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EX-31.1 - SensiVida Medical Technologies, Inc.v188425_ex31-1.htm
EX-32.1 - SensiVida Medical Technologies, Inc.v188425_ex32-1.htm
EX-31.2 - SensiVida Medical Technologies, Inc.v188425_ex31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K

(Mark One)

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

For the fiscal year ended February 28, 2010
or

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

For the transition period from _______ to _______

Commission file number 33-51218

SensiVida Medical Technologies Inc.
(Exact name of registrant as specified in its charter)

New Jersey
22-1937826
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

77 Ridgeland Road, Henrietta, New York
14623
(Address of Principal Executive Offices)
(Zip Code)

Registrant's telephone number, including area code: (585)413-9080

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
None
 

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $.01 par value
(Title of Class)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨ No ¨
(the Registrant is not yet required to submit Interactive Data)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "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
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter, was approximately $2,236,750.

As of June 16, 2010, there were outstanding 15,998,112 shares of the registrant's common stock, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 
 

 

Table of Contents

     
Page
     
       
Business
 
1
       
Risk Factors
 
15
       
Unresolved Staff Comments
 
19
       
Properties
 
19
       
Legal Proceedings
 
19
       
Submission of Matters to a Vote of Security Holders
 
19
       
     
       
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
19
       
Selected Financial Data
 
21
       
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
21
       
Quantitative and Qualitative Disclosures About Market Risk
 
23
       
Financial Statements and Supplementary Data
 
24
       
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
47
     
  
Controls and Procedures
 
47
     
  
Other Information
 
48
     
  
   
  
     
  
Directors, Executive Officers and Corporate Governance
 
48
     
  
Executive Compensation
 
51
     
  
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
52
     
  
Certain Relationships and Related Transactions, and Director Independence
 
52
     
  
Principal Accounting Fees and Services
 
53
     
  
   
  
     
  
Exhibits, Financial Statement Schedules
 
53
     
  
Signatures
 
54
     
  
Exhibit Index
 
55

 
-i-

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K, including statements under "Item 1. Business," and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," contain 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, as amended (the "Exchange Act"), although the safe harbor under those statutes do not apply to companies, such as us, that issue penny stock. Forward-looking statements include, among other things, our assumptions underlying our statements concerning business strategy, development and introduction of new products, research and development, marketing, sales and distribution, manufacturing, competition, third-party reimbursement, government regulation (including, but not limited to, FDA requirements), continued clinical trial relationships and operating and capital requirements, critical accounting determinations, efforts to raise additional financing, and our commitment of resources. The forward-looking statements may also be impacted by the additional risks faced by us as described in this report, including those set forth under the section entitled "Risk Factors." Forward-looking statements generally can be identified by the use of terminology such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe" or similar expressions or the negatives thereof. These expectations are based on management's assumptions and current beliefs based on currently available information. Although we believe that the expectations reflected in such statements are reasonable, we can give no assurance that such expectations will be correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K. Our operations are subject to a number of uncertainties, risks and other influences, many of which are outside our control, and any one of which, or a combination of which, could cause our actual results of operations to differ materially from the forward-looking statements.

PART I

Item 1. Business

Business Background

We are a minimally invasive bio-medical diagnostic device company. Its proprietary optical Micro-systems based technology automates bio-sensing and data acquisition while minimizing patient discomfort. Our platform technology addresses a number of disease state diagnostics - allergy testing, pain-free automated glucose monitoring without bio-fouling, blood coagulation testing (e.g. for Coumadin patients), TB testing and cholesterol monitoring.

We have been developing two products based on its platform technology. The initial market priority focus is to commercialize a highly accurate, rapid, 3X productive, pain-free allergy test system in the US ($1.2B market growing at a compounded rate of 7%). Several prototypes have been made and proof-of-concept human clinical trials have been successfully performed. The second product, based on the same technology is a unique portable glucose monitor ($10B market growing at a compounded rate of 7%). This highly differentiated device consists of a patch having multiple individually - addressable sensors that are activated in accordance to the patient's test schedule, automatically measuring the glucose level without bio-fouling, clogging or daily calibration.

In addition, we have a patent portfolio in the area of "Molecular Optical Biopsy." i.e. the design and development of medical diagnostic instruments that detect cancer without a traditional biopsy by using light to excite the molecules contained in tissue and measuring the differences in the resulting molecular natural fluorescence between cancerous and normal tissue. We seek to license a unique Molecular Optical Biopsy technology (Photonic "pill") that permits the diagnosis of cancerous or pre-cancerous tissue without a biopsy. The small, optical diagnostic device that can be swallowed, could be a replacement for traditional endoscopy to diagnose cancers of the mouth, esophagus, colon and the rest of the digestive tract.

 
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We have partnered with a number of companies in the areas of biomedical device product development, FDA clinical studies, and reimbursement. It has received clearance from the Western IRB to conduct 100 human clinical studies in the area of allergy testing. Thus far, the first studies have shown that our minimally-invasive allergy test significantly reduces: 1) extent of reaction, 2) test time, 3) test-to-test variation. The objectives of the study are to determine efficacy; the clinical sensitivity and clinical specificity for the various diagnostic methods. Comparative analyses performed using our methods and existing tests (e.g. allergy testing, glucose monitoring) will be used to assess relative efficacy, sensitivity, and safety.

Strategy

Our primary source of revenue will be through the sale of high margin disposable products. In some product families, hardware and software would be provided for free to accelerate product adoption. Our first product family is an allergy test system comprising of a disposable Microsystems cartridge that painlessly and rapidly administers a large number of allergens. A compact imaging module captures images of the patient’s skin and provides them to a computer for display and analysis. The product targets the $1.2B U.S. allergy test market and the needs of a large and growing (7% CAGR) health care problem affecting over 50% of the U.S. population and responsible for an estimated $18B in health care costs and lost productivity. Compounding the problem, there is a need for 100 additional Allergists each year to keep up with demand and to compensate for an attrition of 20 Allergists per year. In the U.S., more than 75% of all Allergy tests are done via the “Skin Prick Test” method- it is estimated that 6M skin prick tests are performed each year. Current allergy tests take an average of 35 minutes, are uncomfortable and stressful especially for children. Our Microsystems based test can accomplish the same test in 12 pain-free minutes, while concomitantly improving the Allergists’ profitability by 25%.

One significant advantage of image-based digital diagnostic systems is their ability to use image processing to quantify allergic reactions, a significant advantage over today’s subjective tests. We believe this capability will grow the channels for allergy testing, thereby increasing business penetration and use in preventive modes. Over time, SensiVida’s test will provide a new allergy screening option to Retail Clinics and potentially 200,000 Primary Care Physicians (PCP’s) who see on the average one allergy patient a day.

Commercialization of our Allergy test will be facilitated by the following:
Allergens and reagents used by the SensiVida system are already FDA approved
First products to market will be intuitive image-based systems, substantially equivalent to today’s test
3800 U.S. Allergists form a small community in the U.S. and can be easily reached
Supporting hardware and software expense will be provided free, thereby reducing adoption barriers
Test accuracy and reproducibility will be greatly improved
Risk for human error is reduced
Value Proposition to Allergists is positive- Profitability could be 25% higher, reduced and more efficient management of labor costs, automatic/simply electronic medical records
Value Proposition to patients is positive – painless, less invasive, faster test
Value Proposition to payers is positive- test is more accurate than today’s test (may reduce need for follow-on tests e.g. intradermal or indicate more effective therapy) and lower dosage of allergen may lower risk of test complications.
We, along with our partners, have the means to develop the needed technology and the ability to do rapid commercialization.
  
The allergy test represents a near term revenue opportunity, having low regulatory hurdles. Based on our current forecast for product development, clinical testing, and FDA approvals, we expect to launch an allergy test product in the 3rd Quarter of 2011 serving the Allergist. Due to our inability to raise needed capital during 2009, FDA clinical trials and product launch has been delayed by approximately nine months. Beginning in March 2010, we have been raising money steadily; as of June 16, 2010, approximately $1.5M has been raised. As a result, critical product development, clinical studies, and collaborative projects with commercialization partners have gained significant momentum.

 
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Our second product family, based on the same fundamental proprietary technology base, addresses glucose monitoring, another multi-billion dollar market ($10B) having many unmet needs. The large and growing number of diabetics, currently estimated to be 18M in the U.S. and 177M worldwide, also lack a convenient, painless method to monitor their glucose level. The estimated annual cost of diabetes in the U.S. is estimated to be $132B, and is rapidly on the rise (also a 7% CAGR). In addition to diabetes, related ailments such as obesity, heart disease, kidney disease, blindness (e.g. diabetic retinopathy), atherosclerosis, and amputation can be triggered or caused by diabetes. Given the dimensions of the diabetes problem, it is difficult to quantitatively estimate the size of this large market. A simple indicator is revealed from understanding money spent by diabetics glucose testing. Assuming 18M diabetics in the U.S. perform two daily tests (at ~$1/test), yields a number exceeding $10B. This number obviously excludes standard blood tests performed by clinics, system costs, insulin shots, pumps, etc.

Current methods for glucose monitoring require periodic manual blood sampling using “fingersticks”. Children and many adults find these tests painful, inconvenient, and often are not in compliance. SensiVida will address this market need with an unobtrusive, wearable glucose monitoring system having a disposable microlancet array chip with individually monitored sensors selectively actuated in accordance to the patient’s test schedule. The uniqueness and advantages over existing offerings are:
  
Continuous measurements without bio-fouling effect or clogging
Accuracy equivalent to the fingerstick test since it is a direct chemical measurement
Hygiene benefits- no blood is extracted
Virtually pain-free to the patient
  
Our minimally-invasive in vivo diagnostics technology has the potential to be extended to other billion dollar markets such as blood coagulation testing (e.g. Prothrombin Time test for patients on Coumadin), TB testing, and cholesterol monitoring. TB skin testing, for example, benefits from mobile continuous optical monitoring since reactions take days and may be missed in the follow-up visit. A mobile continuous monitoring system would be able to capture and store patient reactivity to be conveniently downloaded at a later time. The method would also reduce scheduling problems and inefficiencies that occur when tested patients are unable to make follow-up scheduled appointments.

Our third business opportunity will involve partnering with established industry players and/or licensing its fluorescence tissue spectroscopy. The “Compact Photonic Explorer” pill is a modern alternative to traditional endoscopy that will provide more extensive, complete, and accurate diagnostics that visual methods used by others.  Advantages of the Compact Photonic Explorer pill over traditional endoscopy include:
Fluorescence spectroscopy technology detect both pre-cancer and cancer cells.
Spectroscopy improves diagnostic accuracy over video-only pills (e.g. GIVEN)
Eliminates unnecessary images of non diseased areas.
Eliminates pain and patient sedation associated with current GI cancer screens.
  
Other potential diagnostics applications for our fluorescence tissue spectroscopy include probing the following organ sites for cancer: oral cavity, cervix, aero-digestive tract and colon. Our strategy is to maximize the value of our significant patent portfolio in tissue spectroscopy by licensing its optical imaging technology for applications in cancer detection  We wish to position our Intellectual Property as enabling real-time, less invasive, alternatives to traditional cancer diagnosis method  e.g.  our ("CPE" or "Photonic Pill"), a small, optical diagnostic device that can be swallowed, targeted as a replacement for traditional Endoscopy to diagnose cancers of the mouth, esophagus, colon.

Our Products

The SensiVida Allergy Test system, first product in the company’s family plan, offers the Allergist an objective, painless allergy testing system that consists of the following:
A disposable microlancet chip/cartridge that painlessly and rapidly administers the allergens.

 
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A compact imaging module/digital imager that captures real-time allergic reactions and sends images and data wirelessly to a computer provided at no cost.
User-friendly software that allows the user to monitor the allergic reaction that provides quantitative data regarding reaction extent, positive/negative diagnosis versus allergen, and reaction kinetics. An e-record patient report is automatically created which can printed or transmitted.

Several configurations for the allergen chip/cartridge have been covered in our patent applications. The simplest involves a microlancet array individually coated with the set of allergens. Upon insertion into the subject, the aqueous interstitial fluid dissolves the allergen matrix, allowing it to diffuse into the skin, thereby triggering the allergic reaction. In another embodiment, encapsulated allergens are packaged 1:1 along with each microlancet and released upon actuation. A removable film seals the packaged allergen array, keeping it sterile until it is ready to use.

The SensiVida Allergy Test provides a number of benefits to physicians and patients:
  
Value Proposition: Physicians
Automates today’s subjective, manual Skin Prick Test with a standardized test
Produces digital records of allergic reactions and their diagnosis
Quantitative image analysis vs. subjective diagnosis
Achieves a 25% improvement in profitability
Significant improvement in test accuracy have been demonstrated (1/3 variability of standard test)
Reduces test-to-test variability and operator error
Improved diagnosis of dark-skinned subjects, currently difficult and inefficient
Short procedure facilitates pediatric test

Value Proposition: Patients
Eliminates discomfort and fear
Significantly reduces procedure time, less agonizing chair-time
Friendlier test for children
Reduced reaction areas
More reliable test results for dark-skinned patients, e.g. African Americans
Covered by health insurance (unlike in vitro tests)
  
The SensiVida Allergy Test system is expected to receive rapid 510(k) approval since the system uses FDA approved allergens, has received non-significant risk classification by the WIRB, and is based on the well-known predicate device, the Skin Prick Test.

