Attached files
| file | filename |
|---|---|
| EX-21.1 - CERTIFICATION - SCIVANTA MEDICAL CORP | f10k2015ex21i_scivanta.htm |
| EX-32.1 - CERTIFICATION - SCIVANTA MEDICAL CORP | f10k2015ex32i_scivanta.htm |
| EX-31.1 - CERTIFICATION - SCIVANTA MEDICAL CORP | f10k2015ex31i_scivanta.htm |
| EX-32.2 - CERTIFICATION - SCIVANTA MEDICAL CORP | f10k2015ex32ii_scivanta.htm |
| EX-31.2 - CERTIFICATION - SCIVANTA MEDICAL CORP | f10k2015ex31ii_scivanta.htm |
| EX-10.3.2 - LICENSE TERMINATION 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 JANUARY 22, 2016 - SCIVANTA MEDICAL CORP | f10k2015ex10iii_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, 2015
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, 2015, the aggregate fair value of the registrant’s common stock held by non-affiliates was approximately $262,500.
As of January 22, 2016, 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
| iii |
| 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. On January 22, 2016, Scivanta and the licensor terminated the license agreement related to the SCMS. Scivanta is currently searching for a new business, technology, product or service to acquire. See “Item 1. Business – Strategy for Business Development.”
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 business, technology, product or service. Our business development strategy will depend upon our ability to secure additional financing.
In the event that we acquire a new business, technology, product or service, no assurances can be given that we will have the financial and other resources necessary to develop and market such business, technology, product or service. In addition, no assurances can be given that any business, 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”.
| 1 |
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.
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.
On January 22, 2016, Scivanta and the Licensor entered into a License Termination Agreement, pursuant to which the License Agreement was terminated (the “License Termination Agreement”). Scivanta and the Licensor released each other from any and all claims and liabilities related to the License Agreement, including the $105,000 payment due to Hickey. In addition, pursuant to the License Termination Agreement, Scivanta assigned all intellectual property related to the SCMS to the Licensor and returned all property in its possession related to the SCMS to the Licensor.
Patents and Copyrights
We do not currently hold any patents other than those associated with the SCMS which will be returned to the Licensor pursuant to the License Termination Agreement.
Manufacturing and Principal Suppliers
We currently do not have any manufacturing capabilities or agreements.
| 2 |
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
We currently do not have any products or offer any services and therefore are not subject to any product or service regulation by any federal or state government body. However, our common stock is registered under the Exchange Act, which requires us to comply with the reporting obligations thereunder.
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.
| 3 |
| 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 Pink 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, 2013 through October 31, 2015 as reported by the OTC Pink. 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, 2015 | High | Low | ||||||
| First Quarter | $ | 0.25 | $ | 0.06 | ||||
| Second Quarter | 0.30 | 0.10 | ||||||
| Third Quarter | 0.20 | 0.06 | ||||||
| Fourth Quarter | 0.10 | 0.05 | ||||||
| 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 | ||||||
The OTC Pink 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 January 22, 2016, we had six market makers for our common stock which were Automated Trading Desk Financial Services, LLC, Cantor Fitzgerald & Co., Citadel Securities, Canaccord Genuity Inc., G1 Execution Services LLC and KCG Americas LLC.
| 4 |
Stockholders
As of January 15, 2016, 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 750,000 shares of common stock subject to outstanding warrants, 203,332 shares of common stock subject to outstanding stock options, and 3,166,667 shares of common stock subject to outstanding convertible debentures.
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, 2015
There were no sales of unregistered securities during the fiscal year ended October 31, 2015, other than those reported on Forms 10-Q and/or 8-K filed by Scivanta during the fiscal year ended October 31, 2015.
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, 2015 and 2014. This information should be read in conjunction with Scivanta’s audited financial statements for the fiscal years ended October 31, 2015 and 2014 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.”
| 5 |
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. On January 22, 2016, Scivanta and the Licensor entered into a License Termination Agreement pursuant to which the License Agreement was terminated. Scivanta is currently searching for a new business, technology, product or service to acquire. See “Item 1. Business – Strategy for Business Development.” See “Item 1. Business – Scivanta Agreements – SCMS License Agreement.”
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.
Stock Based Compensation
Scivanta accounts for stock-based payments to employees in accordance with Accounting Standards Codification (“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.
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.
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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.
General and Administrative. For the fiscal year ended October 31, 2015, general and administrative expenses were $236,273, as compared to $426,168 for the fiscal year ended October 31, 2014. The $189,895, or 45%, decrease in general and administrative expenses for the fiscal year ended October 31, 2015 was primarily due to a $67,409 decrease in travel costs, a $52,711 decrease in legal fees, a $35,000 decrease in consulting fees, and a $32,333 decrease in stock based compensation expense to consultants, each related to our fiscal year 2014 fundraising efforts and evaluation of potential acquisitions.
