UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2007; 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 0-52263
CAVIT SCIENCES, INC.
(Exact Name of Small Business Issuer in Its Charter)
Florida 03-0586935
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
100 East Linton Boulevard, Suite 106B
Delray Beach, Florida 33483
(561) 278-7856
(Address and telephone number of principal executive offices
and principal place of business)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by section 12,13 or 15 of the Exchange Act after distribution of
securities under a plan confirmed by a court [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 10, there were 13,913,639 shares of the issuer's common stock and
outstanding, par value $0.01.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
CAVIT SCIENCES, INC.
INDEX TO FORM 10-QSB
June 30, 2007
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet dated June 30, 2007 3
Statements of Operations for the Three and Six Months Ended
June 30, 2007, the Period from April 12, 2006 (Inception) to
June 30, 2006, and the period from April 12, 2006 (inception)
to June 30, 2007(unaudited) 4
Statement of Stockholders' Deficit for the period from April 12, 2006
(inception) to June 30, 2007 (unaudited) 5
Statements of Cash Flows for the Six Months Ended June 30, 2007
the Period from April 12, 2006 (Inception) to June 30, 2006,
and the period from April 12, 2006 (inception) to June 30, 2007
(unaudited) 7
Notes to Financial Statements (unaudited) 8
Item 2. Management's Plan of Operation 9
Item 3. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Recent Sales of Unregistered Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits 23
Signatures 24
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAVIT SCIENCES, INC.
(A Development Stage Company)
BALANCE SHEET
(unaudited)
June 30, 2007
-------------
ASSETS
Current
Cash $ 4,490
Due from affiliate 5,000
Prepaid expenses 45,000
---------
Total Current Assets 54,490
---------
Total Assets $ 54,490
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current
Accounts Payable and Accrued Liabilities $ 175,018
Notes Payable 95,278
Derivative liability --
---------
Total Current Liabilities 270,296
---------
STOCKHOLDERS' DEFICIT
Preferred Stock - $.01 par value; 5,000,000 shares, none
issued or outstanding
Common Stock - $.01 par value; 45,000,000 shares authorized, 139,008
13,900,773 shares issued and outstanding
Additional Paid in Capital 527,119
Common stock to be issued 857
Deficit Accumulated During the Development Stage (882,790)
---------
Total Stockholders' Deficit (215,806)
---------
Total Liabilities and Stockholders' Deficit $ 54,490
=========
The Accompanying Notes are an Integral Part of These Financial Statements
3
CAVIT SCIENCES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
Three Months April 12, 2006 Six Months April 12, 2006
Ended (inception) to Ended (inception) to
June 30, June 30, June 30, June 30,
2007 2006 2007 2007
------------ ------------ ------------ ------------
General and Administrative Expenses $ 182,916 $ 111,833 $ 300,442 $ 804,851
Purchased R&D -- 88,462 -- 88,462
------------ ------------ ------------ ------------
Total Operating Expenses 182,916 200,295 300,442 893,313
------------ ------------ ------------ ------------
Other Income Expense
Interest Expense 5,277 -- 5,277 5,277
Derivative (gain) loss (15,800) -- (15,800) (15,800)
------------ ------------ ------------ ------------
Total other income (loss) (10,523) -- (10,523) (10,523)
------------ ------------ ------------ ------------
Net Loss $ (172,393) $ (200,295) $ (289,919) $ (882,790)
============ ============ ============ ============
Loss per Share
Primary loss per share $ (.01) $ (.06) $ (.02)
Weighted Average shares 13,419,623 3,308,061 13,543,512
The Accompanying Notes are an Integral Part of These Financial Statements
4
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
For the period April 12, 2006 (inception) to June 30, 2007
Accumulated
Common Stock Deficit
------------------ Additional During
Par Paid-in Development Shares to
Number Value Capital Stage Be Issued Total
------ ----- ------- ----- --------- -----
Balance at Inception - April 12, 2006 -- $ -- $ -- $ -- $ -- $ --
Issuance of common shares
for cash - at $0.08 2,375,000 23,750 166,250 -- -- 190,000
Issuance of common shares to
Hard to Treat Diseases, Inc.
for spin-off - at $0.0171 - Note 2 8,475,000 84,750 60,709 -- -- 145,459
Issuance of common shares
for consulting services - at $0.08 455,000 4,550 31,850 -- -- 36,400
Issuance of common stock for
transfer agent services - at $0.08 115,800 1,158 8,106 -- -- 9,264
Issuance of common shares
for legal services - at $0.08 314,750 3,147 22,033 -- -- 25,180
Issuance of common shares to
directors for fees - at $0.01 300,000 3,000 -- -- -- 3,000
Issuance of common stock to
directors for fees - at $0.08 387,500 3,875 27,125 -- -- 31,000
Issuance of common shares to CEO &
CFO for services - at $0.01 50,000 500 -- -- -- 500
Issuance of common shares to CEO &
CFO for services - at $0.08 562,500 5,625 39,375 -- -- 45,000
Issuance of common shares to
shareholders for anti-dilution -
at $0.08 258,807 2,588 18,116 -- -- 20,704
Common shares to be issued to
attorney for legal services - at $0.30 -- -- -- -- 4,005 4,005
Common shares to be issued to
transfer agent for services - at $0.30 -- -- -- -- 5,143 5,143
Net loss -- -- -- (592,871) -- (592,871)
---------- -------- -------- --------- ------- ---------
Balance, December 31, 2006 13,294,357 $132,943 $373,564 $(592,871) $ 9,148 $ (77,216)
========== ======== ======== ========= ======= =========
The Accompanying Notes are an Integral Part of These Financial Statements
5
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
For the period April 12, 2006 (inception) to June 30, 2007
Accumulated
Common Stock Deficit
------------------ Additional During
Par Paid-in Development Shares to
Number Value Capital Stage Be Issued Total
------ ----- ------- ----- --------- -----
Balance, December 31, 2006 13,294,357 $132,943 $373,564 $(592,871) $ 9,148 $ (77,216)
---------- -------- -------- --------- ------- ---------
Common shares issued to attorney
for legal services - at $.229 and $.30 69,087 691 15,199 -- (4,005) 11,885
Issuance of stock to Directors for
fees - at $.09 166,670 1,667 13,333 -- -- 15,000
Common shares issued to attorney
for legal services - at $.289 37,138 371 10,399 -- -- 10,770
Issuance of common shares to CEO &
CFO for services - at $0.08 153,449 1,535 42,965 -- -- 44,500
Common shares issued to attorney
for legal services - at $.229 6,375 64 1,722 -- -- 1,786
Issuance of stock to Directors for
fees - at $.349 42,860 429 14,571 -- -- 15,000
Issuance of common shares to
shareholders for anti-dilution -
at $0.467 109,430 1,094 49,244 -- -- 50,338
Issuance of common stock for
transfer agent services - at $0.30 17,144 171 4,972 -- (5,143) --
Issuance of common stock for
transfer agent services - at $0.28 4,263 43 1,150 -- -- 1,193
Common shares to be issued to
transfer agent for services - at $0.30 -- -- -- -- 857 857
Net Loss -- -- -- (289,919) -- (289,919)
---------- -------- -------- --------- ------- ---------
Balance, June 30, 2007 13,900,773 $139,008 $527,119 $(882,790) $ 857 $(215,806)
========== ======== ======== ========= ======= =========
The Accompanying Notes are an Integral Part of These Financial Statements
6
CAVIT SCIENCES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months April 12, 2006 April 12, 2006
Ended (inception) to (inception) to
June 30, June 30, June 30,