The second product in our product family is an unobtrusive, wearable or mobile glucose monitoring system with a disposable microlancet chip having individually-monitored sensors that are actuated in accordance to the patient’s test schedule. The uniqueness and advantage over the existing offerings are: (1) continuous measurements without bio-fouling or clogging; (2) accuracy equivalent to fingerstick test since it is a direct chemical test; (3) hygiene benefits since no blood is extracted; (4) the test is virtually painless. The first version of this product will target hospital use and then migrate to personal/mobile use. The glucose monitor will be comfortably worn as a band or patch. At user-defined time intervals, each needle of the array is individually deployed by an actuator, causing insertion into the patient’s skin. The fine tips of each microlancet are coated with a glucose sensitive enzyme (e.g. glucose oxidase) that is either optically or electrically read out by system electronics. The data are calibrated so as to represent actual glucose concentrations and displayed, stored, or transmitted depending on the application.

A compelling aspect of our glucose monitor is that it provides a positive Value Proposition for a number of customer segments in the value chain, e.g. health care facilities, hospitals, and patients:

 
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Value Proposition: Health Care Facility, Hospital
Automated timed measurements- reduced monitoring by the medical staff
Hygiene benefits- no blood is extracted
Convenient data recording- direct input to digital patient records
Minimally invasive, virtually pain-free
Densely spaced sensors permit many measurements over extended times
Minimal periodic calibration
Wireless transmission to nursing station and/or alerts for dangerous levels
Opportunity for closed loop smart system using insulin pump

Value Proposition: Patient
Painless- patient friendly to children and elderly
Microlancets are much less invasive- reduced puncture skin damage
Hygiene benefits- no blood is extracted
Automated data recording and management, improved compliance
Less disruption to patient during meals, nighttime, activities at hospital or home
More continuous operation reveals high-low glucose levels
Comparable cost per test as current fingerstick test
Opportunity for closed loop smart system using insulin pump
 
Product Development and Partnerships

We are an equity partner of the Infotonics Technology Center (ITC), a 501(c) not-for-profit NYS Center of Excellence. SensiVida will be able to leverage Infotonics’ state-of-the-art $80M Microsystems facility, housed in a 120,000-ft2 building and focused on applied research & development and commercialization of photonics and Microsystems. In addition to its human and capital resources, Infotonics draws support from partner educational institutions including Cornell University, Rochester Institute of Technology, Syracuse University, University of Buffalo, and the University of Rochester. Since several of these universities have excellent medical schools, SensiVida will also tap into their associated hospitals for medical and clinical work. In addition, the Rochester Regional Photonics Cluster an association of over 70 small companies dedicated to photonics, optics and imaging technology have joined Infotonics as a small business member. The expertise resident collectively in these companies will be engaged in the various optical subsystems part of our product plan, e.g. imaging modules and optical chemical sensors. A partnership for the development of our digital allergy testing module has been recently established with Dhurjati Electronics Consulting, LLC of Rochester, NY.

In May 2010, we established a partnership with Wi Inc., a Colorado-based company with years of experience developing biomedical devices. Wi, Inc. (www.wiinc.net) is a vertically integrated product development firm specializing in assisting clients in the commercialization of in vitro diagnostics devices from concept to pilot build. Wi’s team of scientists and engineers are knowledgeable in the clinical applications of the markets they serve and dedicated to advancing medical science through point-of-care diagnostics and lifesaving therapies that ultimately reduce the cost of healthcare. Under the agreement, Wi will provide design and prototype development for the disposable allergen delivery component of the allergy test system, building upon our disposable allergen cartridge technology using design-for-manufacturing (DFM) disciplines while providing access to high volume manufacturing partners. In addition to developing preferred designs and prototypes, Wi’s pilot manufacturing capabilities will help reduce our cycle time to reach FDA clinicals and product launch.

We have also established a partnership with MDC Associates, a consulting firm that specializes in FDA clearance and compliance, establishing company quality systems for regulatory compliance, FDA documentation, developing pre-market submissions, facility audits and more. After product launch, MDC will provide our customer support services including its comprehensive call center, over-the-phone training all conducted in compliance with FDA and ISO system requirements.

 
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Government Regulation (FDA) Matters

The FDA classifies medical devices into one of three classes, Class I, II, or III. This classification is based on the controls deemed necessary by the FDA to reasonably insure the safety and effectiveness of the device. Class I devices are those whose safety and effectiveness can be reasonably ensured through the use of general controls, such as labeling, adherence to GMP requirements and the "510-(k)" process of marketing pre-notification. Class II devices are those whose safety and effectiveness can reasonably be ensured through implementation of general and special controls, such as performance standards, post market surveillance, patient registries, and FDA guidelines. Class III devices are those devices that must receive pre-market approval ("PMA") to insure their safety and effectiveness. They are generally life-sustaining, life-supporting, or implantable devices, and also include devices that are not substantially equivalent to a legally marketed Class I or II devices or to a Class III device first marketed prior to May 28, 1976 for which a PMA has not yet been requested by the FDA.

The Allergy test, glucose monitor and other future product offerings will require us to prove efficacy prior to commercialization. As such, these will be classified under the FDA’s Devices category and will be required to prove “substantial equivalence” via a 510k (all the allergens are FDA approved). Due to the fact that the allergen cartridge will lightly breach the skin, it will most likely be classified as a Class II device. Initial Allergy clinical tests, are being performed under an IRB, which authorizes human clinical testing on 100 patients. A first round of testing performed on a subset of the 100 approved subjects is virtually complete as of May 2010. Additional tests as approved by the IRB are being strategically reserved for later in 2010, after refined engineering prototypes closely resembling the final product design will become available from Wi inc. and Dhurjati Electronic Consulting.

Our minimally-invasive allergy tester uses FDA approved allergens and is an extension of the current gold standard, the Skin Prick Test. We believe, based on initial assessment by the Western IRB that this test will be classified as a “non-significant risk”, potentially expediting the FDA clinical trials. Future tests will compare dose response characteristics of our test using side-by-side testing of the Company’s technology vs. the standard test. Although the statistics for the number of patients required for the FDA clinical trials has not been set, it is expected that less than 500 patients will be sufficient. We expect to work closely with MDC Associates for the next 14 months as it defines and implements its clinical trials strategy.

We must also comply with the prohibitions against promotion and other practices as identified in ss. 812.7. According to this section of the regulation, the sponsor of a NSR study, investigator, or any person acting for or on behalf of our or investigator, is prohibited from promoting or test marketing the investigational device until after FDA has approved the device for commercial distribution; commercializing the device by charging a price greater them that necessary to recover the cost of manufacture, research, development, and handling; unduly prolonging the investigation; and representing the investigational device as being safe or effective for the purposes for which it is being investigated.

Although we believe that our products will ultimately be approved, there is no assurance the FDA will act favorably or quickly in making such reviews and approving our products for sale. We may encounter delays or unanticipated costs in our efforts to secure needed funding and all governmental approvals or licenses, which could delay or possibly preclude us from completing our FDA process and/or marketing our products. To the extent that we may market our products in foreign markets, we will be subject to foreign governmental regulations, as well as USA, with respect to the manufacture and sale of our medical device products. We cannot accurately estimate the cost and time that will be required in order to comply with such regulations.

Business Development and Marketing

While our platform technologies can address several billion dollar diagnostic markets, our initial focus is to commercialize a rapid pain-free allergy test. Based on our current forecast for product development, clinical testing, and FDA approvals, we expect to launch an allergy test product in the Third Quarter of 2011 serving the Allergist. A second product will become available at Retail Clinics as a simple allergy screen test. Based on our current assumptions and projections, we expect revenue from our allergy products  grow to $270M in 2016, with gross margins of 65% or more.

 
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Although allergies affect many industrialized countries worldwide, the U.S. is viewed as our primary market. Skin testing is still considered the gold standard in the U.S. due to its sensitivity, predictive value, low cost, health insurance reimbursement policies, and its role in the Allergist’s current practice/business. In vitro testing is more prevalent in some European countries (~50% of tests) and Japan (~85% of tests) where socialized medical practices and the small number of Allergists per capita affects the dynamics and Value Chain of the local industry. Given its lower cost, immediacy, sensitivity, and the aforementioned reasons, rapid adoption of in vitro allergy tests in the U.S. is not expected, barring unexpected major changes in our healthcare system. Due to similarities with the U.S. in this regard, Australia and some European countries could also adopt our allergy test system. Nevertheless, our marketing and sales focus will be the United States.

Early adoption by Allergists is an essential part of our strategy since it validates the technology and provides expert scientific and clinical information needed for market adoption. Our primary target segment will be rapidly growing young practices that are receptive to adopting digital patient records technology. Based on surveys and demographic data, we estimate that this segment constitutes approximately one third of the 3800 practicing Allergists. U.S. Allergists share a relatively common set of processes, customers, and suppliers. They are well connected by societies such as the Academy of Allergy, Asthma, & Immunology (AAAAI), its associated Journal of Allergy and Clinical Immunology, the American College of Allergy, Asthma, and Immunology (ACAAI), the National Institute of Health’s National Institute of Allergy and Infectious Diseases (NIAID), the Asthma and Allergy Foundation of America (AAFA), and a number of annual meetings and conferences. Due to this relatively small number of specialists, achieving customer reach and awareness in this segment will be relatively straightforward. We will pursue the following approaches to achieve awareness in this segment:
 
·
Develop relationships and advocacy with Key Opinion Leaders (KOL’s) in field
 
·
Extensive tradeshow and conference participation e.g. AAAAI meetings
 
·
Talks and white paper describing minimally-invasive allergy testing
 
·
Posters presenting benefits to specialist and patient
 
·
Professionally engineered prototypes demonstrated at SensiVida’s booth
 
·
Demo software for testing process
 
·
Scientific and trade journal advertising
 
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Direct contact using contract sales marketing in key regional hubs
 
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Mailing product and company brochures
 
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Development of SensiVida website describing product and scientific data

Our allergy test is an innovative, high-tech system that will require careful cultivation of KOL’s. Early feedback from KOL’s, has been positive, especially relative to the possibility of our adding more “science” to allergy testing through improved quantification and reproducibility. Notwithstanding these and other advantages, extending the life of skin testing through technological improvements would also reduce disruption to specialists who significantly depend on in-office testing and diagnostics for their livelihood. We plan to use these factors to help create partnerships with a high level panel of KOL’s who would serve as key advocates of our technology.

Given the lack of scientific data involving minimally-invasive approaches in skin allergy testing, we plan to publish a vetted “white paper” that gains credibility and creates scientific interest from KOL’s. Additional work done in collaboration with the KOL’s will be presented as a peer-review document in journals like Journal of Allergy and Clinical Immunology, American Journal of Immunology, International Journal of Allergy and Immunology, European Academy of Allergy and Clinical Immunology etc. In parallel, selected KOL’s and SensiVida representatives can jointly make presentations and participate in “Poster Sessions” in key allergy and immunology conferences. This will provide an excellent opportunity to disseminate technical and company literature such as laminated copies of key charts and graphs from the “white paper”, FDA clinical data summary, and information presenting expected improvements in Allergists’ profitability. These will be subtle messages, while the key focus would be to present the benefits of our system. The one-on-one interaction with practitioners will also provide the opportunity to gather names and contact information to collect as potential customer leads.

 
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Since the number of U.S. Allergists is relatively small, a direct mailing campaign will be mounted that communicates the efficacy of  our system as well as the relative profitability of the practitioners who adopt our system. Full-page ads in trade magazines or newspapers that coincide with FDA approval will also enhance customer awareness.
The primary positioning of our product is threefold: a) practice building for Allergists, b) pain-free Allergy testing for the patients, and c) accuracy, reliability, and standardization. Tag lines include: “A new era of allergy testing”, “The new standard of care”, “Automatic digital patient records”. An important element of the marketing plan will be to communicate financial benefits of the SensiVida Allergy Test to the practitioner.

Product adoption will largely depend on acceptance of key basic premises behind our Allergy test. In addition to clinical issues and cost, human factors aspects of the Value Proposition such as ease of use, reliability, and productivity will strongly influence adoption, especially early in the market cycle. For this reason, our sales and marketing plan includes a mobile sales team that visits doctors’ offices to demonstrate the product, thus allowing them to become familiar with the user-friendly software and system. Leads resulting in customer visits will be harvested from the various marketing activities described above as well as regional business research and teleprospecting. Given the relatively small revenue of our hardware and software compared to the consumable revenue stream, the sales pitch will emphasize minimal adoption cost and rapid increase in the physician’s profitability. The low unit manufacturing cost of the hardware  and software allows us to offer these at no cost to minimize adoption barriers. Promotional literature estimating average gains in productivity and profitability will also be widely distributed.

Following purchase of our system, consumable cartridges will be made available to Allergists through web or catalog sales, providing pricing advantages if done on a subscription basis. These channels for purchasing consumables and supplies are familiar to Allergists who routinely purchase allergen extracts, controls, and lancets in this manner. Our website, customers, and sales team will be connected by a Customer Relationship Management system (CRM) to optimize sales effectiveness, customer satisfaction, and retention.  Product upgrades, new product/services, usage tips, training, and other services that can retain customers and expand customer base can be effectively marketed when customers buy consumables through our web or catalog.

Our second product (launch 2012) is a screening test provided at retail clinics that targets the estimated 32M US patients that go untested each year. The low cost, simplified allergy screening test includes 15 broad spectrum allergens that will provide a, convenient option for today’s undiagnosed allergic patients. Retail clinics are an attractive channel for the SensiVida Allergy Screen Test. Facilities such as MinuteClinics, RediClinics, and Take Care Health are growing nationwide at rapid rates, already providing 1000’s of sites with in-place capabilities for SensiVida’s simple screening test. A recent announcement by MinuteClinic (CVS) of a $60 in vitro allergy screen test validates that interest and need are there, in spite of the fact that in vitro is a more expensive, less immediate, and non-reimbursable option. The retail clinic allergy test can be either referred by the PCP or provided as walk-in business.

