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
Unaudited financial information of BioAgra as of March 31, 2006 and for the
three month period ended March 31, 2006 and the period from August 15, 2005
through March 31, 2006, is as follows:
March 31,
2006
----------
Assets:
Current assets $ 5,828
Equipment, net 1,791,087
Land and building under capital lease, net 1,107,531
----------
Total assets $2,904,446
==========
Liabilities and members' equity:
Current liabilities(1) $1,345,617
Obligation under capital lease(2) 1,003,246
----------
Total liabilities 2,348,863
Members' equity 555,583
----------
Total liabilities and members' equity $2,904,446
==========
(1) Includes $875,000 owed to the Company. (2) BioAgra leases
land and a building under a ten-year lease expiring in February
2015, which requires a monthly lease payment of $12,000.
August 15, 2005
Three Months Ended through
March 31, 2006 March 31, 2006
-------------------- -----------------
Revenues $ - $ -
Expenses (259,584) (944,416)
-------------------- -----------------
Net loss $ (259,584) $ (944,416)
==================== =================
INVESTMENT IN SCIMAXX SOLUTIONS, LLC:
On September 15, 2003, the Company entered into an agreement to receive a 50%
interest in a joint venture agreement with Scimaxx, LLC. The name of the joint
venture was Scimaxx Solutions, LLC (Scimaxx Solutions). The purpose of the
joint venture was to provide the electronics industry with technical solutions
to manufacturing problems based on the need for electrical connectivity.
At March 31, 2005, Scimaxx Solutions had total assets of $70,531 of which $76
were current assets and $70,455 were equipment, total liabilities of $73,295 and
members' deficit of $2,764.
F-16
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
For the three and nine months ended March 31, 2005, Scimaxx Solutions recorded
revenues of $0 and $5,773, respectively, and expenses of $27,461 and $80,781,
respectively, resulting in a net loss of $27,461 and $75,008, respectively.
Scimaxx Solutions ceased operations in April 2005.
4. NOTES AND ADVANCES PAYABLE:
RELATED PARTIES:
In June 2005, an officer/director of the Company loaned $41,000 to the Company
in exchange for an unsecured, 5% note payable due in December 2005. In June
2005, the Company paid $337 plus accrued interest of $17. In August 2005, the
Company paid the remaining $40,663 plus accrued interest of $298.
OTHER:
In June 2005, an unrelated party loaned the Company $25,000 in exchange for an
unsecured, 8% promissory note due in December 2005 and 75,000 shares of the
Company's restricted common stock, which were issued in July 2005. The common
stock had a market value of $150,000 (based on the closing market price of $2.00
per share on the date of the transaction). The relative fair value of the common
stock ($21,428) was accounted for as a discount against the face amount of the
note. The effective interest rate on this note was 85%. On August 8, 2005, the
Company paid the $25,000, plus accrued interest of $208. Through that date, the
discount of $21,428 was fully amortized to interest expense.
In June 2005, an unrelated third party loaned the Company $150,000 in exchange
for an unsecured, promissory note due in September 2005 with interest at 15% per
quarter and 100,000 shares of the Company's restricted common stock (50,000
shares were issued in June 2005 and the remaining 50,000 shares were issued in
July 2005). At the date of issuance, the common stock had a market value of
$180,000 (based on the closing market price of $1.80 per share on the date of
the transaction). The relative fair value of the common stock ($81,718) was
accounted for as a discount applied against the face amount of the note. The
effective interest rate on this note was 54%. As of June 30, 2005, $7,272 of
the discount had been amortized to interest expense. On September 8, 2005, the
Company paid the $150,000, plus accrued interest of $22,500. Through that date,
the remaining discount of $74,446 was fully amortized to interest expense.
F-17
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
During July and August 2005, six unrelated third parties loaned the Company a
total of $150,000 in exchange for unsecured, 8% promissory notes due in December
2005 and a total of 330,000 shares of the Company's restricted common stock.
The common stock had a total market value of $574,000 (based on the closing
market prices which ranged from $1.60 to $1.80 per share at the date of each
transaction). The relative fair value of the common stock ($117,886) was
accounted for as a discount applied against the face amount of the notes. The
discount was amortized over the terms of the promissory notes as additional
interest expense. The effective interest rate on these notes is 85%. On August
8, 2005, the Company paid the $150,000, plus accrued interest of $642. Through
that date, the discount of $117,886 was fully amortized to interest expense.
