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EXCEL - IDEA: XBRL DOCUMENT - SCIVANTA MEDICAL CORPFinancial_Report.xls
EX-31.2 - CERTIFICATION - SCIVANTA MEDICAL CORPf10k2014ex31ii_scivanta.htm
EX-31.1 - CERTIFICATION - SCIVANTA MEDICAL CORPf10k2014ex31i_scivanta.htm
EX-32.1 - CERTIFICATION - SCIVANTA MEDICAL CORPf10k2014ex32i_scivanta.htm
EX-21.1 - SUBSIDIARIES OF SCIVANTA MEDICAL CORPORATION - SCIVANTA MEDICAL CORPf10k2014ex21i_scivanta.htm
EX-32.2 - CERTIFICATION - SCIVANTA MEDICAL CORPf10k2014ex32ii_scivanta.htm

 

 

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, DC 20549

 

FORM 10-K

 

(Mark One)

 

     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the fiscal year ended October 31, 2014

 

OR

 

☐     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from to ______

 

Commission file number 0-27119

 

SCIVANTA MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   22-2436721
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
215 Morris Avenue, Spring Lake, New Jersey   07762
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code:      (732) 282-1620

 

Securities registered under Section 12(b) of the Act:   None

 

Securities registered under Section 12(g) of the Act:

 

common stock, par value $0.001

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ☐           No    ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ☐            No    ☒

 

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 preceding 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    ☒            No    ☐

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒            No    ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer Smaller reporting company
  (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    ☒   

 

As of April 30, 2014, the aggregate fair value of the registrant’s common stock held by non-affiliates was approximately $341,000.

 

As of February 12, 2015, there were 6,359,055 shares of the registrant’s common stock outstanding.

  

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

 
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this annual report on Form 10-K and other filings of the registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may”, “could”, “estimate”, “intend”, “continue”, “believe”, “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this annual report on Form 10-K. Except as may be required under applicable securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Additionally, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 most likely do not apply to our forward-looking statements because we are considered a penny stock issuer.

 

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SCIVANTA MEDICAL CORPORATION

INDEX TO FORM 10-K

 

PART I
Item 1. Business 1
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 6
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Mine Safety Disclosures 6
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 7
Item 6. Selected Financial Data 8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13
Item 9A. Controls and Procedures 13
Item 9B. Other Information 14
PART III
Item 10. Directors, Executive Officers and Corporate Governance 15
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 22
Item 13. Certain Relationships and Related Transactions, and Director Independence 24
Item 14. Principal Accountant Fees and Services 25
PART IV
Item 15.Exhibits and Financial Statement Schedules 26
SIGNATURES 27

 

iii
 

 

PART I

 

Item 1. Business

 

General

 

Scivanta Medical Corporation (“Scivanta”), originally incorporated in New Jersey on November 29, 1982, is currently a Nevada corporation headquartered in Spring Lake, New Jersey. Scivanta currently does not sell any products or technologies.

 

From our inception through the fiscal year ended October 31, 2004, our business included, at one time or another, the distribution of over the counter medical devices and supplies, such as condoms and alcohol preparation pads, and generic and name brand pharmaceuticals. Our business also included the sale of a hormone replacement therapy drug, which was manufactured and supplied to us by a third party manufacturer. Our products generally were sold by distributors or wholesalers to pharmacies or directly to customers through mail order. During this time period we also were developing safety syringes that were intended to reduce accidental needle sticks of medical service providers. Due to vendor disputes, low profit margins and/or minimal market opportunities, we ceased selling and/or developing all of the aforementioned products.

 

On November 10, 2006, we licensed the exclusive world-wide rights to develop, manufacture and distribute the Scivanta Cardiac Monitoring System (the “SCMS”), a minimally invasive two-balloon esophageal catheter system used to monitor cardiac performance. Since the end of fiscal 2009, all development activity related to the SCMS ceased. Scivanta does not intend to resume development of the SCMS and is currently searching for a new technology, product or service to acquire. See “Item 1. Business – Strategy for Business Development - SCMS.”

 

Strategy for Business Development

 

Scivanta is currently operating on a limited basis as it continues to seek additional financing that will allow it to acquire a new technology, product or service. Our business development strategy will depend upon our ability to secure additional financing.

 

Our strategy for business development is focused on the acquisition, through licensing or purchasing, of technologies, products or services that are sold or are capable of being sold in a specialty or niche market. Any such acquisitions will be contingent upon our ability to secure the financing required to fund such acquisitions. Technologies, products or services of interest include, but are not limited to, medical devices, pharmaceuticals and other proprietary technologies, patented products or services. Specialty or niche-market technologies, products or services, in comparison to commodities, generally offer greater operating margins. These products are distributed through specialty distributor networks, manufacturer representatives or other specialized channels to the original equipment manufacturer market, supplier and provider markets and to the general marketplace.

 

1
 

 

Annual sales, if any, of the prospective technologies, products or services that we will evaluate are generally less than $5 million. We believe that these technologies, products or services generally are not attractive to larger companies because they do not represent opportunities for revenues and earnings that would be material to those companies. We will consider technologies, products or services that generally experience lower sales or lack of development because of inadequate distribution channels, lack of companion products or insufficient capital.

 

Below is a listing of criteria we intend to utilize in identifying and evaluating potential technology, product or service acquisitions:

 

·Whether the technology, product or service is a specialty or niche-market product which is distributed through specialty distributors.

 

·Whether the technology, product or service is unique or patented.

 

·Whether the technology, product or service has, or is capable of achieving, an attractive gross margin, usually in excess of 35%.

 

·Whether the prospective seller is receptive to receiving equity as part of the purchase price.

 

·Whether the market for the technology, product or service is expanding, but not to such a degree as to attract larger companies or result in the technology, product or service achieving commodity status.

 

·Whether we can access marketing channels to market and distribute the technology, product or service.

 

No assurances can be given that we will have the financial and other resources necessary for us to acquire additional technologies, products or services or implement any part of our business development strategy. In addition, no assurances can be given that any technology, product or service that we acquire as part of our business development strategy will be profitable.

 

SCMS License Agreement

 

On February 14, 2011, Scivanta entered into an Amended and Restated Technology License Agreement with The Research Foundation of State University of New York, for and on behalf of the University at Buffalo (the “Foundation”), Donald D. Hickey, M.D. (“Hickey”) and Clas E. Lundgren (“Lundgren”). The Foundation, Hickey and Lundgren shall be collectively referred to herein as the “Licensor.” The Amended and Restated Technology License Agreement, as further amended on March 14, 2013, is referred to herein as the “License Agreement”.

 

Pursuant to the License Agreement, the Licensor granted Scivanta the exclusive world-wide rights to develop, manufacture and distribute the SCMS. A cash payment of $105,000 is payable by Scivanta to Hickey as follows: (a) $50,000 is due to Hickey on or before a date that is thirty (30) days after the closing of any single financing by Scivanta of at least $3,000,000 or any series of financings by Scivanta within a six (6) month period totaling at least $3,000,000; and (b) $55,000 is due to Hickey on or before the date that is thirty (30) days after the first commercial sale of a product utilizing the licensed technology.

 

In addition, Scivanta is required to issue shares of its common stock to the Licensor upon the occurrence of certain events as follows: (a) $130,000 of common stock on the date Scivanta files for approval to market and sell a product utilizing the licensed technology; and (b) $160,000 of common stock on the date Scivanta receives approval to market and sell a product utilizing the licensed technology. The number of shares of Scivanta’s common stock to be issued to the Licensor will be calculated based on the market price of Scivanta’s common stock, as defined in the License Agreement, on the date that each of the respective above noted events occur.

 

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Scivanta is also required to pay the Licensor a royalty of 5% of annual net sales, as defined in the License Agreement, subject to certain reductions and annual minimums as detailed in the License Agreement and is required to pay the Licensor 25% of all sublicensing revenue, as defined in the License Agreement, received by Scivanta in connection with Scivanta’s sublicense of the rights granted to Scivanta under the License Agreement.

 

The License Agreement requires Scivanta to use commercially reasonable efforts to develop and market the SCMS within certain timeframes, subject to specified exceptions. Scivanta has not met certain development timeframes and as a result, could be issued a notice of default of the License Agreement by the Licensor. Scivanta expects to return all of the technology related to the SCMS to the Licensor and is currently attempting to negotiate an agreement with the Licensor related to the return of the SCMS technology.

 

Patents and Copyrights

 

We do not currently hold any patents other than those associated with the SCMS which we expect to return to the Licensor in conjunction with the return of the SCMS technology.

 

Manufacturing and Principal Suppliers

 

We currently do not have any manufacturing capabilities or agreements.

 

Distribution, Sales and Marketing

 

We currently do not maintain a dedicated sales force and do not sell any products.

 

Competition

 

Since we have not acquired a new technology or product, our competition cannot be identified.

 

Government Regulation

 

As a possible future developer or distributor of medical devices, we are subject to regulation by, among other governmental entities, the United States Food and Drug Administration (the “FDA”), and the corresponding agencies of the states and foreign countries in which we may sell our products. These regulations govern the introduction of new medical devices, the observance of certain standards with respect to the manufacture, testing and labeling of such devices, the maintenance of certain records, the tracking of devices, and other matters. These regulations could have a material impact on our future operations in the event we successfully implement our strategy for business development and acquire or develop additional medical devices and related products.

 

3
 

 

All medical device manufacturing establishments are required to be registered with the FDA. Similarly, all categories of medical devices marketed by a company in the United States are required to be listed. This listing information must be updated pursuant to FDA regulations. The FDA can take regulatory action against a company that does not provide or update its registration and listing information. Pursuant to the Food, Drug and Cosmetic Act (the “FDC Act”), medical devices intended for human use are classified into three categories, Classes I, II and III, on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Class I devices are subject to general controls (for example, labeling, pre-market notification and adherence to good manufacturing practice regulations) and Class II devices are subject to general and special controls (for example, performance standards, post-market surveillance, patient registries, and FDA guidelines). Generally, Class III devices are those which must receive pre-market approval (“PMA”) from the FDA to ensure their safety and effectiveness (for example, life-sustaining, life-supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices).

 

Some Class I devices and most Class II devices require pre-market notification (510(k)) clearance pursuant to Section 510(k) of the FDC Act. Most Class III devices are required to have an approved PMA application. Obtaining PMA approval can take up to several years or more and involve preclinical studies and clinical testing. In contrast, the process of obtaining a 510(k) premarket notification clearance typically requires the submission of substantially less data and generally involves a shorter review period. A 510(k) premarket notification clearance indicates that the FDA agrees with an applicant’s determination that the product for which clearance has been sought is substantially equivalent in terms of safety and effectiveness to another medical device that has been previously marketed, but does not indicate that the product is safe and effective.

 

In addition to requiring clearance or approval for new products, the FDA may require clearance or approval prior to marketing products that are modifications of existing products. FDA regulations provide that new 510(k) premarket notification clearances are required when, among other things, there is a major change or modification in the intended use of the device or a change or modification to a legally marketed device that could significantly affect its safety or effectiveness. The developer and/or manufacturer is expected to make the initial determination as to whether a proposed change to a cleared device or to its intended use is of a kind that would necessitate the filing of a new 510(k) premarket notification.

 

In order to conduct clinical trials of an uncleared or unapproved device, companies generally are required to comply with the FDA’s Investigational Device Exemptions regulations. For significant risk devices, the Investigational Device Exemptions regulations require FDA approval of an investigational device before a clinical study may begin. In its approval letter for significant risk investigational device studies, the agency may limit the number of patients that may be treated with the device and/or the number of institutions at which the device may be used. Device studies subject to the Investigational Device Exemption regulations, including both significant risk and non-significant risk device studies, are subject to various restrictions imposed by the FDA. Patients must give informed consent to be treated with an investigational device. The institutional review board of each institution where a study is being conducted must also approve the clinical study. The device generally may not be advertised or otherwise promoted. Unexpected adverse experiences must be reported to the FDA. The company sponsoring the investigation must ensure that the investigation is being conducted in accordance with the Investigational Device Exemptions regulations.

 

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Pursuant to the FDA’s Good Manufacturing Practices under the Quality System Regulations, a medical device manufacturer must manufacture products and maintain records in a prescribed manner with respect to manufacturing, testing and control activities. Further, the manufacturer, distributor and/or owner of a medical device is required to comply with FDA requirements for labeling and promotion of its medical devices. For example, the FDA prohibits cleared or approved devices from being marketed or promoted for uncleared or unapproved uses. The medical device reporting regulations require that a company provide information to the FDA whenever there is evidence to reasonably suggest that one of the company’s devices may have caused or contributed to a death or serious injury, or that there has occurred a malfunction that would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. Additionally, the FDA imposes other requirements on medical device manufacturers, including reporting and record keeping requirements for device corrections and removals (recalls).

 

Medical device manufacturers and distributors are generally subject to periodic inspections by the FDA. If the FDA determines that a company is not in compliance with applicable laws and regulations, it can, among other things, issue a warning letter apprising the company of non-compliant conduct, detain or seize products, issue a recall, enjoin future violations and assess civil and criminal penalties against the company, its officers or its employees. In addition, it is possible that clearances or approvals could be withdrawn in certain circumstances. Failure to comply with regulatory requirements or any adverse regulatory action could have a material adverse effect on our future business, financial condition and results of operations.

 

Medical device laws and regulations are also in effect in many of the countries in which we may conduct business outside the United States. These range from comprehensive device approval requirements for certain medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. Medical device laws and regulations are also in effect in many of the states in which we may conduct business in the future. State and foreign medical device laws and regulations may have a material impact on us. In addition, international sales of certain medical devices manufactured in the United States, but not cleared or approved by the FDA for distribution in the United States, are subject to the FDA export requirements and policies, including a policy whereby we provide a statement to the FDA certifying that the product to be exported meets certain criteria and FDA issues a certificate to facilitate device export.

 

Federal, state and foreign laws and regulations regarding the manufacture, sale and distribution of medical devices are subject to future changes. For example, Congress enacted the Medical Device User Fee and Modernization Act of 2002, which included several significant amendments to the prior law governing medical devices. Additionally, the FDA made significant changes to its Good Manufacturing Practices under the Quality System Regulations in 1996 and may make changes to other regulations as well. We cannot predict what impact, if any, such changes might have on our future business; however, such changes could have a material impact on us and our business, financial condition and operating results.

 

When offering for sale medical devices, we may also have to comply with federal and state anti-kickback and other healthcare fraud and abuse laws. Moreover, approval may be required for a medical device by comparable governmental regulatory authorities in foreign countries prior to the commencement of clinical trials and subsequent marketing of such medical device in those countries. The approval procedure varies from country to country, and the time required may be longer or shorter than that required for FDA approval.

 

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The regulatory policies of the FDA and other regulatory bodies may change and additional governmental regulations may be enacted which could prevent or delay regulatory approval of the products we may distribute in the future. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, within the United States or abroad.

 

Insurance

 

We maintain insurance in such amounts and against such risks as we deem prudent, although no assurance can be given that such insurance will be sufficient under all circumstances to protect us against significant claims for damages. The occurrence of a significant event not fully-insured could materially and adversely affect our business, financial condition and results of operations. Moreover, no assurance can be given that we will be able to maintain adequate insurance in the future at commercially reasonable rates or on acceptable terms.

