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 December 31, 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)
1630 WELTON STREET, SUITE 300, DENVER, COLORADO 80202
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(Address of principal executive offices)
303-592-1010
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(Registrant's Telephone number)
370 17TH STREET, SUITE 3640, DENVER, COLORADO 80202
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(Former name, former address and formal fiscal year,
if changed since last report.)
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 February 23, 2009, there were 45,663,178 shares of the registrant's common
stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements PAGE
----
Condensed Consolidated Balance Sheets - December 31, 2008 (Unaudited)
and June 30, 2008 F-1
Condensed Consolidated Statements of Operations (Unaudited) -
Three and six months ended December 31, 2008 and 2007 F-3
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) -
Three and six months ended December 31, 2008 and 2007 F-4
Condensed Consolidated Statement of Changes in Shareholders' Equity
Deficiency (Unaudited) - December 31, 2008 F-5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six months ended December 31, 2008 and 2007 F-6
Notes to Condensed Consolidated Financial Statements (Unaudited) F-7
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 5
Item 4. Controls and Procedures 5
Item 4T. Controls and Procedures 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -NOT APPLICABLE 6
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 6
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
December 31, 2008 June 30, 2008
(Unaudited)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ - $ 54,550
Inventory 109,009 -
Prepaid expenses and other 6,225 1,096
------------- -------------
Total current assets 115,234 55,646
------------- -------------
Property and equipment:
Office equipment and furniture 116,687 67,107
Plant and production equipment 811,459 -
Less accumulated depreciation (637,325) (66,282)
------------ ------------
290,821 825
------------ ------------
Other assets:
Deposit 19,272 19,272
Asset under capital lease, net 804,254 -
------------ ------------
823,526 19,272
------------ ------------
Total assets $ 1,229,581 $ 75,743
============= ============
(Continued)
F-1
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Continued)
December 31, 2008 June 30, 2008
(Unaudited)
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Bank overdraft $ 14,041 $ -
Accounts payable 299,541 135,305
Advances payable, related parties (Note 5) 41,117 39,500
Advance payable (Note 5) 100,000 -
Accrued expenses 127,025 31,385
Short term lease obligations (Note 6) 53,511 -
Short term consulting obligation, net of discount (Note 4) 37,540 -
Obligation to unconsolidated investee (Notes 2 and 3) - 173,153
------------- ------------
Total current liabilities 672,775 379,343
------------- ------------
Long term liabilities:
Consulting obligation, net of discount (Note 4) 205,715 -
Long term lease obligation (Note 6) 875,463 -
------------- ------------
Total long term liabilities 1,081,178 -
------------- ------------
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 $573,424 and $553,260, as
of December 31, 2008 and June 30, 2008,respectively 573,424 553,260
Common stock; $0.0001 par value; 200,000,000 shares
authorized; 45,663,178 and 37,518,178 shares issued
and outstanding as of December 31, 2008 and
June 30, 2008, respectively 4,567 3,752
Additional paid-in capital 32,192,995 31,567,860
Accumulated deficit (33,295,358) (32,428,472)
------------- -------------
Total shareholders' equity deficiency ( 524,372) ( 303,600)
------------- -------------
Total liabilities and shareholders'
equity deficiency $ 1,229,581 $ 75,743
============= ==============
See notes to the condensed consolidated financial statements.
F-2
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three And Six Months Ended December 31, 2008 and 2007
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2008 2007 2008 2007
------------ ------------ ------------- ------------
Sales $ 3,300 $ - $ 3,300 $ -
Cost of sales - - - -
------------ ------------ ------------- ------------
3,300 - 3,300 -
------------ ------------ ------------- ------------
General and administrative expense ( 368,686) ( 173,209) ( 647,924) ( 318,957)
------------ ------------ ------------- ------------
Loss from operations ( 365,386) ( 173,209) ( 644,624) ( 318,957)
------------ ------------ ------------- ------------
Other income (expense):
Interest income - 10 - 10
Interest expense ( 23,538) - ( 23,538) -
Gain on sale of investment in
unconsolidated investee (Note 3) - 164,234 - 164,234
Equity losses of
unconsolidated investees (Note 3) ( 33,440) ( 286,769) ( 198,724) ( 667,594)
------------ ------------ ------------- ------------
Net loss ( 422,364) ( 295,734) ( 866,886) ( 822,307)
------------ ------------ ------------- ------------
Dividends on Series A
preferred stock (Note 5) ( 10,082) ( 9,452) ( 20,164) ( 18,904)
------------ ------------ ------------- ------------
Net loss applicable to common
shareholders $( 432,446) $( 305,186) $( 887,050) $( 841,211)
============ ============ ============= ============
Net loss per common share, basic and
diluted (Note 1) $( 0.01) $( 0.01) $( 0.02) $ ( 0.03)
============ ============ ============= ============
Weighted average number of common
shares outstanding (Note 1) 45,372,961 33,912,454 44,287,254 32,986,258
============ ============ ============= ============
See notes to the condensed consolidated financial statements.