2007 2006 2007
--------- --------- ---------
Operating Activities
Net loss for the period $(289,919) $(200,295) $(882,790)
Change in non-cash working capital balance
related to operations:
Stock to be issued for services 857 -- 857
Stock issued for services and anti-dilutive provisions 150,472 209,359 330,668
Purchased R&D cost -- -- 88,462
Impairment charge -- -- 86,997
Changes in assets and liabilities:
Receivable from affiliates -- -- (5,000)
Prepaids deferred interest (59,722) -- (59,722)
Due to related parties (1,238) -- --
Increase in accounts payable and accrued liabilities 70,027 35,495 175,018
--------- --------- ---------
Cash (used) provided by operating activities (129,253) 44,559 (265,510)
--------- --------- ---------
Investing Activity
Due from Affiliates -- (13,000)
Purchase of intellectual property rights -- (56,997) (20,000)
--------- --------- ---------
Cash used by investing activity -- (69,997) (20,000)
--------- --------- ---------
Financing Activity
Sale of stock for cash -- 75,000 190,000
Issuance of debt 100,000 -- 100,000
--------- --------- ---------
Cash provided by financing activity 100,000 75,000 290,000
--------- --------- ---------
Increase (Decrease) in cash during the period (29,523) 49,562 4,490
Cash, beginning of the period 34,013 -- --
--------- --------- ---------
Cash, end of the period $ 4,490 $ 49,562 $ 4,490
========= ========= =========
The Company did not pay any amounts for interest or taxes for the period from
April 12, 2006 (inception) to June 30, 2007.
Non-cash Activity:
On May 31, 2006 the Company issued 8,475,000 shares of common stock to acquire
intellectual property relating to three patent applications from it's parent
corporation for $145,459.
The Company issued a note payable for $10,000 for the acquisition of
intellectual property.
The Accompanying Notes are an Integral Part of These Financial Statements
7
CAVIT SCIENCES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Note 1 Nature of Operations and Summary of Significant Accounting Policies
The financial statements for the six months ended June 30, 2007 and for
the period from April 12, 2006 (inception) to June 30, 2007, together
with the balance sheet as of June 30, 2007 included herein have not been
audited by the Company's independent public accountants. In the opinion
of management, all adjustments necessary to present fairly the financial
position at June 30, 2007 and the results of operations and cash flows
for the periods presented herein have been made.
The financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted
pursuant to such regulations. These financial statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-KSB for the year ended December
31, 2006.
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States of
America. Because a precise determination of many assets and liabilities
is dependent upon future events, the preparation of financial statements
for a period necessarily involves the use of estimates which have been
made using careful judgment. Actual results may vary from these
estimates.
At June 30, 2007, the Company has negative working capital of $215,806,
has incurred losses since inception totalling $882,790 and has yet to
achieve profitable operations. The Company's ability to continue as a
going concern is dependent on raising additional capital to fund future
operations and ultimately to attain profitable operations. Accordingly,
these factors raise substantial doubt as to the Company's ability to
continue as a going concern. These financial statements do not give
affect to adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be unable to
continue as a going concern.. Management plans to continue to provide for
its capital needs during the year ending December 31, 2007 by issuing
equity securities or by pursuing alternative financing, however, there
are no assurances that management's plans will be attained.
Note 2 Convertible debt
From March 27, 2007 to June 30, 2007 the Company issued various six month
notes payable totaling $100,000 carrying an interest rate of 7% and a
conversion right to common stock at $.08 per share to convert the entire
notes for 1,250,000 shares of common stock. The Company has determined
that such notes fall within the meaning of an embedded derivative under
Statement of Financial Accounting Standards No. 133. Accordingly the
Company has bifurcated such instruments using the Black Scholes method
for valuing the derivative portion. At June 30, 2007 the Company applied
the Black Scholes methodology to the notes and concluded that there was
no mark to market adjustment required. Total outstanding notes payable at
June 30, 2007 were $100,000.
Note 3 Equity
During the six months ended June 30, 2007, the Company issued 606,416
shares of common stock at prices ranging from $.09 to $.467 for various
services including directors fees, legal fees, transfer agent fees, and
anti dilution clauses for previous shares issued. The total charge to
income for such issuances was $150,472.
Note 4 Weighted Average Number per Share Amounts
The Company follows Financial Accounting Standards Number 128 "Earnings
per Share". At June 30, 2007 the Company had 1,250,000 shares that could
have been issued under conversion rights. Such shares were not included
in the computations of primary earnings per share since their effect
would be anti-dilutive.
8
ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS
The following discussion of our plan of operations should be read together with
the financial statements and related notes that are included elsewhere in this
Form 10-QSB. This discussion may contain forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those set forth under "Risk Factors,"
"Disclosure Regarding Forward-Looking Statements" or in other parts of this Form
10-QSB. We undertake no obligation to update any information in our
forward-looking statements except as required by law.
PATENT ACQUISITION INFORMATION
Hard to Treat began to internally develop the intellectual property rights
during 2004, that were acquired by Cavit on May 31, 2006, as part of the
operations of Hard to Treat's biotechnology division. During 2004, research and
development commenced, which was the foundation for the first patent application
being filed during December of 2004. As a result of additional research and
development in 2005, two additional patent applications were filed in December
2005.
The boards of directors of Cavit Sciences and Hard to Treat determined the value
of the intangible assets and related costs acquired to be $145,459; comprised of
$56,997 in capitalized legal fees associated with the development of the rights
from inception and $88,462 of direct research and development which are
considered purchased R&D and have been expensed in the June 30, 2006 financial
statements. The $145,459 carved out cost determined the value of the intangible
assets. The acquisition costs do not include $47,060 of certain overhead
expenses incurred by Hard to Treat during the development of the intellectual
property rights from inception that began in 2004. The overhead expenses of
$47,060 that were not part of the purchase price paid by Cavit include wages,
rent, phone and other expenditures that Hard to Treat incurred to develop the
intellectual properties.
Cavit was incorporated on April 12, 2006 and acquired intellectual property
rights from Hard to Treat on May 31, 2006. In July 2006, Cavit acquired
additional rights in some of these intellectual property rights, resulting in
Cavit owning 100% of such rights.