 

Employees

 

David R. LaVance, President and Chief Executive Officer, and Thomas S. Gifford, Executive Vice President, Chief Financial Officer and Secretary are currently the only two employees of Scivanta. We have not experienced any work stoppages to date and we believe that our relationship with these employees is good.

 

Item 1A. Risk Factors

 

Scivanta is a smaller reporting company and is therefore not required to provide this information.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Scivanta’s principal office is located at 215 Morris Avenue, Spring Lake, New Jersey 07762. Scivanta rents approximately 2,000 square feet of office space at this location from Century Capital Associates LLC (“Century Capital”) pursuant to a sublease agreement. David R. LaVance, Scivanta’s Chairman, President and Chief Executive Officer, and Thomas S. Gifford, the Scivanta’s Executive Vice President, Chief Financial Officer and Secretary, are principals of Century Capital. This sublease agreement has a month to month term that requires sixty days written notice to terminate and a monthly rental fee of $5,000. Scivanta is responsible for all operating costs associated with the office space, including utilities, maintenance and property taxes.

  

Item 3. Legal Proceedings

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

6
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Our common stock is quoted on the OTC Bulletin Board under the ticker symbol “SCVM.” Since secondary market activity for shares of our common stock has been limited and sporadic, such quotations may not actually reflect the price or prices at which purchasers and sellers would currently be willing to purchase or sell such shares.

 

The following table shows the range of high and low closing bid prices for our common stock for the period commencing November 1, 2012 through October 31, 2014 as reported by the OTC Bulletin Board, adjusted for a 10-to-1 reverse stock split effective April 23, 2013. These quotations represent prices between dealers and may not include retail markups, markdowns or commissions and may not necessarily represent actual transactions.

 

Year Ended October 31, 2014  High   Low 
First Quarter   $0.15   $0.13 
Second Quarter    0.19    0.13 
Third Quarter    0.13    0.13 
Fourth Quarter    0.16    0.11 

 

Year Ended October 31, 2013  High   Low 
First Quarter   $0.35   $0.11 
Second Quarter    0.18    0.11 
Third Quarter    0.14    0.14 
Fourth Quarter    0.20    0.13 

 

The OTC Bulletin Board is generally considered to be a less active and efficient market than the NASDAQ Global Market, the NASDAQ Capital Market or any other national exchange and will not provide investors with the liquidity that the NASDAQ Global Market, the NASDAQ Capital Market or other national exchange would offer. As of February 12, 2015, we had eight market makers for our common stock which were Automated Trading Desk Financial Services, LLC, Buckman, Buckman and Reid, Inc., Cantor Fitzgerald & Co., Citadel Securities, Canaccord Genuity Inc., G1 Execution Services LLC, KCG Americas LLC and Vfinance Investments, Inc.

 

Stockholders

 

As of February 12, 2015, the approximate number of registered holders of our common stock was 440; the number of issued and outstanding shares of our common stock was 6,359,055; and there were 596,154 shares of common stock subject to outstanding warrants, 203,332 shares of common stock subject to outstanding stock options, and 2,397,436 shares of common stock subject to outstanding convertible debentures.

 

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Dividends

 

It is anticipated that cash dividends will not be declared on our common stock in the foreseeable future. Our dividend policy is subject to the discretion of our board of directors and depends upon a number of factors, including operating results, financial condition and general business conditions. Holders of our common stock are entitled to receive dividends as, if and when declared by our board of directors out of funds legally available therefor. We may pay cash dividends if net income available to stockholders fully funds the proposed dividends, and the expected rate of earnings retention is consistent with capital needs, asset quality and overall financial condition.

 

Sales of Unregistered Securities for the Fiscal Year Ended October 31, 2014

 

There were no sales of unregistered securities during the fiscal year ended October 31, 2014, other than those reported on Forms 10-Q and/or 8-K filed by Scivanta during the fiscal year ended October 31, 2014.

 

Repurchases of Securities

 

We did not repurchase any securities within the fourth quarter of the fiscal year covered by this report.

 

Item 6. Selected Financial Data

 

Scivanta is a smaller reporting company and is therefore not required to provide this information.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

We have provided below information about Scivanta’s financial condition and results of operations for the fiscal years ended October 31, 2014 and 2013. This information should be read in conjunction with Scivanta’s audited financial statements for the fiscal years ended October 31, 2014 and 2013 and the related notes thereto, which begin on page F-1 of this report.

 

Background

 

Scivanta is a Nevada corporation headquartered in Spring Lake, New Jersey. Scivanta currently does not sell any products or technologies. See “Item 1. Business – General.”

 

On November 10, 2006, we acquired the exclusive world-wide rights to develop, manufacture and distribute the SCMS, a minimally invasive two-balloon esophageal catheter system used to monitor cardiac performance. Since the end of fiscal 2009, all development activity related to the SCMS ceased. Scivanta does not intend to resume development of the SCMS and is currently searching for a new technology, product or service to acquire. See “Item 1. Business – Strategy for Business Development - SCMS.” See “Item 1. Business – Scivanta Agreements – SCMS License Agreement.”

 

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Critical Accounting Policies

 

The discussion and analysis of our financial condition is based upon the financial statements contained elsewhere herein, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, income taxes, contingencies and litigation. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting policies affect the more significant judgments and estimates used in preparation of the financial statements contained elsewhere herein.

 

Income Taxes

 

Scivanta accounts for income taxes under Accounting Standard Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). ASC 740 requires that we recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While Scivanta has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, deferred tax assets are reduced by a valuation allowance, when in our opinion, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

 

Stock Based Compensation

 

Scivanta accounts for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). All stock-based payments to employees are grants of stock options that are recognized in the statement of operations based on their fair values at the date of grant.

 

Scivanta accounts for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” All stock-based payments to non-employees are issuances of warrants that are recognized in the statement of operations based on the value of the vested portion of the warrant issuance as measured at its then-current fair value as of each financial reporting date.

 

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Scivanta calculates the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest, which approximates the performance period. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock options or warrants. Scivanta estimates forfeiture rates for all unvested awards when calculating the expense for a period. In estimating the forfeiture rate, Scivanta monitors both stock option and warrant exercises as well as employee and non-employee termination patterns.

 

The resulting stock-based compensation expense for employee awards is generally recognized on a straight-line basis over the requisite service period of the award.

 

Recent Accounting Pronouncements Applicable to Scivanta

 

Scivanta does not believe there are any recently issued, but not yet effective, accounting standards that would have a significant impact on Scivanta’s financial position or results of operations.

 

Results of Operations

 

Revenue. Scivanta discontinued all product sales during the fiscal year ended October 31, 2004 and currently does not have any recurring revenue.

 

Research and Development. For the fiscal year ended October 31, 2014, research and development expenses were $0, as compared to $3,115 for the fiscal year ended October 31, 2013. The $3,115, or 100%, decrease in research and development expenses for the fiscal year ended October 31, 2014 was due to the elimination of patent costs related to the SCMS.

 

The amount of research and development expense to be incurred by us during the fiscal year ending October 31, 2015 will depend upon our ability to secure additional capital through an equity and/or debt financing or corporate partnerships. In the event that we are able to acquire a new technology, product or service and are able to obtain additional capital to fund such acquisition, we would expect research and development expenses for the fiscal year ending October 31, 2015 to significantly increase. Otherwise, we would expect research and development expenses for the fiscal year ending October 31, 2015 to remain at the current level.

 

General and Administrative. For the fiscal year ended October 31, 2014, general and administrative expenses were $426,168, as compared to $322,725 for the fiscal year ended October 31, 2013. The $103,443, or 32%, increase in general and administrative expenses for the fiscal year ended October 31, 2014 was primarily due to a $91,025 increase in travel costs, a $27,608 increase in stock based compensation expense to consultants and an $18,000 increase in consulting expense, each related to our fundraising efforts and evaluation of potential acquisitions, offset by a $22,057 decrease in legal fees and a $11,548 decrease in office maintenance costs.

 

10
 

 

The amount of general and administrative expense to be incurred by us during the fiscal year ending October 31, 2015 will depend upon our ability to secure additional capital through an equity and/or debt financing or corporate partnerships. In the event that we are able to obtain additional capital sufficient to fund the acquisition of a new product, technology or service, we would expect general and administrative expenses for the fiscal year ending October 31, 2015 to increase as we build the administrative infrastructure necessary to support the development or sale of a new product, technology or service. If we are unable to obtain additional capital sufficient to fund the acquisition of a new product, technology or service, we would expect general and administrative expenses for the fiscal year ending October 31, 2015 to decrease as we continue to reduce our operating activities.

 

Operating Income. During the fiscal years ended October 31, 2014 and 2013, we recognized a gain on the settlement of accounts payable related to certain vendor obligations of $80,656 and $68,050, respectively.

  

Interest Expense. For the fiscal year ended October 31, 2014, interest expense was $78,869, as compared to $32,709 for the fiscal year ended October 31, 2013. The $46,160, or 141%, increase in interest expense for the fiscal year ended October 31, 2014 was primarily due to a $17,753 increase in interest expense and a $29,058 increase in accreted interest on debt discount, each related to convertible debentures issued by us in December 2013 and April 2014.

 

Net Loss. For the fiscal year ended October 31, 2014, our net loss was $424,381, or $0.07 per share (basic and diluted), as compared to a net loss of $290,499, or $0.06 per share (basic and diluted), for the fiscal year ended October 31, 2013. The $133,882, or 46%, increase in net loss for the fiscal year ended October 31, 2014 was primarily due to a $103,443 increase in general and administrative expenses and a $46,160 increase in interest expense, offset by a $12,606 increase in the gain on the settlement of accounts payable.

 

Liquidity and Capital Resources

 

As of October 31, 2014, we had a working capital deficiency of $959,572 and cash on hand of $26,114. The $6,206 increase in cash on hand from October 31, 2013 was primarily due to the receipt of $225,000 of gross proceeds from convertible debentures issued on December 12, 2013 and April 1, 2014, offset by our continuing operating expenses.

 

During the past several years, we generally sustained recurring losses and negative cash flows from operations. We currently do not generate any revenue from operations. Our operations most recently have been funded through a combination of the sale of our convertible debentures and common stock and through the issuance of our common stock in exchange for services.

 

On January 8, 2014, we issued 230,769 shares of our common stock as payment of $30,000 of accounts payable to a third party service provider and we issued 461,538 shares of our common stock to Century Capital as settlement of $60,000 of office rent owed by us for the period commencing February 1, 2013 through January 31, 2014.

 

On January 8, 2014, we issued 57,143 shares of our common stock to the May 2011 Debenture holder in satisfaction of $8,000 of interest due for the period May 20, 2012 through May 19, 2013 and we issued 57,143 shares of our common stock to the August 2012 Debenture holder in satisfaction of $8,000 of interest due for the period August 15, 2012 through August 15, 2013.

 

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On April 30, 2014, we issued 123,078 shares of our common stock to the holders of the February 2007 Debentures in satisfaction of $16,000 of interest due for the period February 1, 2013 through January 31, 2014.

 

On February 12, 2015, we issued a 10% convertible debenture to an individual investor. The gross proceeds received in connection with this private placement were $50,000.

 

As of February 12, 2015, our cash position was approximately $58,000. Without any additional financing, we will only be able to continue our administrative operations, on a limited basis, for approximately five months from the filing date of this annual report on Form 10-K. Effective November 1, 2011, Scivanta’s officers agreed to waive the annual base salary due to them and Scivanta’s directors agreed to waive the annual retainer and meeting fees due to them until Scivanta is able to raise sufficient capital that would provide Scivanta with the ability to pay cash compensation to its officers and directors. Scivanta has also deferred certain vendor payments until it secures sufficient additional financing. We did not make $350,000 of principal payments due on certain convertible debentures and, as a result, these obligations can be placed in default by the holders. Our independent registered public accounting firm included an emphasis of a matter paragraph in its report included in this annual report on Form 10-K, which expressed substantial doubt about our ability to continue as a going concern. Our financial statements included herein do not include any adjustments related to this uncertainty.

 

We currently do not have any lending relationships with commercial banks and do not anticipate establishing such relationships in the foreseeable future due to our limited operations and assets. We believe that our focus should be on obtaining additional capital through the private placement of our securities. We are pursuing potential equity and/or debt investors and have from time to time engaged placement agents to assist us in this initiative. While we are pursuing the opportunities and actions described above, there can be no assurance that we will be successful in our efforts. If we are unable to secure additional capital, we will explore other strategic alternatives, including, but not limited to, the sale of Scivanta. Any additional equity financing may result in substantial dilution to our stockholders.

 

Inflation and Seasonality

 

Inflation has had no material effect on the operations or financial condition of our business. In addition, our operations are not considered seasonal in nature.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Scivanta is a smaller reporting company and is therefore not required to provide this information.

 

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Item 8. Financial Statements and Supplementary Data

 

The financial statement and supplementary data of Scivanta called for by this item are submitted under a separate section of this report. Reference is made to the Index of Financial Statements contained on page F-1 of this annual report on Form 10-K.

 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this annual report on Form 10-K, Scivanta carried out an evaluation of the effectiveness of the design and operation of Scivanta's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of Scivanta's management, including Scivanta's President and Chief Executive Officer and Scivanta’s Executive Vice President, Chief Financial Officer and Secretary, who concluded that Scivanta's disclosure controls and procedures are effective.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Scivanta's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Scivanta's reports filed under the Exchange Act is accumulated and communicated to management, including Scivanta's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Management’s Annual Report on Internal Control Over Financial Reporting.

 

The management of Scivanta is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  Internal controls over financial reporting include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Scivanta; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of Scivanta are being made only in accordance with authorizations of management and directors of Scivanta; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Scivanta’s assets that could have a material effect on the financial statements.

 

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management conducted an evaluation of the effectiveness of Scivanta’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Scivanta’s internal control over financial reporting was effective as of October 31, 2014.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in Scivanta’s internal control over financial reporting during Scivanta’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Scivanta's internal control over financial reporting.

 

Item 9B. Other Information

 

On February 12, 2015, Scivanta issued a 10% convertible debenture to an individual investor (the “February 2015 Debenture”). In connection with the issuance of the February 2015 Debenture, Scivanta issued a warrant (the “February 2015 Debenture Warrant”) to purchase shares of its common stock equal to 20% of the aggregate principal amount of the February 2015 Debenture. The gross proceeds received in connection with this private placement were $50,000. The February 2015 Debenture has a one year term with principal and interest due February 12, 2016. The February 2015 Debenture bears interest at a rate of 10% per annum.