5. DERIVATIVE WARRANT LIABILITY:
During November and December 2005, the Company sold 500,625 shares of its
restricted common stock for $400,500. In connection with the sale of the
restricted common shares, the Company issued warrants exercisable into 500,625
shares of the Company's common stock. The common stock had a total market value
of $714,125 (based on the closing market prices which ranged from $1.00 to $1.60
per share at the date of each transaction). The warrants had an aggregate
estimated fair value of $312,167 (using the Black-Scholes model). The relative
fair value of the warrants ($119,339) was accounted for as a liability in
accordance with EITF 00-19, as the Company's authorized and unissued shares
available to settle the warrants (after considering all other commitments that
may require the issuance of stock during the maximum period the warrant could
remain outstanding) were determined to be insufficient.
During December 2005, the Company sold 127,500 shares of its restricted common
stock for $102,000. These shares of common stock were not issued until January
2006. In connection with the sale of the restricted common shares, the Company
issued warrants exercisable for 127,500 shares of the Company's common stock.
The common stock had a total market value of $178,000 (based on the closing
market prices which ranged from $1.20 to $1.60 per share at the date of each
transaction). The warrants had an aggregate estimated fair value of $76,657
(using the Black-Scholes model). The relative fair value of the warrants
($30,600) was accounted for as a liability in accordance with EITF 00-19, as the
Company's authorized and unissued shares available to settle the warrants (after
considering all other commitments that may require the issuance of stock during
the maximum period the warrant could remain outstanding) were determined to be
insufficient.
F-18
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
During January 2006, the Company sold 118,592 shares of its restricted common
stock for $94,872. In connection with the sale of the restricted common shares,
the Company issued warrants exercisable into 118,592 shares of the Company's
common stock. The common stock had a total market value $166,028 (based on a
closing market price of $1.40 per share at the date of each transaction). The
warrants had an aggregate estimated fair value of $74,141 (using the
Black-Scholes model). The relative fair value of the warrants ($29,287) was
accounted for as a liability in accordance with EITF 00-19, as the Company's
authorized and unissued shares available ot settle the warrants (after
considering all other commitments that may require the issuance of stock during
the maximum period the warrant could remain outstanding) were determined to be
insufficient.
At December 31, 2005, the Company's authorized and unissued common shares were
insufficient to settle these warrant contracts. As a result, the value of these
warrants was classified as a liability. As a result of the one-for-twenty
reverse stock split in February 2006 and the increase in authorized shares,
there are now sufficient authorized and unissued common shares to settle these
contracts. Accordingly, the fair value of the warrants at the effective date of
the stock split was reclassified to additional paid-in capital. During the
three and nine months ended March 31, 2006 the Company recorded a loss of
$70,137 and $74,295, respectively, on these contracts. The appropriateness of
the classification of these contracts is reassessed at each balance sheet date.
6. OTHER LIABILITIES
The Company had recorded an $800,000 payable to Arizcan, which represents the
costs incurred in connection with a $1.5 million offering of equity securities.
In March 2006, Arizcan terminated the agreement and forgave the payment of this
liability. As a result, in March 2006, the Company has reclassified the
liability to equity.
7. SHAREHOLDERS' EQUITY:
COMMON STOCK:
Current Year Transactions
In connection with the issuance of a $150,000 promissory note in June 2005, the
Company agreed to issue 100,000 shares of its restricted common stock, valued at
$81,718, of which 50,000 shares were issued in June 2005, and 50,000 shares were
issued in July 2005.
In connection with the issuance of a $25,000 promissory note in June 2005, the
Company agreed to issue 75,000 shares of its restricted common stock, valued at
$21,428, which were issued in July 2005.
F-19
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
During July and August 2005, in connection with the issuance of promissory notes
totaling $150,000, the Company issued 330,000 shares of its restricted common
stock, valued at $117,886.
In August 2005, warrants to purchase 1,535,000 shares of common stock were
exercised for cash proceeds of $1,535,000 in exchange for 1,535,000 shares of
common stock. The exercise price of these warrants was lowered from $2.00 and
$3.00 per share to $1.00 per share in connection with the exercise.