F-3
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
Three And Six Months Ended December 31, 2008 and 2007
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2008 2007 2008 2007
------------ ------------ ------------ ------------
Net loss $( 422,364) $ ( 295,734) $( 866,886) $( 822,307)
Change in foreign currency
translation - ( 10,340) - ( 10,340)
------------ ------------ ------------ ------------
Comprehensive loss $( 432,446) $ ( 306,074) $( 887,050) $( 832,647)
============ ============ ============ ============
See notes to the condensed consolidated financial statements.
F-4
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareholders' Equity Deficiency
Six Months Ended December 31, 2008
(Unaudited)
TOTAL
ADDITIONAL SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK 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 - - 1,995,000 200 215,300 - 215,500
Common stock issued for
services - - 150,000 15 17,535 - 17,550
Common stock issued in
exchange for
return of warrants,
related party - - 6,000,000 600 (600) - -
Adjustments upon
consolidation of
former equity investee - - - - 413,064 - 413,064
(Note 2)
Net loss - - - - - ( 866,886) ( 866,886)
Accumulated dividends on
Series A preferred
stock - 20,164 - - ( 20,164) - -
---------- -------- ----------- -------- ------------- ------------ -----------
Balances,
December 31, 2008 500,000 $ 573,424 45,663,178 $ 4,567 $ 32,192,995 $(33,295,358) $ ( 524,372)
========== ======== =========== ======== ============= ============ ===========
See notes to the condensed consolidated financial statements.
F-5
VYTA CORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2008 and 2007
(Unaudited)
2008 2007
------------- ------------
Cash flows from operating activities:
Cash flows from operating activities:
Net loss $ ( 866,886) $( 822,307)
------------- ------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Consulting expense 187,000 -
Depreciation and amortization expense 52,564 2,306
Common stock issued for services 17,550 -
Equity in net losses of unconsolidated investees 198,724 667,594
Gain on sale of investment in unconsolidated investee ( 164,234)
Changes in operating assets and liabilities, net of
business acquisition:
Decrease in accounts receivable (15,381) -
Increase in inventory 2,261 -
(Increase) decrease in prepaid expenses ( 5,129) 1,390
Increase (decrease) in accounts payable and accrued
expenses 300,574 ( 44,251)
------------- ------------
Total adjustments 738,163 462,805
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Net cash used in operating activities ( 128,723) ( 359,502)
------------- ------------
Cash flows from investing activities:
Sale of marketable securities - 59
Increase in notes and advances receivable,
unconsolidated investee ( 125,213) ( 541,600)
------------- ------------
Net cash used in investing activities ( 125,213) ( 541,541)
------------- ------------
Cash flows from financing activities:
Bank overdraft ( 8,631)
Common stock issued for cash 215,500 579,500
Proceeds from advance payable 120,117 50,000
Payment of advance payable ( 18,500) ( 50,000)
------------- ------------
Net cash provided by financing activities 308,486 579,500
------------- ------------
Net decrease in cash and cash equivalents ( 54,550) ( 321,543)
Cash and cash equivalents, beginning 54,550 354,702
------------- ------------
Cash and cash equivalents, ending $ - $ 33,159
============= ============
Supplemental disclosure of non-cash investing activities:
Net assets acquired in BioAgra acquisition $ 255,000 $ -
============= ============
Sale of investment in unconsolidated investee:
Receivable - $ ( 250,000)
Investment in unconsolidated investee - 217,649
Reduction in cumulative translation adjustment - ( 131,883)
============
Gain on sale - $ 164,234
============
See notes to the condensed consolidated financial statements.