The amount of general and administrative expense to be incurred by us during the fiscal year ending October 31, 2016 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 business, product, technology or service, we would expect general and administrative expenses for the fiscal year ending October 31, 2016 to increase as we build the administrative infrastructure necessary to support the development or sale of a new business, product, technology or service. If we are unable to obtain additional capital sufficient to fund the acquisition of a new business, product, technology or service, we would expect general and administrative expenses for the fiscal year ending October 31, 2016 to remain at current minimum levels.
Operating Income. During the fiscal year ended October 31, 2014, we recognized a gain on the settlement of accounts payable related to certain vendor obligations of $80,656.
Interest Expense. For the fiscal year ended October 31, 2015, interest expense was $70,935, as compared to $78,869 for the fiscal year ended October 31, 2014. The $7,934, or 10%, decrease in interest expense for the fiscal year ended October 31, 2015 was primarily due to a $16,524 decrease in accreted interest on debt discount, offset by a $8,643 increase in interest expense, related to convertible debentures.
Net Loss. For the fiscal year ended October 31, 2015, our net loss was $307,208, or $0.05 per share (basic and diluted), as compared to a net loss of $424,381, or $0.07 per share (basic and diluted), for the fiscal year ended October 31, 2014. The $117,173, or 28%, decrease in net loss for the fiscal year ended October 31, 2015 was due to a $189,895 decrease in general and administrative expenses and a $7,934 decrease in interest expense, offset by a $80,656 decrease in the gain on the settlement of accounts payable.
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Liquidity and Capital Resources
As of October 31, 2015, we had a working capital deficiency of $1,256,775 and cash on hand of $21,658. The $4,456 decrease in cash on hand from October 31, 2014 was primarily due to our continuing operating expenses, offset by the receipt of $75,000 of gross proceeds from convertible debentures issued on February 12, 2015 and September 14, 2015.
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 4, 2016, 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 January 22, 2016, our cash position was approximately $62,900. Without any additional financing, we will only be able to continue our administrative operations, on a limited basis, for approximately six 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 $625,000 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.
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Scivanta is a smaller reporting company and is therefore not required to provide this information.
| Item 8. | Financial Statements and Supplementary Data |
The financial statements 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 2013 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, 2015.
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 |
None.
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| 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 are currently serving are set forth below:
| Name | Age | Principal Occupation or Employment | ||
| David R. LaVance | 62 | Chairman of the Board, President and Chief Executive Officer of Scivanta and Integrated Environmental Technologies, Ltd. | ||
| Thomas S. Gifford | 47 | Executive Vice President, Chief Financial Officer and Secretary of Scivanta and Integrated Environmental Technologies, Ltd. | ||
| Anthony Giordano, III | 50 | Senior Vice President OceanFirst Bank | ||
| Thomas J. DeSouza | 33 | Managing Director of Allegory Venture Partners |
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 a director of Hologic, Inc. (NASDAQ: HOLX) and also serves as the chairman of Integrated Environmental Technologies, Ltd. (OTCQB: IEVM).
Biographical Information
David R. LaVance: Mr. LaVance has served as Scivanta’s Chairman, President and Chief Executive Officer since March 2003. He is also a member of the board of directors of Hologic, Inc. (NASDAQ: HOLX), a publicly traded medical device company specializing in women’s healthcare products. Mr. LaVance has been a director of Hologic since December 2002. From August 2012 through May 2015, Mr. LaVance served as the chairman of the board of directors of Hologic and from June 2008 through July 2011, Mr. LaVance served as the lead independent director of Hologic. 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. (OTCQB: 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. Mr. LaVance was formerly a Managing Director of KPMG Health Ventures, an advisory group providing investment banking services to healthcare companies. Mr. LaVance received a B.A. degree from Furman University and a J.D. degree from Washington College of Law of the American University. As our President and Chief Executive Officer, Mr. LaVance has direct responsibility for our strategy and operations. This position, together with his many years of experience in corporate management, makes him an invaluable contributor to the board.
| 11 |
Thomas S. Gifford: Mr. Gifford has served as Scivanta’s Executive Vice President, Chief Financial Officer and as a director since March 21, 2003. Mr. Gifford is also the Vice President and co-founder of Century Capital Associates LLC. Since May 2011, Mr. Gifford has served as the Executive Vice President and Chief Financial Officer of Integrated Environmental Technologies, Ltd. (OTCQB: IEVM), a publicly traded company that develops and manufactures proprietary equipment which it uses to produce and distribute environmentally friendly disinfecting and cleaning solutions. Mr. Gifford was formerly a Manager and Associate Director of KPMG Health Ventures, an advisory group providing investment banking services to healthcare companies and an accountant for KPMG Peat Marwick LLP. 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.
Anthony Giordano, III: Mr. Giordano has served as a director of Scivanta since March 15, 2007. He is currently a Senior Vice President for OceanFirst Bank (NASDAQ: OCFC). Mr. Giordano was the President and Chief Executive Officer and a director of Colonial American Bank from December 2010 to July 2015, when Colonial American Bank merged into OceanFirst Bank. 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, a publicly traded bank holding company (NASDAQ: CJBK), from January 2005 through the date of the consummation of the merger of Central Jersey Bancorp and Kearny Financial Corp. in November 2010. Prior thereto, he served in various executive and senior account positions with various financial institutions. Mr. Giordano received an M.B.A. degree from Monmouth University and a B.S. degree in finance from Kean University. He is a graduate of the Real Estate Institute at Monmouth University and earned an Executive Certificate in Leadership and Management from the University of Notre Dame, Mendoza College of Business. Mr. Giordano’s mix of leadership, management and finance skills and experience enable him to provide important accounting and finance experience and management insights to the board.