In October 2005, the Company issued 50,000 shares of its restricted common
stock, valued at $90,000, in satisfaction of a $90,000 liability incurred in
connection with the Company's financing efforts.
During October 2005, the Company issued 43,750 shares of its restricted common
stock in exchange for $35,000. The shares had a purchase price of $0.80 per
share (based on a 50% discount from the closing market price, $1.60 per share,
on the date of each transaction).
During November and December 2005, the Company issued 500,625 shares of its
restricted common stock and warrants to purchase 500,625 shares of its
restricted common stock for $400,500. The warrants have an exercise price of
$1.00 per share and a term of 3 years. The shares of common stock had a
purchase price of $0.80 share.
During December 2005, the Company sold 127,500 shares of its restricted common
stock for $102,000. In connection with the sale of the restricted common
shares, the Company issued three-year warrants to purchase 127,500 shares of the
Company's common stock at $1.00 per share. The shares of common stock had a
purchase price of $0.80 share.
In January 2006, the Company issued 118,592 shares of its restricted common
stock and warrants to purchase 118,592 shares of its restricted common stock for
$94,872. The warrants have an exercise price of $1.00 per share and a term of
three years. The shares of common stock had a purchase price of $0.80 per
share.
In January 2006, the Company sold 200,000 shares of Class A 8% cumulative and
participating preferred shares for $400,000 cash and an unsecured promissory
note for $1,100,000, which was repaid in cash in May 2006. Each preferred share
was convertible into 75 shares of the Company's common stock. In February 2006,
the 200,000 shares of the preferred shares were converted into 15,000,000 shares
of the Company's restricted common stock.
Nine Months Ended March 31, 2005
During the nine months ended March 31, 2005, the Company issued 1,200,000 shares
of common stock upon the exercise of warrants. The Company received cash
proceeds of $112,801 (net of $7,200 of offering costs).
F-20
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
WARRANTS:
During the nine months ended March 31, 2006, warrants to purchase 192,709 shares
of common stock expired.
In December 2005 warrants to purchase 238,667 shares of common stock were
canceled by their holders. The warrants were cancelled to reduce the total
dilutive securities below the authorized share limit, to allow the Company to
enter into additional equity financing in December 2005. In return for the
cancellation of such warrants, the Company agreed to issue warrants to purchase
3,500,000 common shares. The warrants have an exercise price of $1.00 and have
a term of 3 years. These warrants were issued in February 2006.
In February 2006, the Company issued warrants to purchase 746,717 shares of
common stock. The warrants were issued to full fill commitments made with the
sale of common stock from November 2005 through January 2006, as discussed
above. The warrants have an exercise price of $1.00 per share and a term of 3
years.
OPTIONS:
In December 2005, officers and a director of the Company agreed to cancel
options under the Company's 1998 Compensatory Stock Option Plan exercisable for
31,250 shares of the Company's stock.
In January 2006, an officer and director of the Company agreed to cancel options
under the Company's 1998 Compensatory Stock Option Plan exercisable for 15,000
shares of the Company's stock.
The officers and director did not receive any consideration in return for the
cancellations.
CAPITAL TRANSACTION:
In August 2005, an officer/shareholder of the Company forgave $8,750 of accrued
salary, which has been accounted for as a capital transaction and has resulted
in an increase in additional paid in capital.
F-21
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
8. COMMITMENTS AND CONTINGENCIES
LITIGATION:
Depository Trust Suit:
In May 2004, the Company filed suit against the Depository Trust and Clearing
Corporation ("DTCC"), the Depository Trust Company ("DTC"), and the National
Securities Clearing Corporation ("NSCC") in the Second Judicial District Court
of the County of Washoe, State of Nevada. The suit alleges multiple claims
under the Nevada Revised Statutes 90.570, 90.580, 90.660 and 598A.060 and on
other legal bases. The complaint alleges, among other things, that the DTCC,
DTC and NSCC acted in concert to operate the "Stock Borrow Program," originally
created to address short term delivery failures by sellers of securities in the
stock market. According to the complaint, the DTCC, NSCC and DTC conspired to
maintain significant open fail deliver positions of millions of shares of the
Company's common stock for extended periods of time by using the Stock Borrow
Program to cover these open and unsettled positions. The Company was seeking
damages in the amount of $25,000,000 and treble damages. Responsive pleadings
have been filed by the defendants. On April 27, 2005, the court granted a
motion to dismiss the lawsuit. The Company has filed an appeal to overturn the
motion to dismiss the lawsuit.