Our allergy screening test will have automated image analysis capability, providing data in digital pictorial/tabular formats and hard copy (will help transition from paper to digital record keeping). Convenient file sharing capabilities will be integrated in the software allowing clinics to share their results with PCP’s and insurance companies productively, securely, and in a timely manner. Prior acceptance of our test by the specialist community, will aid adoption of the screen product by one or more of the major retail clinics. By product introduction planned for 2012 (a year following the Allergist product) the expected reach of retail clinics will substantially satisfy the needs of the target population. Furthermore, retail clinics will likely drive their own advertising campaigns to the general public through their extensive channels.

Due to our test automation and simplicity, the need for highly specialized nursing staff is obviated. Furthermore, the reduced test cycle time (12 minutes vs. 35 minutes) has significant impact on patient throughput and profitability. The clinic profitability of approximately 50% EBIT takes into account increased test productivity and somewhat reduced labor costs compared to the Allergist practice. We believe that our test provides a very profitable opportunity for the clinics and a low cost (potentially reimbursed), painless option for allergy patients.

 
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As we progress in the allergy test market, we will seek to expand its business into other markets that highly leverage its core technology. Most notably, glucose and blood monitoring products will be explored for future business expansion and growth in subsequent years. Although the company will aggressively focus on allergy testing, a number of patents based on our core microlancet and image processing technology have been filed that should provide the company significant future market options and growth opportunities.

Competitive Landscape

Although it is highly labor intensive and subject to operator variability, the Skin Prick Test is still the gold standard and the most widely used test in the U.S. Some of its advantages are: 1) highest positive predictive value, 2) immediate results and, 3) low cost. One major negative is that the test can be traumatic to the patients, especially children. our product automates this labor intensive test, taking the subjectivity out of the equation and making the testing experience significantly less traumatic to patients. While in vivo Skin Prick Tests dominate in the U.S., in vitro tests such as RAST, MAST, ELISA, ImmunoCAP are also used. The advantage of in vitro tests is that a small amount of blood can be drawn at any location without minimal trauma and results come back as quantitative data versus the subjectivity of the Skin Prick Test. On the negative side, test results are not immediately available, costs are high, and tests are still subject to false positives or negatives. The position of allergy specialists in the U.S. relative to in vivo (skin test) and in vitro testing is summarized below:

"In vivo tests, most commonly skin tests, are viewed by many as the most relevant indicator of IgE antibody since they involve direct observation of a biological response in the patient. It remains the primary method used by Allergists to detect IgE antibody, because of its sensitivity, specificity, speed, cost effectiveness, and ease of performance."
American Academy of Allergy Asthma and Immunology Work Group Report: Allergy Diagnosis in Clinical Practice, November 2006

"Skin tests with allergens represent the primary diagnostic tool in determining atopic status. Prick tests are the most commonly used for diagnostic purposes. Their characteristics–simplicity, rapidity of performance, low cost, and high sensitivity–explain their key position... Measurement of specific IgE in serum (in vitro) does not surpass skin tests and is more expensive."
Global Strategy for Asthma Management and Prevention: NIH Publication 02-3659 update, 2005

"Skin testing remains the principal tool in the determination of the presence of allergic sensitization. Reliability of skin testing and understandable documentation of test results are important when a patient is being evaluated by an Allergist and when a patient changes Allergists... almost all Allergists (in their survey) performed Skin Prick Testing (98.7%)"
Skin Testing: a Survey of Allergists, Oppenheimer et al, Ann. Allergy Asthma Immunol. 2006;96:19–23.

For these reasons, U.S. insurance providers generally do not cover in vitro tests, except for special cases (e.g. patients with delicate skin, infants). Another issue slowing adoption in the U.S. is that in vitro testing bypasses the Allergist’s revenue source by outsourcing this profitable part of their business. On the other hand, an analysis of Allergists’ cost structure reveals that our system should be financially attractive and supportive of their profession.

Feedback regarding the Sensivida Allergy Test from some independent and internationally known medical research professionals, as well as Key Opinion Leaders from the field of allergy and immunology has provided valuable insights regarding the Value Proposition to the Allergist. A sampling of their commentary is provided below:
“… a good market niche exists for a fully automated allergy testing system, particularly if it has benefits for the patient and physician related to cost, time, and clinical usefulness.”
“… a good imaging subsystem can circumvent some of the most difficult parameters of allergy testing to overcome…”

 
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“…The company (SensiVida) has identified a significant market opportunity.”
“…(current) skin testing is embarrassing- anything that’s going to standardize, is reproducible, and quantifiable will be great.”
“…Clearly opens up skin testing for kids.”

Market participants in allergy testing include Alk Abello, Greer, Hollister-Stier, Allergy Labs of Ohio, Lincoln Diagnostics for in vivo testing, and Phadia for in vitro testing. In spite of the number of participants, no offering such as SensiVida’s digital allergy test that overcomes shortcomings of skin tests while providing objectivity of in vitro tests (at a lower cost and with immediacy) is available.

Due to its large business potential, many companies, large and small, are pursuing less invasive, continuous, automated ways to sample glucose and other blood chemicals. A sampling of the various technologies is given below:

 
-
Subcutaneous “CGM”: sensor inserted into abdomen like infusion set
 
-
NIR in vivo: spectral analysis of near infrared by implanted sensor
 
-
NIR ex vivo: spectral analysis of near infrared scattered from skin
 
-
Ophthalmic: Spectral/fluorescence by retina or aqueous humor
 
-
Impedance analysis: glucose migrates to skin impedance analysis
 
-
Ultrasonic: glucose diffusion through skin produced by ultrasound
 
-
Photoacoustic: IR light pulse into skin produces acoustic signal
 
-
Sampling: Small amount of blood/interstitial fluid drawn for analysis

Although many of these technologies have been investigated for many years, only subcutaneous CGM’s has been granted FDA approval. Even those methods marketed by companies like Dexcom, Medtronics, and Abbott, have a ways to go before they achieve therapeutic accuracy and do not require excessive calibration.

Developed and proposed methods found in the literature to monitor blood chemistry suffer from a number of disadvantages. The standard fingerstick test requires the use of a lancet that pierces the skin and is able to draw blood for subsequent measurements. Unfortunately, this process is not only invasive, but inconvenient as well. Furthermore, fingerstick-based monitors provide periodically sampled measurements of the subject’s blood chemistry even though glucose levels may be fluctuating rapidly between readings. Non invasive optical approaches are being investigated that are continuous and non-invasive but suffer from calibration problems and day-to-today subject variation. Implantable devices could be continuous but are prone to a process known as bio-fouling, poor calibration, and periodic replacement needs.

Technical literature suggests that there are companies that are pursuing “microneedle-based” technologies capable of sampling minute quantities of blood or interstitial fluid with minimal impact or pain to the subjects. In spite of this advantage, microneedle systems described in the literature are still somewhat invasive since they extract blood from the patients for the measurements or reside long term as in vivo sensors. In vivo devices are also hampered by bio-fouling, long start-up times, and require frequent calibration or device replacement.

In view of the above information, our primary advantages that set it apart from other automated/minimally invasive monitors are in the following four areas:
It is a true chemical analysis- potentially accurate as fingerstick test
Less prone to calibration problems than optical or implanted devices
No blood is extracted- test is done in vivo
Each microlancet is used for only a short time- no biofouling

 
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Our optical biopsy Intellectual Property offers some unique advantages over other technologies from Given Imaging, Olympus Optical LTD, and Smart Pill Corporation. Each company offers a product supported by a different technical platform and with inherently different capabilities. Given's PillCam involves recorded optical imaging and analysis, Olympus Optical LTD's EndoCapsule involves real-time optical imaging, transmission and analysis, and SmartPill involves chemical analysis of tissue as opposed to optical imaging. Based on in-depth market and technology review (see 8-K Mar. 26, 2006) we believe that a photonics technical platform of optical biopsy (CPE) introduces a new, and capable concept for the emerging endoscopic ingestible pill market that may be of interest to other market players (See CITIGROUP/Smith Barney Analyst Report 10-1-2004 by Peter Bye. Page 20 Mediscience-Infotonics).

Intellectual Property

We have secured a worldwide exclusive license to 8 minimally-invasive in vivo diagnostics patent applications, including a number of PCT and European filings (see Patent list). In addition to allergy testing and glucose monitoring using microlancet technologies, coagulation monitoring for patients on blood thinners (e.g. Coumadin), cholesterol and other blood chemistry. There can be no assurance, however, that any pending patent applications will issue as patents, or if patents do issue, that the claims will be sufficiently broad to protect what the Company believes to be its proprietary rights.
 
On April 14, 2003 we secured the exclusive world-wide license for US patent "Stokes-Shift Fluorescence Spectroscopy for Detection of Disease and Physiological State of Specimen". The patent was filed under the Patent Cooperation Treaty ("PCT") (1970) for EU approval on January 23, 2004 and continues in that process.
 
October 18, 2005 Mediscience secured the exclusive world-wide license rights for US patent disclosure US 60/725,670 "Phosphorescence and Fluorescence Spectroscopy for Detection of Cancer and Pre-Cancer from Normal/Benign regions" Dr. Robert Alfano and Mediscience believe that all recent filings plus Mediscience’s achieved IP claims in totality inter-relate in the process of non-invasively detecting cancerous tissue within the body and on issuance would extend the Company's core IP technology 17+ yrs expanding, maintaining and continuing Mediscience’s IP leadership in the Optical Biopsy field. Mediscience regards this accumulated and related patent cluster as pioneering, blocking and dominant in its area of cancer and physiological change diagnosis both in-vivo and in-vitro. (see Patent list infra.)
 
EU Patent Cooperation Treaty
 
We are seeking patent protection simultaneously in each of a large number of western European countries by filing an "international" patent application. The application is subjected to an "international search”. The search results in an "international search report," a listing of the citations of such published documents that might affect the patentability of the invention claimed in the application. The ISA also prepares a written opinion on patentability. The report and the written opinion are communicated to the applicant for his decision to continue or not in the process. The medical device industry places considerable importance on obtaining patent protection and protecting trade secrets for new technologies, products, and processes because of the substantial length of time and expense associated with bringing new products through development and regulatory approval to the marketplace. We either own or hold exclusive licenses to 28 U.S. patents, plus 1 in Japan, for a total of 29. There can be no assurance, however, that any pending patent applications will issue as patents, or if patents do issue, that the claims will be sufficiently broad to protect what the Company believes to be its proprietary rights. In addition, there can be no assurance that issued patents or pending patent applications will not be challenged or circumvented by competitors, or that the rights granted there-under will provide us a competitive advantage.
 
We also rely on trade secrets and know-how to protect in part, through the use of Confidentiality Agreements. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and know-how will not otherwise become known to or independently developed by competitors.
 
Our Patents
 
WePatents secured from the CUNY Research Foundation:
 
US Patent Medical Diagnostic Optical Technology US Patent Pending "Stokes-Shift Fluorescence spectroscopy for detection of disease and physiological state of specimen" discussed above.
 
#5,261,410, November 16, 1993, “Method for determining if a Tissue is a Malignant Tumor Tissue, a Benign Tumor Tissue, or a Normal Benign Tissue using Raman Spectroscopy”

 
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#5,293,872, March 15, 1994, “Method for Distinguishing between Calcified Atherosclerotic Tissue and Fibrous Atherosclerotic Tissue or Normal Cardiovascular Tissue Using Raman Spectroscopy”
 
#5,348,018, September 20, 1994, “Method for determining if Tissue is Malignant as opposed to Non-Malignant using Time-Resolved Fluorescence Spectroscopy”
 
#5,413,108, May 9, 1995, “Method and Apparatus for Mapping a Tissue Sample for and Distinguishing Different Regions thereof based on Luminescence Measurements of Cancer-indicative Native Fluorophor”
 
#5,467,767, November 21, 1995, “Method for Determining if Tissue is Malignant as opposed to Non-Malignant using Time-resolved Fluorescence Spectroscopy”
 
#5,635,402, June 3, 1997. “Technique for Determining whether a Cell is Malignant as opposed to Non-malignant using Extrinsic Fluorescence Spectroscopy”
 
#5,849,595, December 15, 1998, “Method for Monitoring the Effects of Chemotherapeutic Agents on Neoplasmic Media”
 
 #5,983,125, November 9, 1999, “Method and apparatus for in vivo examination of subcutaneous tissues inside an organ of a body using optical spectroscopy”
 
 #6,006,001, December 21, 1999, “Fiber optic assembly useful in optical spectroscopy”
 
#6,080,584, June 27, 2000, “Method and apparatus for detecting the presence of cancerous and precancerous cells in a smear using native fluorescence spectroscopy”
 
#6,091,985, July 18, 2000, “Detection of cancer and precancerous conditions in tissues and/or cells using native fluorescence excitation spectroscopy”
 
#5,371,368, December 6, 1994, “Ultrafast Optical Imaging of Objects in a Scattering Medium”
 
#5,625,458, April 29, 1997, “Method and System for Imaging Objects in Turbid Media using Diffusive Fermat Photons”
 
#5,644,429, July 1, 1997 (see #5,371,368),” 2-Dimensional Imaging of Translucent Objects in Turbid Media”
 
5,710,429, January 20, 1998, “Ultrafast Optical Imaging of objects in or Behind Scattering Media”
 
#5,719,399, February 17, 1998, “Imaging and Characterization of Tissue based upon the Preservation of Polarized Light transmitted therethrough”
 
#5,799,656, September 1, 1998, “Optical Imaging of Breast Tissues to enable the Detection therein of Calcification Regions Suggestive of Cancer”
 
#5,813,988, September 29, 1998, “Time Resolved Diffusion Tomographic Imaging in Highly Scattering Turbid Media”
 
#5,847,394, December 8, 1998, “Imaging of Objects Based upon the Polarization or Depolarization of Light”
 
#5,931,789, August 3, 1999, “Time-resolved diffusion tomographic 2D and 3D imaging in highly scattering turbid media”
 
# 6,208,886 B1, March 27, 2001, “Non-linear optical tomography of turbid media”
 
# 6,215,587, April 10, 2001, “Microscope imaging inside highly scattering media”
 
The Company and CUNY Research Foundation have been diligent in the payment of maintenance obligations to the US Patent Office during the life of each of the Company's significant patents.
 