Thomas J. DeSouza: Mr. DeSouza has served as a director of Scivanta since November 1, 2015. He has over 15 years of experience in providing strategic and financial advice to investors and early stage technology companies. Since June 2013, Mr. DeSouza has served as the managing director of Allegory Venture Partners, a venture fund focused on technology based companies. From January 2008 through June 2013, Mr. DeSouza was an investment consultant with several firms including Robert W. Baird & Co. and Morgan Stanley Smith Barney. He currently serves on the board of directors of SematicMD, a medical technology company that provides a medical image analysis platform to physicians and the Willamette View Foundation, a not-for-profit organization focused on providing services to the elderly. Mr. DeSouza attended Portland State University where he studied political science and finance. Mr. DeSouza’s mix of finance and strategic skills and experience enable him to provide important financial and strategic insights to the board.
| 12 |
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 | 62 | Chairman of the Board, President and Chief Executive Officer | ||
| Thomas S. Gifford | 47 | 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 of directors for the fiscal year ended October 31, 2015 consisted of: David R. LaVance, Thomas S. Gifford, Lawrence M. Levy and Anthony Giordano, III. Thomas J. DeSouza was elected to the board on November 1, 2015. Mr. Levy retired from the board on December 31, 2015.
Audit Committee
The audit committee for fiscal 2015 consisted of Lawrence M. Levy and Anthony Giordano, III, who is the chairman of the audit committee. Mr. Levy retired from the board of directors on December 31, 2015. Thomas J. DeSouza was appointed to the audit committee on November 1, 2015. Each of Mr. Giordano and Mr. DeSouza qualify as an independent director and Mr. Levy qualified during his term 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.
| 13 |
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.
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.
| 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, 2015 and 2014 of any person who served as Scivanta’s President and Chief Executive Officer during the fiscal year ended October 31, 2015 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 ($) | Non-Equity Incentive Plan Compen-sation ($) | Non-Qualified Deferred Compen-sation Earnings ($) | All Other Compen-sation ($) | Total ($) | |||||||||||||||||||||||||
| David R. LaVance, President and Chief Executive | 2015 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||||||||||||
| Officer | 2014 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||||||||||||
| Thomas S. Gifford, Executive Vice President, Chief Financial Officer and | 2015 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||||||||||||
| Secretary | 2014 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||||||||||||
| 14 |
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.
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) $150,000 and (b) the aggregate amount of any bonuses paid to Mr. LaVance or Mr. Gifford during the twelve months prior to the earlier of (i) the effective date of the Change of Control and (ii) the date Mr. LaVance’s or Mr. Gifford’s employment terminates with Scivanta.
Pursuant to the Employment Agreements, any severance payment to be paid by Scivanta to Mr. LaVance or Mr. Gifford is subject to Scivanta and Mr. LaVance or Mr. Gifford entering into and not revoking a release of claims in favor of Scivanta.
| 15 |
Each of Mr. LaVance and Mr. Gifford has agreed that (a) during the term of his employment with Scivanta and (b) for one year after the termination of his employment with Scivanta, he will not, directly or indirectly, be employed by, provide consulting services to or have any ownership interest (as a stockholder, partner or otherwise) in any Competing Business (as defined in the Employment Agreements), except for as permitted in the Employment Agreements.
Each of Mr. LaVance and Mr. Gifford has also agreed that (a) during the term of his employment with Scivanta, and (b) for a period of three years after the termination of his employment with Scivanta, he will not recruit any employee of Scivanta or solicit, divert or take away the business or patronage of any of the clients, customers or accounts of Scivanta that were served by Scivanta while he was employed by Scivanta.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about all equity compensation awards held by the Named Executive Officers at October 31, 2015.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name | Date of Grant | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Un-exercisable | Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option
Exercise Price ($) | Option Expiration 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 President and Chief | 2/5/07 | 50,000 | (1) | -- | -- | $ | 2.00 | 2/5/17 | -- | $ | -- | -- | $ | -- | ||||||||||||||||||||||
| Executive | 1/1/08 | 10,000 | (2) | -- | -- | $ | 1.40 | 1/1/18 | -- | $ | -- | -- | $ | -- | ||||||||||||||||||||||
| Officer | 1/21/09 | 25,000 | (3) | -- | -- | $ | 1.40 | 1/21/19 | -- | $ | -- | -- | $ | -- | ||||||||||||||||||||||
| Thomas S. Gifford Executive Vice President, Chief Financial Officer | 2/5/07 | 50,000 | (1) | -- | -- | $ | 2.00 | 2/5/17 | ||||||||||||||||||||||||||||
| and | 1/1/08 | 10,000 | (2) | -- | -- | $ | 1.40 | 1/1/18 | -- | $ | -- | -- | $ | -- | ||||||||||||||||||||||
| 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. |
| 16 |
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, 2015.