Financing Agreement Suit:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company and certain officers and
former board members of the Company, and a number of unrelated third parties.
The counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
F-21
VYTA CORP AND SUBSIDIARIES
(Formerly Known as NanoPierce Technologies, Inc.)
Notes to the Condensed Consolidated Financial Statements
Nine Months Ended March 31, 2006 and 2005
(Unaudited)
In May 2001, Harvest Court, LLC filed suit against the Company in the Supreme
Court of the State of New York, County of New York. The suit alleges that the
Company breached an October 20, 2000 Stock Purchase Agreement, by not issuing
370,945 free trading shares of the Company's common stock in connection with the
reset provisions of the Purchase Agreement due on the second reset date and
approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. In February 2006,
the Supreme Court of the State of New York, County of New York issued an
injunction ordering the Company to reserve 3.7% of the Company's issued and
outstanding common stock (832,029 shares at February 13, 2006). The Company has
set aside these shares. The Company has filed counterclaims seeking various
forms of relief against Harvest Court, LLC.
The Company intends to vigorously prosecute this litigation and does not believe
the outcome of this litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company.
However, it is too early at this time to determine the ultimate outcome of these
matters.
F-22
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.
Vyta Corp is referred to as "us", "we", or "Company" in this report.
The independent registered public accounting firm's report on the Company's
consolidated financial statements as of June 30, 2005, and for each of the years
in the two-year period then ended, includes a "going concern" explanatory
paragraph, that describes substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to the factors
prompting the explanatory paragraph are discussed below and also in Note 1 to
the unaudited quarterly Financial Statements.
RECENT EVENTS
On January 19, 2006, the our board of directors approved an amendment to
our Articles of Incorporation to change the name of the Company from NanoPierce
Technologies, Inc. to Vyta Corp.
On January 19, 2006 our board of directors approved an amendment to our
Articles of Incorporation to affect a one-for-twenty reverse stock split
effective January 31, 2006. All references to shares, options, and warrants in
the three and nine months ended March 31, 2006 and in prior periods, have been
adjusted to reflect the post-reverse split amounts. Our common stock now trades
on the Over-the-Counter Bulletin Board under the trading symbol "VYTC".
On January 19, 2006, our board of directors approved an amendment to the
Articles of Incorporation to increase our authorized capital from 10,000,000
common shares to 200,000,000 common shares.
RESULTS OF OPERATIONS
We had no revenues during the three and nine months ended March 31, 2006
and 2005.
We recognized $28,585 of other income, of which $28,250 represented a gain
on the extinguishment of liabilities. We recognized $40,245 in interest income
during the nine months ended March 31, 2006 compared to $11,907 during the nine
months ended March 31, 2005 ($31,895 and $5,720 for the three months ended March
31, 2006 and 2005, respectively). The increase in interest income for the
periods ended March 31, 2006 is due to interest recorded on amounts owed to us
from BioAgra and Arizcan in the form of notes receivable.
1
Total general and administrative expenses during the nine months ended
March 31, 2006 were $691,546 compared to $604,296 for the nine months ended
March 31, 2005 ($250,519 and $213,036 for the three months ended March 31, 2006
and 2005, respectively). The increase of $87,250 is primarily attributable to a
$70,010 increase in commission fees, a $40,679 increase in consulting fees,
increase of $29,176 in legal fees offset by a $23,981 decrease in public
relations expense.
We recognized interest expense of $235,350 for the nine months ended March
31, 2006 (no interest expense was recognized in the three months ended March 31,
2006). No interest expense was recorded during the three and nine months ended
March 31, 2005. Of the $235,350 in interest expense, $219 represented related
party interest. The remaining $235,131 was incurred in connection with the
issuance of promissory notes, which were discounted at the time of issuance. The
resulting discounts ($213,760) were amortized over the term of the promissory
notes. The promissory notes were paid in full in August 2005, and at that time
the discounts were fully amortized.