Patent applications exclusively licensed from the Infotonics Technology Center:
 
“Minimally Invasive Allergy Testing Systems and Methods”, PCT/US2006/026774, US Non-provisional app. 11/995,366
 
“Minimally Invasive Allergy Testing System with Coated Allergens”, PCT/US2007/061604
 
“Allergy Testing Cartridge with Coated Allergens”, PCT/US2007/061601
 
“Compact Minimally Invasive Biomedical Monitor”, US Non-provisional app. 11/754,987, PCT/US08/65024
 
“Blood Monitoring Systems and Methods”, US Non-provisional app. 11/279,290, European application EP 06 749 731.3

 
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“MEMS Interstitial Prothrombin Time Test”, US Non-Provisional app. 12/189,509
 
Patents filed by and assigned to SensiVida Medical Technologies:
 
“Improved Compact Minimally Invasive Biomedical Monitor Using Image Processing”, US Provisional 61/276116
 
“Remote Automated Skin Testing System”, US Provisional filed 5/3/2010
 
Third Party Reimbursement
 
We will ultimately seek reimbursement from third-party payers, primarily in the United States, through Federal, State, Medicare, Medicaid and private health insurance plans, and in other countries, typically national government sponsored health and welfare plans. Such reimbursement will be subject to the regulations and policies of governmental agencies and other third-party payers. Reduced governmental expenditures in the United States and in other countries continue to put pressure on diagnostic procedure reimbursement. We cannot predict what, if any changes, may be forthcoming in these policies and procedures, nor the effect of such changes on our business potential of our screening and diagnostic technology.
 
Our has recently contracted Scott Taylor Associates Inc., a Newbury Massachusetts-based firm, to conduct a set of marketing studies and interviews with leading payers/HMO’s. Feedback from payers will be used to refine the Company’s reimbursement strategy and ascertain what if any changes to current reimbursement guidelines would be required relative to today’s Skin Prick Test (SPT). We believe that our allergy test provides a positive Value Proposition to payers based on the following: 1) improved accuracy over SPT may reduce need for re-testing or inappropriate therapy (both increase reimbursement expense), 2) lower allergen concentration and dosage may reduce risk of test complications such as anaphylaxis, 3) creation of accurate electronic medical records at minimal cost increases operation efficiency and better ascertains patients’ allergic profile with time.
 
Other Technologies and Other Applications
 
In addition to our developments in native tissue fluorescence spectroscopy we have also invented certain other potentially useful diagnostic optical imaging technology. The optical imaging technology uses laser light to image dense tissues by capturing the early photons of light shown through the imaged tissue and gating off the scattered, later arriving light, which reduces the interference and results in clearer images than can be traditionally be seen using currently available optical imaging technologies, such as, computed tomography scanning or x-rays or mammograms. Our Patents Mediscience’s inter-related IP patent cluster acquired through contract with the Research Foundation City University of New York (RFCUNY), see 8-K filed June 1, 2002, Attachment "A" MTC Licensed/Funded Patents:
 
Employees
 
As of May 31, 2010, we had one full-time employee, one part time employee, and a number of contracted workers. None of our employees are covered by collective bargaining agreements and none are represented by labor unions. We believe that relations with our employees and contractors are good.
 
Scientific Staff and Medical Advisors

We have assembled a group of experienced technology and industry experts to provide critical review and analysis of product development programs and to serve as a source of information on new and existing product ideas, new technologies and current research activities. We also believe that we have attracted accomplished scientists, engineers, and clinicians who will help guide us in product development and at gaining regulatory approval for commercial applications of our diagnostic technology. They will also be called upon to advise us about priorities and unmet needs in their respective disciplines and in matters such as physician's habits and preferences that would bear on product design and configuration.

Key people are:

 
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Jose Mir: President, President, CTO
 
 
Over 30 years experience managing innovation and New Business Development. Co-founder of Eastman Kodak’s new business incubator. GM of $15M digital motion picture business. Director of Infotonics Biomedical Initiatives. SensiVida Medical Systems founder. 70+ patents and publications.
 
David R. Smith, Chairman
 
Former CEO, Chairman and Founding Member of Infotonics Technology Center, Inc. from 2002 to 2008. Director of Engineering and Technology at Eastman Kodak. 35 years of diverse technology development experience. Board Chair of Optoelectronic Industry Development Association.
 
John Condemi, M.D.: Medical Advisor (Independent)
 
 
President of the Allergy Asthma Immunology of Rochester (AAIR) and Director of the Clinical Research Department and Infusion Center. Fellow of all major allergy/immunology societies. Over 90 technical papers, 23 chapters, 350 clinical studies.
 
Scott Taylor: FDA and Reimbursement Advisor (Independent)
 
 
Has more than 15 years consulting experience with Diagnostics, Medical Device, Point-of-Care Testing (POCT), and Pharmaceutical companies facilitating FDA approval process, reimbursement issues, and CPT Codes. President and CEO of Scott Taylor Associates.
 
John Agostinelli
 
Ph.D (Univ. of Rochester) in Optics. Research Fellow at Kodak and Chief Technologist at Kodak’s Display Research Center. A Kodak “Elite Inventor”. Over 70 patents issued and pending.
 
Larry DeMejo
 
PhD. (U. Mass.) in Polymer Science and Engineering. Developed and scaled up impact resistant composites at General Electric. Expertise in adhesion of small particles on surfaces. Developed Kodak’s ink jet media technology and novel protective overcoats. Over 80 patents and publications.
 
Margy Lydon
 
M.S. Materials Science and Engineering (RIT). Senior level manager with over 20 years experience in operations management, product development in the medical device field. Former GM of Angiotech BioCoatings, Vice President of Operations and Product Development STS Biopolymers.
 
Scott Rosebrough
 
PhD. (Univ. of Rochester) in Pharmacology. Product development experience in Medical Devices including Director of drug delivery coatings at Angiotech. Medical Device start ups, including Quality Assurance and Regulatory Affairs.
 
John Spoonhower
 
PhD. (Cornell) in Applied and Engineering Physics. Creator of several multi-hundred million dollar business enterprises at Kodak. Former Managing Director of Kauffman Foundation Innovation interface at Cornell – a multi university project to investigate new businesses at Cornell and MIT. 56 patents and several pending
 
 
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Item. 1A. 
Risk Factors
 
The following risk factors should be considered carefully in addition to the other information presented herein:
 
WE DO NOT HAVE A LONG OPERATING HISTORY, WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS.
 
Because limited historical information is available on our revenue trends and operations, it will be difficult for you to evaluate our business. Our prospects must be considered in light of the substantial risks, expenses, uncertainties and difficulties encountered by entrants into the medical device industry, which is characterized by slow adoption, competition and a high failure rate.
 
WE HAVE A HISTORY OF LOSSES, AND WE EXPECT LOSSES TO CONTINUE.
 
We have never been profitable, and we have had operating losses since our inception. We expect our operating losses to continue as we continue to expend substantial resources to launch our product line, to complete development of our products, obtain regulatory clearances or approvals, and build our marketing, sales, manufacturing and finance organizations, and conduct further research and development. To date, we have been engaged primarily in research and development efforts. The further development and commercialization of our products will require substantial development, regulatory, sales and marketing, manufacturing and other expenditures.
 
IF WE CANNOT OBTAIN ADDITIONAL FUNDS WHEN NEEDED, WE WILL NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.
 
We will require substantial additional capital to develop our products, including completing product testing and clinical trials, obtaining all required regulatory approvals and clearances, beginning and scaling up manufacturing, and marketing our products. We have historically funded a significant portion of our activities through private placements and available university matching funds. Any failure of such funding to take place or to be in an amount sufficient to commercialize our technology may compel us to find other collaborative partners to fund our capital expenditures, or our inability to obtain capital through other sources will limit our ability to grow and operate as planned. Even if we do enter into an agreement with a collaborative partner, the obligations of a collaborative partner to fund our expenditures is largely discretionary and depends on a number of factors, including our ability to meet specified milestones in the development and testing of the relevant product. We may not be able to meet these milestones, or our collaborative partner may not continue to fund our expenditures. We bear responsibility for all aspects of our Minimally-Invasive Diagnostic Platform Technology and its product line consisting of Allergy Test System, Glucose and Blood Diagnostic Test System, and its Optical Biopsy Pill products (early development done jointly with the research of our collaborative equity partner, Infotonics Technology Center). We may be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements. We believe that our existing capital resources may not be sufficient to fund our operations to the point of commercial introduction of our diagnostic products. Any failure to achieve adequate funding in a timely fashion would delay our development programs and could lead to abandonment of one or more of our development initiatives. Any required additional funding may not be available on terms attractive to us, or at all. To the extent we cannot obtain additional funding, our ability to continue to develop and introduce products to market will be limited. Any additional equity financing will be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants that would limit how we conduct our business or finance our operations. Absent additional funding from private or public equity or debt financings, collaborative or other partnering arrangements, or other sources and if we do not secure additional funding, we will be unable to conduct all of our product development efforts as planned, and we may need to cease operations or sell assets.
 
OUR ABILITY TO SELL OUR PRODUCTS IS CONTROLLED BY GOVERNMENT REGULATIONS, AND WE MAY NOT BE ABLE TO OBTAIN ANY NECESSARY CLEARANCES OR APPROVALS.
 
The design, manufacturing, labeling, distribution and marketing of medical device products are subject to extensive and rigorous government regulation including but not limited to FDA which can be expensive and uncertain and can cause lengthy delays before we can begin selling our products.

 
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IN THE UNITED STATES, THE FOOD AND DRUG ADMINISTRATION'S ACTIONS COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCTS, WHICH WOULD ADVERSELY AFFECT OUR GROWTH AND STRATEGY PLANS.
 
In order for us to market our products in the United States, we must obtain continued clearance or approval from the Food and Drug Administration. We cannot be sure that we or any collaborative partners will make timely filings with the FDA; that the FDA will act favorably or quickly on these submissions; that we will not be required to submit additional information or perform additional clinical studies; that we would not be required to submit an application for IDE as described below; or that other significant difficulties and costs will not be encountered to obtain FDA clearance or approval. The IDE approval process  can take several years from initial filing and require the submission of extensive supporting data and clinical information clinical study data. The FDA may impose strict labeling or other requirements as a condition of its clearance or approval, any of which could limit our ability to market our products. Further, if we wish to modify a product after FDA clearance of a pre-market notification or approval of a pre-market approval application, including changes in indications or other modifications that could affect safety and efficacy, additional clearances or approvals will be required from the FDA. Any request by the FDA for additional data, or any requirement by the FDA that we conduct additional clinical studies or submit to the more rigorous and lengthier pre-market approval process, could result in a significant delay in bringing our products to market and substantial additional research and other expenditures. Similarly, any labeling or other conditions or restrictions imposed by the FDA on the marketing of our products could hinder our ability to effectively market our products. Any of the above actions by the FDA could delay or prevent altogether our ability to market and distribute our products. Further, there may be new FDA policies or changes in FDA policies that could be adverse to us.
 
IN FOREIGN COUNTRIES, INCLUDING LATIN AMERICAN AND EUROPEAN COUNTRIES, WE ARE ALSO SUBJECT TO GOVERNMENT REGULATION, WHICH COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCTS IN THOSE JURISDICTIONS.
 
In order for us to market our products in Latin America or Europe and some other international jurisdictions, we and our distributors and agents must obtain required regulatory registrations or approvals. We must also comply with extensive regulations regarding safety, efficacy and quality in those jurisdictions. We may not be able to obtain the required regulatory registrations or approvals, or we may be required to incur significant costs in obtaining or maintaining any regulatory registrations or approvals we receive. Delays in obtaining any registrations or approvals required to market our products, failure to receive these registrations or approvals, or future loss of previously obtained registrations or approvals would limit our ability to sell our products internationally. For example, international regulatory bodies have adopted various regulations governing product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. These regulations vary from country to country. For example in order to sell our products in Europe, we must maintain ISO 9001 certification and CE mark certification, which is an international symbol of quality and compliance with applicable European medical device directives. Failure to receive or maintain ISO 9001 certification or CE mark certification or other international regulatory approvals would prevent us from selling in Europe and similar requirements would prevent us from selling in Latin American countries.
 
EVEN IF WE OBTAIN CLEARANCE OR APPROVAL TO SELL OUR PRODUCTS, WE ARE SUBJECT TO ONGOING REQUIREMENTS AND INSPECTIONS THAT COULD LEAD TO THE RESTRICTION, SUSPENSION OR REVOCATION OF OUR CLEARANCE.
 