| 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 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||||||
| 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 January 15, 2016, 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 | % | |||||
| Anthony Giordano, III (3) | 17,647 | * | ||||||
| Thomas J. DeSouza (3)(7) | 461,538 | 6.77 | % | |||||
| Turn Two Investments LLC (8)(9) | 461,538 | 6.77 | % | |||||
| Zanett Opportunity Fund, Ltd. (10)(11) | 1,021,043 | 14.71 | % | |||||
| Zachary E. McAdoo (12)(13) | 1,475,588 | 21.25 | % | |||||
| CMD Investment Group, LLC (14) | 721,705 | 11.35 | % | |||||
| RL & KC, LLC (15)(16) | 923,077 | 12.68 | % | |||||
| James C. Czir Trust (17)(18) | 461,538 | 6.77 | % | |||||
| Chris Hynes (19)(20) | 692,308 | 9.82 | % | |||||
| All directors and executive officers as a group (4)(6)(9) | 2,750,870 | 39.35 | % | |||||
| 17 |
* 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 January 15, 2016, 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. |
| (7) | 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 Turn Two Investments, LLC (“Turn Two”) on February 12, 2015 and 76,923 shares of common stock available for purchase under a warrant issued to Turn Two on February 12, 2015. Mr. DeSouza is a Managing Member of Turn Two. Mr. DeSouza disclaims beneficial ownership of the shares available to Turn Two upon conversion of the convertible debenture and the shares available to Turn Two upon the exercise of the warrant. |
| (8) | Turn Two maintains a mailing address at 610 SW Alder Street, Suite 315, Portland, OR 97205. |
| (9) | 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 Turn Two on February 12, 2015 and 76,923 shares of common stock available for purchase under a warrant issued to Turn Two on February 12, 2015. |
| (10) | 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. |
| (11) | 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. |
| (12) | Mr. McAdoo maintains a mailing address of 135 East 57th Street, 4th Floor, New York, New York 10022. |
| (13) | 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. |
| (14) | CMD Investment Group maintains a mailing address at 12 Perrine Circle, Perrineville, New Jersey 08535. |
| (15) | RL & KC, LLC maintains a mailing address at 1012 Nutwood Avenue, Fullerton, California 92831. |
| (16) | 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. |
| (17) | James C. Czir Trust maintains a mailing address at 425 Janish Drive, Sandpoint, Idaho 83864. |
| 18 |
| (18) | 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. |
| (19) | Chris Hynes maintains a mailing address at P.O. Box 1937, Edwards, Colorado 81632. |
| (20) | 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, 2015, options to purchase 120,000 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, 2015, 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.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of October 31, 2015 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) | 203,332 | $ | 1.70 | 731,076 | ||||||||
| Equity compensation arrangements not approved by security holders (2) | 250,000 | $ | 0.13 | -- | ||||||||
| Total | 453,332 | $ | 0.83 | 731,076 | ||||||||
| 19 |
| (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, 2015. See discussion below for additional information. |
Equity Compensation Arrangements Not Approved by the Security Holders
See Note 7 “Stockholders’ Deficiency: Warrants to Purchase Common Stock” of our audited financial statements which begin on page F-1 of this annual report on Form 10-K for the year ended October 31, 2015.
| 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.
During the fiscal year ended October 31, 2015, Scivanta was billed $72,355 pursuant to the terms of the Sublease Agreement. As of October 31, 2015, Scivanta owed Century Capital $105,000 for rent, $28,664 for expenses due under the Sublease Agreement and $235,815 for other expenses, which amounts are included in accounts payable – related party.
Director Independence
Anthony Giordano, III and Thomas J. DeSouza each qualify as independent directors and Lawrence M. Levy qualified during his term as an independent director in accordance with NASDAQ’s definition of “independent director” and the rules and regulations of the SEC. Messrs. Giordano and DeSouza 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, 2015 and was billed $29,000 for audit fees relating to Scivanta’s fiscal year ended October 31, 2014. Audit fees incurred in each of the fiscal years ended October 31, 2015 and 2014 consisted of fees for the audit of Scivanta’s annual financial statements and review of quarterly financial statements.
| 20 |
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, 2015 and 2014. 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, 2015 and 2014.
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, 2015 and 2014.
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.
| 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.
| 21 |
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 | |
| January 27, 2016 | 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 Directors, President and | January 27, 2016 | ||
| David R. LaVance | Chief Executive Officer | |||
| /s/ Thomas S. Gifford | Executive Vice President, Chief Financial Officer, | January 27, 2016 | ||
| Thomas S. Gifford | Secretary and Director | |||
| /s/ Anthony Giordano, III | Director | January 27, 2016 | ||
| Anthony Giordano, III | ||||
| /s/ Thomas J. DeSouza | Director | January 27, 2016 | ||
| Thomas J. DeSouza |
| 22 |
Scivanta Medical Corporation
Financial Statements
Contents
| 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, 2015 and 2014, and the related statements of operations, stockholders’ deficiency, and cash flows for each of the two years in the period ended October 31, 2015. These financial statements are the responsibility of the Company’s management. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, 2015 and 2014, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2015 in conformity with U.S. generally accepted accounting principles.