During the nine months ended March 31, 2006, we recognized a net loss of
$1,362,257 compared to a net loss of $696,066 during the nine months ended March
31, 2005 ($329,003 and $272,204 for the three months ended March 31, 2006 and
2005, respectively). The increase of $666,191 during the nine months ended March
31, 2006, is primarily attributable to the increase of $235,350 in interest
expense, as explained above, the $74,295 loss on the revaluation of derivative
warrants, explained below and the increase of $280,065 in losses of equity
investments.
Included in net loss applicable to common shareholders for the three and
nine months ended March 31, 2006 is $1,500,000 related to a beneficial
conversion feature recorded in connection with the issuance of preferred stock
to Arizcan in February 2006 and the subsequent conversion to common stock during
the quarter ended March 31, 2006.
LIQUIDITY AND FINANCIAL CONDITION
During the nine months ended March 31, 2006, we raised $632,372 cash
through the sale of 790,467 shares of our restricted common stock and warrants
to purchase 746,717 shares of our restricted common stock.
In August 2005, we raised $1,535,000 cash through the exercise of 1,535,000
warrants with an exercise price of $1.00 per share.
In August 2005, we purchased a 50% equity interest in BioAgra for $905,000
cash (which includes the $405,000 advanced to Xact Resources during the fiscal
year ended June 30, 2005) and a note payable of $595,000 which was paid in full
in September 2005. BioAgra plans to manufacture and sell a beta glucan product,
YBG-2000 to be marketed as AgraStimTM, to be used as a replacement for hormone
growth steroids and antibiotics in products such as poultry feed. BioAgra began
producing and shipping product during the quarter ended June 30, 2006.
2
On January 19, 2006, we completed the sale of 200,000 shares of our
series A preferred stock for $400,000 cash ($200,000 of which was received in
December 2005) and an unsecured corporate promissory note of $1,100,000. In
February 2006, Arizcan converted the 200,000 shares of preferred stock into
15,000,000 shares of the Company's restricted common stock. Upon conversion,
Arizcan held approximately 67% of our issued and outstanding common stock.
During the three months ended March 31, 2006, Arizcan made payments on the
promissory note totaling $110,000, with accrued interest of $11,729. On March
31, 2006, the note had an outstanding balance of $1,005,078, of which $220 was
accrued interest. Through May 2006, Arizcan repaid the note in cash.
During the nine months ended March 31, 2006, we used $652,167 in operating
activities. Net cash provided by financing activities was $1,851,631; $960,663
was used to pay notes payable, $2,167,372 was received from the exercise of
warrants and the issuance of common stock and warrants and $150,000 was received
from notes payable. Net cash used in investing activities was $1,099,558;
$500,000 was used to purchase the 51% equity interest in the BioAgra joint
venture and $875,000 was advanced to BioAgra to support operations and complete
construction of the production line. We had $125,741 of cash and cash
equivalents at March 31, 2006, which is being used to support operations and
activities of BioAgra, in which we own a 50% equity interest. During the nine
months ended March 31, 2005, we used $453,194 in operating activities, advanced
$225,000 to Xact Resources for the start up of BioAgra, loaned $349,000 to third
parties, received $112,801 from the exercise of warrants and common stock and
used $61,400 to pay a note payable.
As of March 31, 2006, if all existing outstanding warrants issued in a
January 2004 private placement were exercised, we will be required to issue an
additional 1,342,500 shares of common stock, and the company, on a fully diluted
basis (including the reservation of 832,029 shares as required by the court in
the Harvest Court, LLC litigation described in Item 1 of Part II of this
report), would have 29,353,494 shares of common stock issued and outstanding.
As of March 31, 2006, if the warrants issued to investors in the private
placement described above are all exercised, we would receive approximately an
additional $2,842,500. However, no assurance can be given that any of these
warrants will be exercised. If the warrants are exercised, we may use the
additional funds received to acquire a revenue generating company or to acquire
technology complementary to our current technology, our ownership interest in
ExypnoTech and any other licensing agreements or joint venture agreements that
we may enter in the future.