 

The entire principal and accrued interest amount of the February 2015 Debenture is convertible into shares of Scivanta’s common stock: (a) upon Scivanta issuing equity securities and/or debt in a transaction or a series of transactions resulting in aggregate gross proceeds to Scivanta of a least $3,000,000 (a “Qualified Financing”); (b) at the option of the holder, at the maturity date of the February 2015 Debenture; or (c) at the option of the holder, upon a change in control of Scivanta, as defined in the February 2015 Debenture. Upon the occurrence of a Qualified Financing, the February 2015 Debenture is convertible into shares of Scivanta’s common stock at a conversion price equal to: (i) 80% of the per share price paid by the purchasers of Scivanta’s common stock in the Qualified Financing; (ii) 80% of the per share conversion price of any instrument convertible into shares of Scivanta’s common stock, if no shares of Scivanta’s common stock are issued in the Qualified Financing; or (iii) $0.13, if no shares of Scivanta’s common stock or instruments convertible into shares of Scivanta’s common stock are issued in the Qualified Financing. On the maturity date or upon a change in control of Scivanta, the February 2015 Debenture is convertible into shares of Scivanta’s common stock at $0.13 per share. The quoted market price of Scivanta’s common stock on February 12, 2015 was $0.10 per share. An aggregate of 384,615 shares of Scivanta’s common stock can be issued pursuant to the February 2015 Debenture at the current conversion price of $0.13 per share. Scivanta will use the proceeds received in this private placement for working capital purposes.

  

The February 2015 Debenture Warrant has a three year term and provides the holder the right to purchase shares of Scivanta’s common stock equal to 20% of the principal amount of the related February 2015 Debenture divided by: (a) 80% of the per share price paid by the purchasers of Scivanta’s common stock in a Qualified Financing; (b) 80% of the per share conversion price of any instrument convertible into shares of Scivanta’s common stock issued in a Qualified Financing, if no shares of Scivanta’s common stock is issued in the Qualified Financing; or (c) $0.13, if no shares of Scivanta’s common stock or no instruments convertible into shares of Scivanta’s common stock is issued in a Qualified Financing or if a Qualified Financing is not consummated within one year from the February 2015 Debenture Warrant issuance date. An aggregate of 76,923 shares of Scivanta’s common stock can be issued under the February 2015 Debenture Warrant at the current exercise price of $0.13 per share. All of the shares of Scivanta’s common stock underlying the February 2015 Debenture Warrant vest on the earlier of (a) one year from the February 2015 Debenture Warrant issuance date, or (b) the consummation of a Qualified Financing. The exercise price of the February 2015 Debenture Warrant will be subject to adjustment for stock dividends, stock splits, or similar events.

 

In connection with the issuance of the February 2015 Debenture, Scivanta relied on the exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Directors

 

Each director serves for a term set to expire at the next annual meeting of stockholders of Scivanta. The name, age, principal occupation or employment and biographical information of each member of the board of directors of Scivanta who served as of October 31, 2014 are set forth below:

 

Name   Age   Principal Occupation or Employment
David R. LaVance   61   Chairman of the Board, President and Chief Executive   Officer of Scivanta and Integrated Environmental Technologies, Ltd.
         
Thomas S. Gifford   46   Executive Vice President, Chief Financial Officer and Secretary of Scivanta and Integrated Environmental Technologies, Ltd.
         
Lawrence M. Levy   76   Retired Partner of Brown Rudnick LLP
         
Anthony Giordano, III   49   President and Chief Executive Officer of Colonial American Bank

  

There are no family relationships among the current executive officers and directors of Scivanta. At any time during the past five years, none of the current executive officers or directors of Scivanta have served as directors of any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, except for Mr. LaVance, who serves as the chairman of Hologic, Inc. (NASDAQ: HOLX) and also serves as the chairman of Integrated Environmental Technologies, Ltd. (OTC: IEVM) and Mr. Levy, who serves as a director of Hologic, Inc. (NASDAQ: HOLX).

 

Biographical Information

 

David R. LaVance: Mr. LaVance has served as Scivanta’s Chairman, President and Chief Executive Officer since March 2003. He is also the chairman of the board of directors of Hologic, Inc. (NASDAQ: HOLX), a publicly traded medical device company specializing in women’s healthcare products. Hologic is the worldwide leader in digital mammography, molecular diagnostics for women’s health, pap testing and gynecological surgical products. Mr. LaVance has been a director of Hologic since December 2002. From June 2008 through July 2011, Mr. LaVance served as the lead independent director of Hologic and was named chairman of the board of directors in August 2011. Since May 2011, Mr. LaVance has served as the President and Chief Executive Officer and the chairman of board of directors of Integrated Environmental Technologies, Ltd. (OTC Bulletin Board: IEVM), a publicly traded company that develops and manufactures proprietary equipment which it uses to produce and distribute environmentally friendly disinfecting and cleaning solutions. Since August 1997, Mr. LaVance has served as the President and co-founder of Century Capital Associates LLC, a consulting firm providing business and transaction advisory services. From 1995 through 1997, Mr. LaVance was a Managing Director of KPMG Health Ventures, an advisory group providing investment banking services to healthcare companies. From 1992 through 1995, Mr. LaVance served as the President of Nuclear Care, Inc., a nuclear imaging clinical services company and in 1994 he was the founder of Physicians Data Corporation, a health informatics company. From 1985 through 1992, Mr. LaVance held a series of operating positions with Dornier MedTech America, Inc., a medical device company that specializes in lithotriptors and other medical devices, ultimately serving as the President of Dornier MedTech in Japan from 1990 to 1992. Mr. LaVance received a B.A. degree from Furman University and a J.D. degree from Washington College of Law of American University. As our President and Chief Executive Officer, Mr. LaVance has direct responsibility for Scivanta’s strategy and operations. This position, together with his many years of experience in corporate management, makes him an invaluable contributor to the board.

 

15
 

 

Thomas S. Gifford: Mr. Gifford has served as Scivanta’s Executive Vice President, Chief Financial Officer and as a director since March 21, 2003. Since May 2011, Mr. Gifford has served as the Executive Vice President and Chief Financial Officer of Integrated Environmental Technologies, Ltd. (OTC Bulletin Board: IEVM), a publicly traded company that develops and manufactures proprietary equipment which it uses to produce and distribute environmentally friendly disinfecting and cleaning solutions. Since August 1997, Mr. Gifford has served as the Vice President and co-founder of Century Capital Associates LLC, a consulting firm providing business and transaction advisory services. From 1995 through 1997, Mr. Gifford was a Manager and Associate Director of KPMG Health Ventures, an advisory group providing investment banking services to healthcare companies. From 1990 through 1994, Mr. Gifford was an accountant for KPMG Peat Marwick LLP, where he provided auditing and financial due diligence services to various publicly traded and privately held emerging technology companies. He is a licensed attorney in New York and New Jersey and is a Certified Public Accountant. Mr. Gifford received a B.S. degree from Rutgers University and a J.D. degree from Seton Hall University School of Law. Mr. Gifford’s mix of leadership, management, strategic, operation and finance skills and experience enable him to provide important accounting and finance experience and operational insights to the board.

 

Lawrence M. Levy: Mr. Levy has served as a director of Scivanta since March 15, 2007. He retired from the position of Senior Counsel at Brown Rudnick LLP, an international law firm, in January 2011. Mr. Levy had been Senior Counsel at Brown Rudnick since February 2005 and, for more than 30 years before that, had been a Partner at Brown Rudnick, specializing in corporate and securities law. Mr. Levy is also a member of the board of directors of Hologic, Inc. (NASDAQ: HOLX), Option N.V. (EURONEXT Brussels: OPTI; OTC Bulletin Board: OPNVY) of Leuven, Belgium, a wireless telecommunications company, and Facing History and Ourselves. Mr. Levy received a B.A. from Yale University and a L.L.B. from Harvard Law School. Mr. Levy’s mix of leadership, management, strategic and legal skills and experience enable him to provide important legal experience and governance insights to the board.

 

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Anthony Giordano, III: Mr. Giordano has served as a director of Scivanta since March 15, 2007. He is currently the President and Chief Executive Officer and a director of Colonial American Bank, which is currently headquartered in Middletown, New Jersey. From January 1, 2005 through November 30, 2010, Mr. Giordano served as the Senior Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of Central Jersey Bancorp (formerly Monmouth Community Bancorp), a publicly traded bank holding company (NASDAQ: CJBK), and its wholly-owned subsidiary, Central Jersey Bank, N.A. (formerly Monmouth Community Bank, N.A.), from January 1, 2005 through date of the consummation of the merger of Central Jersey Bancorp and Kearny Financial Corp. on November 30, 2010.  Prior to the consummation of the combination of Monmouth Community Bancorp and Allaire Community Bank on January 1, 2005, he served as an Executive Vice President and the Chief Financial Officer, Treasurer and Secretary of Monmouth Community Bancorp and its bank subsidiary, Monmouth Community Bank, N.A.  Prior to joining Monmouth Community Bank, N.A. in May 1998, Mr. Giordano was employed by PNC Bank (formerly Midlantic Bank), where he served as Real Estate Banking Officer from 1996 to 1998 and Senior Accountant/Financial Analyst from 1994 to 1996.  From 1988 to 1994, Mr. Giordano served in various positions at Shadow Lawn Savings Bank, including Budget and Financial Planning Manager and Financial Analyst.  Mr. Giordano received an M.B.A. degree from Monmouth University and a B.S. degree in finance from Kean University. Mr. Giordano’s mix of leadership, management, strategic and finance skills and experience enable him to provide important accounting and finance experience and management insights to the board.

  

Executive Officers

 

The executive officers serve in accordance with Scivanta’s bylaws and at the discretion of Scivanta’s board of directors. The name, age, current position and biographical information of each executive officer of Scivanta are set forth below:

 

Name   Age   Capacities in which Served
David R. LaVance   61   Chairman of the Board, President and Chief Executive Officer
         
Thomas S. Gifford   46   Executive Vice President, Chief Financial Officer and Secretary

  

For the biographical information for David R. LaVance and Thomas S. Gifford, see “Item 10. Directors, Executive Officers and Corporate Governance - Directors.”

 

Corporate Governance

 

Meetings and Committees of the Board of Directors

 

The board of directors conducts business through meetings of the board or by unanimous written consents of the board. In addition, the board sometimes conducts business through its committees, including an audit committee and compensation committee. The board for fiscal 2014 consisted of David R. LaVance, Thomas S. Gifford, Lawrence M. Levy and Anthony Giordano, III. Each of Mr. Levy and Mr. Giordano qualify as independent directors in accordance with NASDAQ’s definition of “independent director” and the rules and regulations of the SEC.

 

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Audit Committee

 

The audit committee for fiscal 2014 consisted of Lawrence M. Levy and Anthony Giordano, III, who is the chairman of the audit committee. Each of Mr. Giordano and Mr. Levy qualify as an independent director in accordance with the rules of NASDAQ and the rules and regulations of the SEC. In addition, the board has determined that Mr. Giordano qualifies as a financial expert pursuant to SEC rules. The audit committee’s primary responsibility is to assist the board in fulfilling its oversight responsibilities with respect to financial reports and other financial information. The audit committee’s other responsibilities are set forth in the amended and restated charter of the audit committee which was adopted on May 14, 2004 and is available for viewing on Scivanta’s website at www.scivanta.com.

 

Executive Sessions of Nonemployee Directors

 

The board and its committees hold executive sessions of its nonemployee directors generally at each meeting. The chairman of the audit committee serves as the chairperson for these executive sessions.

 

Section 16 Compliance

 

Section 16(a) of the Exchange Act requires Scivanta’s directors, executive officers and persons who own more than 10% of Scivanta’s common stock to file Forms 3, 4 and 5 with the SEC. Executive officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish Scivanta with copies of all Forms 3, 4 and 5 reports they file.

 

Scivanta believes that all filings required to be made by its directors, executive officers and persons who own more than 10% of Scivanta’s common stock pursuant to Section 16(a) of the Exchange Act have been filed within the time periods prescribed, except for the Form 3 required to be filed by RL & KC, LLC as a 10% beneficial owner.

 

Chief Executive and Senior Financial Officer Code of Ethics

 

The chief executive and senior financial officers of Scivanta are subject to high standards of honest and ethical conduct when conducting the affairs of Scivanta. All such individuals must act ethically at all times in accordance with the policies contained in Scivanta's Chief Executive and Senior Financial Officer Code of Ethics. The Chief Executive and Senior Financial Officer Code of Ethics is available on Scivanta’s website at www.scivanta.com.

 

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Item 11. Executive Compensation

 

The following table sets forth information concerning the annual and long-term compensation for services in all capacities to Scivanta for the fiscal years ended October 31, 2014 and 2013 of any person who served as Scivanta’s President and Chief Executive Officer during the fiscal year ended October 31, 2014 and each other executive officer of Scivanta. For purposes of this annual report on Form 10-K, Mr. LaVance and Mr. Gifford are each considered a “Named Executive Officer.”

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position   

Year

    

Salary ($)

    

Bonus ($)

    

Stock Awards ($)

    

Option Awards ($)

    

Non-Equity Incentive Plan Compensation ($)

    

Non-Qualified Deferred Compensation Earnings ($)

    

All Other Compensation ($)

    

Total ($)

 
David R. LaVance, President and Chief   Executive   2014   $--   $--   $--   $--   $--   $--   $--   $-- 
Officer   2013   $--   $--   $--   $--   $--   $--   $--   $-- 
                                              
Thomas S. Gifford, Executive Vice President, Chief Financial Officer   2014   $--   $--   $--   $--   $--   $--   $--   $-- 
and Secretary   2013   $--   $--   $--   $--   $--   $--   $--   $-- 

 

Employment Agreements

 

On January 1, 2008, Scivanta entered into an executive employment agreement with each of David R. LaVance, Scivanta’s President and Chief Executive Officer, and Thomas S. Gifford, Scivanta’s Executive Vice President, Chief Financial Officer and Secretary (collectively, the “Employment Agreements”). The term of each of the Employment Agreements commenced on January 1, 2008 and renew annually, unless terminated as provided in the Employment Agreements. Pursuant to the original terms of the Employment Agreements, both Messrs. LaVance and Gifford were to be paid an annual base salary of $275,000. In addition, both Messrs. LaVance and Gifford shall participate in Scivanta’s benefit programs and shall be eligible to receive an annual performance bonus based on the achievement of certain performance objectives as determined by the compensation committee of Scivanta’s board of directors.

 

Effective February 1, 2010, each of Messrs. LaVance and Gifford agreed to reduce the annual base salary due to each of them to $200,000. Effective November 1, 2011, each of Messrs. LaVance and Gifford agreed to reduce the annual base salary due to them to $0 until Scivanta has raised sufficient capital that would provide Scivanta the ability to pay either the original base salary of $275,000 or the reduced base salary of $200,000 or some other amount as mutually agreed upon by each of Mr. LaVance and/or Mr. Gifford and Scivanta’s board of directors.

 

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In the event that Mr. LaVance or Mr. Gifford is terminated without Good Cause (as defined in the Employment Agreements and used herein), or Mr. LaVance or Mr. Gifford terminates his employment for Good Reason (as defined in the Employment Agreements and used herein), Mr. LaVance or Mr. Gifford, as the case may be, will be entitled to receive a severance payment equal to his annual base salary in effect on the date of termination.