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
January 27, 2016
| F-2 |
Balance Sheets
October 31, 2015 | October 31, 2014 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 21,658 | $ | 26,114 | ||||
| Prepaid expenses | 6,969 | 6,673 | ||||||
| Total current assets | $ | 28,627 | $ | 32,787 | ||||
| Liabilities and Stockholders’ Deficiency | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 102,086 | $ | 101,055 | ||||
| Accounts payable - related party | 369,479 | 211,898 | ||||||
| Accrued expenses | 119,046 | 62,144 | ||||||
| Convertible debentures | 694,791 | 617,262 | ||||||
| Total current liabilities | 1,285,402 | 992,359 | ||||||
| Notes payable | 105,000 | 105,000 | ||||||
| Total liabilities | 1,390,402 | 1,097,359 | ||||||
| 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 issued and outstanding | 6,359 | 6,359 | ||||||
| Additional paid-in capital | 23,080,594 | 23,070,589 | ||||||
| Accumulated deficit | (24,448,728 | ) | (24,141,520 | ) | ||||
| Total stockholders' deficiency | (1,361,775 | ) | (1,064,572 | ) | ||||
| Total liabilities and stockholders' deficiency | $ | 28,627 | $ | 32,787 | ||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
Statements of Operations
Years Ended October 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenue | $ | -- | $ | -- | ||||
| Operating expenses: | ||||||||
| General and administrative | 236,273 | 426,168 | ||||||
| Gain on settlement of accounts payable | -- | (80,656 | ) | |||||
| Loss from operations | (236,273 | ) | (345,512 | ) | ||||
| Interest expense | (70,935 | ) | (78,869 | ) | ||||
| Net loss | $ | (307,208 | ) | $ | (424,381 | ) | ||
| Net loss per common share, basic and diluted | $ | (0.05 | ) | $ | (0.07 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | 6,359,055 | 6,148,090 | ||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
Statements of Stockholders’ Deficiency
For the Years Ended October 31, 2015 and 2014
| Common Stock | Additional | Total | ||||||||||||||||||
| Number | $0.001 | Paid-in | Accumulated | Stockholders' | ||||||||||||||||
| of Shares | Par Value | Capital | Deficit | Deficiency | ||||||||||||||||
| 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 | ) | |||||||||||||
| Discount on convertible debentures issued on February 12, 2015 and September 14, 2015 | 10,005 | 10,005 | ||||||||||||||||||
| Net loss | (307,208 | ) | (307,208 | ) | ||||||||||||||||
| Balance at October 31, 2015 | 6,359,055 | $ | 6,359 | $ | 23,080,594 | $ | (24,448,728 | ) | $ | (1,361,775 | ) | |||||||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
Statements of Cash Flows
Years Ended October 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (307,208 | ) | $ | (424,381 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation expense | -- | 32,333 | ||||||
| Gain on settlement of accounts payable | -- | (80,656 | ) | |||||
| Accretion of interest on convertible debentures | 12,534 | 29,058 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (296 | ) | 5,345 | |||||
| Accounts payable | 1,031 | (3,873 | ) | |||||
| Accounts payable - related party | 157,581 | 175,239 | ||||||
| Accrued expenses | 56,902 | 52,756 | ||||||
| Net cash used in operating activities | (79,456 | ) | (214,179 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of notes payable | -- | (4,615 | ) | |||||
| Proceeds from issuance of convertible debentures | 75,000 | 225,000 | ||||||
| Net cash provided by financing activities | 75,000 | 220,385 | ||||||
| (Decrease) increase in cash | (4,456 | ) | 6,206 | |||||
| Cash – beginning of year | 26,114 | 19,908 | ||||||
| Cash – end of year | $ | 21,658 | $ | 26,114 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | -- | $ | 54 | ||||
| Cash paid for income taxes | $ | 500 | $ | 500 | ||||
| Noncash financing activities: | ||||||||
| Issuance of 461,538 shares of common stock as payment of accounts payable – related party | $ | -- | $ | 60,000 | ||||
| Issuance of 230,769 shares of common stock as payment of accounts payable | $ | -- | $ | 30,000 | ||||
| Issuance of 237,364 shares of common stock as payment of interest due on convertible debentures | $ | -- | $ | 32,000 | ||||
| Discount recorded in connection with issuance of convertible debentures | $ | 10,005 | $ | 36,796 | ||||
The accompanying notes are an integral part of these financial statements.
| F-6 |
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. On January 22, 2016, the Company and the licensor terminated the license agreement related to the SCMS (see Note 4).
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 $1,256,775 and an accumulated deficit of $24,448,728 as of October 31, 2015. The Company has not made $625,000 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. Stock-based compensation expense for employee awards is recognized on a straight-line basis over the requisite service period of the award.
