UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2008
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: 000-52263
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)
1600 South Dixie Highway, Suite 500
Boca Raton, Florida 33432
(561) 544-6988
(Address and telephone number of principal executive offices
and principal place of business)
Indicate by check mark 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 large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of "accelerated filer," "large accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
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 Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 14, 2008 there were 19,556,367 shares of the issuer's common stock
issued and outstanding, par value $0.01.
CAVIT SCIENCES, INC.
INDEX TO FORM 10-Q
June 30, 2008
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of June 30,2008 (Unaudited) and December 31,2007 3
Statements of Operations for the Three and Six Months Ended
June 30, 2008 and 2007, and for the Period from April 12, 2006
(Inception) to June 30, 2008 (unaudited) 4
Statement of Changes in Stockholders' Deficit for the Period from
April 12, 2006 (Inception) to June 30, 2008 (unaudited) 5
Statements of Cash Flows for the Six Months Ended June 30, 2008
and 2007, and the Period from April 12, 2006 (Inception) to
June 30, 2008 (unaudited) 6
Notes to Financial Statements as of June 30, 2008 (unaudited) 7
Item 2. Management's Plan of Operation 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Recent Sales of Unregistered Securities 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 31
Item 6. Exhibits 31
Signatures 32
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAVIT SCIENCES, INC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
June 30, December 31,
2008 2007
(Unaudited) (Audited)
----------- -----------
ASSETS
Current assets:
Cash $ 24,469 $ 14,915
Receivable-Other 68,065 --
----------- -----------
Total current assets 92,534 14,915
Intangible asset 9,688 --
Other asset 1,300 --
----------- -----------
Total assets $ 103,522 $ 14,915
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 20,532 $ 10,004
Accrued taxes payable 2,085 48,580
Accrued expenses 14,306 32,852
Accrued wages payable 225,953 106,443
Note payable 225,000 250,000
----------- -----------
Total current liabilities 487,876 447,879
----------- -----------
Stockholders' deficit
Preferred stock - $.01 par value; 5,000,000 shares authorized,
none issued or outstanding -- --
Common stock - $.01 par value; 45,000,000 shares authorized,
19,303,960 and 16,570,434 shares issued and outstanding 193,040 165,704
Additional paid-in capital 1,497,448 959,268
Stock to be issued 13,860 45,171
Deficit accumulated during the development stage (2,088,702) (1,603,107)
----------- -----------
Total stockholders' deficit (384,354) (432,964)
----------- -----------
Total liabilities and stockholders' deficit $ 103,522 $ 14,915
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
Cummulative for
the period from
Three months ended Six months ended April 12, 2006
----------------------------- ----------------------------- (inception) to
June 30, June 30, June 30, June 30, June 30,
2008 2007 2008 2007 2008
----------- ----------- ----------- ----------- -----------
Revenues $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
General and administrative expenses
Office expenses (18,358) 182,916 242,462 300,442 677,068
Write-off of impaired intangible -- -- -- -- 336,997
Wages 70,000 -- 134,500 -- 428,535
Professional fees 40,935 -- 108,514 -- 440,796
----------- ----------- ----------- ----------- -----------
Total general and administrative expenses 92,577 182,916 485,476 300,442 1,883,396
----------- ----------- ----------- ----------- -----------
Loss from operations (92,577) (182,916) (485,476) (300,442) (1,883,396)
----------- ----------- ----------- ----------- -----------
Other expense
Interest expense 119 5,277 119 5,277 5,306
Derivative loss (gains) -- (15,800) -- (15,800) 200,000
----------- ----------- ----------- ----------- -----------
Total other expense 119 (10,523) 119 (10,523) 205,306
----------- ----------- ----------- ----------- -----------
Net loss $ (92,696) $ (172,393) $ (485,595) $ (289,919) $(2,088,702)
=========== =========== =========== =========== ===========
Basic and diluted loss per share $ (0.01) $ (0.01) $ (0.03) $ (0.02)
=========== =========== =========== ===========
Weighted average shares used
in per share calculation 16,312,379 13,419,623 16,282,827 13,543,512
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
Common Stock Accumulated
------------------ Additional Deficit
Par Paid-in During Shares to
Number Value Capital Development Be Issued Total
------ ----- ------- ----------- --------- -----
Balance at Inception - April 12, 2006 -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock for