 

In addition, in the event that within one-hundred eighty days of a Change of Control (as defined in the Employment Agreements and used herein) of Scivanta, the employment of Mr. LaVance or Mr. Gifford is terminated by Scivanta or its successor without Good Cause, or Mr. LaVance or Mr. Gifford terminates his employment with Scivanta or its successor for Good Reason, Mr. LaVance or Mr. Gifford, as the case may be, shall be paid a severance payment; provided however, that if the termination of employment occurs prior to the Change of Control, the Change of Control must have been considered by Scivanta at the time of termination for Mr. LaVance or Mr. Gifford to be entitled to the severance payment. The amount of the severance payment will be equal to two times the sum of Mr. LaVance’s or Mr. Gifford’s annual base salary in effect immediately prior to the termination of Mr. LaVance’s or Mr. Gifford’s employment and an amount which is the lesser of (a) $150,000 and (b) the aggregate amount of any bonuses paid to Mr. LaVance or Mr. Gifford during the twelve months prior to the earlier of (i) the effective date of the Change of Control and (ii) the date Mr. LaVance’s or Mr. Gifford’s employment terminates with Scivanta.

 

Pursuant to the Employment Agreements, any severance payment to be paid by Scivanta to Mr. LaVance or Mr. Gifford is subject to Scivanta and Mr. LaVance or Mr. Gifford entering into and not revoking a release of claims in favor of Scivanta.

 

Each of Mr. LaVance and Mr. Gifford has agreed that (a) during the term of his employment with Scivanta and (b) for one year after the termination of his employment with Scivanta, he will not, directly or indirectly, be employed by, provide consulting services to or have any ownership interest (as a stockholder, partner or otherwise) in any Competing Business (as defined in the Employment Agreements), except for as permitted in the Employment Agreements.

 

Each of Mr. LaVance and Mr. Gifford has also agreed that (a) during the term of his employment with Scivanta, and (b) for a period of three years after the termination of his employment with Scivanta, he will not recruit any employee of Scivanta or solicit, divert or take away the business or patronage of any of the clients, customers or accounts of Scivanta that were served by Scivanta while he was employed by Scivanta.

 

On January 23, 2013, Scivanta issued 588,236 shares of common stock (294,118 shares of common stock to each of Mr. LaVance and Mr. Gifford) as full payment of the $200,000 of accrued compensation due under the Employment Agreements.

 

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Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information about all equity compensation awards held by the Named Executive Officers at October 31, 2014.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Option Awards   Stock Awards 
Name  Date of Grant   

Number of Securities Underlying Unexercised Options (#) Exercisable

    

Number of Securities Underlying Unexercised Options (#) Un-exercisable

    

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

    

Option Exercise Price ($)

   Option Expir-ation Date   

Number of Shares or Units of Stock That Have Not Vested (#)

    

Market Value of Shares or Units of Stock That Have Not Vested ($)

    

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)

    

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

 
David R. LaVance  2/5/07   50,000(1)    --    --   $2.00   2/5/17   --   $--    --   $-- 
President and Chief  1/1/08   10,000(2)    --    --   $1.40   1/1/18   --   $--    --   $-- 
Executive Officer  1/21/09   25,000(3)    --    --   $1.40   1/21/19   --   $--    --   $-- 
                                               
Thomas S. Gifford  2/5/07   50,000(1)    --    --   $2.00   2/5/17                    
Executive Vice President,  1/1/08   10,000(2)    --    --   $1.40   1/1/18   --   $--    --   $-- 
Chief Financial Officer and Secretary  1/21/09   25,000(3)    --    --   $1.40   1/21/19   --   $--    --   $-- 

 

(1)On February 5, 2007, Scivanta granted a non-qualified stock option to purchase 50,000 shares of its common stock pursuant to the 2002 Equity Incentive Plan to each of Messrs. LaVance and Gifford.

 

(2)On January 1, 2008, Scivanta granted a non-qualified stock option to purchase 10,000 shares of its common stock under the 2007 Equity Incentive Plan to each of Messrs. LaVance and Gifford.

 

(3)On January 21, 2009, Scivanta granted a non-qualified stock option to purchase 25,000 shares of its common stock under the 2007 Equity Incentive Plan to each of Messrs. LaVance and Gifford.

 

Director Compensation

 

The following table sets forth information concerning the compensation of the board of directors who are not Named Executive Officers for the fiscal year ended October 31, 2014.

 

Name   

Fees Earned or Paid in Cash
($)

    

Stock Awards ($)

    

Option Awards 

($)

    

Non-Equity Incentive Plan Compen-sation ($)

    

Change in Pension Value and Non-Qualified Deferred Compen-sation Earnings
($)

    

All Other Compen-sation ($)

    

Total
($)

 
Lawrence M. Levy  $--   $--   $--   $--   $--   $--   $-- 
                                    
Anthony Giordano, III  $--   $--   $--   $--   $--   $--   $-- 

 

21
 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information as of February 12, 2015, with respect to the beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of Scivanta’s common stock, which is the only class of Scivanta capital stock with shares issued and outstanding, by (1) each director and nominee for director of Scivanta, (2) each of the Named Executive Officers, (3) each person or group of persons known by Scivanta to be the beneficial owner of greater than 5% of Scivanta’s outstanding common stock, and (4) all directors and executive officers of Scivanta as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to the shares of Scivanta common stock shown as beneficially owned by them.

 

Name of Beneficial Owner  Number of Shares Beneficially Owned (1)   Percent of  
Class
 
David R. LaVance (2)(3)(4)   1,104,749    17.14%
Thomas S. Gifford (3)(5)(6)   1,166,936    18.11%
Lawrence M. Levy (3)   17,647    * 
Anthony Giordano, III (3)   17,647    * 
Zanett Opportunity Fund, Ltd. (7)(8)   1,021,043    14.71%
Zachary E. McAdoo (9)(10)   1,475,588    21.25%
CMD Investment Group, LLC (11)   721,705    11.35%
RL & KC, LLC (12)(13)   923,077    12.68%
James C. Czir Trust (14)(15)   461,538    6.77%
Chris Hynes (16)(17)   692,308    9.82%
All directors and executive officers as a group (4)(6)   2,306,979    35.33%

 

* Represents less than 1% of the issued and outstanding shares of Scivanta’s common stock.

 

(1)In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of Scivanta’s common stock if he, she or it has voting or investment power with respect to such shares. This includes shares (a) subject to options and warrants exercisable within sixty days of February 12, 2015, and (b) (1) owned by a spouse, (2) owned by other immediate family members, or (3) held in trust or held in retirement accounts or funds for the benefit of the named individuals, over which shares the person named in the table may possess voting and/or investment power.

 

(2)Such person serves as Scivanta’s President and Chief Executive Officer.

 

(3)Such person serves as a director of Scivanta and maintains a mailing address of 215 Morris Avenue, Spring Lake, New Jersey 07762.

 

(4)Includes 85,000 shares of common stock currently available for purchase under the options granted to Mr. LaVance on February 5, 2007, January 1, 2008 and January 21, 2009.

 

(5)Such person serves as Scivanta’s Executive Vice President, Chief Financial Officer and Secretary.

 

(6)Includes 85,000 shares of common stock currently available for purchase under the options granted to Mr. Gifford on February 5, 2007, January 1, 2008 and January 21, 2009. Also includes 31,094 shares of common stock held by the LaVance Trust for Children. Mr. Gifford is the trustee for the LaVance Trust for Children, a trust established for the benefit of Mr. LaVance’s adult children. Mr. Gifford disclaims beneficial ownership of the 31,094 shares of common stock held in trust.

 

22
 

 

(7)Zanett Opportunity Fund, Ltd. (“Zanett”) maintains a mailing address at Appleby Spurling, Canon’s Court, 22 Victoria Street, P.O. Box HM 1179 Hamilton, HM EX, Bermuda.

 

(8)Includes 333,333 shares of common stock available upon the conversion, at the current conversion price $0.30 per share, of an 8% convertible debenture issued to Zanett on May 20, 2011 and 250,000 shares of common stock available upon the conversion, at the current conversion price $0.40 per share, of an 8% convertible debenture issued to Zanett on August 15, 2012.

 

(9)Mr. McAdoo maintains a mailing address of 135 East 57th Street, 4th Floor, New York, New York 10022.

 

(10)Includes 333,333 shares of common stock available upon the conversion, at the current conversion price $0.30 per share, of an 8% convertible debenture issued to Zanett on May 20, 2011 and 250,000 shares of common stock available upon the conversion, at the current conversion price $0.40 per share, of an 8% convertible debenture issued to Zanett on August 15, 2012. Also includes 437,710 shares of common stock held by Zanett. Mr. McAdoo is the President of McAdoo Capital, Inc., the investment manager to Zanett. Mr. McAdoo disclaims beneficial ownership of the 437,710 shares of common stock held by Zanett and the shares available to Zanett upon conversion of the convertible debentures.

 

(11)CMD Investment Group maintains a mailing address at 12 Perrine Circle, Perrineville, New Jersey 08535.

 

(12)RL & KC, LLC maintains a mailing address at 1012 Nutwood Avenue, Fullerton, California 92831.

 

(13)Includes 769,231 shares of common stock available upon the conversion, at the current conversion price $0.13 per share, of a 10% convertible debenture issued to RL & KC, LLC on December 12, 2013. Also includes 153,846 shares of common stock currently available for purchase under a warrant issued to RL & KC, LLC on December 12, 2013.

 

(14)James C. Czir Trust maintains a mailing address at 425 Janish Drive, Sandpoint, Idaho 83864.

 

(15)Includes 384,615 shares of common stock available upon the conversion, at the current conversion price $0.13 per share, of a 10% convertible debenture issued to James C. Czir Trust on December 12, 2013. Also includes 76,923 shares of common stock currently available for purchase under a warrant issued to James C. Czir Trust on December 12, 2013.

 

(16)Chris Hynes maintains a mailing address at P.O. Box 1937, Edwards, Colorado 81632.

 

(17)Includes 576,923 shares of common stock available upon the conversion, at the current conversion price $0.13 per share, of a 10% convertible debenture issued to Chris Hynes on April 1, 2014. Also includes 115,385 shares of common stock currently available for purchase under a warrant issued to Chris Hynes on April 1, 2014.

 

Stock Option Plans

 

Scivanta currently has two stock option plans in place: the 2002 Equity Incentive Plan and the 2007 Equity Incentive Plan (collectively, the “Equity Incentive Plans”). The 2002 Equity Incentive Plan was approved by the stockholders on July 5, 2002. The aggregate number of shares of common stock which could have been awarded under the 2002 Equity Incentive Plan was 200,000. As of October 31, 2014, options to purchase 123,500 shares of Scivanta’s common stock were outstanding under the 2002 Equity Incentive Plan. As a result of the adoption of the 2007 Equity Incentive Plan, no further awards are permitted under the 2002 Equity Incentive Plan.

 

On May 31, 2007, the stockholders approved Scivanta’s 2007 Equity Incentive Plan. The aggregate number of shares of common stock which may be awarded under the 2007 Equity Incentive Plan is 300,000, subject to adjustment as provided in the 2007 Equity Incentive Plan. Effective December 27, 2013, as permitted under the 2007 Equity Incentive Plan, Scivanta’s board of directors increased the number of shares of common stock that could be awarded under the 2007 Equity Incentive Plan to 814,408 shares of common stock. As of October 31, 2014, options to purchase 83,332 shares of Scivanta’s common stock were outstanding under the 2007 Equity Incentive Plan and up to 731,076 shares of Scivanta’s common stock could be awarded under the 2007 Equity Incentive Plan.

 

23
 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information as of October 31, 2014 on the number of shares of Scivanta’s common stock to be issued upon the exercise of outstanding options under the Equity Incentive Plans and upon the exercise of outstanding warrants issued by Scivanta as compensation outside of the Equity Incentive Plans and the number of shares of Scivanta’s common stock remaining available for future issuance under the Equity Incentive Plans.

 

EQUITY COMPENSATION PLAN TABLE

 

Plan Category  Number of securities to be issued upon exercise of outstanding options and warrants   Weighted-average exercise price of outstanding options and warrants   Number of securities remaining available for future issuance under equity compensation plans 
Equity compensation plan approved by security holders (1)   206,832   $1.67    731,076 
Equity compensation arrangements not approved by security holders (2)   250,000   $0.13    -- 
Total   456,832   $0.83    731,076 
 
(1)Scivanta currently has two equity compensation plans, the 2002 Equity Incentive Plan and the 2007 Equity Incentive Plan. Both of these plans are described herein and each has been approved by Scivanta’s stockholders. As a result of the adoption of the 2007 Equity Incentive Plan, no further awards are permitted under the 2002 Equity Incentive Plan.
(2)Represents warrants to purchase common stock which were issued and outstanding as of October 31, 2014. See discussion below for additional information.

 

Equity Compensation Arrangements Not Approved by the Security Holders

 

On January 8, 2014, Scivanta issued a warrant to purchase 250,000 shares of the Company’s common stock in connection with a consulting agreement with a third party for corporate finance consulting services. The warrant has a five year term, is exercisable at $0.13 per share and vested upon issuance. As of October 31, 2014, all 250,000 shares underlying the warrant were available for purchase.

 

Item 13. Certain Relationships and Related Transactions and Director Independence

 

Certain Relationships and Related Transactions

 

David R. LaVance, Scivanta’s Chairman, President and Chief Executive Officer, and Thomas S. Gifford, Scivanta’s Executive Vice President, Chief Financial Officer and Secretary, are principals of Century Capital, a consulting firm. Effective February 1, 2007, Scivanta and Century Capital entered into a Sublease Agreement pursuant to which Scivanta rents office space approximating 2,000 square feet inside Century Capital’s existing offices. In addition, Scivanta rents office furniture and other equipment from Century Capital. This agreement has a month to month term that requires sixty days written notice to terminate and a monthly rental fee of $5,000. Scivanta is responsible for all operating costs associated with the office space, including utilities, maintenance and property taxes.

 

24
 

 

During the fiscal year ended October 31, 2014, Scivanta was billed $68,488 pursuant to the terms of the Sublease Agreement. As of October 31, 2014, Scivanta owed Century Capital $45,000 for rent, $17,422 for expenses due under the Sublease Agreement and $149,475 for other expenses, which amounts are included in accounts payable – related party. Subsequent to October 31, 2014, $6,585 of the amount due to Century Capital was paid.

 

Director Independence

 

Lawrence M. Levy and Anthony Giordano, III each qualify as independent directors in accordance with NASDAQ’s definition of “independent director” and the rules and regulations of the SEC. Messrs. Levy and Giordano also serve on the audit committee and qualify as independent directors for the audit committee in accordance with NASDAQ’s definition of “independent director” and the rules and regulations of the SEC.

 

Item 14. Principal Accountant Fees and Services

 

Audit Fees. Scivanta was billed $29,000 by WeiserMazars LLP for audit fees relating to Scivanta’s fiscal year ended October 31, 2014 and was billed $22,000 for audit fees relating to Scivanta’s fiscal year ended October 31, 2013. Audit fees incurred in each of the fiscal years ended October 31, 2014 and 2013 consisted of fees for the audit of Scivanta’s annual financial statements and review of quarterly financial statements.