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.
During the fiscal years ended October 31, 2015 and 2014, the Company recorded non-employee stock-based compensation expense of $0 and $32,333, 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 deemed to be 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, 2015, diluted net loss per share did not include the effect of 203,332 shares of common stock issuable upon the exercise of outstanding options, 750,000 shares of common stock issuable upon the exercise of outstanding warrants and 3,166,667 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, 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.
| 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 certain proprietary technologies known as the SCMS. A cash payment of $105,000 is payable by the Company 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 9).
On January 22, 2016, the Company and the Licensor entered into an agreement to terminate the License Agreement (the “License Termination Agreement”). The Company and the Licensor released each other from any and all claims and liabilities related to the License Agreement, including the $105,000 payment due to Hickey (see Note 9). In addition, pursuant to the License Termination Agreement, the Company assigned all intellectual property related to the SCMS to the Licensor and returned all property in its possession related to the SCMS to the Licensor.
| 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, 2015 | October 31, 2014 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Income tax provision at federal statutory rate | $ | (104,451 | ) | 34 | % | $ | (144,290 | ) | 34 | % | ||||||
| Effect of state taxes, net of federal benefit | (18,432 | ) | 6 | (25,463 | ) | 6 | ||||||||||
| Change in valuation allowance | 74,358 | (24 | ) | 81,817 | (19 | ) | ||||||||||
| Expiration of state net operating losses | 47,339 | (16 | ) | -- | -- | |||||||||||
| Stock based compensation | -- | -- | 84,313 | (20 | ) | |||||||||||
| Other | 1,186 | -- | 3,623 | (1 | ) | |||||||||||
| $ | -- | -- | % | $ | -- | -- | % | |||||||||
| F-10 |
Significant components of the Company’s deferred tax assets as of October 31, 2015 and 2014 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, 2015 and 2014, 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 $74,358 during the fiscal year ended October 31, 2015, attributable primarily to the Company’s continuing operating losses for the fiscal year ended October 31, 2015 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.
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, | ||||||||
| 2015 | 2014 | |||||||
| Net operating loss | $ | 6,113,840 | $ | 6,023,403 | ||||
| Accrued compensation | 173,318 | 173,318 | ||||||
| Depreciation and amortization | 5,513 | 6,090 | ||||||
| License costs | 108,617 | 123,839 | ||||||
| Stock based compensation | 130,561 | 130,841 | ||||||
| Total gross deferred tax assets | 6,531,849 | 6,457,491 | ||||||
| Valuation allowance | (6,531,849 | ) | (6,457,491 | ) | ||||
| Net deferred tax assets | $ | -- | $ | -- | ||||
As of October 31, 2015, the Company had federal and state operating losses of approximately $17,336,000 and $3,112,000, respectively. The federal operating losses expire in the years 2022 through 2035 and the state operating losses expire in the years 2016 through 2035.
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 2013, 2014 and 2015 federal and state income tax returns are open for examination by the applicable governmental authorities.
| F-11 |
| 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, 2015, the Company was billed $72,355 pursuant to the terms of the Sublease Agreement. As of October 31, 2015, the Company owed Century Capital $105,000 for rent due under the Sublease Agreement, $28,664 for expenses due under the Sublease Agreement and $235,815 for other expenses, which amounts are included in accounts payable – related party.
During the fiscal year ended October 31, 2014, the Company was billed $68,488 pursuant to the terms of the Sublease Agreement.
| 7. | Stockholders’ Deficiency |
Issuance of Common Stock as Payment of Certain Obligations
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.
Issuance of Common Stock as Payment of Interest Due on Convertible Debentures
On January 8, 2014, the Company issued 57,143 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, 2012 through May 19, 2013 (see Note 8).
On January 8, 2014, the Company issued 57,143 shares of its common stock to the holder of the August 2012 Debenture (as hereinafter defined) 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 (as hereinafter defined) in satisfaction of $16,000 of interest due for the period February 1, 2013 through January 31, 2014 (see Note 8).
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, 2015, options to purchase 120,000 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-12 |
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, 2015, 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, 2015 and 2014 is as follows:
Stock Option Shares | Weighted Average Exercise Price Per Common Share | Aggregate Intrinsic Value | ||||||||||
| 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 | $ | -- | |||||||
| Granted during the period | -- | -- | ||||||||||
| Exercised during the period | -- | -- | ||||||||||
| Terminated during the period | (3,500 | ) | $ | 0.20 | ||||||||
| Outstanding at October 31, 2015 | 203,332 | $ | 1.70 | $ | -- | |||||||
| Exercisable at October 31, 2015 | 203,332 | $ | 1.70 | $ | -- | |||||||
| Exercisable at October 31, 2014 | 206,832 | $ | 1.67 | $ | -- | |||||||
No stock options were granted during the fiscal years ended October 31, 2015 or 2014.