OVERVIEW
We are a development-stage company and have a limited operating history. Cavit
Sciences, Inc. was formed on April 12, 2006, as a wholly owned subsidiary of
Hard to Treat Diseases, Inc., to acquire certain intellectual property rights
from Hard to Treat Diseases and to develop and market the acquired rights.
Our plan is to market our intellectual property rights to major drug companies.
We are finalizing presentations to be delivered and presented to individuals at
drug companies that we have sought as candidates for our technology.
Non-confidential information is included in the presentations to the drug
companies. If a drug company is interested in our technology, confidentiality
disclosure agreements will be signed on behalf of Cavit and the drug company. We
anticipate that a confidential review of information will take place before
face-to-face scientific meetings are held between Cavit's medical advisors and
researchers and scientists and researchers of the drug company. If the drug
company decides to move forward with the transaction, term sheet negotiations
and due diligence will be conducted and definitive agreements will be negotiated
before agreements are executed.
Depending on the level of interest of drug companies in our intellectual
property rights, there are numerous agreements that can be entered into:
* A drug company may feel that additional testing is required on our
substances before they make a decision. After reviewing the testing
protocols we have prepared for additional testing, a drug company may
or may not be willing to fund the additional testing or a portion of
it.
9
* A drug company may feel that additional testing is required on our
substances and they will fund additional testing that they will design
the testing protocol for. We anticipate that the drug company will
fund any testing that is to be customized to its specifications.
* A drug company may decide to joint venture with Cavit on additional
testing as part of the term sheet negotiations.
* A drug company may decide to become an equity partner with Cavit.
* A drug company may decide to acquire our patent application rights for
a specified price payable over a period of time in cash, stock or a
combination of both.
At this point, we believe we have enough data and information to market our
patented intellectual property rights to drug companies. We may or may not
decide to conduct additional testing on our current substances once we have
received formal responses on our drug company candidates.
We have not generated any profits since our entry into the biotechnology
business, have no source of revenues and have incurred operating losses. We
expect to incur additional operating losses for the foreseeable future. We do
not have any sources of revenues and may not have any in the foreseeable future
unless we market our rights to a drug company.
We need to obtain additional capital resources from sources including equity
and/or debt financings, license arrangements, grants and/or collaborative
research arrangements in order to develop products and continue Cavit's
business. We believe that we have sufficient working capital to finance
operations through the end of 2007. Thereafter, we will need to raise additional
working capital. Our current burn rate is approximately $10,000 per month
excluding capital expenditures. The timing and degree of any future capital
requirements will depend on many factors, including:
Research and development. We expect to make investments in research and
development in order to develop and market our technology. Research and
development costs will consist primarily of general and administrative and
operating expenses related to research and development activities. We will
expense research and development costs as incurred. Property, plant and
equipment for research and development that has an alternative future use will
be capitalized and the related depreciation will be expensed as research and
development costs. We expect our research and development expense to increase as
we continue to invest in the development of our technology.
General and administrative. General and administrative expenses will consist
primarily of salaries and benefits, office expense, professional services fees,
and other corporate overhead costs. We anticipate increases in general and
administrative expenses as we continue to develop and prepare for marketing of
our technology.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SIX MONTHS ENDED JUNE 30, 2007.
REVENUE. We recorded no revenue for the six months ended June 30, 2007.
EXPENSES. Our expenses during the six months ended June 30, 2007 were $289,919
and were comprised mainly of professional fees, salaries, and Directors fees.
The Company was incorporated in April 12, 2006 and therefore has limited
comparative financial information for the same period in the prior year.
10
RECENT FINANCING
We raised a total of $190,000 from investors in private offerings of our common
stock during the period from April 12, 2006 (Inception period) to June 30, 2007.
Additionally, we raised $100,000 through the issuance of six month convertible
notes.
LIQUIDITY AND CAPITAL RESOURCES
CHANGES IN CASH FLOW. Cash used in operations for the six month period ended
June 30, 2007 was $129,253 when compared to the Inception period to June 30,
2006 inflows of $44,559. Cash used in investing activities for the six month
period ended June 30, 2007 was $0 when compared to the Inception period to June
30, 2006 of $69,997. Cash provided from financing activities for the six period
ended June 30, 2007 was $100,000 as compared to $75,000 in the Inception period
to June 30, 2006.
Historically, Cavit has financed its operations primarily from the sale of its
equity securities. As of June 30, 2007, Cavit had cash of approximately $4,490.
Our current burn rate is approximately $10,000 per month excluding capital
expenditures. As a result of current financing, Cavit believes that it has
sufficient working capital to fund operations through the end of calendar 2007.
Thereafter, Cavit will need to raise additional capital to fund its working
capital needs. Cavit does not have any material commitments from investors or
any credit facilities available with financial institutions or any other third
parties. Therefore, it is expected that Cavit will need to enter into agreements
with investors or engage in best efforts sales of its securities to raise needed
working capital. There is no assurance that we will be successful in any funding
effort. The failure to raise such funds will necessitate the curtailment of
operations and delay of the start of any additional testing.
OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2007, we had no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values 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 our most significant
judgments and estimates used in preparation of our consolidated financial
statements.
Impairment of Long-Lived Assets. We review long-lived assets and certain
identifiable assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected future undiscounted cash flows is less than the carrying amount
of the asset, further impairment analysis is performed. An impairment loss is
measured as the amount by which the carrying amount exceeds the fair value of
assets.
Stock-Based Compensation. Effective June 26, 2006, we adopted the provisions of
Statement of Financial Accounting Standards No. 123R, "Share-Based Payment,"
which establishes accounting for equity instruments exchanged for employee
service. We do not believe the adoption of these provisions will have an adverse
effect on our financial statements.
Research and Development. The costs of materials and equipment or facilities
that are acquired or constructed for research and development activities and
that have alternative future uses will be capitalized as tangible assets when
acquired or constructed. The cost of such materials consumed in research and
development activities and the depreciation of such equipment or facilities used
in those activities will be research and development costs. However, the costs
of materials, equipment, or facilities acquired or constructed for research and
development activities that have no alternative future uses will be considered
research and development costs and will expensed at the time the costs are
incurred.
11
GENERAL
Cavit Sciences, Inc., a Florida corporation (the "Company" or "Cavit") filed a
Registration Statement with respect to its outstanding shares of common stock,
$.01 par value. The Company's common stock is quoted on the OTC Bulletin Board..
The registration statement filed with the Securities and Exchange Commission
("SEC") was declared effective on October 16, 2006. On the same date, the
Company filed a Form 10-SB Registration Statement with the SEC, which caused the
Company to become a reporting issuer under the Securities Exchange Act of 1934.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements. These statements relate to
future events or future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause Cavit or its industry's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, levels of activity, performance or
achievements. The Company is under no duty to update any of the forward-looking
statements after the date of this Form 10-QSB to conform its prior statements to
actual results.