 

Audit Related Fees. Scivanta did not incur any fees associated with audit related services with WeiserMazars LLP, or any other accounting firm, relating to fiscal years ended October 31, 2014 and 2013. Audit-related fees are fees for assurance and related services, including primarily employee benefit plan audits, due diligence related to acquisitions, accounting consultations in connection with acquisitions, consultation concerning financial accounting and reporting standards and consultation concerning matters related to Section 404 of the Sarbanes Oxley Act of 2002.

 

Tax Fees. Scivanta did not incur any fees associated with tax services relating to the fiscal years ended October 31, 2014 and 2013.

 

All Other Fees. Scivanta did not incur any fees associated with non-audit services with WeiserMazars LLP, or any other accounting firm, relating to fiscal years ended October 31, 2014 and 2013.

 

Pre-Approval Policies and Procedures. The audit committee is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In accordance with its charter, the audit committee approves, in advance, all audit and permissible non-audit services to be performed by the independent registered public accounting firm. Such approval process ensures that the independent registered public accounting firm does not provide any non-audit services to Scivanta that are prohibited by law or regulation.

 

25
 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a)      Exhibits

Reference is made to the Index of Exhibits beginning on page E-1 of this report.

 

(b)     Financial Statement Schedules

 

Reference is made to the Index of Financial Statements on page F-1 of this report.  No schedules are included with the financial statements because the required information is inapplicable or is presented in the financial statements or notes thereto.

 

26
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DATE: SCIVANTA MEDICAL CORPORATION
     
February 13, 2015 By: /s/  David R. LaVance
    David R. LaVance
    Chairman of the Board of Directors,
    President and Chief Executive Officer

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signatures   Title   Date
         
/s/ David R. LaVance   Chairman of the Board of   February 13, 2015
David R. LaVance   Directors, President and    
    Chief Executive Officer    
         
/s/ Thomas S. Gifford   Executive Vice President,     February 13, 2015
Thomas S. Gifford   Chief Financial Officer,  
    Secretary and Director    
         
/s/ Lawrence M. Levy   Director   February 13, 2015
Lawrence M. Levy        
         
/s/ Anthony Giordano, III   Director   February 13, 2015
Anthony Giordano, III        

 

27
 

 

Scivanta Medical Corporation

 

Financial Statements

 

Contents

 

Report of Independent Registered Public Accounting Firm F-2
Balance Sheets as of October 31, 2014 and 2013 F-3
Statements of Operations for the Years Ended October 31, 2014 and 2013 F-4
Statements of Stockholders’ Deficiency for the Years Ended October 31, 2014 and 2013 F-5
Statements of Cash Flows for the Years Ended October 31, 2014 and 2013 F-6
Notes to the Financial Statements F-7

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Scivanta Medical Corporation

 

We have audited the accompanying balance sheets of Scivanta Medical Corporation (the “Company”) as of October 31, 2014 and 2013, and the related statements of operations, stockholders’ deficiency, and cash flows for each of the years in the two-year period ended October 31, 2014. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Scivanta Medical Corporation as of October 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant recurring operating losses, negative cash flows from operations and has a working capital deficiency. The Company also has no lending relationships with commercial banks and is dependent on the completion of a financing in order to continue operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ WeiserMazars LLP

 

Edison, New Jersey

February 13, 2015

 

F-2
 

 

Scivanta Medical Corporation

Balance Sheets

  

    

October 31,
2014

    October 31, 
2013
 
Assets          
Current assets:          
Cash  $26,114   $19,908 
Prepaid expenses   6,673    12,018 
           
Total current assets  $32,787   $31,926 
           
Liabilities and Stockholders’ Deficiency          
Current liabilities:          
Accounts payable  $101,055   $215,584 
Accounts payable - related party   211,898    96,659 
Accrued expenses   62,144    41,388 
Notes payable   --    4,615 
Convertible debentures   617,262    300,000 
           
Total current liabilities   992,359    658,246 
           
Convertible debentures   --    100,000 
Notes payable   105,000    105,000 
           
Total liabilities   1,097,359    863,246 
           
Commitments and contingencies          
           
Stockholders' deficiency:          
Preferred stock, $.001 par value; 20,000,000 shares authorized; no shares issued   --    -- 
Common stock, $.001 par value; 500,000,000 shares authorized; 6,359,055 and 5,429,384 shares issued and outstanding, respectively   6,359    5,429 
Additional paid-in capital   23,070,589    22,880,390 
Accumulated deficit   (24,141,520)   (23,717,139)
           
Total stockholders' deficiency   (1,064,572)   (831,320)
           
Total liabilities and stockholders' deficiency  $32,787   $31,926 

 

The accompanying notes are an integral part of these financial statements.

 

F-3
 

 

Scivanta Medical Corporation

Statements of Operations

 

  

Years Ended

October 31,

 
   2014   2013 
         
Revenue  $--   $-- 
           
Operating expenses:          
Research and development   --    3,115 
General and administrative   426,168    322,725 
Gain on settlement of accounts payable   (80,656)   (68,050)
Loss from operations   (345,512)   (257,790)
           
Interest expense   (78,869)   (32,709)
           
Net loss  $(424,381)  $(290,499)
           
Net loss per common share, basic and diluted  $(0.07)  $(0.06)
           
Weighted average number of common shares outstanding, basic and diluted   6,148,090    4,730,139 

 

The accompanying notes are an integral part of these financial statements.

 

F-4
 

 

Scivanta Medical Corporation

Statements of Stockholders’ Deficiency

For the Years Ended October 31, 2014 and 2013

 

   Common Stock   Additional       Total 
   Number   $0.001   Paid-in   Accumulated   Stockholders' 
   of Shares   Par Value   Capital   Deficit   Deficiency 
Balance at October 31, 2012   3,111,691   $3,112   $22,371,230   $(23,426,640)  $(1,052,298)
Shares issued as payment of accrued compensation   588,236    588    225,039         225,627 
Shares issued as payment of accounts payable – related party   279,412    279    94,721         95,000 
Shares issued as payment of accrued director fees   50,000    50    16,950         17,000 
Shares issued as payment of interest due on February 1, 2007 convertible debentures   177,454    177    31,823         32,000 
Shares issued as payment of interest due on May 20, 2011 convertible debenture   16,000    16    7,984         8,000 
Shares issued for cash, net of offering costs   1,136,364    1,137    115,454         116,591 
Shares issued as payment of offering costs   36,477    36    12,498         12,534 
Shares issued as payment of consulting fees   33,750    34    4,691         4,725 
Net loss                  (290,499)   (290,499)
Balance at October 31, 2013   5,429,384   $5,429   $22,880,390   $(23,717,139)  $(831,320)
Shares issued as payment of accounts payable   230,769    231    29,769         30,000 
Shares issued as payment of accounts payable – related party   461,538    462    59,538         60,000 
Shares issued as payment of interest due on February 1, 2007 convertible debentures   123,078    123    15,877         16,000 
Shares issued as payment of interest due on May 20, 2011 convertible debenture   57,143    57    7,943         8,000 
Shares issued as payment of interest due on August 15, 2012 convertible debenture   57,143    57    7,943         8,000 
Discount on convertible debentures issued on December 12, 2013 and April 1, 2014             36,796         36,796 
Stock based compensation             32,333         32,333 
Net loss                  (424,381)   (424,381)
Balance at October 31, 2014   6,359,055   $6,359   $23,070,589   $(24,141,520)  $(1,064,572)

 

The accompanying notes are an integral part of these financial statements.

 

F-5
 

 

Scivanta Medical Corporation

Statements of Cash Flows

 

   Years Ended October 31, 
   2014   2013 
Cash flows from operating activities:        
Net loss  $(424,381)  $(290,499)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation expense   32,333    4,725 
Gain on settlement of accounts payable   (80,656)   (68,050)
Accretion of interest on convertible debentures   29,058    -- 
Changes in operating assets and liabilities:          
Prepaid expenses   5,345    17,745 
Accounts payable   (3,873)   77,789 
Accounts payable - related party   175,239    109,008 
Accrued expenses   52,756    470 
Net cash used in operating activities   (214,179)   (148,812)
Cash flows from financing activities:          
Repayment of notes payable   (4,615)   (15,605)
Proceeds from issuance of convertible debenture   225,000    -- 
Proceeds from sale of common stock, net of offering costs   --    120,000 
Net cash provided by financing activities   220,385    104,395 
Increase (decrease) in cash   6,206    (44,417)
Cash - beginning of year   19,908    64,325 
Cash – end of year  $26,114   $19,908 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $54   $739 
Cash paid for income taxes  $500   $500 
Noncash financing activities:          
Issuance of 461,538 and 279,412 shares of common stock, respectively, as payment of accounts payable – related party  $60,000   $95,000 
Issuance of 230,769 shares of common stock as payment of accounts payable  $30,000   $-- 
Issuance of 237,364 and 193,454 shares of common stock, respectively, as payment of interest due on convertible debentures  $32,000   $40,000 
Discount recorded in connection with issuance of convertible debentures  $36,796   $-- 
Issuance of 50,000 shares of common stock as settlement of accounts payable for director fees  $--   $17,000 
Issuance of 588,236 shares of common stock as settlement of accrued compensation and other related costs  $--    225,627 
Issuance of 36,477 shares of common stock as payment of offering costs related to private placements  $--   $12,534 
Issuance of notes payable as payment for insurance premiums  $--   $20,220 

 

The accompanying notes are an integral part of these financial statements.

 

F-6
 

 

Scivanta Medical Corporation

Notes to the Financial Statements

 

1.Organization and Description of Business

 

Scivanta Medical Corporation (“Scivanta” or the “Company”), originally incorporated in New Jersey on November 29, 1982, is currently a Nevada corporation headquartered in Spring Lake, New Jersey. The Company ceased selling all products during the fiscal year ended October 31, 2004.

 

On November 10, 2006, the Company licensed the exclusive world-wide rights to develop, manufacture and distribute certain proprietary technologies known as the Scivanta Cardiac Monitoring System (the “SCMS”), a minimally invasive two-balloon esophageal catheter system used to monitor cardiac performance. The Company has ceased all development activity related to the SCMS and does not intend to resume development of the SCMS. The Company expects to return all of the technology related to the SCMS to the licensor and is currently attempting to negotiate an agreement with the licensor related to the return of the SCMS technology.

 

The Company’s strategy for business development is focused on the acquisition, through licensing or purchasing, of medical devices, pharmaceuticals and other proprietary technologies, patented products or services. Any such acquisitions will be contingent upon the Company’s ability to secure the financing required to fund such acquisitions.

 

2.Basis of Presentation

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant recurring operating losses and negative cash flows from operations. The Company had a working capital deficiency of $959,572 and an accumulated deficit of $24,141,520 as of October 31, 2014. The Company has not made $350,000 of principal payments due on certain convertible debentures and, as a result, these obligations can be placed in default by the holders. The Company also has no lending relationships with commercial banks and is dependent on the completion of a financing involving the private placement of its securities in order to continue operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company continues to seek equity and/or debt investors and from time to time engages placement agents to assist the Company in this initiative. Effective November 1, 2011, each of the Company’s officers agreed to waive the annual base salary due to them and each of the Company’s directors agreed to waive the annual retainer and meeting fees due to them until the Company is able to raise sufficient capital that would provide the Company with the ability to pay cash compensation to its officers and directors. The Company has also paid certain obligations with shares of its common stock and has deferred certain other vendor payments until the Company secures sufficient additional debt or equity financing.

 

While the Company is pursuing the opportunities and actions described above, there can be no assurance that it will be successful in its efforts. If the Company is unable to secure additional capital, it will explore other strategic alternatives, including, but not limited to, the sale of the Company. Any additional equity financing may result in substantial dilution to our stockholders.

 

F-7
 

 

3. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, which include cash, accounts payable and accrued expenses, approximate their fair values due to their short maturities.

 

The fair value of the convertible debentures and the notes payable approximate fair value since these investments are at market rates currently available to the Company.

 

Concentration of Credit Risk

 

The Company has no significant off balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company’s financial instruments that are exposed to concentration of credit risks consist of cash. The Company maintains its cash and cash equivalents in bank accounts which, at times, exceed federally-insured limits.

 

Income Taxes

 

The Company accounts for income taxes under Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). ASC 740 requires that the Company recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.

 

Research and Development

 

The Company expenses research and development costs as incurred. Initial and milestone payments made to third parties in connection with technology license agreements are also expensed as incurred as research and development costs, up to the point of regulatory approval. Payments made to third parties subsequent to regulatory approval will be capitalized and amortized over the estimated remaining useful life of the related product.

 

F-8
 

 

Stock Based Compensation

 

The Company accounts for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). All stock-based payments to employees are grants of stock options that are recognized in the statement of operations based on their fair values at the date of grant.

 

The Company accounts for stock-based payments to non-employees in accordance with ASC 718 and ASC 505-50, “Equity-Based Payments to Non-Employees.” All stock-based payments to non-employees are issuances of warrants that are recognized in the statement of operations based on the value of the vested portion of the warrant issuance as measured at its then-current fair value as of each financial reporting date.

 

The Company calculates the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. Scivanta estimates forfeiture rates for all unvested awards when calculating the expense for a period. In estimating the forfeiture rate, Scivanta monitors both stock option and warrant exercises as well as employee termination patterns.

 

The resulting stock-based compensation expense for employee awards is recognized on a straight-line basis over the requisite service period of the award.

 

During the fiscal years ended October 31, 2014 and 2013, the Company recorded non-employee stock-based compensation expense of $32,333 and $4,725, respectively, which amounts were included in general and administrative expenses.

 

Net Loss Per Common Share

 

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive. The dilutive effect of the outstanding stock options, warrants and convertible debt is computed using the treasury stock method.

 

For the fiscal year ended October 31, 2014, diluted net loss per share did not include the effect of 206,832 shares of common stock issuable upon the exercise of outstanding options, 596,154 shares of common stock issuable upon the exercise of outstanding warrants and 2,397,436 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.

 

For the fiscal year ended October 31, 2013, diluted net loss per share did not include the effect of 241,432 shares of common stock issuable upon the exercise of outstanding options, 20,000 shares of common stock issuable upon the exercise of outstanding warrants and 666,667 shares of common stock issuable upon the conversion of convertible debt, as their effect would be anti-dilutive.

 

F-9
 

 

Recent Accounting Pronouncements Applicable to the Company

 

The Company does not believe there are any recently issued, but not yet effective, accounting standards that would have a significant impact on the Company’s financial position or results of operations.

 

4. Amended and Restated SCMS License Agreement

 

On February 14, 2011, the Company entered into an Amended and Restated Technology License Agreement with The Research Foundation of State University of New York, for and on behalf of the University at Buffalo (the “Foundation”), Donald D. Hickey, M.D. (“Hickey”) and Clas E. Lundgren (“Lundgren”). The Foundation, Hickey and Lundgren shall be collectively referred to herein as the “Licensor”. The Amended and Restated Technology License Agreement, as further amended on March 14, 2013, is referred to herein as the “License Agreement”.

 

Pursuant to the License Agreement, the Licensor granted the Company the exclusive world-wide rights to develop, manufacture and distribute the SCMS. The term of the License Agreement ends on the later of (a) the expiration date of the last to expire patent right related to the SCMS, which is currently May 1, 2027, or (b) 17 years from the sale of the first licensed product on a country by country basis.