| F-13 |
Information with respect to outstanding options and options exercisable as of October 31, 2015 that were granted to employees is as follows:
| Stock Options Outstanding | Stock Options Exercisable | |||||||||||||||||||||||||
Exercise Price | Number
of Options | Weighted Average Exercise Price Per Common Share | Weighted Average Remaining Contractual Life (Years) | Number of Options | Weighted Average Exercise Price Per Common Share | Weighted Average Remaining Contractual Life (Years) | ||||||||||||||||||||
| $ | 0.80 | 10,000 | $ | 0.80 | 0.2 | 10,000 | $ | 0.80 | 0.2 | |||||||||||||||||
| $ | 1.40 | 83,332 | $ | 1.40 | 2.9 | 83,332 | $ | 1.40 | 2.9 | |||||||||||||||||
| $ | 2.00 | 110,000 | $ | 2.00 | 1.3 | 110,000 | $ | 2.00 | 1.3 | |||||||||||||||||
| 203,332 | $ | 1.70 | 1.9 | 203,332 | $ | 1.70 | 1.9 | |||||||||||||||||||
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, 2015 and 2014 is as follows:
| Warrant Shares | Weighted Average Exercise Price Per Common Share | Aggregate Intrinsic Value | ||||||||||
| 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 | $ | -- | |||||||
| Issued during the period | 153,846 | $ | 0.10 | |||||||||
| Exercised during the period | -- | -- | ||||||||||
| Terminated during the period | -- | -- | ||||||||||
| Outstanding at October 31, 2015 | 750,000 | $ | 0.12 | $ | -- | |||||||
| Exercisable at October 31, 2015 | 596,154 | $ | 0.13 | $ | -- | |||||||
| Exercisable at October 31, 2014 | 250,000 | $ | 0.13 | $ | -- | |||||||
| F-14 |
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, 2015, the weighted average remaining contractual life for warrants outstanding was 2.1 years and for warrants exercisable was 2.0 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 bear interest at a rate of 8% per annum and 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. The Company has not made payment on the remaining outstanding balances of the February 2007 Debentures and, as a result, such obligations can be placed in default by the holders.
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.
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 each of the fiscal years ended October 31, 2015 and 2014, the Company recorded a total of $16,000 of interest expense related to the February 2007 Debentures. As of October 31, 2015, $27,969 of interest due on the February 2007 Debentures was accrued and is included as a component of accrued expense. As of October 31, 2015 and 2014, the Company classified the $200,000 outstanding principal of the February 2007 Debentures as a component of current convertible debentures.
| F-15 |
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. The Company has not made payment on the outstanding balance of the May 2011 Debenture and, as a result, such obligation can be placed in default by the holder.
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 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, 2015 and 2014, the Company recorded a total of $8,002 of interest expense related to the May 2011 Debenture. As of October 31, 2015, $19,624 of interest due on the May 2011 Debenture was accrued and is included as a component of accrued expense. As of October 31, 2015 and 2014, 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. The Company has not made payment on the outstanding balance of the August 2012 Debenture and, as a result, such obligation can be placed in default by the holder.
| F-16 |
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 each of the fiscal years ended October 31, 2015 and 2014, the Company recorded a total of $8,002 of interest expense related to the August 2012 Debenture. As of October 31, 2015, $17,804 of interest due on the August 2012 Debenture was accrued and is included as a component of accrued expense. As of October 31, 2015 and 2014, the Company classified the $100,000 outstanding principal on the August 2012 Debenture as a component of 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 Debentures and, as a result, such obligations can be placed in default by the holders.
| F-17 |
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 have vested. The exercise price of the Debenture Warrants will be subject to adjustment for stock dividends, stock splits, or similar events.
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 was accreted as interest expense using the effective interest method over the respective one-year terms of the Debentures.
For the fiscal year ended October 31, 2015, the Company recorded a total of $30,238 ($7,738 accreted) of interest expense related to the Debentures. As of October 31, 2015, there no remaining unamortized discount on the Debentures. Accordingly, the net carrying value of the Debentures was $225,000, which was recorded as a component of current convertible debentures. As of October 31, 2015, $40,252 of interest due on the Debentures was accrued and is included as a component of accrued expenses. 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.
| F-18 |
February 2015 Convertible Debenture and Warrant
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 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 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 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 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.
The Company separately accounted for the liability and equity components of the February 2015 Debenture 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 $5,983 for the February 2015 Debenture to account for the relative fair value attributable to the February 2015 Debenture Warrant. The $5,983 debt discount is being accreted as interest expense using the effective interest method over the one-year term of the February 2015 Debenture.
| F-19 |
For the fiscal year ended October 31, 2015, the Company recorded a total of $7,853 ($4,278 accreted) of interest expense related to the February 2015 Debenture. As of October 31, 2015, $3,575 of interest due on the February 2015 Debenture was accrued and is included as a component of accrued expenses. As of October 31, 2015, the unamortized discount on the February 2015 Debenture was $1,705 and the net carrying value of the Debentures was $48,295, which was recorded as a component of current convertible debentures.