Further, this Form 10-QSB contains forward-looking statements that involve
substantial risks and uncertainties. Such statements include, without
limitation, all statements as to expectation or belief and statements as to our
future results of operations, the progress of any research, product development
and clinical programs, the need for, and timing of, additional capital and
capital expenditures, partnering prospects, the protection of and the need for
additional intellectual property rights, effects of regulations, the need for
additional facilities and potential market opportunities. The Company's actual
results may vary materially from those contained in such forward-looking
statements because of risks to which the Company is subject, such as lack of
available funding, competition from third parties, intellectual property rights
of third parties, regulatory constraints, litigation and other risks to which
the Company is subject.
OVERVIEW
We are a biotechnology company engaged in developing treatments of cancer and
viral infections. Our strategy is to develop and commercialize intellectual
property rights to treat, prevent and inhibit several major diseases, including
cancers, viral infections, diseases associated with cancers and viral
infections, opportunistic infections and enhancement of the immune system.
We currently own twelve patent applications.
Cancers and viral infections destroy the lives of millions of people each year.
Drug companies are spending millions of dollars on research and testing in order
to bring new drugs to market. Current treatments are normally expensive, painful
and do not always promote better health.
12
In addition to the treatment of cancer and viral infections, our patent
applications claim the treatment of numerous additional diseases. These
substances act to increase the strength of the immune system by warding off,
inhibiting and treating diseases.
LICENSES, PATENTS AND PROPRIETARY RIGHTS
We believe that proprietary protection of our technologies will be critical to
the development of our business. We intend to protect our proprietary
intellectual property through patents and other appropriate means. We rely upon
trade secret protection for certain types of confidential and proprietary
information and take active measures to control access to that information. We
currently have non-disclosure agreements with all of our employees and
consultants.
RESEARCH COLLABORATIONS
We anticipate entering into collaborative research agreements with academic and
research institutions. We will use these agreements to enhance our research
capabilities. In our industry, these agreements typically provide the industry
partner with rights to license the intellectual property created through the
collaboration. We may also enter into collaborative research agreements with
other pharmaceutical companies if necessary to support the development and
commercialization of our technology.
COMMERCIALIZATION THROUGH THIRD PARTIES
We may grant sublicenses for certain applications of our technologies.
Sublicensing certain rights in our technology to pharmaceutical companies and
other third parties help us to efficiently develop some applications of our
technologies.
COMPETITION
The development of therapeutic cancer and viral infection products for human
disease is intensely competitive. Major pharmaceutical companies currently offer
a number of pharmaceutical products to treat cancers, infectious diseases and
other diseases for which our technologies may be applicable. Many pharmaceutical
and biotechnology companies are investigating new drugs and therapeutic
approaches for the same purposes, which may achieve new efficacy profiles,
extend the therapeutic window for these products, alter the prognosis of these
diseases or prevent their onset. We believe our products, when and if
successfully developed, will compete with these products on the basis of
improved and extended efficacy and safety and their overall economic benefit to
the health care system. We expect intense competition. Our most significant
competitors will be fully integrated pharmaceutical companies and established
biotechnology companies. Smaller companies may also be significant competitors,
particularly through collaborative arrangements with large pharmaceutical or
biotechnology companies. Many of our competitors have significant products in
development that could compete with our potential products. Practically all of
our competitors have more money and expertise than we have.
DESCRIPTION OF PROPERTY
Our principal executive and administrative office facility is located in Delray
Beach, Florida at 100 East Linton Blvd., Suite 106B, Delray Beach, Florida 33483
and our telephone number is (561) 278-7856. We share office space,
telecommunication equipment and incidental equipment and furniture with Hard to
Treat Diseases, Inc. and pay them $1,000 a month for same. We believe the terms
of the office sharing arrangement are on favorable terms to us. Cavit is in the
process of relocating its corporate headquarters to North Miami into leased
facilities that include research and development, laboratories and warehouse
space.
13
GOVERNMENT REGULATION
Our research and development activities and the future manufacturing and
marketing of our potential products are, and will be, subject to regulation for
safety and efficacy by a number of governmental authorities in the United States
and other countries.
In the United States, pharmaceuticals, biological and medical devices are
subject to Food and Drug Administration regulation. The Federal Food, Drug and
Cosmetic Act, as amended, and the Public Health Service Act, as amended, the
regulations promulgated thereunder, and other Federal and state statutes and
regulations govern, among other things, the testing, manufacture, safety,
efficacy, labeling, storage, export, record keeping, approval, marketing,
advertising and promotion of our potential products. Product development and
approval within this regulatory framework take several years, cost a lot of
money and involve significant uncertainty.
We are also subject to regulations under the Occupational Safety and Health Act,
the Environmental Protection Act, the Toxic Substances Control Act and other
present and potential future foreign, Federal, state and local regulations.
EMPLOYEES
As of June 30, 2007, we had one full time employee, Mr. Colm King, who is our
President and Chief Executive Officer and we have contracted Mr. Julio De leon
as our CFO for a one year period starting on November 1, 2006. We believe that
our relations with our employee are good. Our employee is not represented by a
union or covered by a collective bargaining agreement. We believe Mr. King is
best suited to oversee the operations of Cavit during the next several months
due to his intimate knowledge of our biotechnology business. While serving as
president of Hard to Treat, Mr. King was involved in the testing of our products
and the patent application process for our two applications. We will actively
recruit and hire a new chief financial officer and a new chief operating officer
when funds become available. We intend to fill these posts with individuals
having pharmaceutical and/or biotechnology experience and expertise.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and the other information in this
prospectus before investing in our common stock. Our business and results of
operations could be seriously harmed by any of the following risks.
RISKS RELATED TO OUR BUSINESS
OUR INDEPENDENT AUDITOR HAS RAISED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
The Independent Auditor's Report to our audited financial statements for
the period ended December 31, 2006, included in Form 10-SB filed with the
Securities and Exchange Commission, indicated that there are a number of
factors that raise substantial doubt about our ability to continue as a
going concern. Such doubts identified in the report include the fact that
we currently have no source of revenue and we need to obtain adequate
financing. If we are not able to continue as a going concern, it is likely
that investors will lose all or a part of their investment.
WE ARE SERIOUSLY UNDERCAPITALIZED AND HAVE LIMITED LIQUIDITY.
Historically, Cavit has financed its operations primarily from the sale of
its equity securities. As of June 30, 2007, Cavit had cash of approximately
$4,490.. Our current burn rate is approximately $10,000 per month excluding
capital expenditures. As a result of current financing, Cavit believes that
it has sufficient working capital to fund operations through the end of
calendar 2007.. Thereafter, Cavit will need to raise additional capital to
fund its working capital needs. Cavit does not have any material
commitments from investors or any credit facilities available with
financial institutions or any other third parties. Therefore, it is
expected that Cavit will need to enter into agreements with investors or
engage in best efforts sales of its securities to raise needed working
capital. There is no assurance that we will be successful in any funding
effort. The failure to raise such funds will necessitate the curtailment of
operations and delay of the start of any additional testing.