 

Under the License Agreement, a cash payment of $105,000 is payable to Hickey as follows: (a) $50,000 is due to Hickey on or before a date that is thirty (30) days after the closing of any single financing by the Company of at least $3,000,000 or any series of financings by the Company within a six (6) month period totaling at least $3,000,000; and (b) $55,000 is due to Hickey on or before the date that is thirty (30) days after the first commercial sale of a product utilizing the licensed technology (see Note 10).

 

In addition, upon the occurrence of certain events, the Company agreed to issue shares of its common stock to the Licensor. On the date the Company files for approval to market and sell a product utilizing the licensed technology, the Company will issue shares of its common stock to the Licensor with a value of $130,000. On the date the Company receives approval to market and sell a product utilizing the licensed technology, the Company will issue shares of its common stock to the Licensor with a value of $160,000. The number of shares of the Company’s common stock to be issued to the Licensor will be calculated based on the market price of the Company’s common stock, as defined in the License Agreement, on the date that each of the respective above noted events occur.

 

The Company is required to pay the Licensor a royalty of 5% of annual net sales, as defined in the License Agreement, subject to certain reductions as detailed in the License Agreement. Beginning with the first full year of sales of the SCMS in the United States and for two years thereafter, Scivanta is required to pay an annual minimum royalty of $100,000 to the Licensor against which any royalty on net sales paid in the same calendar year for sales in the United States will be credited. Further, beginning with the first full year of sales of the SCMS outside the United States and for two years thereafter, Scivanta is required to pay an annual minimum royalty of $100,000 to the Licensor against which any royalty on net sales paid in the same calendar year for sales outside the United States will be credited. The Company is also required to pay the Licensor 25% of all sublicensing revenue, as defined in the License Agreement, received by the Company in connection with the Company’s sublicense of the rights granted to the Company under the License Agreement.

 

F-10
 

 

The License Agreement also requires Scivanta to use commercially reasonable efforts to develop and market the SCMS within certain timeframes, subject to specified exceptions. If Scivanta materially fails to perform any covenant, condition or undertaking of the License Agreement, including the failure to make any payments when due, the Licensor may give written notice of such default to Scivanta. If Scivanta should fail to cure such default within ninety (90) days of notice of such default, then the Licensor, at its option, may terminate the License Agreement. Further, the License Agreement contains standard provisions regarding indemnification and patent prosecution.

 

The Company has not met certain development timeframes and as a result, could be issued a notice of default of the License Agreement by the Licensor. The Company expects to return all of the technology related to the SCMS to the Licensor and is currently attempting to negotiate an agreement with the Licensor related to the return of the SCMS technology.

 

5. Income Taxes

 

The difference between the statutory federal income tax rate on the Company’s pre-tax loss and the Company’s effective income tax rate is summarized as follows:

 

   Years Ended 
   October 31,
2014
   October 31,
2013
 
   Amount   Percent   Amount   Percent 
Income tax provision at federal statutory rate  $(144,290)   34%  $(98,770)   34%
Effect of state taxes, net of federal benefit   (25,463)   6    (17,430)   6 
Change in valuation allowance   81,817    (19)   115,939    (40)
Stock based compensation   84,313    (20)   --    -- 
Other   3,623    (1)   261    -- 
   $--    

--

%  $--    

--

%

 

Significant components of the Company’s deferred tax assets as of October 31, 2014 and 2013 are shown below. In determining whether the deferred tax assets will be realized, the Company considered numerous factors, including historical profitability, estimated future taxable income and the industry in which it operates. As of October 31, 2014 and 2013, a valuation allowance was recorded to fully offset the net deferred tax assets, as it was determined by management that the realization of the net deferred tax assets were not likely to occur in the foreseeable future. The valuation allowance increased $81,817 during the fiscal year ended October 31, 2014, attributable primarily to the Company’s continuing operating losses for the fiscal year ended October 31, 2014 and the Company’s belief that its remaining net operating losses would not be realized. Additionally, certain options and warrants that expired prior to the fiscal year ended October 31, 2013 will not generate any future tax benefit and accordingly, their deferred tax asset value was reduced to zero during the fiscal year ended October 31, 2014.

 

F-11
 

 

The tax effects of temporary differences and net operating loss carryforwards that give rise to deferred taxes consist of the following:

 

   Years Ended
October 31,
 
   2014   2013 
         
Net operating loss  $6,023,403   $5,854,514 
Accrued compensation   173,318    173,318 
Depreciation and amortization   6,090    6,668 
License costs   123,839    139,061 
Stock based compensation   130,841    202,113 
Total gross deferred tax assets   6,457,491    6,375,674 
Valuation allowance   (6,457,491)   (6,375,674)
Net deferred tax assets  $--   $-- 

 

As of October 31, 2014, the Company had federal and state operating losses of approximately $16,991,000 and $3,564,000, respectively. The federal operating losses expire in the years 2022 through 2034 and the state operating losses expire in the years 2015 through 2034.

 

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change.

 

The Company’s fiscal 2011, 2012 and 2013 federal and state income tax returns are open for examination by the applicable governmental authorities.

 

6. Related Party Transactions

 

Sublease Agreement

 

David R. LaVance, the Company’s Chairman, President and Chief Executive Officer, and Thomas S. Gifford, the Company’s Executive Vice President, Chief Financial Officer and Secretary, are principals of Century Capital Associates LLC (“Century Capital”). Effective February 1, 2007, the Company and Century Capital entered into a Sublease Agreement pursuant to which the Company rents office space approximating 2,000 square feet inside Century Capital’s existing offices. In addition, the Company rents office furniture and other equipment from Century Capital. This agreement has a month to month term that requires sixty days written notice to terminate and a monthly rental fee of $5,000. The Company is responsible for all operating costs associated with the office space, including utilities, maintenance and property taxes.

 

During the fiscal year ended October 31, 2014, the Company was billed $68,488 pursuant to the terms of the Sublease Agreement. As of October 31, 2014, the Company owed Century Capital $45,000 for rent due under the Sublease Agreement, $17,422 for expenses due under the Sublease Agreement and $149,476 for other expenses, which amounts are included in accounts payable – related party. Subsequent to October 31, 2014, $6,585 of the amount due to Century Capital was paid by the Company.

 

F-12
 

 

During the fiscal year ended October 31, 2013, the Company was billed $79,724 pursuant to the terms of the Sublease Agreement.

 

7. Stockholders’ Equity

 

Amendment to Restated Articles of Incorporation

 

Effective April 22, 2013, the Company amended its restated articles of incorporation to, among other items, effectuate a 10-to-1 reverse stock split (the “Reverse Stock Split”) with respect to its outstanding shares of common stock and increase the amount of authorized capital stock to 520,000,000 shares, notwithstanding the effect of the Reverse Stock Split, consisting of 500,000,000 shares of common stock, par value $.001 per share, and 20,000,000 shares of preferred stock, par value $.001 per share. In connection with the amendments to the restated articles of incorporation, the par value of the Company’s common stock remained $.001 per share, resulting in a reclassification between common stock and additional paid-in capital in order to account for the Reverse Stock Split.

 

Issuance of Common Stock as Payment of Certain Obligations

 

On January 23, 2013, the Company issued an aggregate of 588,236 shares of its common stock to its two executive officers (294,118 shares of common stock were issued to each of Mr. LaVance and Mr. Gifford), as settlement of $225,627 of accrued compensation due to them and other related costs.

 

On January 23, 2013, the Company issued an aggregate of 50,000 shares of its common stock to its current independent directors and a former independent director as settlement of $17,000 of fees owed to them.

 

On January 23, 2013, the Company issued 279,412 shares of its common stock to Century Capital as settlement of $95,000 of office rent owed by Scivanta through January 31, 2013.

 

On March 22, 2013, the Company issued 36,477 shares of its common stock to a third party service provider as payment of $12,534 of offering costs related to certain private placements of the Company’s securities.

 

On April 8, 2013, the Company issued 33,750 shares of its common stock to a third party service provider as payment of $4,725 of consulting fees.

 

On January 8, 2014, the Company issued 461,538 shares of its common stock to Century Capital as payment of $60,000 of accounts payable – related party for office rent owed by Scivanta for the period commencing February 1, 2013 through January 31, 2014.

 

On January 8, 2014, the Company issued 230,769 shares of its common stock as payment of $30,000 of accounts payable owed to a third party service provider.

 

F-13
 

 

Issuance of Common Stock as Payment of Interest Due on Convertible Debentures

 

On January 23, 2013, the Company issued an aggregate of 32,000 shares of its common stock to the holders of the February 2007 Debentures, as hereinafter defined, in satisfaction of $16,000 of interest due for the period February 1, 2011 through January 31, 2012 (see Note 8).

 

On January 23, 2013, the Company issued 16,000 shares of its common stock to the holder of the May 2011 Debenture, as hereinafter defined, in satisfaction of $8,000 of interest due for the period May 20, 2011 through May 19, 2012 (see Note 8).

 

On April 16, 2013, the Company issued an aggregate of 145,454 shares of its common stock to the holders of the February 2007 Debentures in satisfaction of $16,000 of interest due for the period February 1, 2012 through January 31, 2013 (see Note 8).

 

On January 8, 2014, the Company issued 57,143 shares of its common stock to the holder of the May 2011 Debenture in satisfaction of $8,000 of interest due for the period May 20, 2012 through May 19, 2013 (see Note 8).

 

On January 8, 2014, the Company issued 57,143 shares of its common stock to the August 2012 Debenture holder in satisfaction of $8,000 of interest due for the period August 15, 2012 through August 15, 2013 (see Note 8).

 

On April 30, 2014, the Company issued an aggregate of 123,078 shares of its common stock to the holders of the February 2007 Debentures in satisfaction of $16,000 of interest due for the period February 1, 2013 through January 31, 2014 (see Note 8).

 

Sale of Common Stock

 

On January 25, 2013, the Company sold to an individual investor, 454,545 shares of its common stock for an aggregate purchase price of $50,000, or $0.11 per share. The Company did not incur any offering costs in connection with this private placement.

 

On March 22, 2013, the Company sold to an individual investor, 454,545 shares of its common stock for an aggregate purchase price of $50,000, or $0.11 per share. The Company incurred offering costs of $5,000 in connection with this private placement.

 

On April 16, 2013, the Company sold to an individual investor, 227,274 shares of its common stock for an aggregate purchase price of $25,000, or $0.11 per share. The Company did not incur any offering costs in connection with this private placement.

 

Stock Option Plans

 

The Company currently has two stock option plans in place: the 2002 Equity Incentive Plan and the 2007 Equity Incentive Plan (collectively, the “Equity Incentive Plans”). The 2002 Equity Incentive Plan was approved by the stockholders on July 5, 2002. The aggregate number of shares of common stock which could have been awarded under the 2002 Equity Incentive Plan was 200,000 shares. As of October 31, 2014, options to purchase 123,500 shares of the Company’s common stock were outstanding under the 2002 Equity Incentive Plan. As a result of the adoption of the Company’s 2007 Equity Incentive Plan, no further awards are permitted under the 2002 Equity Incentive Plan.

 

F-14
 

 

On May 31, 2007, the stockholders approved the Company’s 2007 Equity Incentive Plan. The 2007 Equity Incentive Plan was placed into effect in order to encourage and enable employees and directors of the Company to acquire or increase their holdings of the Company’s common stock and to promote these individual’s interests in the Company thereby enhancing the efficiency, soundness, profitability, growth and stockholder value of the Company. The 2007 Equity Incentive Plan provides for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The original aggregate number of shares of common stock which could be awarded under the 2007 Equity Incentive Plan was 300,000 shares, subject to adjustment as provided in the 2007 Equity Incentive Plan. Effective December 27, 2013, as permitted under the 2007 Equity Incentive Plan, the Company’s board of directors increased the number of shares of common stock that could be awarded under the 2007 Equity Incentive Plan to 814,408 shares. As of October 31, 2014, options to purchase 83,332 shares of the Company’s common stock were outstanding under the 2007 Equity Incentive Plan and up to 731,076 shares of the Company’s common stock remain available for awards under the 2007 Equity Incentive Plan.

 

Stock option awards under the Equity Incentive Plans were granted at prices as determined by the Company’s compensation committee, but such prices were not less than the fair market value of the Company's common stock on the date of grant. Stock options granted and outstanding include only non-qualified options. These non-qualified options vest over a period of up to five years and have a maximum term of ten years from the date of grant.

 

A summary of stock option transactions for employees and directors under the Equity Incentive Plans during the fiscal years ended October 31, 2014 and 2013 is as follows:

 

   Stock
Option Shares
   Weighted Average Exercise Price Per Common Share   Aggregate Intrinsic Value 
             
Outstanding at October 31, 2012   249,532   $1.57   $700 
Granted during the period   --    --      
Exercised during the period   --    --      
Terminated during the period   (8,100)  $1.40      
Outstanding at October 31, 2013   241,432   $1.57   $-- 
Granted during the period   --    --      
Exercised during the period   --    --      
Terminated during the period   (34,600)  $0.99      
Outstanding at October 31, 2014   206,832   $1.67   $-- 
Exercisable at October 31, 2014   206,832   $1.67   $-- 
Exercisable at October 31, 2013   241,432   $1.57   $700 

 

No stock options were granted during the fiscal years ended October 31, 2014 or 2013.

 

F-15
 

 

Information with respect to outstanding options and options exercisable as of October 31, 2014 that were granted to employees is as follows:

 

    Stock Options Outstanding   Stock Options Exercisable 
Exercise
Price
   Number of Shares Available Under Outstanding Stock
Options
   Weighted Average Exercise Price Per Common Share   Weighted Average Remaining Contractual Life (Years)   Number of Shares Available for Purchase Under Outstanding Stock
Options
   Weighted Average Exercise Price Per Common Share   Weighted Average Remaining Contractual Life (Years) 
                          
$0.20    3,500   $0.20    0.2    3,500   $0.20    0.2 
$0.80    10,000   $0.80    1.2    10,000   $0.80    1.2 
$1.40    83,332   $1.40    3.9    83,332   $1.40    3.9 
$2.00    110,000   $2.00    2.3    110,000   $2.00    2.3 
      206,832   $1.67    2.8    206,832   $1.67    2.8 

 

Warrants to Purchase Common Stock

 

On January 8, 2014, Scivanta issued a warrant to purchase 250,000 shares of the Company’s common stock in connection with a consulting agreement with a third party for corporate finance consulting services. The warrant has a five year term, is exercisable at $0.13 per share and vested upon issuance. The fair value of the warrants on the date of issuance as calculated using the Black-Scholes model was $32,333, using the following weighted average assumptions: exercise price of $0.13 per share; common stock price of $0.13 per share; volatility of 249%; term of five years; dividend yield of 0%; interest rate of 1.77%; and risk of forfeiture of 0%.