cash-at $0.08 2,375,000 23,750 166,250 -- -- 190,000
Issuance of common stock 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 stock for consulting
services-at $0.08 455,000 4,550 31,850 -- -- 36,400
Issuance of common stock for tranfer
agent services-at $0.08 115,800 1,158 8,106 -- -- 9,264
Issuance of common stock for legal
services-at $0.08 314,750 3,147 22,033 -- -- 25,180
Issuance of common stock 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 stock to CEO & CFO
for services-at $0.01 50,000 500 -- -- -- 500
Issuance of common stock to CEO & CFO
for services-at $0.08 562,500 5,625 39,375 -- -- 45,000
Issuance of common stock 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)
---------- -------- ---------- ----------- -------- -----------
Issuance of common stock for legal
services-at $0.229 and $0.30 69,087 691 15,199 -- (4,005) 11,885
Issuance of common stock to directors
for fees-at $0.09 166,670 1,667 13,333 -- -- 15,000
Issuance of common stock for legal
services-at $0.289 37,138 372 10,399 -- -- 10,771
Issuance of common stock to CEO & CFO
for services-at $0.29 153,449 1,534 42,965 -- -- 44,499
Issuance of common stock for legal
services-at $0.28 6,375 64 1,722 -- -- 1,786
Issuance of common stock to directors
for fees-at $0.349 42,860 429 14,571 -- -- 15,000
Issuance of common stock to shareholders
for anti-dilution-at $0.467 109,430 1,094 49,244 -- -- 50,338
Common shares to be issued to transfer
agent for services-at $0.30 17,144 171 4,972 -- (5,143) --
Issuance of common stock for tranfer
agent services-at $0.28 4,263 43 1,150 -- -- 1,193
Issuance of common stock for legal
services-at $0.46 1,630 16 732 -- -- 748
Issuance of common stock for legal
services-at $0.55 11,236 112 6,068 -- -- 6,180
Issuance of common stock to directors
for fees-at $0.40 37,500 375 14,625 -- -- 15,000
Common stock issued for debt
conversions 2,564,839 25,648 179,539 -- -- 205,187
Issuance of common stock for anti-
dilution-at $0.65 8,100 81 5,184 -- -- 5,265
Issuance of common stock to directors
for fees-at $0.55 16,365 164 8,838 -- -- 9,002
Issuance of common stock for legal
services-at $0.60 14,525 146 8,570 -- -- 8,716
Issuance of common stock for legal
services-at $0.56 13,152 131 7,234 -- -- 7,365
Issuance of common stock for tranfer
agent services-at $0.60 2,304 23 1,359 -- -- 1,382
Value of beneficial conversion feature
and options in debt issued -- -- 200,000 -- -- 200,000
Common shares to be issued to tranfer
agent for services-at $0.60 -- -- -- -- 15,716 15,716
Common shares to be issued for legal
services-at $0.60 -- -- -- -- 4,455 4,455
Common shares to be issued for
Investor-at $0.20 -- -- -- -- 12,500 12,500
Common shares to be issued for
Investor-at $0.20 -- -- -- -- 12,500 12,500
Net loss -- -- -- (1,010,236) -- (1,010,236)
---------- -------- ---------- ----------- -------- -----------
Balance, December 31, 2007 16,570,424 165,704 959,268 (1,603,107) 45,171 (432,964)
---------- -------- ---------- ----------- -------- -----------
Issuance of common stock for purchase
agreement-at $0.20 2,500,000 25,000 475,000 -- (25,000) 475,000
Issuance of common stock for transfer
agent services-at $0.55 51,193 512 27,644 -- (15,716) 12,440
Issuance of common stock for legal
services-at $0.36 12,375 124 4,331 -- (4,455) --
Issuance of common stock for legal
services-at $0.33 15,364 154 4,916 -- -- 5,070
Issuance of common stock for consulting
services-at $0.60 250,000 2,500 147,500 -- -- 150,000
Common shares to be issued to directors
for fees-at $0.20 -- -- -- -- 6,000 6,000
Common shares to be issued for legal
fees-at $0.27 -- -- -- -- 10,710 10,710
Common shares to be issued for legal
fees-at $0.21 -- -- -- -- 1,095 1,095
Common shares to be issued for transfer
agent fees-at $0.28 -- -- -- -- 921 921
Issuance of common stock for legal
services-at $0.274 39,088 391 10,319 -- (10,710) --
Issuance of common stock for legal
services-at $0.206 5,316 53 1,042 -- (1,095) --
Issuance of common stock for legal
services-at $0.15 30,200 302 4,228 -- -- 4,530
Issuance of common stock for
compensation-at $0.11 50,000 500 5,000 -- -- 5,500
Cancellation of common stock issue
for consulting fees-at $0.60 (250,000) (2,500) (147,500) -- -- (150,000)
Issuance of common stock to directors
for fees-at $0.20 30,000 300 5,700 -- (6,000) --
Common shares to be issued for legal
fees-at $0.11 -- -- -- -- 5,835 5,835
Common shares to be issued for legal
fees-at $0.10 -- -- -- -- 810 810
Common shares to be issued for director
fees-at $0.14 -- -- -- -- 6,000 6,000
Common shares to be issued for transfer
agent fees-at $0.19 -- -- -- -- 294 294
Net loss -- -- -- (485,595) -- (485,595)
---------- -------- ---------- ----------- -------- -----------
Balance, June 30, 2008 19,303,960 $193,040 $1,497,448 $(2,088,702) $ 13,860 $ (384,354)
========== ======== ========== =========== ======== ===========
The accompanying notes are an integral part of these financial statements.