We, as well as any collaborative partners, will be required to adhere to applicable FDA regulations regarding good manufacturing practice, which include testing, control, and documentation requirements. We are subject to similar regulations in foreign countries. Ongoing compliance with good manufacturing practice and other applicable regulatory requirements will be strictly enforced in the United States through periodic inspections by state and federal agencies, including the FDA, and in international jurisdictions by comparable agencies. Failure to comply with these regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure to obtain pre-market clearance or pre-market approval for devices, withdrawal of approvals previously obtained, and criminal prosecution. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements would limit our ability to operate and could increase our costs.

 
16

 

OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO OBTAIN AND PROTECT THE PROPRIETARY INFORMATION ON WHICH WE BASE OUR PRODUCTS.
 
Our success depends in large part upon our ability to establish and maintain the proprietary nature of our technology through the patent process, as well as our ability to possibly license from others patents and patent applications necessary to develop products. If any of our patent applications are not allowed, patents are successfully challenged, invalidated or circumvented, or our right or ability to manufacture our products were to be limited, our ability to continue to manufacture and market our products could be adversely affected. In addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, through confidentiality and proprietary information agreements. The other parties to these agreements may breach these provisions, and we may not have adequate remedies for any breach. Additionally, our trade secrets could otherwise become known to or be independently developed by competitors. We have been issued, or have rights to, 28 U.S. patents (including those under license). In addition, we have filed for, or have rights to, 10 patents (including those under license) that are still pending. One or more of the patents we hold directly or license from third parties, may be successfully challenged, invalidated or circumvented, or we may otherwise be unable to rely on these patents. We have contract obligations to financially maintain these patents with periodic payments to the United States, Japan and European Union patent offices which could be unmet jeopardizing our existing rights. These risks are also present for the process we use or will use for manufacturing our products. In addition, our competitors, many of whom have substantial resources and have made substantial investments in competing technologies, may apply for and obtain patents that prevent, limit or interfere with our ability to make, use and sell our products, either in the United States or in international markets. The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights. In addition, the United States Patent and Trademark Office may institute interference proceedings. The defense and prosecution of intellectual property suits, Patent and Trademark Office proceedings and related legal and administrative proceedings are both costly and time consuming. Moreover, we may need to litigate to enforce our patents, to protect our trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings involving us may require us to incur substantial legal and other fees and expenses and may require some of our employees to devote all or a substantial portion of their time to the proceedings. An adverse determination in the proceedings could subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from selling our products in some or all markets. We may not be able to reach a satisfactory settlement of any dispute by licensing necessary patents or other intellectual property. Even if we reached a settlement, the settlement process may be expensive and time consuming, and the terms of the settlement may require us to pay substantial royalties. An adverse determination in a judicial or administrative proceeding or the failure to obtain a necessary license could prevent us from manufacturing and selling our products.
 
WE ARE CURRENTLY DEVELOPING OUR CURRENT PRODUCT LINE INDEPENDENTLY FROM ANY COLLABORATIVE PARTNERS, WHICH MAY REQUIRE US TO ACCESS ADDITIONAL CAPITAL AND TO DEVELOP ADDITIONAL SKILLS TO PRODUCE, MARKET AND DISTRIBUTE THESE PRODUCTS.
 
We are also currently seeking direct funding for and expect to commercialize our products independently of any collaborative partner. These activities will require development of partnerships and/or additional resources and capital that we will expect to be provided through this Offering. There is no assurance that we will be able to raise sufficient capital through the Offering or attract and retain skilled personnel to enable us to finish development, launch and market these products.
 
BECAUSE OUR PRODUCTS, WHICH USE DIFFERENT TECHNOLOGY OR APPLY TECHNOLOGY IN MORE INNOVATIVE WAYS THAN OTHER MEDICAL DEVICES, ARE OR WILL BE NEW TO THE MARKET, WE MAY NOT BE SUCCESSFUL IN LAUNCHING OUR PRODUCTS AND OUR OPERATIONS AND GROWTH WOULD BE ADVERSELY AFFECTED.
 
Our products are based on new methods of in vivo diagnostics analogous to Skin Prick Allergy Testing (SPT), glucose monitoring, and endoscopy. If our products do not achieve significant market penetration, our sales will be limited and our financial condition may suffer. Physicians and individuals may not recommend or use our products unless they determine that these products are an attractive alternative to current tests that have a long history of safe and effective use. To date, our products have not been used by anyone, and no  independent studies regarding our products have been published. The lack of independent studies limits the ability of doctors or consumers to compare our products to conventional products.

 
17

 
 
IF WE ARE UNABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE MEDICAL DEVICE INDUSTRY, OUR FUTURE GROWTH AND OPERATING RESULTS WILL SUFFER.
 
The medical device industry in general and the markets in which we expect to offer products in particular, are intensely competitive. Many of our competitors have substantially greater financial, research, technical, and manufacturing, marketing and distribution resources than we do and have greater name recognition and lengthier operating histories in the health care industry. We may not be able to effectively compete against these and other competitors. Furthermore, if our products are not available at competitive prices, health care providers, and health insurance companies who are subject to increasing pressures to reduce costs may not elect to purchase or reimburse them. Accordingly, competition in this area is expected to increase. Furthermore, our competitors may succeed in developing, either before or after the development and commercialization of our products, devices and technologies that permit more efficient, less expensive non-invasive and less invasive monitoring, or cancer detection. It is also possible that one or more pharmaceutical or other health care companies will develop therapeutic drugs, treatments or other products that will substantially render our products obsolete.
 
THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT FOR OUR PRODUCTS IS UNCERTAIN, WHICH MAY LIMIT CONSUMER USE AND THE MARKET FOR OUR PRODUCTS.
 
In the United States and elsewhere, sales of medical products are dependent, in part, on the ability of consumers of these products to obtain reimbursement for all or a portion of their cost from third-party payers, such as government and private insurance plans. Any inability of patients, hospitals, physicians and other users of our products to obtain sufficient reimbursement from third-party payers for our products, or adverse changes in relevant governmental policies or the policies of private third-party payers regarding reimbursement for these products, could limit our ability to sell our products on a competitive basis. We are unable to predict what changes will be made in the reimbursement methods used by third-party health care payers. Moreover, third-party payers are increasingly challenging the prices charged for medical products and services, and some health care providers are gradually adopting a managed care system in which the providers contract to provide comprehensive health care services for a fixed cost per person. Patients, hospitals and physicians may not be able to justify the use of our products by the attendant cost savings and clinical benefits that we believe will be derived from the use of our products, and therefore may not be able to obtain third-party reimbursement. Reimbursement and health care payment systems in international markets vary significantly by country and include both government sponsored health care and private insurance. We may not be able to obtain approvals for reimbursement from these international third-party payers in a timely manner, if at all. Any failure to receive international reimbursement approvals could have an adverse effect on market acceptance of our products in the international markets in which approvals are sought.
 
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN SCIENTIFIC, TECHNICAL, MANAGERIAL AND FINANCE PERSONNEL.
 
Our ability to operate successfully and manage our future growth depends in significant part upon the continued service of key scientific, technical and managerial and finance personnel, as well as our ability to attract and retain additional highly qualified personnel in these fields. We may not be able to attract and retain key employees when necessary, which would limit our operations and growth.
 
WE ARE SIGNIFICANTLY INFLUENCED BY OUR DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATED ENTITIES.
 
Our directors, executive officers and entities affiliated with them beneficially owned an aggregate of 58.1% of our outstanding common stock as of June 15, 2010. These stockholders, acting together, would be able to exert significant influence on substantially all matters requiring approval by our stockholders, including the election of directors and the approval of mergers and other business combination transactions.

 
18

 
 
Item 1B. 
Unresolved Staff Comments
 
None.

Item 2. 
Description of Property
 
Our corporate headquarters are located in Henrietta, New York. We have a  month-to-month lease with Rochester BioVentures Center, a 40,000 square feet facility containing office and laboratory space. The Company utilizes the Center’s conference, phone, internet, utilities as well as a 200 square foot wet lab space for its dedicated work.  We believe that our current facility adequately provides for our operations, but as more employees and contractors are hired, we expect to require additional laboratory and office space for sales, marketing and business development.

Item 3. 
Legal Proceedings

We have been sued  by Dr. Robert R. Alfano in a case styled Robert R. Alfano v. SensiVida Medical Technologies, Inc., C.A. No 09 CV 8753 (SDNY 2009). Dr. Alfano alleges that he is owed $1,487,053 in consulting fees in connection with a consulting agreement that he claims we breached.  Dr. Alfano also is claiming that he is owed 132,000 post reverse split shares of our common stock under the terms of alleged various anti-dilution agreements with us. We have filed an Answer and a Motion to Dismiss which is scheduled to be heard by the court in June 2010.

Item 4.
Submission of Matters to a Vote of Security Holders

None.

PART II

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

Market Information

Our common stock is traded under the symbol "SVMT" on the OTC Bulletin Board. The following table sets forth the range of high and low closing bid for our common stock for the periods set forth below as reported by the OTC Bulletin Board.  Such quotations represent inter-dealer quotations, without adjustment for retail markets, markdowns or commissions, and do not necessarily represent actual transactions.  The prices reflect our 10-to-1 reverse stock split effected on May 18, 2009.

   
High
   
Low
 
3/1/2009 through 5/31/2009
  $ 2.00     $ 0.62  
6/1/2009 through 8/31/2009
    1.05       0.25  
9/1/2009 through 11/30/2009
    0.79       0.51  
12/1/2009 through 2/29/2010
    0.54       0.11  
                 
3/1/2008 through 5/31/2008
  $ 0.10     $ 0.06  
6/1/2008 through 8/31/2008
    0.20       0.05  
9/1/2008 through 11/30/2008
    0.10       0.04  
12/1/2008 through 2/28/2009
    0.14       0.03  

 
19

 

Holders

As of June 16, 2010, there were approximately 663 holders of record of our common stock.

Dividends

We do not intend to pay cash dividends on our common stock for the foreseeable future, but currently intend to retain any future earnings to fund the development and growth of our business. The payment of dividends if any, on the common stock will rest solely within the discretion of the Board of Directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors. We have not paid or declared any dividends upon our common stock since inception.

Securities Authorized for Issuance Under Equity Compensation Plans

We have two equity compensation plans. Our 1999 Stock Incentive Plan effective as of April 1, 2003 (the "1999 Plan") provides for the issuance of up to 300,000 incentive and non-qualified stock options, stock appreciation rights and shares of common stock to our eligible employees and consultants and our 2003 Consultants Stock Option, Stock Warrant and Stock Award Plan effective as of February 17, 2004 (the "2003 Plan," and together with the 1999 Plan, the "Stock Option Plans") provides for the issuance of up to 700,000 non-qualified stock options, stock purchase warrants and shares of common stock to our eligible employees and consultants. Each of the Stock Option Plans was approved by our Board of Directors and ratified by the holders of a majority of our issued and outstanding shares of common stock within 12 months of such board approval. The following table presents certain information relating to outstanding awards and shares available for future grant under our Stock Option Plans in accordance with Item 201(d) of Regulation S-K.

Equity Compensation Plan Information [PLEASE UPDATE]

               
Number of securities
 
               
remaining available for
 
               
future issuance under
 
   
Number of securities to
   
Weighted-average
   
equity compensation
 
   
be issued upon exercise
   
exercise price of
   
plans (excluding
 
   
of outstanding options,
   
outstanding options,
   
securities reflected in
 
   
warrants and rights
   
warrants and rights
   
column (a))
 
                   
Plan category
 
(a)
   
(b)
   
(c)
 
                   
Equity compensation plans approved by security holders
    30,000     $ 10.00       670,000  
                         
Equity compensation plans not approved by security holders
                N/A  
Total
    30,000     $ 10.00       670,000  
 
 
20

 

Recent Sales of Unregistered Securities

The information required by Item 701 of Regulation S-K has been previously included in one or more current reports on Form 8-K filed by the Company.

Item 6.
Selected Financial Data

        We are a “smaller reporting company” as such term is defined in Rule 12b-2 of the Exchange Act and are exempt from making the disclosures required by this item pursuant to paragraph (c) of Item 301 of Regulation S-K.

Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations

         The following discussion should be read in conjunction with the Financial Statements and the notes thereto that appear in Item 8 of this annual report on Form 10-K.

Results of Operations

Year Ending February 28, 2010 Compared to
Year Ending February 28, 2009

Revenues

We had no revenues during the years ending February 28, 2010 and February 28, 2009.  Our prior focus was our continued development of our light-based technology, however, effective March 3, 2009, with the merger of SensiVida Medical Systems, Inc. into the Company’s wholly-owned subsidiary BioScopix, Inc., the Company’s technology has focused on the automation of analysis and data acquisition for allergy testing, glucose monitoring, blood coagulation testing, tuberculosis testing, and cholesterol monitoring.

General and Administrative Expense

General and administrative expenses increased approximately $16,000, or 1%, during the current year ended February 28, 2010 as compared to the year ended February 28, 2009.  The increase was the net of increases and decreases in major expense components.  Salaries, wages and related expenses approximating $387,000 increased approximately $44,000 over the prior year period, as a result of the employment agreements of the new CEO, CTO and Chairman of the Board.  The increase was partially offset by the voluntary termination of Mr. Katevatis’ employment agreement. In addition, professional fees increased approximately $73,000 during the current year, primarily due to the increased professional activities associated with the merger and related matters. In October 2009, a civil action was entered against the company by Dr. Robert Alfano.  The litigation centers around payment for accrued consulting fees and expenses totaling approximately $1,490,000.  In addition, Dr. Alfano is contesting the termination of his anti-dilution rights and the transfer of his former Mediscience Technology Corp. stock into SensiVida Medical Technologies, Inc. stock.  The Company does not believe the case has merit and has filed a Motion to Dismiss.  The Company intends to vigorously defend these claims.  Also, adding to the increase in general and administrative expense was approximately $187,000 of amortization costs associated with the Company’s intellectual property.  As an offset to the increases, there was a decrease in financial service (bridge fees and related costs) totaling approximately $284,000 along with a decrease in other general and administrative expenses approximating $4,000.