 

A summary of warrant transactions during the fiscal years ended October 31, 2014 and 2013 is as follows:

 

   Warrant Shares   Weighted Average Exercise Price Per Common Share   Aggregate Intrinsic Value 
             
Outstanding at October 31, 2012   93,000   $1.19   $-- 
Issued during the period   --    --      
Exercised during the period   --    --      
Terminated during the period   (73,000)  $1.41      
Outstanding at October 31, 2013   20,000   $0.40   $-- 
Issued during the period   596,154   $0.13      
Exercised during the period   --    --      
Terminated during the period   (20,000)  $0.40      
Outstanding at October 31, 2014   596,154   $0.13   $-- 
Exercisable at October 31, 2014   250,000   $0.13   $-- 
Exercisable at October 31, 2013   20,000   $0.40   $-- 

 

F-16
 

 

Warrants issued by the Company contain exercise prices as determined by the Company’s board of directors, but such exercise prices were not less than the market value of the Company's common stock on the date of issuance. Warrants issued may vest over a period of up to five years and have a maximum term of ten years from the date of issuance.

 

As of October 31, 2014, the weighted average remaining contractual life for warrants outstanding was 3.0 years and for warrants exercisable was 4.2 years.

 

8. Convertible Debentures

 

February 2007 Convertible Debentures

 

On February 8, 2007, the Company issued 8% convertible debentures, dated February 1, 2007, in an aggregate principal amount of $250,000 to individual investors (the “February 2007 Debentures”). The February 2007 Debentures originally had a three year term, maturing on January 31, 2010, which was initially extended to January 31, 2012. On January 11, 2012, the Company issued 50,000 shares of common stock as full payment of $50,000 of outstanding principal on certain February 2007 Debentures.

 

Effective January 31, 2012, certain holders of the February 2007 Debentures with an aggregate outstanding principal amount of $175,000, agreed to amend such February 2007 Debentures by extending the maturity date to January 31, 2014. In addition, effective January 31, 2012, a holder of a February 2007 Debenture with an outstanding principal amount of $25,000 agreed to amend his February 2007 Debenture by extending the maturity date to July 31, 2012. The Company has not made payment on the remaining outstanding February 2007 Debentures and, as a result, such obligations can be placed in default by the holders.

 

The February 2007 Debentures bear interest at a rate of 8% per annum. Interest is payable in annual installments on February 1 of each year, in cash or, at the option of the Company, in shares of the Company’s common stock. If the Company elects to pay the interest in shares of the Company’s common stock, the number of shares issued as payment will be equal to the quotient of the unpaid interest divided by the market price of the Company’s common stock as defined in the February 2007 Debentures.

 

Up to 50% of the aggregate principal amount of the February 2007 Debentures is convertible into shares of the Company’s common stock at the option of the holders at a conversion price of $2.00 per share. The remaining 50% of the aggregate principal amount of the February 2007 Debentures is convertible at the option of the holders at a conversion price of $3.00 per share. The fair value of the Company’s common stock on February 1, 2007 was $2.00 per share. An aggregate amount of 83,334 shares of common stock can be issued upon the full conversion of the outstanding principal of the February 2007 Debentures. The February 2007 Debentures also contain demand registration rights upon the request of the holders of more than 50% of the aggregate principal amount of the then outstanding February 2007 Debentures or the securities issuable upon the conversion of the February 2007 Debentures. The Company has determined that the value attributable to the demand registration rights is de minimis.

 

F-17
 

 

On January 23, 2013, the Company issued an aggregate of 32,000 shares of its common stock to the holders of the February 2007 Debentures in satisfaction of $16,000 of interest due for the period February 1, 2011 through January 31, 2012. The number of shares issued as payment of the interest due was calculated based on the market price of the Company’s common stock ($0.50 per share) as defined in the February 2007 Debentures (see Note 7).

 

On April 16, 2013, the Company issued an aggregate of 145,454 shares of its common stock to the holders of the February 2007 Debentures in satisfaction of $16,000 of interest due for the period February 1, 2012 through January 31, 2013. The number of shares issued as payment of the interest due was calculated based on the market price of the Company’s common stock ($0.11 per share) as defined in the February 2007 Debentures (see Note 7).

 

On April 30, 2014, the Company issued an aggregate of 123,078 shares of its common stock to the holders of the February 2007 Debentures in satisfaction of $16,000 of interest due for the period February 1, 2013 through January 31, 2014. The number of shares issued as payment of the interest due was calculated based on the market price of the Company’s common stock ($0.13 per share) as defined in the February 2007 Debentures (see Note 7).

 

For the fiscal years ended October 31, 2014 and 2013, the Company recorded a total of $16,000 and $15,900, respectively, of interest expense related to the February 2007 Debentures. As of October 31, 2014, $11,968 of interest due on the February 2007 Debentures was accrued and is included as a component of accrued expense. As of October 31, 2014 and 2013, the Company classified the $200,000 outstanding principal of the February 2007 Debentures as a component of current convertible debentures.

 

May 2011 Convertible Debenture

 

On May 20, 2011, the Company issued an 8% convertible debenture in the amount of $100,000 to an institutional investor (the “May 2011 Debenture”). The May 2011 Debenture bears interest at a rate of 8% per annum and originally had a three year term maturing on May 20, 2014. Effective May 20, 2014, the holder agreed to a new maturity date of May 20, 2015. Interest is payable in annual installments, on May 20 of each year, in cash or, at the option of the Company, in shares of the Company’s common stock. If the Company elects to pay the interest in shares of the Company’s common stock, the number of shares issued as payment will be equal to the quotient of the unpaid interest divided by the market price of the Company’s common stock as defined in the May 2011 Debenture.

 

The entire principal amount of the May 2011 Debenture is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.30 per share. In addition, at the option of the Company and subject to certain restrictions provided in the May 2011 Debenture, the entire principal amount of the May 2011 Debenture is convertible into shares of the Company’s common stock at a conversion price of $0.30 per share upon the occurrence of: (a) a merger or acquisition of the Company or (b) the closing of a financing involving the Company’s common stock that results in gross proceeds to the Company, on a cumulative basis, of at least $600,000. The quoted market price of the Company’s common stock as of May 20, 2011 was $0.10 per share. An aggregate of 333,333 shares of common stock can be issued upon the full conversion of the May 2011 Debenture.

 

On January 23, 2013, the Company issued 16,000 shares of its common stock to the May 2011 Debenture holder in satisfaction of $8,000 of interest due for the period May 20, 2011 through May 19, 2012. The number of shares issued as payment of the interest due was calculated based on the market price of the Company’s common stock ($0.50 per share) as defined in the May 2011 Debenture.

 

F-18
 

 

On January 8, 2014, the Company issued 57,143 shares of its common stock to the May 2011 Debenture holder in satisfaction of $8,000 of interest due for the period May 20, 2012 through May 19, 2013. The number of shares issued as payment of the interest due was calculated based on the market price of the Company’s common stock ($0.14 per share), as defined in the May 2011 Debenture.

 

For each of the fiscal years ended October 31, 2014 and 2013, the Company recorded a total of $8,002 of interest expense related to the May 2011 Debenture. As of October 31, 2014, $11,622 of interest due on the May 2011 Debenture was accrued and is included as a component of accrued expense. As of October 31, 2014 and 2013, the Company classified the $100,000 outstanding principal of the May 2011 Debenture as a component of current convertible debentures.

 

August 2012 Convertible Debenture

 

On August 15, 2012, the Company issued an 8% convertible debenture in the amount of $100,000 to an institutional investor (the “August 2012 Debenture”). The August 2012 Debenture has a three year term maturing on August 15, 2015 and bears interest at a rate of 8% per annum. Interest is payable in annual installments on August 15 of each year, in cash or, at the option of the Company, in shares of the Company’s common stock. If the Company elects to pay the interest in shares of the Company’s common stock, the number of shares issued as payment will be equal to the quotient of the unpaid interest divided by the market price of the Company’s common stock as defined in the August 2012 Debenture.

 

The entire principal amount of the August 2012 Debenture is convertible at any time into shares of the Company’s common stock at the option of the holder at a conversion price of $0.40 per share. In addition, at the option of the Company and subject to certain restrictions provided in the August 2012 Debenture, the entire principal amount of the August 2012 Debenture is convertible into shares of the Company’s common stock at a conversion price of $0.40 per share upon the occurrence of: (a) a merger or acquisition of the Company or (b) the closing of a financing involving the Company’s common stock that results in gross proceeds to the Company, on a cumulative basis, of at least $600,000. The quoted market price of the Company’s common stock as of August 15, 2012 was $0.40 per share. An aggregate of 250,000 shares of the Company’s common stock can be issued upon the full conversion of the August 2012 Debenture.

 

On January 8, 2014, the Company issued 57,143 shares of its common stock to the August 2012 Debenture holder in satisfaction of $8,000 of interest due for the period August 15, 2012 through August 15, 2013. The number of shares issued as payment of the interest due was calculated based on the market price of the Company’s common stock ($0.14 per share), as defined in the August 2011 Debenture.

 

For the fiscal years ended October 31, 2014 and 2013, the Company recorded a total of $8,002 and $8,068, respectively of interest expense related to the August 2012 Debenture. As of October 31, 2014, $9,802 of interest due on the August 2012 Debenture was accrued and is included as a component of accrued expense.

 

F-19
 

 

As of October 31, 2014, the Company classified the $100,000 outstanding principal on the August 2012 Debenture as a component of current convertible debentures and as of October 31, 2013, the Company recorded the $100,000 of outstanding principal on the August 2012 Debenture as a component of non-current convertible debentures.

 

December 2013 and April 2014 Convertible Debentures and Warrants

 

On December 12, 2013, the Company issued 10% convertible debentures to two individual investors (the “December 2013 Debentures”) and on April 1, 2014, the Company issued a 10% convertible debenture to one individual investor (the “April 2014 Debenture” and together with the December 2013 Debentures, the “Debentures”). In connection with the issuance of the Debentures, the Company issued warrants (the “Debenture Warrants”) to purchase shares of the Company’s common stock equal to 20% of the aggregate principal amount of the Debentures. The gross proceeds received in connection with this private placement were $225,000. The Debentures have a one year term with principal and interest on the December 2013 Debentures due December 12, 2014 and principal and interest on the April 2014 Debenture due April 1, 2015. The Debentures bear interest at a rate of 10% per annum. The Company has not made payment on outstanding principal of the December 2013 Debentures that was due on December 12, 2014 and, as a result, such obligations can be placed in default by the holders.

 

The entire principal and accrued interest amount of the Debentures is convertible into shares of the Company’s common stock at the option of the holder: (a) upon the Company issuing equity securities and/or debt in a transaction or a series of transactions resulting in aggregate gross proceeds to the Company of at least $3,000,000 (a “Qualified Financing”); (b) at the maturity date of the Debentures; or (c) upon a change in control of the Company, as defined in the Debentures. Upon the occurrence of a Qualified Financing, the Debentures are convertible into shares of the Company’s common stock at a conversion price equal to: (i) 80% of the per share price paid by the purchasers of the Company’s common stock in the Qualified Financing; (ii) 80% of the per share conversion price of any instrument convertible into shares of the Company’s common stock, if no shares of the Company’s common stock are issued in the Qualified Financing; or (iii) $0.13, if no shares of the Company’s common stock or instruments convertible into shares of the Company’s common stock are issued in the Qualified Financing. On the maturity date or upon a change in control of the Company, the Debentures are convertible into shares of the Company’s common stock at $0.13 per share. The quoted market price of the Company’s common stock on both December 12, 2013 and April 1, 2014 was $0.13 per share. An aggregate of 1,730,769 shares of the Company’s common stock can be issued pursuant to the Debentures at the current conversion price of $0.13 per share.

 

The Debenture Warrants have a three year term and provide the holders the right to purchase shares of the Company’s common stock equal to 20% of the principal amount of the related Debenture divided by: (a) 80% of the per share price paid by the purchasers of Company’s common stock in a Qualified Financing; (b) 80% of the per share conversion price of any instrument convertible into shares of the Company’s common stock issued in a Qualified Financing, if no shares of the Company’s common stock are issued in the Qualified Financing; or (c) $0.13, if no shares of the Company’s common stock or no instruments convertible into shares of the Company’s common stock are issued in a Qualified Financing or if a Qualified Financing is not consummated within one year from the Debenture Warrants issuance date. An aggregate of 346,154 shares of the Company’s common stock can be issued under the Debenture Warrants at the current exercise price of $0.13 per share. All of the shares of the Company’s common stock underlying the Debenture Warrants vest on the earlier of (a) one year from the Debenture Warrants issuance date, and (b) the consummation of a Qualified Financing. The exercise price of the Debenture Warrants will be subject to adjustment for stock dividends, stock splits, or similar events.

 

F-20
 

 

The fair value of the Debenture Warrants on the date of issuance as calculated using the Black-Scholes model was $43,989, using the following weighted average assumptions: exercise price of $0.13 per share; common stock price of $0.13 per share; volatility of 271% (December 2013 issuance) and 250% (April 2014 issuance); term of three years; dividend yield of 0%; interest rate of 0.62% (December 2013 issuance) and 0.91% (April 2014 issuance); and risk of forfeiture of 0%.

 

The Company separately accounted for the liability and equity components of the Debentures based upon the relative fair value of the liability and equity components on the date of issuance. As a result, the Company recorded a discount of $36,796 for the Debentures to account for the relative fair value attributable to the Debenture Warrants. The $36,796 debt discount is being accreted as interest expense using the effective interest method over the one-year term of the Debentures.

 

For the fiscal year ended October 31, 2014, the Company recorded a total of $46,811 ($29,058 accreted) of interest expense related to the Debentures. As of October 31, 2014, $17,753 of interest due on the Debentures was accrued and is included as a component of accrued expenses. As of October 31, 2014, the unamortized discount on the Debentures was $7,738 and the net carrying value of the Debentures was $217,262, which was recorded as a component of current convertible debentures.

 

9. Notes Payable

 

Note Payable – Hickey

 

Pursuant to the License Agreement, as amended (see Note 4), a cash payment of $105,000 is payable to Hickey as follows: (a) $50,000 is due to Hickey on or before a date that is thirty (30) days after the closing of any single financing by the Company of at least $3,000,000 or any series of financings by the Company within a six (6) month period totaling at least $3,000,000; and (b) $55,000 is due to Hickey on or before the date that is thirty (30) days after the first commercial sale of a product utilizing the licensed technology. As of October 31, 2014 and 2013, the Company classified the $105,000 due to Hickey as a component of non-current notes payable.

 

Notes Payable – Insurance

 

On March 20, 2013, the Company entered into a finance agreement with IPFS Corporation (“IPFS”). Pursuant to the terms of this finance agreement, IPFS loaned the Company the principal amount of $20,220, which amount would accrue interest at a rate of 9.3% per annum, in order to partially fund the payment of the premium of the Company’s director and officer liability insurance. The finance agreement required the Company to make nine monthly payments of $2,335, including interest, commencing April 13, 2013. For the fiscal years ended October 31, 2014 and 2013, the Company recorded a total of $54 and $739, respectively, of interest expense related to this finance agreement. As of October 31, 2014, this obligation was paid in full. As of October 31, 2013, the outstanding principal balance related to this finance agreement was $4,615, which was classified as a component of current notes payable.