5
CAVIT SCIENCES, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cummulative for
the period from
Six months Six months April 12, 2006
ended ended (inception) to
June 30, June 30, June 30,
2008 2007 2008
---------- ---------- -----------
Cash flows from operating activities:
Net loss $ (485,595) $ (289,919) $(2,088,702)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued and to be issued for services 59,204 150,472 387,396
Stock issued pursuant to anti-dilution provisions -- -- 76,307
Purchased research and development -- -- 88,462
Write off of impaired intangible -- -- 336,997
Financing costs -- -- 200,000
Interest expense 119 -- 5,306
Changes in operating assets and liabilities
Increase in other asset (1,300) (59,722) (1,300)
Increase accounts receivable (68,065) (1,238) (68,065)
Increase in accounts payable 10,528 70,027 20,532
Increase in accrued payables 54,351 -- 242,224
Increase in intangible asset (9,688) -- (9,688)
---------- ---------- -----------
Net cash used in operating activities (440,446) (129,523) (810,531)
---------- ---------- -----------
Cash flows from investing activities:
Purchase of intellectual property rights -- -- (20,000)
---------- ---------- -----------
Net cash used in investing activities -- -- (20,000)
---------- ---------- -----------
Cash flows from financing activities:
Deposit on sale of common stock -- -- 25,000
Repayment of note payable (25,000) -- (35,000)
Cash from the sale of common stock 475,000 -- 475,000
Proceeds from notes payable -- -- 390,000
---------- ---------- -----------
Net cash provided by financing activities 450,000 100,000 855,000
---------- ---------- -----------
Net increase (decrease) in cash 9,554 (29,523) 24,469
Cash, beginning of period 14,915 34,013 --
---------- ---------- -----------
Cash, end of period $ 24,469 $ 4,490 $ 24,469
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
6
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Note 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE AND CONTINUANCE OF OPERATIONS
Cavit Sciences, Inc. ("The Company" or "Cavit") is engaged in developing
treatments of cancer, viral infections, opportunistic infections, and immune
enhancers. The Company's strategy is to develop and commercialize intellectual
property rights for acquisition by a drug company. Cavit is also a manufacturer,
marketer and distributor of supplements lines that have been designed and
formulated to enhance and improve the prostate, maintain and support
cardiovascular system and beneficially affect arthritis, osteoporosis and other
conditions.
Cavit was incorporated on April 12, 2006 under the laws of the State of Florida,
as a wholly owned subsidiary of Hard to Treat Diseases, Inc. ("Parent"), and was
spun-off as a separate entity from the Parent effective May 31, 2006. The
Company's registration statement on Form SB-2 became effective with the
Securities and Exchange Commission on October 16, 2006.
The financial statements for the six months ended June 30, 2008 and 2007 and for
the three months ended June 30, 2008 and 2007, and for the period from April 12,
2006 (inception) to June 30, 2008 together with the balance sheet as of June 30,
2008 included herein have not been audited by the Company's independent public
accountants. In the opinion of management, all adjustments (consisting of only
normal accruals) necessary to present fairly the financial position at June 30,
2008 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-K for the
year ended December 31, 2007.
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, 2008, the Company has negative working capital of $395,342 and has
incurred losses since inception totaling $2,088,702 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
raising funds in order to provide for the Company's capital needs, however,
there are no assurances that management's plans will be attained.
7
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Note 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CON'T)
CASH
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK
The Company maintains the majority of its cash balances with one financial
institution, in the form of demand deposits. Occasionally, such balances exceed
Federal Insured Limits.
DEVELOPMENT STAGE COMPANY
The Company complies with Financial Accounting Standards Board Statement No. 7
and for it's characterization of the Company as a Development Stage Enterprise.
FINANCIAL INSTRUMENTS
The carrying value of accounts payable and accrued liabilities approximates
their fair value because of the short maturity of these instruments. It is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments.