We intends to use the funds raised through recent sales of our restricted
common shares and preferred shares to support the operations over the next 12
months. Operational plans include administrative support provided to BioAgra. We
expect to receive funds from BioAgra in the form of payment of outstanding
promissory notes and through payments as specified in the operating agreement
for BioAgra. We initially plan to use such funds to support administrative
activities. We continue to evaluate additional merger and acquisition
opportunities.
3
CRITICAL ACCOUNTING POLICIES
RECENTLY ISSUED ACCOUNTING STANDARD:
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R), Share-Based Payment, which addresses the accounting for share-based
payment transactions. SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted and recognized in the statement of
operations based on their fair value. SFAS No. 123(R) will be effective for the
Company beginning on July 1, 2006. Management is currently evaluating the
provisions of this standard. Depending upon the number of and terms of options
that may be granted in future periods, the implementation of this standard could
have a significant impact on the company's financial position and results of
operations in future periods.
ACCOUNTING FOR OBLIGATIONS AND INSTRUMENTS POTENTIALLY SETTLED IN THE COMPANY'S
COMMON STOCK:
The company accounts for obligations and instruments potentially to be
settled in the Company's own stock in accordance with EITF Issue No. 00-19,
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY
SETTLED IN A COMPANY'S OWN STOCK. This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and potentially
settled in, our own stock.
Under EITF 00-19 contracts are initially classified as equity or as either
assets or liabilities, depending on the situation. All contracts are initially
measured at fair value and subsequently accounted for based on the then current
classification. Contracts initially classified as equity do not recognize
subsequent changes in fair value as long as the contracts continue to be
classified as equity. For contracts classified as assets or liabilities, we
report changes in fair value in earnings and disclose these changes in the
financial statements as long as the contracts remain classified as assets or
liabilities. If contracts classified as assets or liabilities are ultimately
settled in shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
ITEM 3. CONTROLS AND PROCEDURES
We have adopted and maintain disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
As required by SEC Rule 15d-15(b), the Company carried out an evaluation
under the supervision and with the participation of our management, including
the Chief Executive Officer (Principal Executive Officer) and Chief Financial
Officer (Principal Financial Officer), of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this report. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic SEC filings. We have not made any
changes in our disclosure controls and procedures or in other factors that could
have materially affected or are reasonably likely to materially affect those
disclosure controls and procedures subsequent to the date of the evaluation
described above.
4
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Financing Agreement Suit:
In connection with a financing obtained in October 2000, the Company filed
various actions in the United States District Court for the District of Colorado
against, among others, Harvest Court, LLC, Southridge Capital Investments, LLC,
Daniel Pickett, Patricia Singer and Thomson Kernaghan, Ltd. for violations of
federal and state securities laws, conspiracy, aiding and abetting and common
law fraud among other claims. As a result of various procedural rulings, in
January 2002, the United States District Court for the District of Colorado
transferred the case to the United States District Court for the Southern
District of New York, New York City, New York. In this litigation, Harvest
Court, LLC filed counterclaims against the Company and certain officers and
former board members of the Company, and a number of unrelated third parties.
The counterclaims allege violations of federal securities laws and other laws.
Harvest Court, LLC is seeking various forms of relief including compensatory and
punitive damages. Responsive pleadings have been filed and the litigation is
currently in the discovery stage.
In May 2001, Harvest Court, LLC filed suit against the Company in the Supreme
Court of the State of New York, County of New York. The suit alleges that the
Company breached an October 20, 2000 Stock Purchase Agreement, by not issuing
370,945 free trading shares of the Company's common stock in connection with the
reset provisions of the Purchase Agreement due on the second reset date and
approximately 225,012 shares due in connection with the third reset date.
Harvest Court, LLC is seeking the delivery of such shares or damages in the
alternative. In August 2001, the Supreme Court of the State of New York, County
of New York issued a preliminary injunction ordering the Company to reserve and
not transfer the shares allegedly due to Harvest Court, LLC. In February 2006,
the Supreme Court of the State of New York, County of New York issued an
injunction ordering the Company to reserve 3.7% of the Company's issued and
outstanding common stock (832,029 shares at February 13, 2006). The Company has
set aside and reserved these shares. The Company has filed counterclaims seeking
various forms of relief against Harvest Court, LLC.
5
PART II - OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company made the following unregistered sales of its securities from
January 1, 2006 through March 31, 2006.