14
WE DO NOT HAVE AN INDEPENDENT AUDIT OR COMPENSATION COMMITTEE.
Our audit and compensation committees are made up of members of our board
of directors and are, therefore, not considered independent. The absence of
an independent audit and compensation committee could lead to conflicts of
interest between committee members and our officers and directors, which
could work as a detriment to our shareholders.
WE ARE A DEVELOPMENT STAGE COMPANY AND WE HAVE NO SIGNIFICANT OPERATING HISTORY.
We are a development stage company that has not had prior operations. See
"Management's Plan of Operations - Patent Acquisition Information" and
"Description of Business - History of Intellectual Property Rights" for a
more detailed discussion of prior operations. Our plans and businesses are
"proposed" and "intended," but we may not be able to successfully implement
them. Our primary business purpose is to collaborate with and market our
intellectual property rights to major drug companies. As of the date of
this prospectus, wehave three patent applications, two of which include
testing results of twodrug candidates: Tubercin (T-5) and Specific
Substance of Maruyama. However, the FDA has not approved either drug for
sale in the United States and neither drug has been approved for sale by
any foreign country. In addition, we have not earned revenues and have
incurred losses since our incorporation in April 2006. We currently lack
sufficient capital to generate revenue or operate our business in a
profitable manner. As a development stage company, our prospects are
subject to all of the risks, expenses, and uncertainties frequently
encountered by companies in the drug development and pharmaceutical
business. In addition, we are subject to all of the risks, uncertainties,
expenses, delays, problems, and difficulties typically encountered in the
establishment of a new business. We expect that unanticipated expenses,
problems, and technical difficulties will occur and that they will result
in material delays in the development of our products. We may not obtain
sufficient capital or achieve a significant level of operations and, even
if we do, we may not be able to conduct such operations on a profitable
basis.
AN INDIVIDUAL WHO HAS A RIGHT TO OWNERSHIP OF A SUBSTANTIAL NUMBER OF SHARES OF
HARD TO TREAT COMMON STOCK, BUT WHO WAS NOT A HOLDER OF RECORD OF ANY HARD TO
TREAT SHARES ON JUNE 13, 2006 (THE RECORD DATE FOR THE RECENTLY COMPLETED
SPIN-OFF OF OUR SHARES TO HOLDERS OF HARD TO TREAT COMMON STOCK) MAY SEEK TO
HAVE 3,500,000 SHARES OF CAVIT SCIENCES COMMON STOCK ISSUED TO HIM, IN WHICH
CASE THE SHAREHOLDERS OF CAVIT SCIENCES COULD BE SUBSTANTIALLY DILUTED.
In July 2005, a Florida judge ruled in favor of an individual declaring
that the individual was the lawful owner of 350,000,000 shares of Hard to
Treat common stock "should he choose to exercise his right of ownership
over these shares." Since July 2005, this individual had not exercised any
right of ownership over these shares and was not a holder of record of Hard
to Treat common stock on June 13, 2006 (the record date of the recently
completed spin-off of our shares to holders of Hard to Treat common stock).
Therefore, he did not participate in the stock dividend that was the
subject of the spin-off. The same judge entered a money judgment in favor
of Hard to Treat against his individual for over $200,000, which amount
plus interest would have to be paid to Hard to Treat in order for the
shares to be issued to him. Although the amount of the money judgment will
likely deter this individual from demanding his shares, if he were to
demand his shares and pay the money judgment and if he could prove his
entitlement to participate in the stock dividend in the spin-off, Cavit
Sciences would have to issue him 3,500,000 shares of our common stock,
which would substantially dilute our shareholders. Hard to Treat has
appealed this case. Hard to Treat appealed this case and the appellate
court upheld the Florida judges ruling with the addition of post judgment
interest in favor of Hard to Treat. The Securities and Exchange Commission
("SEC") was presented with additional information, as discussed in the
Florida judge's ruling, relating to the securites fraud and fraud against
the shareholders of Hard to Treat by the individual owing the money
judgment and another prior officer and director of Hard to Treat. The
shareholders of Hard to Treat are awaiting action by the enforcement
division of the SEC.
15
IF WE DO NOT SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS, WE MAY NEVER ACHIEVE
PROFITABILITY.
We have never commercially introduced a product. Our research and
development programs are at an early stage. Potential drug candidates are
subject to inherent risks of failure. These risks include the possibilities
that no drug candidate will be found safe or effective, meet applicable
regulatory standards or receive necessary regulatory clearances. Even safe
and effective drug candidates may never be developed into commercially
successful drugs. If we are unable to develop safe, commercially viable
drugs, we may never achieve profitability and if we become profitable, we
may not remain profitable.
AS A RESULT OF OUR INTENSELY COMPETITIVE INDUSTRY, WE MAY NOT GAIN ENOUGH MARKET
SHARES TO BE PROFITABLE.
The biotechnology and pharmaceutical industries are intensely competitive.
We have numerous competitors in the United States and elsewhere. Because we
are pursuing potentially large markets, our competitors include major,
multinational pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions. Several
of these competitors have already successfully marketed and commercialized
products that will compete with our products, assuming that our products
gain regulatory approval.
Most of our competitors have greater financial resources, larger research
and development staffs and more effective marketing and manufacturing
organizations than we do. In addition, academic and government institutions
have become increasingly aware of the commercial value of their research
findings. These institutions are now more likely to enter into exclusive
licensing agreements with commercial enterprises, including our
competitors, to develop and market commercial products.
Our competitors may succeed in developing or licensing technologies and
drugs that are more effective or less costly than any we are developing.
Our competitors may succeed in obtaining FDA or other regulatory approvals
for drug candidates before we do. If competing drug candidates prove to be
more effective or less costly than our drug candidates, our drug
candidates, even if approved for sale, may not be able to compete
successfully with our competitors' existing products or new products we may
develop. If we are unable to compete successfully, we will not be able to
sell enough products at a price sufficient to permit us to generate
profits.
EXISTING PRICING REGULATIONS AND REIMBURSEMENT LIMITATIONS MAY REDUCE OUR
POTENTIAL PROFITS FROM THE SALE OF OUR PRODUCTS.
The requirements governing product licensing, pricing and reimbursement
vary widely from country to country. Some countries require approval of the
sale price of a drug before it can be marketed. In many countries, the
pricing review period begins after product-licensing approval is granted.
As a result, we may obtain regulatory approval for a drug candidate in a
particular country, but then be subject to price regulations that reduce
our profits from the sale of the product. In some foreign markets, pricing
of prescription pharmaceuticals is subject to continuing government control
even after initial marketing approval. In addition, certain governments may
grant third parties a license to manufacture our product without our
permission. Such compulsory licenses typically would be on terms that are
less favorable to us and would have the effect of reducing our revenues.