INCOME TAXES
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Effective January 1, 2007, we adopted the provisions of the Financial Accounting
Standards Board ("FASB") Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109. FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109, Accounting for Income Taxes. The first step
is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon ultimate settlement.
We consider many factors when evaluating and estimating its tax positions and
tax benefits, which may require periodic adjustments and which may not
accurately anticipate actual outcomes.
LONG-LIVED ASSETS
The Company accounts for long-lived assets under the Statements of Financial
Accounting Standards Nos. 142 and 144 "Accounting for Goodwill and Other
Intangible Assets" and "Accounting for Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 142 and 144"). In accordance with SFAS No. 142 and 144,
long-lived assets, and certain identifiable intangible assets held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
and intangible assets, the recoverability test is performed using undiscounted
net future cash flows related to the long-lived assets.
8
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Note 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CON'T)
LOSS PER SHARE
Basic and diluted net loss per common share is computed based upon the weighted
average common shares outstanding as defined by Financial Accounting Standards
No. 128, "Earnings Per Share."
RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial statements
for them to conform with the 2008 presentation.
SHARE-BASED PAYMENT
Effective January 1, 2006, the Company adopted SFAS No. 123 (R), "Share Based
Payment," using the modified prospective transition method. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation, it supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. SFAS No. 123 (R) addresses all forms of share-based
payment awards including shares issued under employee stock purchase plans,
stock options, restricted stock and stock appreciation rights. During the
six month periods ended June 30, 2008 and 2007, the Company issued 65,000 and
91,906 shares, respectively, of common stock with values of $8,500 and $20,500,
respectively, to the CEO of the Company pursuant to compensation relating to his
employment agreement and as director fees.
The cost of stock-based compensation awards issued to non-employees for services
are recorded at either the fair value of the services rendered or of the
instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Emerging
Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments
that Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." During the six month periods ended June 30, 2008
and 2007, the Company issued 168,536 and 514,510 shares of common stock,
respectively, with values of $57,016, of which $14,805 pertained to expenses
accrued in prior periods, and $139,121, respectively, to certain providers of
outside services. These amounts have been recorded in General and Administrative
expenses in the accompanying statements of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued SFAS No. 159, "Establishing the Fair Value
Option for Financial Assets and Liabilities ("SFAS No. 159"). SFAS No. 159 was
to permit all entities to choose to elect, at specified election dates, to
measure eligible financial instruments at fair value. An entity shall report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date, and recognize upfront
costs and fees related to those items in earnings as incurred and not deferred.
SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with
early adoption permitted for an equity that has also elected to apply the
provisions of SFAS No. 157, "Fair Value Measurements". An entity is prohibited
from retrospectively applying SFAS No. 159, unless it chooses early adoption.
SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or
early adoption date).
9
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Note 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CON'T)
In December 2006, the Financial Accounting Standards Board (FASB) issued Staff
Position (FSP) EITF 00-19-2, "Accounting for Registration Payment Arrangements".
This FSP specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in
accordance with FASB Statement No. 5, "Accounting for Contingencies". The
guidance is effective for fiscal years beginning December 15, 2006.
In September 2006 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157),
which provides expanded guidance for using fair value to measure assets and
liabilities. SFAS 157 establishes a hierarchy for data used to value assets and
liabilities, and requires additional disclosures about the extent to which a
company measures assets and liabilities at fair value, the information used to
measure fair value, and the effect of fair value measurements on earnings.
Implementation of SFAS 157 is required on December 1, 2007. The Company is
evaluating the potential impact of the adoption of SFAS No. 157 on the Company's
consolidated financial statements.
Note 2 RELATED PARTIES
During the six month periods ended June 30, 2008 and 2007, the Company issued
233,536 and 606,416 shares, respectively, of common stock with aggregate values
of $65,516 and $159,621, respectively, to the CEO and to certain providers of
outside services which are also stockholders. These amounts have been recorded
in General and Administrative expenses in the accompanying statements of
operations.
Note 3 INCOME TAXES
As of June 30, 2008, the Company had a net operating loss carryforward for
income tax reporting purposes of approximately $2,100,000 that may be offset
against future taxable income through 2026. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. No tax benefit has been reported in the financial
statements because the Company believes there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
Deferred tax assets:
Net operating loss carryforwards $ 2,100,000
-----------
Gross deferred tax assets 714,000
Less: valuation allowance (714,000)
-----------
Net deferred tax asset $ --
===========
10
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Note 4 STOCKHOLDERS' DEFICIT
The Company is authorized to issue 5,000,000 shares of preferred stock $.01 par
value and 45,000,000 shares of common stock $.01 par value. The Board of
Directors may modify the provisions of the preferred stock prior to issuance. As
of June 30, 2008, no shares of preferred stock have been issued. During the
period from inception through June 30, 2008, the Company issued 19,303,960
shares of common stock to pay for services, for cash, and to acquire patent
application rights.