F-6
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 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) through October 31, 2008 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 4). 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 six months ended December 31, 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 $866,886 and a net loss applicable to common
shareholders of $887,050 for the six months ended December 31, 2008 ($422,364
and $432,446 for the three months ended December 31, 2008), and an accumulated
deficit of $33,295,358 as of December 31, 2008. The Company has not recognized
any revenues from its business operations.
F-7
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 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:
REVENUE RECOGNITION:
Revenues from the sales of product are recognized at time of shipment. Revenues
are deferred if significant future obligations are to be fulfilled or if
collection is not probable.
Management reviews trade receivables on an ongoing basis to determine if any
receivables will potentially be uncollectible. The Company includes trade
receivable balances that are determined to be uncollectible in an overall
allowance for doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance.
INVENTORY
Inventories are stated at cost. Cost is determined using the first in, first out
(FIFO) method. Inventories consisted of the following at December 31, 2008:
Finished goods $ 58,817
Raw Materials $ 50,132
--------
$109,009
========
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided by use of
the accelerated and straight-line methods over the estimated useful lives of the
related assets. The estimated useful lives range from five to ten years.
Repairs and maintenance are charged to operations as incurred. Major renewals
and betterments that extend the useful lives of property and equipment are
capitalized.
F-8
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
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 six months ended
December 31, 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 December 31, 2008 and 14,859,844 shares at December 31,
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 September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS ("SFAS
157"), which defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 was effective for the
Company on July 1, 2008 for all financial assets and liabilities. For all
nonfinancial assets and liabilities, SFAS 157 is effective for the Company on
July 1, 2009. As it relates to the Company's financial assets and liabilities,
the adoption of SFAS 157 did not have a material impact on the Company's
consolidated financial statements. The Company is still in the process of
evaluating the impact that SFAS 157 will have on its nonfinancial assets and
liabilities.
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES ("SFAS 159"). SFAS 159 allows
entities to voluntarily choose to measure certain financial assets and
liabilities at fair value ("fair value option"). The fair value option may be
elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs. If the fair value option is elected for an instrument,
SFAS 159 specifies that unrealized gains and losses for that instrument be
reported in earnings at each subsequent reporting date. SFAS 159 was effective
for the Company on July 1, 2008. The Company did not apply the fair value option
to any of its outstanding instruments and therefore, SFAS 159 did not have an
impact on the Company's consolidated financial statements.
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
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.
F-9
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
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 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.
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 -CONSOLIDATED 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 six months ended December 31, 2008, the Company
advanced an additional $125,213 in funds to BioAgra.
F-10
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
The Company is not accruing interest on these notes receivable, as they are
currently in default and non-performing. Upon consolidation of BioAgra, accrued
interest of $413,064 payable to the Company as of June 30, 2008, was adjusted to
Additional Paid In Capital.
The notes and advances receivable were reduced to $0 at June 30, 2008 by
applying the losses of BioAgra (Note 4). 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 recorded as an Obligation to unconsolidated investee
in the accompanying condensed consolidated balance sheet. During the period of
July 1, 2008 through October 31, 2008, the losses of BioAgra were in excess of
the carrying value of the notes by $168,485. The losses of BioAgra for the six
months ended December 31, 2008 were $548,188 ($294,528 for the three months
ended December 31, 2008). After November 1, 2008, the Company began
consolidating BioAgra and the notes and advances were treated as intercompany
accounts and were eliminated in consolidation. (Note 4.)
3. INVESTMENTS IN UNCONSOLIDATED INVESTEE:
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 receivable at December 31, 2007, and received the funds on
January 2, 2008. The Company recorded a gain of $164,234 in connection with the
sale of the equity interest in EPT.
During the period from July 1, 2007 through December 27, 2007, EPT recognized
revenues of $2,158,689 and expenses of $2,152,831 for a net income of $5,858.
During the period from July 1, 2007 through December 27, 2007, the Company's
proportionate income was $2,960.
During the period from October 1, 2007 through December 27, 2007, EPT recognized
revenues of $1,330,057 and expenses of $1,296,241 for a net income of $33,816.
During the period from October 1, 2007 through December 27, 2007, the Company's
proportionate income was $16,659.
4. INVESTMENT IN CONSOLIDATED INVESTEE:
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) had completed
construction of a production line; however BioAgra has not yet recognized any
significant revenues from product sales. On September 15, 2008, the Company
filed collection and foreclosure proceedings against BioAgra. 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 $37,787 for open advances not represented by a promissory note. 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.