DATE OF TITLE OF NO. OF
SALE SECURITIES SHARES CONSIDERATION CLASS OF PURCHASER
---- ---------- ------ ------------- ------------------
----------------------------------------------------------------------------------
1/5/06 Common Stock 62,500 50,000 for 62,250 shares
Warrant 62,500 of common stock and Business Associate
warrant for 62,500 shares
----------------------------------------------------------------------------------
1/5/06 Common Stock 12,500 10,000 for 12,500 shares
Warrant 12,500 of common stock and Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
1/5/06 Common Stock 12,500 10,000 for 12,500 shares
Warrant 12,500 of common stock and Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
1/5/06 Common Stock 12,500 10,000 for 12,500 shares
Warrant 12,500 of common stock and a Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
1/5/06 Common Stock 6,250 5,000 for 6,250 shares of
Warrant 6,250 common stock and a warrant Business Associate
for 6,250 shares
----------------------------------------------------------------------------------
1/5/06 Common Stock 2,500 2,000 for 2,500 shares of
Warrant 2,500 common stock and a warrant Business Associate
for 2,500 shares
----------------------------------------------------------------------------------
1/11/06 Common Stock 12,500 10,000 for 12,500 shares
Warrant 12,500 of common stock and a Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
1/12/06 Common Stock 12,500 10,000 for 12,500 shares
Warrant 12,500 of common stock and a Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
1/12/06 Common Stock 15,000 12,000 for 15,000 shares
Warrant 15,000 of common stock and a Business Associate
warrant for 15,000 shares
----------------------------------------------------------------------------------
1/6/06 Common Stock 22,500 18,000 for 22,500 shares
Warrant 22,500 of common stock and a Business Associate
warrant for 22,500 shares
----------------------------------------------------------------------------------
1/9/06 Common Stock 31,250 25,000 for 31,250 shares
Warrant 31,250 of common stock and a Business Associate
warrant for 31,250 shares
----------------------------------------------------------------------------------
1/9/06 Common Stock 3,125 2,500 for 3,125 shares of
Warrant 3,125 common stock and a warrant Business Associate
for 3,125 shares
----------------------------------------------------------------------------------
1/9/06 Common Stock 6,250 5,000 for 6,250 shares of
Warrant 6,250 common stock and a warrant Business Associate
for 6,250 shares
----------------------------------------------------------------------------------
1/17/06 Common Stock 3,125 2,500 for 3,125 shares of
Warrant 3,125 common stock and a warrant Business Associate
for 3,125 shares
----------------------------------------------------------------------------------
1/18/06 Common Stock 18,592 14,872 for 18,592 shares
Warrant 18,592 of common stock and a Business Associate
warrant for 18,592 shares
----------------------------------------------------------------------------------
1/18/06 Common Stock 12,500 10,000 for 12,500 shares
Warrant 12,500 of common stock and a Business Associate
warrant for 12,500 shares
----------------------------------------------------------------------------------
2/2/06 Common Stock 15,000,000 Conversion of 200,000
shares of Series A Business Associate
Preferred Stock
----------------------------------------------------------------------------------
The warrants have an exercise price of $1.00 per share and a term of 3 years.
Exemption From Registration Claimed
6
All of the sales by the Company of its unregistered securities were made by
the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). All of the individuals and/or entities listed above
that purchased the unregistered securities were almost all existing
shareholders, all known to the Company and its management, through pre-existing
business relationships, as long standing business associates, friends, and
employees. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information
and were afforded access to management of the Company in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends, prohibiting further
transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Masters to a Vote of Security Holders - None.
Item 5. Other Information - None.
7
Item 6. EXHIBITS
(a) Exhibits. The following is a complete list of exhibits filed as
part of this Form 10-QSB. Exhibit numbers correspond to the numbers in
the Exhibit Table of Item 601 of Regulation S-B.
Exhibit 11 Computation of Net Loss Per Share
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2 Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
8
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VYTA CORP
(REGISTRANT)
Date: May 22, 2006 /s/ Paul H. Metzinger
----------------------------------------
Paul H. Metzinger,
President & CEO
(Principle Executive Officer)
Date: May 22, 2006 /s/ Kristi J. Kampmann
----------------------------------------
Kristi J. Kampmann,
Chief Financial Officer
(Principle Financial Officer)
9