 
21

 

Product Development Expense

Product development expense increased approximately $79,000, or 39%, during the current year ended February 28, 2010 when compared to the prior year ended February 28, 2009.  The increase is due to allergy research being conducted in Rochester, NY, by the Company and its consultants.

Cancellation of Indebtedness

The Company has written off certain accrued consulting fees totaling $43,597 that had been outstanding for a number of years due to lack of completion of the engagement by the consultant.

Liquidity and Capital Resources

We had a deficiency in working capital as of February 28, 2010 of approximately $3,366,000 compared to a deficiency of approximately $5,841,000 at February 28, 2009 representing a decrease in the deficiency of approximately $2,475,000 for the current year ended February 28, 2010.  The decrease in the deficiency consisted of a decrease of approximately $82,000 in current assets, consisting of cash and prepaid expenses, and an offsetting decrease of approximately $2,557,000 in current liabilities.  The principal reason for the decline in accrued liabilities is the cancellation of approximately $2,147,000 of obligations to Mr. Katevatis who terminated his employment agreement as Chief Executive Officer and Chairman along with his anti-dilution rights and exercised his option to convert outstanding salary and fees accrued thru November 2008 in exchange for 1,172,510 shares of the Company’s common stock.  In addition, certain note holders converted $1,205,000 of note principal and $249,325 of accrued interest into common stock of the Company.  The current deficiency in working capital is primarily represented by accounts payable, accruals for professional fees, consulting, salaries and wages and convertible debt.  Subsequent to the Company’s February 28, 2010 fiscal year end, the Company began an offering of a maximum of $10,000,000 of Series A Preferred stock at $1.00 per share.  The Series A Preferred stock is convertible into shares of the Company’s common stock, par value $.01 per share at $0.35 per share for a period of three years from the date of issuance and bears interest at 12% per annum, such interest to accrue and be paid in cash at the end of three years from the date of issuance of the Series A Preferred stock or in shares of common stock if the investor elects to convert the Series A Preferred stock.  The investor also will receive warrants to acquire shares of common stock in an amount equal to 50% of the number of shares of common stock into which the Series A Preferred stock converts.  The exercise price of the warrant is also at $1.00 per share.  Series A Preferred stock subscriptions to date have exceeded $1,400,000.

 
22

 

Our ability to continue our operations is largely dependent upon obtaining regulatory approval for the commercialization of our diagnostic technology for allergy testing, glucose monitoring, blood coagulation testing, tuberculosis testing and cholesterol monitoring.  There can be no assurance as to whether or when the various requisite government approvals will be obtained or the terms or scope of these approvals, if granted.  We intend to defray the costs of obtaining regulatory approval for the commercialization of such technology by the establishment of clinical trial arrangements with medical institutions.  We intend to continue to pursue the establishment of co-promotional arrangements for the marketing, distribution and commercial exploitation of our technology.  Such arrangements, if established, may include up-front payments, sharing of sales revenues after deduction of certain expenses, and/or product development funding.  Our management anticipates that substantial resources will be committed to a continuation of our research and development efforts and to finance government regulatory applications.  While management believes that we will obtain sufficient funds to satisfy our liquidity and capital resources needs for the short term from the private placement of our securities and short term borrowings, no assurances can be given that additional funding or capital from other sources, such as co-promotion arrangements, will be obtained on a satisfactory basis, if at all.  In the absence of the availability of financing on a timely basis, we may be forced to materially curtail or cease our operations.  Our operating and capital requirements, as described above, may change depending upon several factors, including: (i) results of research and development activities; (ii) competitive and technological developments; (iii) the timing and cost of obtaining required regulatory approvals for our products; (iv) the amount of resources which we devote to clinical evaluation and the establishment of marketing and sales capabilities; and (v) our success in entering into, and cash flows derived from, co-promotion arrangements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recent Accounting Pronouncement

Reference is made to the summary or significant accounting policies included in the consolidated financial statements for a discussion and analysis of recently issued accounting pronouncements and their impact on the Company.

Item 7A. 
Quantitative and Qualitative Disclosures About Market Risk

        We are a smaller reporting company, as defined by Item 10(f)(1) of Regulation S-K, and we are not required to make the disclosures required by this item pursuant to Item 305(e) of Regulation S-K.
 
23

  
Item 8. 
Financial Statements and Supplementary Data
  
SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 28, 2010 AND 2009
 
24

 
CONTENTS

 
PAGE
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
26
   
CONSOLIDATED BALANCE SHEETS
27
   
CONSOLIDATED STATEMENTS OF OPERATIONS
28
   
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
29
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
30
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31 - 46
 
25

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
SensiVida Medical Technologies, Inc.
77 Ridgeland Rd.
Henrietta, New York

We have audited the accompanying consolidated balance sheets of SensiVida Medical Technologies, Inc. and subsidiaries, (the “Company”) as of February 28, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SensiVida Medical Technologies, Inc. and subsidiaries as of February 28, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As disclosed in Note 1 to the financial statements, the Company has no revenues, incurred significant losses from operations, has negative working capital and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern.  Management’s plan in regard to these matters is also described in Note 1.   The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 
   
 
June 16, 2010
 
 
26

 
SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2010 AND 2009

   
2010
   
2009
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 12,002     $ 76,797  
Prepaid Expenses and Other Current Assets
    -       17,262  
TOTAL CURRENT ASSETS
    12,002       94,059  
PROPERTY PLANT AND EQUIPMENT
               
Net of Accumulated Depreciation of $207,322 (2010) and
               
$207,322 (2009)
    -       -  
OTHER ASSETS
               
Intellectual Property - Net of Accumulated Amortization
               
of $187,237 (2010) and $-0- (2009)
    2,621,327       -  
Deferred Costs
    49,167       130,547  
Other Assets
    3,016       2,800  
Restricted Cash
    18,727       -  
TOTAL ASSETS
  $ 2,704,239     $ 227,406  
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
CURRENT LIABILITIES
               
Convertible Debt, Net of Discount of $-0- and $86,036 for 2010 and 2009, respectively
  $ 451,500     $ 1,570,464  
Other Loans Payable
    99,828       -  
Accounts Payable
    255,189       73,895  
Officer Loan Payable
    5,524       -  
Accrued Liabilities
    2,315,680       4,140,431  
Preferred Stock Subscribed
    250,000       150,000  
TOTAL CURRENT LIABILITIES
    3,377,721       5,934,790  
TOTAL LIABILITIES
    3,377,721       5,934,790  
STOCKHOLDERS' DEFICIT
               
Convertible Preferred Stock - $.01 par value, 5,000 shares
               
authorized,  -0- shares issued and outstanding in 2010 and
               
2009 respectively
    -       -  
Common Stock - $.01 par value, 19,995,000 shares authorized,
               
15,980,612 and 7,123,241 shares issued and outstanding in
               
2010 and 2009, respectively
    159,806       71,232  
COMMON STOCK SUBSCRIBED
    140,800       -  
ADDITIONAL PAID-IN CAPITAL
    34,153,453       27,784,596  
ACCUMULATED DEFICIT
    (35,127,541 )     (33,563,212 )
TOTAL STOCKHOLDERS' DEFICIT
    (673,482 )     (5,707,384 )
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT
  $ 2,704,239     $ 227,406  

The accompanying notes are an integral part of these consolidated financial statements.
 
27

 
SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 2010 AND 2009

   
2010
   
2009
 
SALES
  $ -     $ -  
COST OF SALES
    -       -  
GROSS PROFIT
    -       -  
GENERAL AND ADMINISTRATIVE EXPENSE
    1,094,041       1,078,416  
RESEARCH AND DEVELOPMENT EXPENSE
    278,536       199,880  
TOTAL EXPENSE
    1,372,577       1,278,296  
LOSS FROM OPERATIONS
    (1,372,577 )     (1,278,296 )
OTHER INCOME (EXPENSE)
               
Cancellation of Indebtedness
    43,597       -  
Interest Income
    86       4,380  
Interest Expense
    (149,399 )     (190,751 )
Accretion of Discount on Convertible Debt
    (86,036 )     (721,434 )
Total Other Income and (Expense)
    (191,752 )     (907,805 )
NET LOSS
  $ (1,564,329 )   $ (2,186,101 )
BASIC AND DILUTED NET LOSS PER COMMON SHARE
  $ (0.112 )   $ (0.319 )
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
  $ 13,984,738     $ 6,845,941  

The accompanying notes are an integral part of these consolidated financial statements.
 
28

 
SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
YEARS ENDED FEBRUARY 28, 2010 AND 2009

   
Preferred Stock
   
Common Stock
         
Common
       
   
Number
         
Number
         
Additional
   
Stock
   
Accumulated
 
   
of Shares
   
Amount
   
of Shares
   
Amount
   
Paid-in Capital
   
Subscribed
   
Deficit
 
                                           
BALANCE AT FEBRUARY 29, 2008
    -     $ -       6,725,099     $ 67,251     $ 26,999,821     $ -     $ (31,377,111 )
                                                         
Issuance of stock - anti-dilution rights
    -       -       53,491       535       (535 )     -       -  
Issuance of stock - services
    -       -       314,651       3,146       217,110       -       -  
Issuance of stock - future consulting services
    -       -       30,000       300       29,700       -       -  
Discount on debt due to beneficial conversion option
    -       -       -       -       538,500       -       -  
Net loss for the year ended February 28, 2009
    -       -       -       -       -       -       (2,186,101 )
                                                         
BALANCE AT FEBRUARY 28, 2009
    -       -       7,123,241       71,232       27,784,596       -       (33,563,212 )
                                                         
Common stock subscribed
    -       -       -       -       -       140,800       -  
Acquisition of SensiVida Medical Systems, Inc.
    -       -       3,333,333       33,334       2,717,999       -       -  
Common stock issued in cancellation of shareholder debt
    -       -       1,172,510       11,725       2,135,462       -       -  
Conversion of debt and acrrued interest
    -       -       4,155,222       41,552       1,412,773       -       -  
Cancellation of fractional shares as a result of reverse stock split
    -       -       (27 )     -       -       -       -  
Common stock issued for future services
    -       -       150,000       1,500       76,000       -       -  
Common stock issued for services
    -       -       46,333       463       26,623       -       -  
Net loss for the year ended February 28, 2010
    -       -       -       -       -       -       (1,564,329 )
BALANCE AT FEBRUARY 28, 2010
    -     $ -       15,980,612     $ 159,806     $ 34,153,453     $ 140,800     $ (35,127,541 )

The accompanying notes are an integral part of these consolidated financial statements.
 
29

 

 
SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 2010 AND 2009

   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (1,564,329 )   $ (2,186,101 )
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation and Amortization
    187,237       345  
Amortization of deferred costs
    158,880       178,642  
Accretion of discount on convertible debt
    86,036       721,434  
Common stock issued for services
    27,086       220,256  
Subtotal
    (1,105,090 )     (1,065,424 )
Changes in assets and liabilities
               
(Increase) decrease in assets
               
Prepaid expenses
    17,262       43,681  
Other assets
    (216 )     (1,000 )
Restricted Cash
    (18,727 )     -  
Increase (decrease) in liabilities
               
Accounts payable
    181,294       (54,752 )
Accrued liabilities
    569,882       342,210  
                 
Net cash used in operating activities
    (355,595 )     (735,285 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
    -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from issuance of convertible debt
    -       538,500  
Subscription for convertible debt
    100,000       150,000  
Proceeds from common stock subscribed
    140,800       -  
Increase in other loans payable
    50,000       -  
                 
Net Cash provided by financing activities
    290,800       688,500  
                 
NET DECREASE IN CASH
    (64,795 )     (46,785 )
                 
CASH - BEGINNING OF YEAR
    76,797       123,582  
                 
CASH - END OF YEAR
  $ 12,002     $ 76,797  
                 
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
               
Common stock issued in acquisition of intellectual  property and other liabilities (Note 10)
  $ 2,751,332     $ -  
Common stock issued for future services
  77,500     30,000  
Common stock issued - anti-dilutive rights
  $ -     $ 535  
Discount on debt due to beneficial conversion option
  $ -     $ 538,500  
Retroactive adjustment for 10 for 1 reverse stock split related to common stock and additional paid in capital
  $ -     $ 577,155  
Common stock issued in conversion of debt and accrued interest
  $ 1,454,325     $ -  
Common stock issued in cancellation of shareholder debt
  $ 2,147,187     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
30

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business
The consolidated financial statements include the accounts of SensiVida Medical Technologies, Inc. f/k/a Mediscience Technology Corp. (“SensiVida”) and its wholly-owned subsidiaries, Laser Diagnostic Instruments, Inc. (“Laser”), Photonics for Women’s Oncology, LLC (“Photonics”) and Mediphotonics Development, LLC (“Mediphotonics”), and Bioscopix, Inc. (“Bioscopix”), (collectively the “Company”).   All significant intercompany transactions and balances have been eliminated in consolidation.  Bioscopix and Mediphotonics have been the only active subsidiaries of the Company.