Varying price regulation between countries can lead to inconsistent prices
and some re-selling by third parties of products from markets where
products are sold at lower prices to markets here those products are sold
at higher prices. This practice of exploiting price differences between
countries could undermine our sales in markets with higher prices and
reduce the sales of our future products, if any. The decline in the size of
the markets in which we may in the future sell commercial products could
cause the perceived market value of our business and the price of our
common stock to decline. Our ability to commercialize our products
successfully also will depend in part on the extent to which reimbursement
for the cost of our products and related treatments will be available from
government health administration authorities, private health insurers and
other organizations. Third-party payers are increasingly challenging the
prices charged for medical products and services. If we succeed in bringing
any of our potential products to the market, such products may not be
considered cost effective and reimbursement may not be available or
sufficient to allow us to sell such products on a profitable or competitive
basis.
16
OUR ABILITY TO ACHIEVE ANY SIGNIFICANT REVENUE WILL DEPEND ON OUR ABILITY TO
ESTABLISH EFFECTIVE SALES AND MARKETING CAPABILITIES.
Our efforts to date have focused on the development and evaluation of our
drug candidates. As we conduct clinical studies and prepare for
commercialization of our drug candidates, we may need to build a sales and
marketing infrastructure. As a company, we have no experience in the sales
and marketing of pharmaceutical products. If we fail to establish a
sufficient marketing and sales force or to make alternative arrangements to
have our products marketed and sold by others on attractive terms, it will
impair our ability to commercialize our drug candidates and to enter new or
existing markets. Our inability to effectively enter these markets would
materially and adversely affect our ability to generate significant
revenues.
WE DEPEND HEAVILY ON MANAGEMENT TEAM AND CONSULTANTS.
Our business strategy and success is dependent on the skills and knowledge
of our management team. Our operations will also be dependent on the
efforts, ability and experience of key members of our prospective
management staff. We also operate with a small number of advisors and
consultants and, therefore, have little backup capability for their
activities. The loss of services of one or more members of our management
team or the loss of one or more of our advisors could weaken significantly
our management expertise and our ability to efficiently run our business.
We do not maintain key man life insurance policies on any of our officers,
although we intend to obtain such insurance policies in the future.
WE MAY FACE PRODUCT LIABILITY CLAIMS RELATED TO THE USE OR MISUSE OF OUR
PRODUCTS, WHICH MAY CAUSE US TO INCUR SIGNIFICANT LOSSES.
We may be exposed to the risk of product liability claims due to
administration of our drug candidates in our clinical trials, since the use
or misuse of our drug candidates during a clinical trial could potentially
result in injury or death. If we are able to commercialize our products, we
will also be subject to the risk of losses in the future due to product
liability claims in the event that the use or misuse of our commercial
products results in injury or death. We currently do not maintain liability
insurance. In the event we choose to purchase liability insurance, we
cannot predict the magnitude or the number of claims that may be brought
against us in the future. Accordingly, we do not know what coverage limits
would be adequate. In addition, insurance is expensive, difficult to obtain
and may not be available in the future on acceptable terms or at all. Any
claims against us, regardless of their merit, could substantially increase
our costs and cause us to incur significant losses.
THE MARKETABILITY AND PROFITABILITY OF OUR PRODUCTS IS SUBJECT TO UNKNOWN
ECONOMIC CONDITIONS.
The marketability and profitability of our products may be adversely
affected by local, regional, national and international economic conditions
beyond our control and/or the control of our management. Favorable changes
may not necessarily enhance the marketability or profitability of the
products. Even under the most favorable marketing conditions, there is no
guarantee that our products can be sold or, if sold, that such sale will be
made upon favorable prices and terms.
17
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
IF WE FAIL TO PROTECT OUR PROPRIETARY TECHNOLOGY, THEN OUR COMPETITIVE POSITION
WILL BE IMPAIRED.
We have obtained and are in the process of obtaining United States and
foreign patent applications for our products. Our success will depend in
part on our ability to obtain additional United States and foreign patent
protection for our drug candidates and processes, preserve our trade
secrets and operate without infringing the proprietary rights of others. We
place considerable importance on obtaining patent protection for
significant new technologies, products and processes. Legal standards
relating to the validity of patents covering pharmaceutical and
biotechnology inventions and the scope of claims made under such patents
are still developing. In some of the countries in which we intend to market
our products, pharmaceuticals are either not patentable or have only
recently become patentable. Past enforcement of intellectual property
rights in many of these countries has been limited or non-existent. Future
enforcement of patents and proprietary rights in many other countries may
be problematic or unpredictable. Moreover, the issuance of a patent in one
country does not assure the issuance of a similar patent in another
country. Claim interpretation and infringement laws vary by nation, so the
extent of any patent protection is uncertain and may vary in different
jurisdictions. Our domestic patent position is also highly uncertain and
involves complex legal and factual questions. The applicant or inventors of
subject matter covered by patent applications or patents owned by us may
not have been the first to invent or the first to file patent applications
for such inventions. Due to uncertainties regarding patent law and the
circumstances surrounding our patent applications, the pending or future
patent applications we own may not result in the issuance of any patents.
Existing or future patents owned by us may be challenged, infringed upon,
invalidated, found to be unenforceable or circumvented by others. Further,
any rights we may have under any issued patents may not provide us with
sufficient protection against competitive products or otherwise cover
commercially valuable products or processes.
LITIGATION OR OTHER DISPUTES REGARDING PATENTS AND OTHER PROPRIETARY RIGHTS MAY
BE EXPENSIVE, CAUSE DELAYS IN BRINGING PRODUCTS TO MARKET AND HARM OUR ABILITY
TO OPERATE.
The manufacture, use, marketing or sale of our drug candidates may infringe
on the patent rights of others. If we are unable to avoid infringement of
the patent rights of others, we may be required to seek a license, defend
an infringement action or challenge the validity of the patents in court.
Patent litigation is costly and time consuming. We may not have sufficient
resources to bring these actions to a successful conclusion. In addition,
if we do not obtain a license, develop or obtain non-infringing technology,
or fail to successfully defend an infringement action or have the patents
we are alleged to infringe declared invalid, we may:
* incur substantial money damages;
* encounter significant delays in bringing our drug candidates to
market;
* be precluded from participating in the manufacture, use or sale
of our drug candidates or methods of treatment without first
obtaining licenses to do so; and/or
* not be able to obtain any required license on favorable terms, if
at all.
In addition, if another party claims the same subject matter or subject
matter overlapping with the subject matter that we have claimed in a United
States patent application or patent, we may decide or be required to
participate in interference proceedings in the United States Patent and
Trademark Office in order to determine the priority of invention. Loss of
such an interference proceeding would deprive us of patent protection
sought or previously obtained and could prevent us from commercializing our
products. Participation in such proceedings could result in substantial
costs, whether or not the eventual outcome is favorable. These additional
costs could adversely affect our financial results.
CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES AND OTHERS MAY NOT ADEQUATELY PREVENT
DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION.
In order to protect our proprietary technology and processes, we also rely
in part on confidentiality agreements with our employees, consultants,
outside scientific collaborators and sponsored researchers and other
advisors. These agreements may not effectively prevent disclosure of
confidential information and may not provide an adequate remedy in the
event of unauthorized disclosure of confidential information. In addition,
others may independently discover trade secrets and proprietary
information. Costly and time-consuming litigation could be necessary to
enforce and determine the scope of our proprietary rights and failure to
obtain or maintain trade secret protection could adversely affect our
competitive business position.
18
RISKS RELATED TO OUR INDUSTRY
WE MUST OBTAIN GOVERNMENT REGULATORY APPROVAL FOR OUR PRODUCTS BEFORE WE CAN
SELL THEM AND GENERATE REVENUES.
Our principal development efforts are currently centered around research
and development of drugs for treatment of cancer and viral infections.
However, all drug candidates require FDA and foreign government approvals
before they can be commercialized in the U.S. or in foreign countries.
These regulations change from time to time and new regulations may be
adopted. None of our drug candidates has been approved for commercial sale.
We will incur significant operating losses over the next few years as we
fund development, clinical testing and other expenses while seeking
regulatory approval. While limited clinical trials of our drug candidates
have been conducted to date, significant additional trials are required and
we may not be able to demonstrate that these drug candidates are safe or
effective. If we are unable to demonstrate the safety and effectiveness of
a particular drug candidate to the satisfaction of regulatory authorities,
the drug candidate will not obtain required government approval. If we do
not receive FDA or foreign approvals for our drug products, we will not be
able to sell our drug products and will not generate revenues. If we
receive regulatory approval of a drug product, such approval may impose
limitations on the indicated uses for which we may market the drug, further
limiting our ability to generate significant revenues.
AS A RESULT OF OUR INTENSELY COMPETITIVE INDUSTRY, WE MAY NOT GAIN ENOUGH MARKET
SHARES TO BE PROFITABLE.
The biotechnology and pharmaceutical industries are intensely competitive.
We have numerous competitors in the United States and elsewhere. Because we
are pursuing potentially large markets, our competitors include major,
multinational pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions. Several
of these competitors have already successfully marketed and commercialized
products that will compete with our products, assuming that our products
gain regulatory approval.
Most of our competitors have greater financial resources, larger research
and development staffs and more effective marketing and manufacturing
organizations than we do. In addition, academic and government institutions
have become increasingly aware of the commercial value of their research
findings. These institutions are now more likely to enter into exclusive
licensing agreements with commercial enterprises, including our
competitors, to develop and market commercial products.
Our competitors may succeed in developing or licensing technologies and
drugs that are more effective or less costly than any we are developing.
Our competitors may succeed in obtaining FDA or other regulatory approvals
for drug candidates before we do. If competing drug candidates prove to be
more effective or less costly than our drug candidates, our drug
candidates, even if approved for sale, may not be able to compete
successfully with our competitors' existing products or new products we may
develop. If we are unable to compete successfully, we will not be able to
sell enough products at a price sufficient to permit us to generate
profits.
EXISTING PRICING REGULATIONS AND REIMBURSEMENT LIMITATIONS MAY REDUCE OUR
POTENTIAL PROFITS FROM THE SALE OF OUR PRODUCTS.
The requirements governing product licensing, pricing and reimbursement
vary widely from country to country. Some countries require approval of the
sale price of a drug before it can be marketed. In many countries, the
pricing review period begins after product-licensing approval is granted.
As a result, we may obtain regulatory approval for a drug candidate in a
particular country, but then be subject to price regulations that reduce
our profits from the sale of the product. In some foreign markets, pricing
of prescription pharmaceuticals is subject to continuing government control
even after initial marketing approval. In addition, certain governments may
grant third parties a license to manufacture our product without our
permission. Such compulsory licenses typically would be on terms that are
less favorable to us and would have the effect of reducing our revenues.
Varying price regulation between countries can lead to inconsistent prices
and some re-selling by third parties of products from markets where
products are sold at lower prices to markets where those products are sold
at higher prices. This practice of exploiting price differences between
countries could undermine our sales in markets with higher prices and
reduce the sales of our future products, if any.
19
The decline in the size of the markets in which we may in the future sell
commercial products could cause the perceived market value of our business
and the price of our common stock to decline. Our ability to commercialize
our products successfully also will depend in part on the extent to which
reimbursement for the cost of our products and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. Third-party payers are increasingly
challenging the prices charged for medical products and services. If we
succeed in bringing any of our potential products to the market, such
products may not be considered cost effective and reimbursement may not be
available or sufficient to allow us to sell such products on a profitable
or competitive basis.
OUR PRODUCTS IN DEVELOPMENT WILL BE SUBJECT TO REIMBURSEMENT FROM GOVERNMENT
AGENCIES AND OTHER THIRD PARTIES. PHARMACEUTICAL PRICING AND REIMBURSEMENT
PRESSURES MAY REDUCE PROFITABILITY.
Successful commercialization of our products depends, in part, on the
availability of governmental and third party payer reimbursement for the
cost of such products and related treatments. Government health
administration authorities, private health insurers and other organizations
generally provide reimbursement. Government authorities and third-party
payers increasingly are challenging the price of medical products and
services, particularly for innovative new products and therapies. This has
resulted in lower average sales prices. Our business may be adversely
affected by an increase in U.S. or international pricing pressures. These
pressures can arise from rules and practices of managed care groups,
judicial decisions and governmental laws and regulations related to
Medicare, Medicaid and health care reform, pharmaceutical reimbursement and
pricing in general. New legislation has been proposed at the federal and
state levels that would effect major changes in the U.S. health care
system, either nationally or at the state level. These proposals have
included prescription drug benefit proposals for Medicare beneficiaries
recently passed by Congress. Additionally, some states have enacted health
care reform legislation. Further federal and state developments are
possible. Our results of operations could be adversely affected by future
health care reforms. In Europe, the success of our products will also
depend largely on obtaining and maintaining government reimbursement
because in many European countries, including the United Kingdom and
France, patients are reluctant to pay for prescription drugs out of their
own pocket. We also expect that the success of our products in development,
particularly in Europe, will depend on the ability to obtain reimbursement.
Even if reimbursement is available, reimbursement policies may adversely
affect our ability to sell our products on a profitable basis.
Delays in the conduct or completion of our preclinical or clinical studies
or the analysis of the data from our preclinical or clinical studies may
result in delays in our planned filings for regulatory approvals or
adversely affect our ability to enter into collaborative arrangements.
* We may encounter problems with some or all of our completed or
ongoing studies that may cause us or regulatory authorities to
delay or suspend our ongoing studies or delay the analysis of
data from our completed or ongoing studies.