F-11
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
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 and
starting November 1, 2008, the Company has begun consolidating BioAgra. As a
result of the Company's acquisition of the 50% equity ownership of Justin
Holdings, Inc. the Company has voluntarily dismissed the aforementioned
collection and foreclosure proceedings.
In exchange for the 50% equity interest in BioAgra, 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 is to 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. The payments, net of a discount, were recorded as a consulting
obligation on the consolidiated balance sheet.
The purchase price has been calculated discounting the $6,000 monthly payments
described above, using an interest rate of 15% (estimated to be the cost of
capital for BioAgra). A preliminary allocation of the purchase price has been
made by the Company among the specific assets and liabilities acquired, as well
as among intangible assets identified as acquired by the Company. The purchase
price allocation is not considered final as of the date of this report, as
management is still reviewing all of the underlying assumptions and calculations
used in the allocation. However, management believes the final purchase price
allocation will not be materially different than that presented herein.
The values allocated to the assets and liabilities acquired were as follows:
Current assets $ 59,000
Property and equipment 165,000
Leased property under capital lease 406,000
Consulting agreement (a) 187,000
Accounts payable and accrued expenses (90,000)
Lease obligation (472,000)
-----------------
Total allocated purchase price $ 255,000
=================
(a) The excess of the purchase price over net liabilities assumed was allocated
to the consulting agreement. This amount was expensed as management expects
to receive minimal, if any, benefit from such agreement.
F-12
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
Had the acquisition of the remaining 50% of BioAgra occurred on July 1, 2008,
the consolidated unaudited pro forma results of operations for the Company would
have reflected net sales of $18,681, loss from operations of $(819,810), net
loss of $(866,886) or $(0.02) per common share for the six months ended December
31, 2008. Had the acquisition of the remaining 50% of BioAgra occurred on July
1, 2007, the consolidated unaudited pro forma results of operations for the
Company would have reflected net sales of $83,255, loss from operations of
$(989,511), net loss of $(822,307) or $(0.03) per common share for the six
months ended December 31, 2007. Such amounts are based upon the estimates and
assumptions set forth herein. These unaudited pro forma financial results do not
purport to be indicative of the results which actually would have been obtained
had the purchase been effected on the dates indicated or of the results which
may be obtained in the future. The pro forma adjustments are based on estimates,
available information and certain assumptions and may be revised as additional
information becomes available.
Justin Holdings is to receive ten percent (10%) of 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.
The terms of the original joint venture provided for the Company to share in 50%
of joint venture net income, if any, or net losses. Prior to October 31, 2008,
the Company accounted for its investment in BioAgra as an equity method
investment. Net losses incurred by BioAgra 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.
Financial information for BioAgra for the period from October 1, 2008 through
October 31, 2008 and for the three months ended December 31, 2007 and for the
period from July 1, 2008 through October 31, 2008 and for the six months ended
December 31, 2007, is as follows:
OCTOBER 1, 2008 JULY 1, 2008 SIX MONTHS
THROUGH THREE MONTHS ENDED THROUGH ENDED
OCTOBER 31, 2008 DECEMBER 31, 2007 OCTOBER 31, 2008 DECEMBER 31, 2007
---------------- ----------------- ---------------- -----------------
Revenues $ 3,375 $ 62,828 $ 15,381 $ 83,255
Expenses (61,396) (366,227) (302,481) (753,809)
---------------- ----------------- ---------------- -----------------
Net loss $ (58,021) (303,399) $ (287,100) $ (670,554)
================ ================= ================ =================
5. ADVANCES PAYABLES:
RELATED PARTIES
At December 31, 2008, the Company owes its majority shareholder $35,780 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 six months ended December 31, 2008, the majority shareholder advanced
an additional $9,780 and the Company made payments of $18,500 against the
advances payable.
At December 31, 2008, the Company owes Mr. Metzinger, an officer and director of
the Company, $5,337 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
F-13
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
6. LEASE OBLIGATION:
BioAgra has entered into a lease with the Liberty County Industrial Development
for a plant facility. The lease has a term of ten years and provides for a
buy-out provision in the tenth year of the lease. The cost of the buy-out is
$500,000. The lease requires monthly rent payments of $12,000.
As of December 31, 2008, the total amount of assets recorded under capital
leases was approximately $1,079,000, and accumulated amortization related to
those assets totaled approximately $275,000.