The Company had operated in one business segment encompassing in the design and development of medical diagnostic instruments that detect cancer in vivo in humans by using light to excite the molecules contained in tissue and measuring the differences in the resulting natural fluorescence between cancerous and normal tissue.  Effective March 3, 2009, with the merger of SensiVida Medical Systems, Inc. into the Company’s wholly-owned subsidiary BioScopix, Inc. (Note 10), the Company’s technology now focuses on the automation of analysis and data acquisition for allergy testing, glucose monitoring, blood coagulation testing, new tuberculosis testing, and cholesterol monitoring.

Management’s Plan
The Company is subject but not limited to a number of risks similar to those of other companies at this stage of development, including dependence on key individuals, the development of commercially usable products and processes, competition from substitute products or alternative processes, the impact of research and product development activity, competitors of the Company, many of whom have greater financial or other resources than those of the Company, the uncertainties related to technological improvements and advances, the ability to obtain adequate additional financing necessary to fund continuing operations and product development and the uncertainties of future profitability.  The Company expects to incur substantial additional costs before beginning to generate income from product sales, including costs related to ongoing research and development activities, preclinical studies and regulatory compliance.  Substantial additional financing is needed by the Company.

The Company has no revenues, incurred significant losses from operations, has an accumulated deficit and a highly leveraged position that raises substantial doubt about the Company’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company expects to incur substantial expenditures to further the development and commercialization of its products.  To achieve this, management will seek to enter into an agreement with a consulting firm to be an advisor and explore options for the Company to commercialize its technology, will seek additional financing through private placements or other financing alternatives, and might also seek to sell the Company or its technology.  There can be no assurance that continued financings will be available to the Company or that, if available, the amounts will be sufficient or that the terms will be acceptable to the Company.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Equipment
Equipment is stated at cost.  Depreciation is computed using the straight-line method over an estimated useful life of five years.  Depreciation expense was $-0- and $345 in 2010 and 2009, respectively.

 
31

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Intellectual Property
Intellectual property consists of technology with patents pending approval that was included in the acquisition of SensiVida Medical Systems, Inc. (see Note 10) and is stated at cost.  Amortization is computed using the straight-line method over an estimated useful life of fifteen years.  Amortization expense was $187,238 and $-0- for the years ended February 28, 2010 and 2009, respectively.

Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Research and Development
Research and development costs are charged to operations when incurred.  The amounts charged to expense were $278,536 and $199,880 in 2010 and 2009, respectively.

Loss per Common Share
In accordance with FASB ASC 260 (formerly SFAS No. 128), Earnings per Share, basic and diluted net loss per share is computed using net loss divided by the weighted average number of shares of common stock outstanding for the period presented.  Because the Company reported a net loss for each of the years ended February 28, 2010 and 2009, common stock equivalents consisting of options and warrants were anti-dilutive; therefore, the basic and diluted net loss per share for each of these periods were the same.

Accounting for Stock-Based Compensation
In December 2004, the FASB issued FASB ASC 718 (formerly SFAS 123R), Share-Based Payment.  This statement requires measurement of all employee stock-based compensation awards using a fair value method and the recording of such expense in the consolidated financial statements.  In addition, the adoption of FASB ASC 718 (formerly SFAS 123R) requires additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements.  There were no employee stock options issued during the years ended February 28, 2010 and 2009.

Concentration of Credit Risk Involving Cash
The Company may have deposits with major financial institutions which exceed Federal Deposit Insurance limits during the year.

Reclassification
The February 28, 2009 financial statements have been reclassified to conform to the 2010 financial statement presentation.

 
32

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

FASB ASC 820-10 (formerly, SFAS No. 157) establishes a framework for measuring fair value and expands disclosures about fair value measurements.  The changes to current practice resulting from the application of this standard relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements.  This standard is effective for fiscal years beginning after November 15, 2007; however, it provides a one-year deferral of the effective date for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. The Company adopted this standard for financial assets and financial liabilities and nonfinancial assets and nonfinancial liabilities disclosed or recognized at fair value on a recurring basis (at least annually) as of January 1, 2008.  The Company adopted the standard for non-financial assets and non-financial liabilities on March 1, 2009.  The adoption of this standard in each period did not have a material impact on its financial statements.

FASB ASC 805 (formerly, SFAS No. 141R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired.  This standard also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination.  This standard was adopted by the Company beginning March 1, 2009 and will change the accounting for business combinations on a prospective basis.

FASB ASC 810-10 (formerly, SFAS No. 160) requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements.  The standard establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and expands disclosures in the consolidated financial statements.  This standard is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.  This standard is not currently applicable to the Company.

FASB ASC 815-10 (formerly, SFAS No. 161) is effective for fiscal years beginning after November 15, 2008.  This standard requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance and cash flows.  Among other things, this standard requires disclosures of the fair values of derivative instruments and associated gains and losses in a tabular formant.  This standard is not currently applicable to the Company since the Company does not have derivative instruments or hedging activity.

FASB ASC 350-30 and 275-10 (formerly, FSP FAS 142-3) amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Early adoption is prohibited.  The adoption of this standard did not have any impact on the Company’s financial statements.

FASB ASC 260-10 (formerly, FSP EITF 03-6-1) provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.   This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  The Company does not currently have any share-based awards that would qualify as participating securities.  Therefore, application of this standard is not expected to have an effect on the Company’s financial reporting.


 
33

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

FASB ASC 470-20 (formerly, FSP APB 14-1) will be effective for financial statements issued for fiscal years beginning after December 15, 2008.  The standard includes guidance that convertible debt instruments that may be settled in cash upon conversion should be separated between the liability and equity components, with each component being accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods.  The adoption of this standard did not have any impact on the Company’s financial statements

FASB ASC 815-10 and 815-40 (formerly, EITF No. 07-5) are effective for financial statements for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  The standard addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception for the purpose of determining whether the instrument is classified as an equity instrument or accounted for as a derivative instrument which would be recognized either as an asset or liability and measured at fair value.  The standard shall be applied to outstanding instruments as of the beginning of the fiscal year in which this standard is initially applied.  Any debt discount that was recognized when the conversion option was initially bifurcated from the convertible debt instrument shall continue to be amortized.  The cumulative effect of the change in accounting principles shall be recognized as an adjustment to the opening balance of retained earnings.  The Company adopted this standard as of March 1, 2009, and was not required to reclassify any of its warrants as liabilities.

In April 2009, the FASB issued FASB Staff Position No. 157-4 (FSP FAS 157-4) provides additional guidance for Fair Value Measurements, when the volume and level of activity for the asset or liability has significantly decreased.  This standard is effective for interim and annual reporting periods ending after June 15, 2009.  The adoption of this standard did not have a material effect on its financial statements.

FASB ASC 320-10 (formerly, FSP FAS 115-2 and FSP FAS 124-2) amends the other-than-temporary impairment guidance for debt and equity securities.  This standard is effective for interim and annual reporting periods ending after June 15, 2009.  The adoption of this standard did not have a material effect on its financial statements.

FASB ASC 855-10 (formerly, SFA No. 165) is effective for interim or annual financial periods ending after June 15, 2009 and establishes general standards of accounting and disclosure of events that occur after the balance sheet but before financial statements are issued or are available to be issued.  However, since the Company is a public entity, management is required to evaluate subsequent events through the date that financial statements are issued and disclose the date through which subsequent events have been evaluated, as well as the date the financial statements were issued.  The standard was adopted for its interim period ending August 31, 2009.  Subsequent events have been evaluated through the date the financial statements were issued.

In June 2009, the FASB issued Accounting Standards Update No. 2009-01, The FASB Accounting Standards Codification, which establishes the Codification as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities.  This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption of this standard changes the referencing of financial standards.

In January 2010, FASB issued ASU No. 2010-01, Equity (ASC Topic 505), Accounting for Distributions to Shareholders with Components of Stock and Cash.  The update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of ASC Topic 505 and Topic 260, Earnings Per Share  This standard is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  This standard is not currently applicable to the Company.

 
34

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

As of February 28, 2010, the FASB has issued Accounting Standards Update (ASU) through No. 2010-10.  None of the ASUs have had a material impact on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted
In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820), Improving Disclosures about Fair Value Measurements.  This update provides amendments to ASC Topic 820 that will provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2 and 3.  This standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  This standard is not currently applicable to the Company.

In January 2010, FASB issued ASU No. 2010-05, Compensation - Stock Compensation (ASC Topic 718), Escrowed Share Arrangements and the Presumption of Compensation.  This update codifies Emerging Issues Task Force D-110.  This standard is not currently applicable to the Company.

NOTE 2 – RELATED PARTY TRANSACTIONS

Legal services rendered by Mr. Peter Katevatis amounted to $55,000 and $53,139 for the two years ended February 28, 2010 and February 28, 2009, respectively.  These amounts are recorded in general and administrative expense.  Effective November 2008, Mr. Katevatis’ legal service agreement was amended to $60,000 per year.  On February 3, 2010, Mr. Katevatis resigned from his legal service agreement.

As part of Mr. Katevatis’ prior employment agreement, the Company paid property taxes and certain operating expenses on the home of Mr. Katevatis in lieu of rent, since the Company’s operations were located in Mr. Katevatis’ home through November 2008.  Expenses recognized were $1,823 and $18,463 in 2010 and 2009, respectively, and are recorded in general and administrative expense.  In December 2008, the Company leased an office in Henrietta, New York.

See Note 7 for details regarding the Company’s consulting agreement with one of its principal stockholders and Note 4 for related party loans and accrued liabilities.

NOTE 3 – DEFERRED CHARGES

In fiscal 2010 and 2009, the Company issued 150,000 and 30,000, respectively, of fully vested restricted shares of its common stock at fair market value to different consulting groups in exchange for a variety of services to be rendered, over a period of 12 months for matters such as corporate management, marketing opportunities, product development and research, corporate funding and investor relations.  These costs have been capitalized and will be recognized ratably over the terms of the agreements.

Expected future amortization of deferred charges is as follows:

Years Ending
     
February 28, 2011
  49,167  

 
35

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 4 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:

   
2010
   
2009
 
Legal and professional fees
  301,247     182,826  
Consulting and university fees
    1,397,019       1,440,615  
Salaries and wages
    346,500       2,148,786  
Accrued Interest
    178,479       275,969  
Other
    92,435       92,235  
Totals
  $ 2,315,680     $ 4,140,431  

 
Accrued legal and professional fees include services rendered by Mr. Peter Katevatis.  The amount of the accrual was $65,000 and $46,901 as of February 28, 2010 and February 28, 2009, respectively (Note 2).

Accrued consulting and university fees include costs owed to Dr. Robert R. Alfano, a principal stockholder and former chairman of the Company’s Scientific Advisory Board (Note 7), with respect to his prior consulting agreement, of $1,397,019 as of February 28, 2010 and February 28, 2009.

Accrued expense reimbursements of $92,235 were due to Dr. Alfano at February 28, 2010 and February 28, 2009.  The Company has accrued these costs in conjunction with Dr. Alfano’s prior consulting agreement.

Accrued salaries and wages include amounts due to Mr. Katevatis of $-0- and $2,110,286 as of February 28, 2010 and February 28, 2009, respectively.

Mr. Katevatis agreed to forebear any and all collection action for accrued fees and salary, including forgiveness of interest, in exchange for the option of converting any such accrued salary and fees into the Company’s common stock at $0.25 per share.  The option is unlimited in duration.  If the Company were to receive financing, either may elect to receive all or part of such accrued salary or fees in cash or common stock.  As of February 28, 2009, accrued salary and fees amounted to $2,157,187 for Mr. Katevatis.  As of February 28, 2010, accrued consulting fees and expenses amounted to $1,489,254 for Dr. Alfano.  (See Note 9 - Anti-Dilution Rights).

On March 23, 2009 Mr. Katevatis exercised his option to convert all outstanding salary and fees accrued through November 3, 2008 along with the termination of his employment agreement and anti-dilution rights in exchange for 1,172,510, shares of the Company’s common stock.

Accrued salaries and wages include amounts due to Frank D. Benick, Chief Financial Officer, of $29,000 and $6,000, as of February 28, 2010 and February 28, 2009, respectively.

Accrued salaries and wages include amounts due to Kamal Sarbadhikari, former Chief Executive Officer, of $106,250 and $6,250 as of February 28, 2010 and February 28, 2009, respectfully.

Accrued salaries and wages include amounts due to Jose Mir, current Chief Executive Officer and Chief Technical Officer of $131,250 and $6,250 as of February 28, 2010 and February 28, 2009, respectfully.

Accrued salaries and wages include amounts due to David R. Smith, Chairman of the Board, of $80,000 and $20,000 as of February 28, 2010 and February 28, 2009, respectfully.

Accrued interest includes interest accrued on convertible debt of $141,431 (see Note 5), interest accrued on the preferred stock subscribed of $29,836 (see Note 7) and other debt.