September 2015 Convertible Debentures and Warrants
On September 14, 2015, the Company issued 10% convertible debentures to three individual investors (the “September 2015 Debentures”). In connection with the issuance of the September 2015 Debentures, the Company issued warrants (the “September 2015 Debenture Warrants”) to purchase shares of its common stock equal to 20% of the aggregate principal amount of the September 2015 Debentures. The gross proceeds received in connection with this private placement were $25,000. The September 2015 Debentures have a one-year term with principal and interest due September 14, 2016. The September 2015 Debentures bear interest at a rate of 10% per annum.
The entire principal and accrued interest amount of the September 2015 Debentures is convertible into shares of the Company’s common stock: (a) upon a Qualified Financing; (b) at the option of the holder, at the maturity date of the September 2015 Debentures; or (c) at the option of the holder, upon a change in control of the Company, as defined in the September 2015 Debentures. Upon the occurrence of a Qualified Financing, the September 2015 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) $0.065, 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 September 2015 Debentures are convertible into shares of the Company’s common stock at $0.065 per share. The quoted market price of the Company’s common stock on September 14, 2015 was $0.065 per share. An aggregate of 384,615 shares of the Company’s common stock can be issued pursuant to the September 2015 Debentures at the current conversion price of $0.065 per share.
The September 2015 Debenture Warrants have 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 September 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 are issued in the Qualified Financing; or (c) $0.065, 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 September 2015 Debenture Warrants issuance date. An aggregate of 76,923 shares of the Company’s common stock can be issued under the September 2015 Debenture Warrants at the current exercise price of $0.065 per share. All of the shares of the Company’s common stock underlying the September 2015 Debenture Warrants vest on the earlier of (a) one year from the September 2015 Debenture Warrants issuance date, or (b) the consummation of a Qualified Financing. The exercise price of the September 2015 Debenture Warrants will be subject to adjustment for stock dividends, stock splits, or similar events.
| F-20 |
The Company separately accounted for the liability and equity components of the September 2015 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 $4,022 for the September 2015 Debentures to account for the relative fair value attributable to the September 2015 Debenture Warrants. The $4,022 debt discount is being accreted as interest expense using the effective interest method over the one-year term of the September 2015 Debentures.
For the fiscal year ended October 31, 2015, the Company recorded a total of $840 ($518 accreted) of interest expense related to the September 2015 Debentures. As of October 31, 2015, $322 of interest due on the September 2015 Debentures was accrued and is included as a component of accrued expenses. As of October 31, 2015, the unamortized discount on the September 2015 Debentures was $3,504 and the net carrying value of the Debentures was $21,496, which was recorded as a component of current convertible debentures.
| 9. | Notes Payable |
Pursuant to the License Agreement (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, 2015 and 2014, the Company classified the $105,000 due to Hickey as a non-current note payable (see Note 4).
| 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.
| F-21 |
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.
| 11. | Subsequent Events |
Issuance of January 2016 Debenture and Warrant
On January 4, 2016, the Company issued a 10% convertible debenture to an individual investor (the “January 2016 Debenture”). In connection with the issuance of the January 2016 Debenture, the Company issued a warrant (the “January 2016 Debenture Warrant”) to purchase shares of its common stock equal to 20% of the aggregate principal amount of the January 2016 Debenture. The gross proceeds received in connection with this private placement were $50,000. The January 2016 Debenture has a one-year term with principal and interest due January 4, 2017. The January 2016 Debenture bears interest at a rate of 10% per annum.
The entire principal and accrued interest amount of the January 2016 Debenture is convertible into shares of the Company’s common stock: (a) upon a Qualified Financing; (b) at the option of the holder, at the maturity date of the January 2016 Debenture; or (c) at the option of the holder, upon a change in control of the Company, as defined in the January 2016 Debenture. Upon the occurrence of a Qualified Financing, the January 2016 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) $0.065, 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 January 2016 Debenture is convertible into shares of the Company’s common stock at $0.065 per share. The quoted market price of the Company’s common stock on January 4, 2016 was $0.025 per share. An aggregate of 769,230 shares of the Company’s common stock can be issued pursuant to the January 2016 Debenture at the current conversion price of $0.065 per share.
| F-22 |
The January 2016 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 January 2016 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 are issued in the Qualified Financing; or (c) $0.065, 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 January 2016 Debenture Warrant issuance date. An aggregate of 153,846 shares of the Company’s common stock can be issued under the January 2016 Debenture Warrant at the current exercise price of $0.065 per share. All of the shares of the Company’s common stock underlying the January 2016 Debenture Warrant vest on the earlier of (a) one year from the January 2016 Debenture Warrant issuance date, or (b) the consummation of a Qualified Financing. The exercise price of the January 2016 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 on: December 12, 2013 in the principal amount of $150,000; April 1, 2014 in the principal amount of $75,000; February 12, 2015 in the principal amount of $50,000; September 14, 2015 in the principal amount of $25,000; and January 4, 2016 in the principal amount of $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). | |
| 10.3.2 | License Termination 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 January 22, 2016. | |
| 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). |
| E-2 |
| Exhibit | ||
| Number | Description of Exhibit | |
| 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). | |
| 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 | |
| 21.1 | Subsidiaries of Scivanta Medical Corporation | |
| 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, 2015, 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
E-4