During the six months ended June 30, 2008 the Company issued 2,733,536 shares of
common stock at prices ranging from $.11 to $.55 for various matters. Of the
total shares, 233,576 were issued for director fees, legal fees, transfer agent
fees, compensation and consulting fees.
During the period ended June 30, 2008 the Company issued warrants 3,000,0000
warrants to investors pursuant to common stock purchase agreements. These
warrants for common stock have strike prices ranging from $0.40 to $3.00 per
share with varying expiration dates from the day of issuance not to exceed the
commitment amount. Set forth below is the activity:
Options
at an exercise
price of 80% Warrants at
of the average an exercise
price for the price
five days prior ranging from
to exercise $0.40 to $3.00 Total
----------- -------------- -----
Outstanding at December 31, 2006
Issued 2,500,000 313,334 2,813,334
Expired or cancelled -- -- --
Exercised -- -- --
--------- ------- ---------
Outstanding at December 31, 2007 2,500,000 313,334 2,813,334
Issued -- 3,000,000 3,000,000
--------- --------- ---------
Outstanding at June 30, 2008 2,500,000 3,313,334 5,813,334
========= ========= =========
Note 5 COMMITMENTS AND CONTINGENCIES
The Company has executed a one year consulting agreement with its Chief
Financial Officer. The agreement began on January 21, 2008 and calls for annual
compensation of $60,000.
The Company has executed a three year employment agreement with its President
and CEO. The agreement began on May 1, 2006 and calls for annual compensation of
$180,000. The agreement also allows for annual increases of 10% from the prior
year's base salary, 50,000 shares of restricted common stock every six months,
and the other benefits standard to an executive employee.
11
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Under the "2006 Employee and Consultant Stock Incentive Plan", the directors of
the Company shall be compensated $3,000 per quarter and the board approved this
payment in December 2006 via the issuance of 37,500 common shares with a value
of $.08 per share. The CEO and CFO were each eligible for year end bonuses of
$15,000 common shares annually and those bonuses were paid in December 2006 via
the issuance of 187,500 to both the CEO and CFO with a value of $.08 per share.
On May 9, 2008, the Company relocated its offices and will conduct its
operations from its new corporate headquarters located at 1600 South Dixie
Highway, Suite 500, Boca Raton, Florida 33432.
Note 6 INTANGIBLE ASSET
As of June 30, 2008, the Company's intangible assets are comprised of $9,688 in
capitalized legal fees incurred relating to our intellectual property rights.
Note 7 NON-CASH FINANCING ACTIVITIES
During the six months ended June 30, 2008, the Company issued 168,536 common
shares to outside service providers and shareholders with a value of $57,016, of
which $14,805 pertained to expenses accrued in prior periods.
During the six months ended June 30, 2007, the Company issued 514,510 common
shares to outside service providers and shareholders with a value of $139,121.
Note 8 NOTE PAYABLE
The Company issued a $250,000 note payable upon its acquisition of a supplement
line purchased from Daycon Investors Associates, Inc. ("Daycon") on December 28,
2007. A $25,000 payment was made on the note during January 2008 to reduce the
principal balance to $225,000. Additional payments on the note are to be made by
paying the note holder 20% of the gross amount of additional financing received
by the Company until the note is paid in full. This is an unsecured non-interest
bearing note.
On May 8, 2008, the Amended Asset Purchase & Royalty Agreement with Daycon was
terminated due to Daycon's inability to provide the Company with the required
representations and warranties called for per the agreement. Daycon has been
unable to provide the Company with credible documentation and unable to warrant
the formulation ingredients and related efficacy. The Company has demanded the
return of all consideration paid to Daycon regarding this agreement.
This note payable will be subject to the outcome of the events discussed above
and other matters outlined in Note 9 below.
12
CAVIT SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2008
Note 9 SUBSEQUENT EVENTS
LEGAL MATTERS
In July 2008, the Company received complaints from Daycon and Dr. Joseph P.
D'Angelo ("D'Angelo"), its chairman, against the Company and its CEO relating to
the Company's termination of a Consulting Agreement with D'Angelo, an Amended
Asset Purchase & Royalty Agreement (Note 8) with Daycon and a Lease Agreement
with Daycon.
