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SCVM > SEC Filings for SCVM > Form 10-K on 21-Jan-2014All Recent SEC Filings

Show all filings for SCIVANTA MEDICAL CORP

Form 10-K for SCIVANTA MEDICAL CORP


21-Jan-2014

Annual Report


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, 2013 and 2012. This information should be read in conjunction with Scivanta's audited financial statements for the fiscal years ended October 31, 2013 and 2012 and the related notes thereto, which begin on page F-1 of this report.

Background

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

On November 10, 2006, we acquired the exclusive world-wide rights to develop, manufacture and distribute the SCMS, a minimally invasive two-balloon esophageal catheter system used to monitor cardiac performance. The SCMS is currently in development stage. However, since the end of fiscal 2009, all development activity has ceased. See "Item 1. Business - Strategy for Business Development - SCMS." 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.

Income Taxes

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

Stock Based Compensation

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

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

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. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term "forfeitures" is distinct from "cancellations" or "expirations" and represents only the unvested portion of the surrendered stock options or warrants. Scivanta estimates forfeiture rates for all unvested awards when calculating the expense for a period. In estimating the forfeiture rate, Scivanta monitors both stock option and warrant exercises as well as employee and non-employee termination patterns.


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

Recent Accounting Pronouncements Applicable to Scivanta

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

Results of Operations

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

Research and Development. For the fiscal year ended October 31, 2013, research and development expenses were $3,115, as compared to $21,721 for the fiscal year ended October 31, 2012. The $18,606, or 86%, decrease in research and development expenses for the fiscal year ended October 31, 2013 was due to a decrease in patent costs related to the SCMS.

The amount of research and development expense to be incurred by us during the fiscal year ending October 31, 2014 will depend upon our ability to secure additional capital through an equity and/or debt financing or corporate partnerships. In the event that we decide to continue the development of the SCMS, and are able to obtain additional capital to fund such development, we would expect research and development expenses for the fiscal year ending October 31, 2014 to significantly increase. If we do not continue the development of the SCMS, we would expect research and development expenses for the fiscal year ending October 31, 2014 to remain at the current level.

General and Administrative. For the fiscal year ended October 31, 2013, general and administrative expenses were $322,725, as compared to $245,881 for the fiscal year ended October 31, 2012. The $76,844, or 31%, increase in general and administrative expenses for the fiscal year ended October 31, 2013 was primarily due to a $58,751 increase in legal expenses related to the Company's amendment to its Restated Articles of Incorporation and our review of potential acquisitions, a $17,000 increase in consulting fees related to our review of potential acquisitions and financings, a $6,915 increase in costs associated with mailings to stockholders regarding the amendment to our Restated Articles of Incorporation and a $4,699 increase in office related expenses, offset by a $14,000 decrease in audit related fees.

The amount of general and administrative expense to be incurred by us during the fiscal year ending October 31, 2014 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 continued development of the SCMS or to acquire a product, technology or service, we would expect general and administrative expenses for the fiscal year ending October 31, 2014 to increase as we build the administrative infrastructure necessary to support the continued development of the SCMS or development or sale of a new product, technology or service. If we are unable to obtain additional capital sufficient to fund the continued development of the SCMS or to acquire a new product, technology or service, we would expect general and administrative expenses for the fiscal year ending October 31, 2014 to decrease as we continue to reduce our operating activities.


Operating Income. During the fiscal years ended October 31, 2013 and 2012, we recognized a gain on the settlement of accounts payable related to certain vendor obligations of $68,050 and $13,428, respectively.

Interest Expense. For the fiscal year ended October 31, 2013, interest expense was $32,709, as compared to $27,195 for the fiscal year ended October 31, 2012. The $5,514, or 20%, increase in interest expense for the fiscal year ended October 31, 2013 was primarily due to $6,336 of interest associated with the convertible debenture issued on August 15, 2012, offset by a $897 decrease in interest associated with the convertible debentures issued on February 1, 2007 resulting from the conversion to common stock of a portion of the outstanding aggregate principal of the convertible debentures in January 2012.

Loss on Conversion of Convertible Debentures. For the fiscal year ended October 31, 2012, we recognized a loss of $21,750 on the conversion of certain convertible debentures issued on February 1, 2007 due to a reduction in the conversion price.

Net Loss. For the fiscal year ended October 31, 2013, our net loss was $290,499, or $0.06 per share (basic and diluted), as compared to a net loss of $303,119, or $0.10 per share (basic and diluted), for the fiscal year ended October 31, 2012. The $12,620, or 4%, decrease in net loss for the fiscal year ended October 31, 2013 was due to a $18,606 decrease in research and development expenses, a $54,622 increase in the gain on the settlement of accounts payable and a $21,750 decrease in the loss on conversion of convertible debentures, offset by a $76,844 increase in general and administrative expenses and a $5,514 increase in interest expense.

Liquidity and Capital Resources

As of October 31, 2013, we had a working capital deficiency of $626,320 and cash on hand of $19,908. The $44,417 decrease in cash on hand from October 31, 2012 was primarily due to our continuing operating expenses, offset by $120,000 of net proceeds received in connection with the sale of an aggregate of 1,136,362 shares of our common stock that occurred in January and April 2013.

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 December 12, 2013, we issued 10% convertible debentures to two individual investors. The gross proceeds received in connection with this private placement were $150,000.


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

As of January 21, 2014, our cash position was approximately $70,000. 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 a $25,000 principal payment due on July 31, 2012 on a convertible debenture dated February 1, 2007 and, as a result, this obligation can be placed in default by the holder. In addition, $175,000 of principal payments is due on January 31, 2014 on convertible debentures dated February 1, 2007. We do not anticipate making these payments by January 31, 2014 and, as a result, these obligations can be placed in default by the holders subsequent to January 31, 2014. 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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