 

F-21
 

 

10. Commitments and Contingencies

 

Executive Employment Agreements

 

On January 1, 2008, the Company entered into an executive employment agreement with each of David R. LaVance, the Company’s President and Chief Executive Officer, and Thomas S. Gifford, the Company’s Executive Vice President, Chief Financial Officer and Secretary (collectively, the “Employment Agreements”). The term of each of the Employment Agreements commenced on January 1, 2008 and renews annually, unless terminated as provided in the Employment Agreements. Pursuant to the original terms of the Employment Agreements, both Messrs. LaVance and Gifford were to be paid an annual base salary of $275,000. In addition, both Messrs. LaVance and Gifford shall participate in the Company’s benefit programs and shall be eligible to receive an annual performance bonus based on the achievement of certain performance objectives as determined by the compensation committee of the Company’s board of directors.

 

Effective February 1, 2010, each of Messrs. LaVance and Gifford agreed to reduce the annual base salary due to each of them to $200,000. Effective November 1, 2011, each of Messrs. LaVance and Gifford agreed to reduce the annual base salary due to them to $0 until the Company has raised sufficient capital that would provide the Company the ability to pay either the original base salary of $275,000 or the reduced base salary of $200,000 or some other amount as mutually agreed upon by each of Mr. LaVance and/or Mr. Gifford and the Company’s board of directors.

 

In the event that Mr. LaVance or Mr. Gifford is terminated without Good Cause (as defined in the Employment Agreements and used herein), or Mr. LaVance or Mr. Gifford terminates his employment for Good Reason (as defined in the Employment Agreements and used herein), Mr. LaVance or Mr. Gifford, as the case may be, will be entitled to receive a severance payment equal to his annual base salary in effect on the date of termination.

 

In addition, in the event that within one-hundred eighty days of a Change of Control (as defined in the Employment Agreements and used herein) of the Company, the employment of Mr. LaVance or Mr. Gifford is terminated by the Company or its successor without Good Cause, or Mr. LaVance or Mr. Gifford terminates his employment with the Company or its successor for Good Reason, Mr. LaVance or Mr. Gifford, as the case may be, shall be paid a severance payment; provided however, that if the termination of employment occurs prior to the Change of Control, the Change of Control must have been considered by the Company at the time of termination for Mr. LaVance or Mr. Gifford to be entitled to the severance payment. The amount of the severance payment will be equal to two times the sum of Mr. LaVance’s or Mr. Gifford’s annual base salary in effect immediately prior to the termination of Mr. LaVance’s or Mr. Gifford’s employment and an amount which is the lesser of (a) $150,000 and (b) the aggregate amount of any bonuses paid to Mr. LaVance or Mr. Gifford during the twelve months prior to the earlier of (i) the effective date of the Change of Control and (ii) the date Mr. LaVance’s or Mr. Gifford’s employment terminates with the Company. Pursuant to the Employment Agreements, any severance payment to be paid by the Company to Mr. LaVance or Mr. Gifford is subject to the Company and Mr. LaVance or Mr. Gifford entering into and not revoking a release of claims in favor of the Company.

 

On January 23, 2013, the Company issued 588,236 shares of common stock (294,118 shares of common stock to each of Mr. LaVance and Mr. Gifford) as full payment of the $200,000 of accrued compensation due under the Employment Agreements (see Note 7).

 

F-22
 

 

11. Subsequent Events

 

On February 12, 2015, the Company issued a 10% convertible debenture to an individual investor (the “February 2015 Debenture”). In connection with the issuance of the February 2015 Debenture, the Company issued a warrant (the “February 2015 Debenture Warrant”) to purchase shares of its common stock equal to 20% of the aggregate principal amount of the February 2015 Debenture. The gross proceeds received in connection with this private placement were $50,000. The February 2015 Debenture has a one year term with principal and interest due February 12, 2016. The February 2015 Debenture bears interest at a rate of 10% per annum.

 

The entire principal and accrued interest amount of the February 2015 Debenture is convertible into shares of the Company’s common stock: (a) upon the Company issuing equity securities and/or debt in a Qualified Financing; (b) at the option of the holder, at the maturity date of the February 2015 Debenture; or (c) at the option of the holder, upon a change in control of the Company, as defined in the February 2015 Debenture. Upon the occurrence of a Qualified Financing, the February 2015 Debenture is convertible into shares of the Company’s common stock at a conversion price equal to: (i) 80% of the per share price paid by the purchasers of the Company’s common stock in the Qualified Financing; (ii) 80% of the per share conversion price of any instrument convertible into shares of the Company’s common stock, if no shares of the Company’s common stock are issued in the Qualified Financing; or (iii) $0.13, if no shares of the Company’s common stock or instruments convertible into shares of the Company’s common stock are issued in the Qualified Financing. On the maturity date or upon a change in control of the Company, the February 2015 Debenture is convertible into shares of the Company’s common stock at $0.13 per share. The quoted market price of the Company’s common stock on February 12, 2015 was $0.10 per share. An aggregate of 384,615 shares of the Company’s common stock can be issued pursuant to the February 2015 Debenture at the current conversion price of $0.13 per share. The Company will use the proceeds received in this private placement for working capital purposes.

 

The February 2015 Debenture Warrant has a three year term and provides the holder the right to purchase shares of the Company’s common stock equal to 20% of the principal amount of the related February 2015 Debenture divided by: (a) 80% of the per share price paid by the purchasers of the Company’s common stock in a Qualified Financing; (b) 80% of the per share conversion price of any instrument convertible into shares of the Company’s common stock issued in a Qualified Financing, if no shares of the Company’s common stock is issued in the Qualified Financing; or (c) $0.13, if no shares of the Company’s common stock or no instruments convertible into shares of the Company’s common stock is issued in a Qualified Financing or if a Qualified Financing is not consummated within one year from the February 2015 Debenture Warrant issuance date. An aggregate of 76,923 shares of the Company’s common stock can be issued under the February 2015 Debenture Warrant at the current exercise price of $0.13 per share. All of the shares of the Company’s common stock underlying the February 2015 Debenture Warrant vest on the earlier of (a) one year from the February 2015 Debenture Warrant issuance date, or (b) the consummation of a Qualified Financing. The exercise price of the February 2015 Debenture Warrant will be subject to adjustment for stock dividends, stock splits, or similar events.

 

F-23
 

 

INDEX OF EXHIBITS

 

Exhibit

Number

  Description of Exhibit
     
3.1   Amended and Restated Articles of Incorporation of Scivanta Medical Corporation, (the “Company”), which was filed in the Office of the Secretary of State of the State of Nevada on April 22, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 22, 2013).
     
3.2   Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s quarterly report on Form 10-QSB for the quarter ended January 31, 2006, filed with the SEC on January 29, 2007).
     
4.1   Specimen stock certificate representing the Company’s common stock (incorporated by reference to Exhibit 4.1 to the Company’s quarterly report on Form 10-QSB for the quarter ended January 31, 2006, filed with the SEC on January 29, 2007).
     
4.2   Form of Convertible Debenture, dated as of February 1, 2007, issued to the following persons and in the following amounts:  Jesse H. Austin, III ($50,000); Andrew O. Whiteman and Gwen C. Whiteman, JTWROS ($25,000); Jack W. Cumming ($25,000); Scott C. Withrow ($25,000); Terrence McQuade ($25,000); Steven J. Olsen ($25,000); and Marc G. Robinson and Joshua Goldfarb ($25,000) (incorporated by reference to Exhibit 4.8 to the Company’s quarterly report on Form 10-QSB for the quarter ended January 31, 2007, filed with the SEC on March 14, 2007).
     
4.3   Form of Addendum to Convertible Debenture, dated as of January 31, 2010, issued to the persons set forth in Exhibit 4.2 (incorporated by reference to Exhibit 4.3 to the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2009, filed with the SEC on January 29, 2010).
     
4.4   Form of Addendum to Convertible Debenture, dated as of January 31, 2012, issued to certain persons set forth in Exhibit 4.2 (incorporated by reference to Exhibit 4.4 to the Company’s quarterly report on Form 10-Q for the quarter ended January 31, 2012, filed with the SEC on March 16, 2012).
     
4.5   8% Convertible Debenture, dated as of May 20, 2011, in the principal amount of $100,000 issued to Zanett Opportunity Fund, Ltd. (incorporated by reference to Exhibit 4.4 to the Company’s quarterly report on Form 10-Q for the quarter ended April 30, 2011, filed with the SEC on June 14, 2011).
     
4.6   8% Convertible Debenture, dated as of August 15, 2012, in the principal amount of $100,000 issued to Zanett Opportunity Fund, Ltd. (incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the SEC on August 21, 2012).
     
4.7   Form of 10% Convertible Debenture issued to: RL & KC, LLC on December 12, 2013 for $100,000, James C. Czirr Trust U/A/D February 20, 2004 on December 12, 2013 for $50,000, Chris Hynes on April 1, 2014 for $75,000 and to Turn Two Investments LLC on February 12, 2015 for $50,000 (incorporated by reference to Exhibit 4.1 to the Company’s current reports on Form 8-K filed with the SEC on December 17, 2013).

 

E-1
 

 

Exhibit

Number

  Description of Exhibit
     
10.1   The Company’s 2002 Equity Incentive Plan, adopted and effective January 1, 2002 (incorporated by reference to Exhibit B of the Company’s definitive proxy statement, filed with the SEC on June 10, 2002).
     
10.2   Sublease Agreement, dated February 1, 2007, between the Company and Century Capital Associates LLC (incorporated by reference to Exhibit 10.14 to the Company’s quarterly report on Form 10-QSB for the quarter ended January 31, 2007, filed with the SEC on March 14, 2007).
     
10.3   Amended and Restated Technology License Agreement between the Company and The Research Foundation of State University of New York for and on behalf of University of Buffalo, and Donald D. Hickey, M.D. and Clas E. Lundgren dated February 14, 2011 (incorporated by reference to Exhibit 10.8 to the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2010, filed with the SEC on February 15, 2011).
     
10.3.1   First Addendum to the Amended and Restated Technology License Agreement between the Company and The Research Foundation for State University of New York for and on behalf of University of Buffalo, and Donald D. Hickey, M.D. and Clas E. Lundgren dated March 14, 2013 (incorporated by reference to Exhibit 10.3.1 to the Company’s quarterly report on Form 10-Q for the quarter ended January 31, 2013, filed with the SEC on March 18, 2013).
     
10.4*   Stock Option Agreement and Notice of Grant, dated February 5, 2007, pursuant to which David R. LaVance was granted a non-qualified stock option to purchase up to 500,000 shares of common stock of the Company (incorporated by reference to Exhibit 10.16 to the Company’s quarterly report on Form 10-QSB for the quarter ended January 31, 2007, filed with the SEC on March 14, 2007).
     
10.5*   Stock Option Agreement and Notice of Grant, dated February 5, 2007, pursuant to which Thomas S. Gifford was granted a non-qualified stock option to purchase up to 500,000 shares of common stock of the Company (incorporated by reference to Exhibit 10.17 to the Company’s quarterly report on Form 10-QSB for the quarter ended January 31, 2007, filed with the SEC on March 14, 2007).
     
10.6   Company’s 2007 Equity Incentive Plan, adopted and effective May 31, 2007 (incorporated by reference to Appendix to the Company’s definitive proxy statement, filed with the SEC on April 27, 2007).
     
10.7*   Stock Option Agreement and Notice of Grant, dated January 1, 2008, pursuant to which David R. LaVance was granted a non-qualified stock option to purchase up to 100,000 shares of common stock of the Company (incorporated by reference to Exhibit 10.21 to the Company’s current report on Form 8-K filed with the SEC on January 2, 2008).
     
10.8*   Stock Option Agreement and Notice of Grant, dated January 1, 2008, pursuant to which Thomas S. Gifford was granted a non-qualified stock option to purchase up to 100,000 shares of common stock of the Company (incorporated by reference to Exhibit 10.22 to the Company’s current report on Form 8-K filed with the SEC on January 2, 2008).

 

E-2
 

 

Exhibit Number   Description of Exhibit
     
10.9*   Executive Employment Agreement, dated as of January 1, 2008, between the Company and David R. LaVance (incorporated by reference to Exhibit 10.26 to the Company’s current report on Form 8-K filed with the SEC on January 2, 2008).
     
10.10*   Executive Employment Agreement, dated as of January 1, 2008, between the Company and Thomas S. Gifford (incorporated by reference to Exhibit 10.27 to the Company’s current report on Form 8-K filed with the SEC on January 2, 2008).
     
10.11*   Amendment No. 1 dated as of June 18, 2010 to the Executive Employment Agreement, dated as of January 1, 2008, between the Company and David R. LaVance (incorporated by reference to Exhibit 10.27 to the Company’s quarterly report on Form 10-Q for the quarter ended April 30, 2010, filed with the SEC on June 21, 2010).
     
10.12*   Amendment No. 1 dated as of June 18, 2010 to the Executive Employment Agreement, dated as of January 1, 2008, between the Company and Thomas S. Gifford (incorporated by reference to Exhibit 10.28 to the Company’s quarterly report on Form 10-Q for the quarter ended April 30, 2010, filed with the SEC on June 21, 2010).
     
10.13*   Amendment No. 2 dated as of January 3, 2012 to the Executive Employment Agreement, dated as of January 1, 2008, between the Company and David R. LaVance (incorporated by reference to Exhibit 10.23 to the Company’s annual report on Form 10-KSB for the fiscal year ended October 31, 2011, filed with the SEC on January 30, 2012).
     
10.14*   Amendment No. 2 dated as of January 3, 2012 to the Executive Employment Agreement, dated as of January 1, 2008, between the Company and Thomas S. Gifford (incorporated by reference to Exhibit 10.24 to the Company’s annual report on Form 10-KSB for the fiscal year ended October 31, 2011, filed with the SEC on January 30, 2012).
     
10.15*   Stock Option Agreement and Notice of Grant, dated January 21, 2009, pursuant to which David R. LaVance was granted a non-qualified stock option to purchase up to 25,000 shares of common stock of the Company (incorporated by reference to Exhibit 10.32 to the Company’s annual report on Form 10-KSB for the fiscal year ended October 31, 2008, filed with the SEC on January 29, 2009).
     
10.16*   Stock Option Agreement and Notice of Grant, dated January 21, 2009, pursuant to which Thomas S. Gifford was granted a non-qualified stock option to purchase up to 25,000 shares of common stock of the Company (incorporated by reference to Exhibit 10.33 to the Company’s annual report on Form 10-KSB for the fiscal year ended October 31, 2008, filed with the SEC on January 29, 2009).

 

E-3
 

 

Exhibit

Number

  Description of Exhibit
     
31.1   Section 302 Certification of Chief Executive Officer.
     
31.2   Section 302 Certification of Chief Financial Officer.
     
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
     
101**   The following materials from the Company’s annual report on Form 10-K for the fiscal year ended October 31, 2014, formatted in Extensible Business Reporting Language (XBRL):  (i) balance sheets; (ii) statements of operations; (iii) statements of cash flows; and (iv) notes to the financial statements.

 

* Constitutes a management contract

 

** Pursuant to Rule 406T of Regulation S-T, the interactive data files included as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

 

E-4