The Company is in the process of submitting answers to the complaints and has
taken the position that the complaints are baseless thus denying the purported
material allegations of the complaints. In addition, the Company is in the
process of submitting counter-complaints for reimbursements of amounts due the
Company based on the terminations of the above agreements. The Company intends
to vigorously defend its rights relating to the above complaints.
The Consulting Agreement with D'Angelo was terminated due to D'Angelo's failure
to provide any consulting services as outlined in the Consulting Agreement and
D'Angelo's material breach of the confidentiality provision by divulging
confidential information to third parties.
The Lease Agreement with Daycon was terminated due to Daycon's default under the
Lease Agreement. From inception of the lease on January 1, 2008, Daycon was in
material breach of the Lease Agreement, since the required amount of space was
not made available to the Company as provided for in the Lease Agreement. The
Company has demanded reimbursement of a portion of the rent paid and the
security deposit from Daycon.
CANCELLATION OF ACQUISITION
As reported in a Form 8-K, filed on May 28, 2008, the Company entered into an
Asset Purchase Agreement ("Agreement") with Alternecare Health Products, Inc.
("Alternecare") pursuant to which the Company agreed to acquire certain
inventory, promotional materials, displays and exhibits, customer lists,
existing relationships with manufacturers and customers, trademark and website
in exchange for 250,000 restricted shares of the Company's common stock and a
one-year promissory note payable to Alternecare in the principal amount of
$50,000.
Alternecare does not have audited financial statements nor can it have an audit
performed due to the lack of reliable records of inventory and other account
activity. Consequently, Alternecare and the Company agreed to cancel the
Agreement effective July 31, 2008. Alternecare delivered the signed cancellation
agreement to the Company on August 1, 2008. Alternecare has returned the stock
certificate and promissory note that had been issued to it to the Company.
13
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-Q. 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-Q. 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 December 31, 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
included 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.
During 2007, Cavit filed an additional PCT Utility patent application, six
National Phase applications, and two Continuation-In-Part applications. Cavit's
intellectual property rights currently consist of twelve patent applications.
At December 31, 2007 and 2006, due to Financial Accounting Standards, the
Company recorded impairment charges of $250,000 and $86,997, respectively, which
was primarily due to the fact that such assets and patents are not currently
producing revenues or cash flows. The book value of the assets and patent
application rights do not reflect the future potential of our supplement line
and patents as the supplement line is being manufactured and the patent rights
are still in the application phase.
During the three months ended June 30, 2008, the Company's intangible assets are
comprised of $9,688 in capitalized legal fees relating to our intellectual
property 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.
14
Major drug companies are interested in drugs that are safe and effective in
treating and preventing certain indications and conditions, have secure
intellectual property rights and have an available source and supply of the
composition. Cavit's board has decided to focus on and to pursue the best course
of action in the interest of patients and shareholders.
Our initial plan was to market our intellectual property rights to major drug
companies. We have been and are currently negotiating with other drug companies
regarding securing rights to their drug compositions. The combination of our
current utility rights and the acquisition of composition rights should allow
Cavit to develop market and commercialize these drugs successfully.
In addition, Cavit acquired a food supplement line during February 2007. The
foundation of Cavit's two supplement lines were finalized during 2008. The core
products in Cavit's supplement lines will enhance and improve the prostate,
maintain and support the cardiovascular system, and beneficially effect
arthritis and osteoporosis. Cavit's current products and formulas are the result
of research and testing of the most effective ingredients with nutrients that
support and supplement each other at the optimum dosage of each ingredient.
Cavit intends to manufacture, market, distribute and commercialize a range of
supplements to act as powerful antioxidants and immune enhancers which have
beneficial effects upon many serious diseases.
Cavit relocated its operating facilities on May 8 and 9, 2008 for the benefit of
the Company and its shareholders. Cavit's new facilities accommodate its
corporate offices and provide ample room for the development of the food
supplement lines. Manufacturing, warehousing and distribution is outsourced to
third parties, resulting in substantial savings to Cavit.
The food supplement lines are an ideal match with our drug development process.
In addition to creating a full range biotech company, the supplement lines will
create a steady stream of cash flow to support the commercialization of our
drugs.
Cavit's offshore line is AMERICARE HEALTH PRODUCTS(TM) and the premium
maintenance formula line is MD Solution(TM).
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
anticipate sources of revenues from our supplement lines in the near future.
RESULTS OF OPERATIONS:
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
Cavit has not had any revenue since its inception on April 12, 2006.
General and administrative expenses resulted in a loss from operations for the
quarter ended June 30, 2008 of $92,577 compared with a loss of $182,916 for the
quarter ended June 30,2007. This decrease in general and administrative expenses
is primarily due to the Company's termination of a Consulting Agreement with Dr.