Future minimum lease payments under the leases are as follows:
YEAR ENDING
JUNE 30, AMOUNT
-------- -----------------
2009 $ 72,000
2010 144,000
2011 144,000
2012 144,000
2013 144,000
Thereafter 744,000
-----------------
Total minimum obligations 1,392,000
Less amount representing interest (463,026)
------------------
928,974
Less current portion (53,511)
------------------
Long-term portion $ 875,463
=================
7. SHAREHOLDERS' EQUITY DEFICIENCY:
PREFERRED STOCK:
In February 2007, the Company sold 500,000 shares of Series A nonconvertible
preferred stock ("Series A") 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 December 31, 2008, were $73,425,
($20,164 and $18,804 during the six months ended December 31, 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.
F-14
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
COMMON STOCK:
2008 FISCAL YEAR
Between July 1, 2008 and December 31, 2008, the Company issued an aggregate of
1,995,000 shares of its restricted common stock for $215,500 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.
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 December 31, 2008 are fully-vested and
exercisable. The aggregate intrinsic value of outstanding fully-vested options
as of December 31, 2008 was approximately $155.
The Company did not grant any options during the six months ended December 31,
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 six months ended December 31,
2008 is as follows:
Weighted Weighted Average
Shares Under Option Average Remaining
Exercise Price Contractual Life
-------------------- ----------------- -------------------
Outstanding at July 1, 2008 2,643,127 $ 3.00 2.86 years
Granted - - -
Exercised - - -
Expired - - -
-------------------- ----------------- -------------------
Outstanding at December 31, 2008 2,643,127 $ 3.00 2.30 years
==================== ================= ===================
Exercisable at December 31, 2008 2,643,127 $ 3.00 2.30 years
==================== ================= ===================
F-15
VYTA CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
(Unaudited)
8. COMMITMENTS AND CONTINGENCIES
JUDGEMENT:
On January 15, 2009, the Company entered a Confession of Judgment in the
principal amount of $38,236. The Judgment was entered into to settle the
outstanding funds owed to Brookfield Republic Plaza under the Company's lease
for its office space. The Judgment accrues interest at 9% per annum.
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.
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.
F-16
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 December 31, 2008, we had a bank overdraft of $14,041. We intend to continue
to develop the business opportunity presented by 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 and BioAgra became 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
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 2007
During the three months ended December 31, 2008, we had sales of $3,300 through
our subsidiary BioAgra's sale of its YBG-2000 product. During the three months
ended December 31, 2007, we did not have any revenues from operations. We did
not recognize any costs with these sales, as these were finished goods that had
been produced and expensed during the prior year.
General and administrative expenses during the three months ended December 31,
2008, were $368,686 compared to $173,209 for the three months ended December 31,
2007. The increase of $195,477 is mainly attributable to an increase of $187,000
in consulting expenses as a result of the consulting obligation that is part of
the Agreement to purchase the remaining equity of BioAgra. The additional
1
$8,477 increase in general and administrative expenses is a result of the change
in accounting, from the equity method to the consolidation method, for the
investment in BioAgra.
During the three months ended December 31, 2008, we recognized a net loss of
$422,364 compared to a net loss of $295,734 during the three months ended
December 31, 2007. The $126,630 increase is primarily a result of the $253,329
decrease in equity losses of unconsolidated investees offset by the $23,538
increase in interest expense and the $195,477 increase in general and
administrative expenses. In addition, we recognized a gain on sale of investment
in 2007 that we did not recognize in 2008.
We recorded a net loss applicable to common shareholders of $432,446 during the
three months ended December 31, 2008 compared to $305,186 during the three
months ended December 31, 2007. The increase of $127,260 was a result of the
$253,329 decrease in equity losses of unconsolidated investees and offset by the
$195,477 increase in general and administrative expenses and 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.
FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THE SIX MONTHS ENDED
DECEMBER 31, 2007
During the six months ended December 31, 2008, we had sales of $3,300 through
our subsidiary BioAgra's sale of its YBG-2000 product. During the six months
ended December 31, 2007, we did not have any revenues from operations. We did
not recognize any costs with these sales, as these were finished goods that had
been produced and expensed during the prior year.