* We rely, in part, on third parties to assist us in managing and
monitoring our preclinical and clinical studies. Our reliance on
these third parties may result in delays in completing or failure
to complete studies if third parties fail to perform their
obligations to us.
RESULTS OF CLINICAL TRIALS ARE UNCERTAIN AND MAY NOT SUPPORT CONTINUED
DEVELOPMENT OF A PRODUCT PIPELINE, WHICH WOULD ADVERSELY AFFECT OUR PROSPECTS
FOR FUTURE REVENUE GROWTH.
We are required to demonstrate the safety and effectiveness of products we
develop in each intended use through extensive preclinical studies and
clinical trials. The results from preclinical and early clinical studies do
not always accurately predict results in later, large-scale clinical
trials. Even successfully completed large-scale clinical trials may not
result in marketable products. A number of companies in our industry have
suffered setbacks in advanced clinical trials despite promising results in
earlier trials. If any of our products under development fail to achieve
their primary endpoint in clinical trials or if safety issues arise,
commercialization of that drug candidate could be delayed or halted.
20
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
OUR COMMON STOCK IS CONSIDERED TO BE A "PENNY STOCK" AND, AS SUCH, THE MARKET
FOR OUR COMMON STOCK MAY BE FURTHER LIMITED BY CERTAIN SEC RULES APPLICABLE TO
PENNY STOCKS.
As long as the price of our common stock remains below $5.00 per share or
we have net tangible assets of $2,000,000 or less, our shares of common
stock are likely to be subject to certain "penny stock" rules promulgated
by the SEC. Those rules impose certain sales practice requirements on
brokers who sell penny stock to persons other than established customers
and accredited investors (generally, an institution with assets in excess
of $5,000,000 or an individual with a net worth in excess of $1,000,000).
For transactions covered by the penny stock rules, the broker must make a
special suitability determination for the purchaser and receive the
purchaser's written consent to the transaction prior to the sale.
Furthermore, the penny stock rules generally require, among other things,
that brokers engaged in secondary trading of penny stocks provide customers
with written disclosure documents, monthly statements of the market value
of penny stocks, disclosure of the bid and asked prices and disclosure of
the compensation to the brokerage firm and disclosure of the sales person
working for the brokerage firm. These rules and regulations make it more
difficult for brokers to sell shares of our common stock and limit the
liquidity of our shares. See "Plan of Distribution" for a more detailed
discussion of the penny stock rules and related broker-dealer restrictions.
TRADING IN OUR SECURITIES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS THAT
COULD ADVERSELY AFFECT YOUR INVESTMENT.
The market prices for securities of biotechnology companies, particularly
hose that are not profitable, have been highly volatile, especially
recently. Publicized events and announcements may have a significant impact
on the market price of our common stock. For example, any of the following
may have the effect of temporarily or permanently driving down the price of
our common stock:
* Biological or medical discoveries by competitors;
* Public concern about the safety of our drug candidates;
* Delays in the conduct or analysis of our clinical trials;
* Unfavorable results from clinical trials;
* Unfavorable developments concerning patents or other proprietary
rights; or
* Unfavorable domestic or foreign regulatory developments;
In addition, the stock market from time to time experiences extreme price
and volume fluctuations which particularly affect the market prices for
emerging and life sciences companies, such as ours, and which are often
unrelated to the operating performance of the affected companies.
SUBSTANTIAL SALES OF OUR STOCK MAY IMPACT THE MARKET PRICE OF OUR COMMON STOCK.
Future sales of substantial amounts of our common stock, including shares
that we may issue upon exercise of options and warrants, could adversely
affect the market price of our common stock. Further, if we raise
additional funds through the issuance of common stock or securities
convertible into or exercisable for common stock, the percentage ownership
of our shareholders will be reduced and the price of our common stock may
fall.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.
We will use any earnings generated from our operations to finance our
business and will not pay any cash dividends to our shareholders in the
foreseeable future.
21
ISSUING PREFERRED STOCK WITH RIGHTS SENIOR TO THOSE OF OUR COMMON STOCK COULD
ADVERSELY AFFECT HOLDERS OF COMMON STOCK.
Our charter documents give our board of directors the authority to issue
series of preferred stock without a vote or action by our shareholders. The
board also has the authority to determine the terms of preferred stock,
including price, preferences and voting rights. The rights granted to
holders of preferred stock may adversely affect the rights of holders of
our common stock. For example, a series of preferred stock may be granted
the right to receive a liquidation preference - a pre-set distribution in
the event of a liquidation that would reduce the amount available for
distribution to holders of common stock. In addition, the issuance of
preferred stock could make it more difficult for a third party to acquire a
majority of our outstanding voting stock. As a result, common shareholders
could be prevented from participating in transactions that would offer an
optimal price for their shares.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements regarding
management's plans and objectives for future operations including plans and
objectives relating to our planned marketing efforts and future economic
performance. The forward-looking statements and associated risks set forth
in this Form 10-QSB include or relate to, among other things, (a) our
projected sales and profitability, (b) our growth strategies, (c)
anticipated trends in our industry, (d) our ability to obtain and retain
sufficient capital for future operations, and (e) our anticipated needs for
working capital. These statements may be found under "Management's Plan of
Operations," as well as in this Form 10-QSB, generally. Actual events or
results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation,
the risks outlined under "Risk Factors" and matters described in this Form
10-QSB, generally. In light of these risks and uncertainties, there can be
no assurance that the forward-looking statements contained in this Form
10-QSB will, in fact, occur.
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Management is responsible for establishing and maintaining adequate internal
control over our financial reporting. Our principal executive officer and
principal financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in the Securities Exchange Act of
1934 (Exchange Act) Rules 13a-15(e) and 15d-15(e) as of June 30, 2007, has
concluded that our disclosure controls and procedures are effective in providing
reasonable assurance that information required to be disclosed by us in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
(B) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management, with the participation of the principal executive officer and
principal financial officer, has concluded there were no significant changes in
our internal controls over financial reporting that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
22
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the six month period ended June 30, 2007, we issued 606,146 shares of
common stock at prices ranging from $.09 to $.467 per share to certain
accredited investors for various services including directors fees, legal fees,
transfer agent fees and pursuant to antidilution clauses for previously issued
shares. These transactions were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 and did not involve any public offering..
Each recipient either received adequate information about us and we determined
that each recipient had such knowledge and experience in financial and business
matters that they were able to evaluate the merits and risks of an investment in
us. The recipients of securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate restrictive legends were affixed
to the share certificates and other instruments issued in such transactions.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
Exhibit 31.1 Certification of Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted by Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cavit Sciences, Inc.
By: /s/ Colm J. King
-------------------------------------------------------------
Colm J. King
President/Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer
Date: August 14, 2007
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.
Cavit Sciences, Inc.
By: /s/ Julio De Leon
-------------------------------------------------------------
Julio De Leon
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 2007
24