D'Angelo, which is described in Note 9 SUBSEQUENT EVENTS listed above and in
Item 1. Legal Proceedings, under Part II OTHER INFORMATION listed below.
The Company reported a net loss of $92,696 or ($.01) per share for the quarter
ended June 30, 2008 and a net loss of $172,393, or ($0.01) per share for the
quarter ended June 30, 2007.
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
General and administrative expenses resulted in a loss from operations for the
six months ended June 30, 2008 of $485,476 compared with a loss of $300,442 for
the six months ended June 30,2007. This increase in general and administrative
expenses is primarily due to the Company incurring additional wages, consulting
and professional expenses.
The Company reported a net loss of $485,595 or $(0.03) per share for the six
months ended June 30, 2008 and a net loss of $289,919, or ($0.02) per share for
the six months ended June 30, 2007.
15
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 need to raise additional working capital in order to have
sufficient working capital to finance operations. Our current burn rate is
approximately $8,000 per month excluding capital expenditures, wages and
consulting fees. 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.
OFF-BALANCE SHEET ARRANGEMENTS
As of August 18, 2008, 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 September 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.
16
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-Q 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-Q to conform its prior statements to
actual results.
Further, this Form 10-Q 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.
17
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 offices have been recently relocated
to Boca Raton, Florida at 1600 South Dixie Highway, Suite 500, Boca Raton,
Florida 33432.
18
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 August 14, 2008, we had two full time employees, Mr. Colm King, who is our
President and Chief Executive Officer, and Susan King, who is our Accountant and
Administrator. We believe that our relations with our employees are good. Our
employees are not represented by a union or covered by a collective bargaining
agreement. We believe Mr. King is best suited to oversee the operations of
Company during the next several months due to his intimate knowledge of our
biotechnology business. From November 1, 2006 to January 18, 2008, Mr. Julio De
Leon served as the Company's Chief Financial Officer on an independent
contractor basis. As of January 21, 2008 Mr. Matthew J. Cohen became the Chief
Financial Officer on an independent contractor basis. As of November 11, 2007,
Miles Benzler became the Marketing Director on an independent contractor basis.
We will actively recruit and hire a new chief operating officer and additional
technical employees 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, 2007, included in Form 10-K 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.
19
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, 2008, Cavit had cash of approximately $24,500.
Our current burn rate is approximately $8,000 per month excluding capital
expenditures, wages and consulting fees. As a result of current financing, Cavit
believes that it has sufficient working capital to fund operations through the
end of September 2008. 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.
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. 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.
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.
20
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.
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
21
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.
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
22
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
23
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.
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.
24
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.
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
25
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.
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.
26
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.
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.
27
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Form 10-Q 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-Q 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-Q, 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-Q, generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Form 10-Q will, in fact, occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
FORWARD-LOOKING INFORMATION
An investment in our securities involves a high degree of risk. Prior to making
an investment, prospective investors should carefully consider the following
factors, among others, and seek professional advice. In addition, this Form 10-Q
contains certain "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements, which are often identified by words such as "believes",
"anticipates", "expects", "estimates", "should", "may", "will" and similar
expressions, represent our expectations or beliefs concerning future events.
Numerous assumptions, risks, and uncertainties could cause actual results to
differ materially from the results discussed in the forward-looking statements.
Prospective purchasers of our securities should carefully consider the
information contained herein or in the documents incorporated herein by
reference.
This Form 10-Q contains certain estimates, predictions, projections and other
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934) that involve
various risks and uncertainties. While these forward-looking statements, and any
assumptions upon which they are based, are made in good faith and reflect
management's current judgment regarding the direction of the business, actual
results will almost always vary, sometimes materially, from any estimates,
predictions, projections, or other future performance suggested herein. Such
factors include, but are not limited to, the following:
* the possibility that the results of clinical trials will not be
successful;
* the possibility that our development efforts relating to our product
candidates will not be successful;
* the inability to obtain regulatory approval of our product candidates;
* our reliance on third-parties to develop our product candidates;
* our lack of experience in developing and commercializing
pharmaceutical products;
* our ability to obtain additional financing;
* our ability to protect our proprietary technology.
Any forward-looking statement speaks only as of the date on which it is made.
For further details and a discussion of these and other risks and uncertainties,
investors and security holders are cautioned to review the Cavit's Form 10-K,
for the year ended December 31, 2007, filed on April 18, 2008, including the
Forward-Looking Statement section therein, and other subsequent filings with the
U.S. Securities and Exchange Commission including Current Reports on Form 8-K.