General and administrative expenses during the six months ended December 31,
2008, were $647,924 compared to $318,957 for the six months ended December 31,
2007. The increase of $328,967 is mainly attributable to an increase of $187,000
in consulting expenses as a result of the consulting obligation that is part of
the Agreement to purchase the remaining equity of BioAgra. The additional
$141,967 increase in general and administrative expenses is a result of the
change in accounting, from the equity method to the consolidation method, for
the investment in BioAgra.
During the six months ended December 31, 2008, we recognized a net loss of
$866,886 compared to a net loss of $822,307 during the six months ended December
31, 2007. The $44,579 increase is primarily a result of the $468,870 decrease in
equity losses of unconsolidated investees offset by the $328,967 increase in
general and administrative expenses, the $23,538 increase in interest expense
and the $164,234 gain on sale of investment in unconsolidated investee recorded
in 2007.
We recorded a net loss applicable to common shareholders of $887,050 during the
six months ended December 31, 2008 compared to $841,211 during the six months
ended December 31, 2007. The increase of $45,839 was a result of the $468,870
decrease in equity losses of unconsolidated investees and offset by the $328,967
increase in year end administrative expenses, the $23,538 increase in interest
expense and the $164,234 gain on sale of investment recorded in 2007 and the
$1,260 increase in the accumulated dividends recognized in connection with the
outstanding Series A Preferred Stock and the increase in general and
administrative expenses.
LIQUIDITY AND FINANCIAL CONDITION
Net cash used in operating activities during the six months ended December 31,
2008 was $128,723, compared to net cash used in operating activities during the
six months ended December 31, 2007 of $359,502. During the six months ended
December 31, 2008, the net cash used represented a net loss of $866,886,
adjusted for certain non-cash items consisting of consulting expenses of
$187,000, depreciation and amortization expense of $52,564, common stock issued
for services of $17,550 and equity in losses of unconsolidated investees of
$198,724.
2
During the six months ended December 31, 2007, the net cash used represented a
net loss of $822,307, adjusted for certain non-cash items consisting of
depreciation expense of $2,306 and equity in losses of unconsolidated investees
of $667,594.
During the six months ended December 31, 2008, we raised $215,500 cash through
the sale of 1,995,000 shares of restricted common stock.
During the six months ended December 31, 2007, we received $579,500 cash,
through the sale of 3,863,333 shares of restricted common stock.
During the year ended June 30, 2008, the majority shareholder advanced $39,500.
During the six months ended December 31, 2008, the majority shareholder advanced
an additional $9,780 and the Company made payments of $18,500 against the
advances payable. In addition, an officer and director of the Company advanced
$5,377 to the Company.
During the six months ended December 31, 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.
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 six months ended December 31, 2008, the Company
advanced an additional $125,213 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
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 September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS ("SFAS
157"), which defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 was effective for the
Company on July 1, 2008 for all financial assets and liabilities. For all
nonfinancial assets and liabilities, SFAS 157 is effective for the Company on
July 1, 2009. As it relates to the Company's financial assets and liabilities,
the adoption of SFAS 157 did not have a material impact on the Company's
consolidated financial statements. The Company is still in the process of
evaluating the impact that SFAS 157 will have on its nonfinancial assets and
liabilities.
3
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES ("SFAS 159"). SFAS 159 allows
entities to voluntarily choose to measure certain financial assets and
liabilities at fair value ("fair value option"). The fair value option may be
elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs. If the fair value option is elected for an instrument,
SFAS 159 specifies that unrealized gains and losses for that instrument be
reported in earnings at each subsequent reporting date. SFAS 159 was effective
for the Company on July 1, 2008. The Company did not apply the fair value option
to any of its outstanding instruments and therefore, SFAS 159 did not have an
impact on the Company's consolidated financial statements.
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
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 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.
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.
4
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 December 31, 2008.
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 December 31, 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
5
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.
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 October
1, 2008 to December 31, 2008.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
----------------- ------------------------- ---------------- ------------------------------ ----------------------------------
10/2/08 Common stock 400,000 $36,000 Affiliate
----------------- ------------------------- ---------------- ------------------------------ ----------------------------------
11/20/08 Common stock 500,000 $47,500 Affiliate
----------------- ------------------------- ---------------- ------------------------------ ----------------------------------
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.
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: February 27, 2009 /s/ Paul H. Metzinger
-----------------------------------------
Paul H. Metzinger,
President & CEO & Principal Accounting
Officer (Principal Executive Officer)
7