The Company undertakes no obligation to publicly release the result of any
revisions to any such forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
28
ITEM 4. CONTROLS AND PROCEDURES
Colm J. King, our Chief Executive Officer, and Matthew J. Cohen, our Chief
Financial Officer, (i) are responsible for establishing and maintaining adequate
internal control over financial reporting of the Company and (ii) have
evaluatedthe effectiveness of our internal control over financial reporting (as
defined in Rules 13a-15(f) or 15d-15(f) under the 1934 Act as of the end of the
quarter covered by this 10-Q ("Evaluation Date"). Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as the
Evaluation Date, our disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to us(including
our consolidated subsidiaries) required to be included in our reports filed or
submitted under the 1934 Act, except as discussed below..
The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as required by
Sarbanes-Oxley (SOX) Section 404 A. The Company's internal control over
financial reporting is a process designed under the supervision of the Company's
Chief Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the Company's financial statements for external purposes in accordance with
U.S.generally accepted accounting principles.
As of June 30, 2008, management assessed the effectiveness of the Company's
internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO) and SEC guidance on conducting
such assessments. Based on that evaluation, they concluded that, during the
period covered by this report, such internal controls and procedures were not
effective to detect the inappropriate application of US GAAP rules as more fully
described below. This was due to deficiencies that existed in the design or
operation of our internal control over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses.
The matters involving internal controls and procedures that the Company's
management considered to be material weaknesses under the standards of the
Public Company Accounting Oversight Board were : (1) lack of functioning audit
committee and lack of majority of outside directors on the Company's board of
directors, resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures, and, (2) inadequate
segregation of duties consistent with control objectives. The aforementioned
material weaknesses were identified by the Company's Chief Financial Officer in
connection with the audit of our financial statements as of December 31, 2007
and communicated the matters to our management.
Management believes that the material weaknesses set forth in items (1) and (2)
above did not have an affect on the Company's financial results. However,
management believes that the lack of a functioning audit committee and lack of a
majority of outside directors on the Company's board of directors could result
in ineffective oversight in the establishment and monitoring of required
internal controls and procedures. Management's goals are to have a functional
audit committee and a majority of outside directors on the Company's board of
directors when funds are available.
29
(b) CHANGES IN INTERNAL CONTROLS
In addition, no changes in our internal control over financial reporting (as
defined in Rules 13a-15 or 15d-15 under the 1934 Act) occurred during the first
two quarters of the year ended December 31, 2008, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may be subject to legal proceedings and claims in the ordinary
course of business. Other than as set forth below, the Company is not a party to
any legal proceedings which are material to its operations. In July 2008, the
Company received complaints from Daycon Investors Associates, Inc.("Daycon") and
Dr. Joseph P. D'Angelo ("D'Angelo"), its chairman, against the Company and its
CEO relating to the Company's termination of the Consulting Agreement with
D'Angelo, the Amended Asset Purchase & Royalty Agreement with Daycon and the
Lease Agreement with Daycon.
As previously stated in the Company's Form 10-Q, filed May 16, 2008, the
termination of the above agreements may result in legal actions. The Company is
in the process of submitting answers to the complaints and its position is
clearly that the complaints are baseless and the Company is denying the
purported material allegations of the complaints. In addition, the Company is in
the process of submitting counter-complaints for reimbursements of amounts due
the Company based on the terminations of the above agreements. The Company
intends to vigorously defend its rights relating to the above complaints.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 2008 the Company issued 80,000 shares of
common stock at prices ranging from $.11 to $.274 for various matters. The
80,000 shares were issued for director fees, legal fees and compensation.
During the three months ended March 31, 2008 the Company issued 2,828,932 shares
of common stock at prices ranging from $.20 to $.60 for various matters. Of the
total shares, 328,932 shares were issued for director fees, legal fees, transfer
agent fees, compensation and consulting fees. (250,000 of these shares were
cancelled during the three months ended June 30, 2008, as a result of the
termination of the Consulting Agreement with Dr. Joseph P. D'Angelo as described
in the above Note 9 SUBSEQUENT EVENTS.) The remaining 2,500,000 of the company's
unregistered common stock was sold at $.20 per share. As a result of the latter
sale the Company raised $500,000. 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.
30
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
31
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.
Date: August 18, 2008 By: /s/ Colm J. King
-----------------------------------
Colm J. King
President/Chief Executive Officer
(Principal Executive Officer)
Date: August 18, 2008 By: /s/ Matthew Cohen
-----------------------------------
Matthew Cohen
Chief Financial Officer
(Principal Financial Officer)
32