 
36

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 5 – CONVERTIBLE DEBT AND OTHER DEBTS

On January 10, 2007, the Company commenced a Private Placement Offering for $2,000,000 of 12% convertible promissory notes (“the Notes”) in amounts of not less than $25,000.  The Notes shall be due and payable, together with accrued and unpaid interest, on the earlier of April 15, 2008 for the first $1,000,000 tranche and April 15, 2009 for the second $1,000,000 tranche (of which $656,500 had been raised as of February 28, 2009) or three months after the completion of the initial public offering (“the IPO”) of the shares of BioScopix (now SensiVida Medical Technologies, Inc. as a result of the merger of BioScopix into Mediscience Technology Corp. and subsequent name changes of the Company to BioScopix and then SensiVida Medical Technologies, Inc. (SensiVida), after the merger of BioScopix and SensiVida Medical Technologies, Inc. Holders of the Notes may convert the notes into (i) cash in the amount of the principal and accrued and unpaid interest due and a warrant exercisable until April 15, 2009 to purchase shares of BioScopix (now SensiVida) in an amount equal to 50% of the principal of the Notes at an exercise price of 120% of the five day volume weighted average preceding the effective date of the IPO of SensiVida or (ii) shares of SensiVida at a price equal to 50% of the IPO price of the SensiVida shares of common stock in an amount equal to the principal and accrued and unpaid interest due on the Notes.  In accordance with EITF 00-27 (codified in FASB ASC 470.2), under option (ii), the carrying value of the Notes was reduced by the intrinsic value of the beneficial conversion option resulting in a carrying value of $-0-.  On January 29, 2008, the Notes were modified to provide for two additional options.  In addition to options (i) and (ii), holders of the notes may now also convert the notes into (iii) SensiVida stock with a six month lockup in the amount of principal and accrued interest and receive 50% warrant coverage at 75% of the SensiVida stock IPO price and (iv) combination of alternatives (ii) and (iii).  The additional options did not require an adjustment to the value of the Notes.

As of May 31, 2009, the notes have been accreted to their maturity value.  Accretion of discount on convertible debt amounted to $86,036 and $721,434 for the fiscal years 2010 and 2009.

Accrued interest payable on the notes as of February 28, 2010 and 2009 was $141,431 and $275,969, respectively.  Interest expense for the years ended February 28, 2010 and 2009 was $149,399 and $190,751, respectively.

Effective April 15, 2008, the first $1,000,000 tranche of the Notes were in default.  Under the terms of the Notes, in the event of default, the entire principal and unpaid accrued interest is immediately due and payable. The January 29, 2008 modification of the Notes provided two additional options of the Note holders as compensation for the delay of the IPO which was expected to take place prior to April 15, 2009.

Effective April 15, 2009, the second tranche of the Notes in the amount of $656,500 were in default.  Under the terms of the Notes, in the event of default, the entire principal and unpaid accrued interest is immediately due and payable.

On July 31, 2009, certain note holders converted the note and accrued interest thru July 31, 2009 into common stock of the Company at the net price of $.35 per share which represents 50% of the opening market value of the stock on this date.   Principal of $1,205,000 and accrued interest of $249,325 were converted into 4,155,222 shares of the Company’s common stock.

As of May 19, 2010, one convertible note holder demanded repayment of principal of $50,000 with a subsequent demand for accrued interest approximating $17,588.  As of June 1, 2010, both principal and interest had been satisfied.  The remaining notes are in default.

 
37

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 5 – CONVERTIBLE DEBT AND OTHER DEBTS (CONT).

Note Payable
On September 1, 2005, SensiVida Medical Systems, Inc. (SensiVida) issued a $50,000 convertible subordinated note to the order of Excell Partners, Inc. (Holder).  Principal and accrued interest was due and payable in one installment on September 1, 2008, the maturity date.   Interest was accruable at 2% per annum on the unpaid principal amount of the Note.  Upon any default of this Note, the Holder has the right to convert the Note to Common Stock of SensiVida.  The number of shares of Common Stock would be determined by dividing the outstanding principal and accrued interest to the date of conversion by the conversion price or fair market value paid in a most recent Qualified Transaction by SensiVida.  The note was in default upon acquisition (by the Company) and was amended as of December 1, 2009.  Commencing January 1, 2010, interest will accrue on the balance at a rate of 8% compounded annually.  The Note has a maturity date of January 1, 2011.  If the entire unpaid balance of the note is not paid when due, then the amount unpaid shall bear interest at the current rate plus 1% and such rate shall increase by an additional one percent each year until the note is paid in full.  The amount drawn on the note at February 28, 2010 and February 28, 2009 was $49,828 and $-0-, respectively. Interest accrued on the note was $4,286 and $-0- as of February 28, 2010 and 2009, respectively.

 
Loan Payable
On September 1, 2009, the Company borrowed $50,000 from a shareholder.  The loan called for interest at 12% per annum.  The principal and accrued interest was convertible into the company’s common stock at $.66 per share after six months at the discretion of the note holder.  Proceeds of the loan were to be used for the company’s patient allergy clinical trial and related clinical expenses.  As of February 28, 2010, $18,727 of the original loan remains in a restricted cash account for it’s intended use as approved by the lender.  Interest accrued on the note was $2,926 as of February 28, 2010.  Subsequent to year end February 28, 2010, the terms of the loan were modified to provide for an option to convert principal and accrued interest into the preferred stock Series A.  See Note 11 - Subsequent Events.

NOTE 6 - PREFERRED STOCK SUBSCRIBED

Preferred Stock Subscribed
During February 2009, a current shareholder advanced $150,000 plus an additional $100,000 received in March 2009 in exchange for 2,500 of Series A Preferred stock having a par value of $100 (the shares).  Each Series A Preferred share is convertible into 150 shares of common stock for a total of 375,000 shares of common stock together with warrants to purchase up to 50,000 shares of common stock with an exercise price of $1.00.  Because the Company did not have the required authorized Preferred Stock to execute this transaction, the Company has recorded the advances as a liability.

On April 13, 2010, the Company and a current preferred stock subscriber mutually agreed to revised terms on a prior $250,000 unissued preferred stock subscription agreement.  The new terms call for a “ratcheted” conversion to common stock, at a price of $0.35 from $0.66.  In addition, accrued interest of $34,849 as of May 1, 2010, on the $250,000 subscription, the subscription, plus a 10% premium of $28,485 on the principal and accrued interest all totaling $313,334, are available at the option of subscriber to roll over the total into the Company’s current Series A subscription agreement.  Also the $50,000 loan (see Note 5) plus accrued interest of $3,929 as of May 1, 2010 for a total of $53,929, can also be rolled over into the current Series A subscription agreement at the option of the subscriber.  In addition, warrants to purchase 50,000 shares of common stock have been “ratcheted” downward from $0.66666 to $0.35, resulting in a proportional increase in the warrants to purchase 95,237 common shares.

 
38

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 7 – INCOME TAXES

There is no income tax benefit for operating losses for the years ended February 28, 2010 and 2009 due to the following:

Current tax benefit – the operating losses cannot be carried back to earlier years.

Deferred tax benefit – the deferred tax assets were offset by a valuation allowance required by FASB ASC 740 (formerly known as FASB 109), “Accounting for Income Taxes.”  The valuation allowance is necessary because, according to criteria established by this topic, it is more likely than not that the deferred tax asset will not be realized through future taxable income.

The components of the net deferred income tax asset and liability as of February 28, 2010 and February 28, 2009 are as follows:
 
   
2010
   
2009
 
Deferred income tax asset:
           
Net operating loss carryforward
  $ 7,230,294     $ 7,389,208  
Valuation allowance
    7,230,294       7,389,208  
      -       -  
Deferred income tax liability
    -       -  
Totals
  $       $ -  
 
As of February 28, 2010 and 2009, the Company has valuation allowances of $7,230,294 and $7,389,208 respectively, which relate to federal and state net operating loss carryforwards.  The change in the total valuation allowance for the years ended February 28, 2010 and 2009 was a (decrease) and increase of ($158,914) and $294,338, respectively.  There were no temporary differences for the years ended February 28, 2010 and 2009. The Company evaluates a variety of factors in determining the amount of the valuation allowance, including the Company’s earnings history, the number of years the Company’s operating losses can be carried forward, the existence of taxable temporary differences, and near-term earnings expectations.  Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future earnings.  As of February 28, 2010 and 2009, the Company has net operating loss carryforwards of approximately $19,414,000 and $19,796,000, respectively for federal purposes and $10,656,000 and 11,087,000, respectively, for state purposes, which may be used to reduce future income subject to income taxes.

The net operating losses are scheduled to expire in the following years:
 
   
Federal
   
State
 
2011
  $ 1,136,000     $ 850,000  
2012
    1,556,000       2,358,000  
2013
    2,636,000       2,197,000  
2014
    1,128,000       1,399,000  
2015
    -       2,159,000  
2016
    -       1,433,000  
2017
    -       -  
2018
    -       -  
2019 (*)
    808,000       -  
2020 (*)
    943,000       -  
2021 (*)
    298,000       -  
2022 (*)
    316,000       -  
2023 (*)
    182,000       -  
2024 (*)
    790,000       -  
2025 (*)
    2,284,000       -  
2026 (*)
    2,156,000       -  
2027 (*)
    1,388,000       -  
2028 (*)
    2,096,000       -  
2029 (*)
    1,435,000       -  
2030 (*)
    262,000       260,000  
Totals
  19,414,000     10,656,000  

 
39

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 7 – INCOME TAXES (CONT.)

(*)   Under the Taxpayer Relief Act of 1997, the carryforward period of net operating losses arising after May 1, 1998 was extended from 15 to 20 years.

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations.  As of March 1, 2009, the Company had no unrecognized tax benefits, and accordingly, the Company has not recognized any interest or penalties during the year ended February 28, 2010 related to unrecognized tax benefits.  The Company did not accrue for interest or penalties as of February 28, 2010.  The Company does not have an accrual for uncertain tax positions as of February 28, 2010.

The Company files U.S. income tax returns and multiple state income tax returns.  With few exceptions, the U.S. and state income tax returns filed for the tax years ending on February 28, 2007 and thereafter are subject to examination by the relevant taxing authorities.

NOTE 8– COMMITMENTS AND CONTINGENCIES

Dr. Robert R. Alfano
The Company had a consulting agreement (the “Agreement”) through March 2007 with Dr. Robert R. Alfano, a principal stockholder of the Company and prior Chairman of its Scientific Advisory Board.  Pursuant to the terms of the Agreement, Dr. Alfano was paid a consulting fee of not less than $150,000 per annum in exchange for services to be rendered for approximately fifty days per annum in connection with the company’s medical photonics business.  The Agreement further provided that Dr. Alfano was to be paid a bonus and fringe benefits in accordance with policies and formulas provided to key executives of the Company.  The agreement expired on March 5, 2007.

In October 2009, a civil action was entered against the Company by Dr. Robert Alfano, alleging that he is owed $1,487,053 in consulting fees and expenses.  The Company had accrued the consulting fees in conjunction with a consulting agreement (Note 4).  In addition, Dr. Alfano is contesting the termination of his anti-dilution rights and claims the Company owes him 132,000 shares of common stock (Note 9).  The Company does not believe the case has merit and has filed a Motion to Dismiss.  The Company intends to vigorously defend these claims.

In connection with the acquisition of patent rights to its cancer detection technology, the Company assumed an obligation to pay to Dr. Alfano’s daughter a royalty of one percent of the gross sales derived from any equipment made, leased or sold which utilizes the concepts described in the Company’s cancer detection patent.  Since there has been no revenue, no amounts have been paid during the two years ended February 28, 2010 and 2009.

Other Royalties
The Company obtained worldwide licensing rights for patents from Yale University and has agreed to pay royalties based on net sales of all products generated from the patents and fifty percent of any income received from sublicensing of the patents.  The Company has not recorded any revenues since the inception of this agreement and therefore has not recorded or paid any royalties during the two years ended February 28, 2010 and February 28, 2009.

Employment Agreements
Mr. Peter Katevatis, the Chief Executive Officer, Chairman and a stockholder of the Company, had an employment agreement.  The prior agreement was renewed on March 5, 2007 which increased his salary from $200,000 to $250,000 per year. The agreement also provided for a bonus and fringe benefits in accordance with policies and formulas mutually agreed upon by Mr. Katevatis and the Board of Directors.  The contract was due to expire on March 5, 2015.  In November 2008, Mr. Katevatis terminated his employment agreement as Chief Executive Officer and Chairman along with his anti-dilution rights and exercised his option to convert all outstanding salary and fees accrued thru November 2008 in exchange for 1,172,510 shares of the Company’s common stock.

 
40

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 8– COMMITMENTS AND CONTINGENCIES (CONT.)

On November 15, 2005, the Company entered into a two year employment agreement with Frank D. Benick as Chief Financial Officer.  Mr. Benick will be paid a monthly salary of $3,000 per month for the first two months, then increasing to $4,000 per month for the remaining term of the agreement and received an option to purchase 30,000 shares of common stock at $10.00 per share.  This agreement has not been formally updated. Mr. Benick’s employment is continuing under the terms of the expired agreement.

On November 5, 2008, the Company entered into a three (3) year employment contracts with Kamal Sarbadhikari as Chief Executive Officer and Jose Mir as Chief Technical Officer.  Mr. Sarbadhikari and Mr. Mir will each be paid a base salary of $150,000 per annum.  On November 2, 2009, Mr. Kamal Sarbadhikari resigned for health reasons effective December 31, 2009.  Jose Mir has been appointed interim President effective December 31, 2009.

On November 10, 2008, the Company entered into a three (3) year employment contract with David R. Smith as Chairman of the Board.  Mr. Smith will be paid $60,000 per annum.

NOTE 9 – STOCKHOLDERS’ DEFICIT

Reverse Stock Split
The consolidated balance sheets, statements of changes in stockholders’ deficit, and related notes to consolidated financial statements have been adjusted to reflect a 10 for 1 reverse stock split that was effective May 18, 2009.

Preferred Stock
The Company is authorized to issue 5,000 shares of preferred stock, $.01 par value per share, which may be issued from time-to-time in one or more series, the terms of which may be designated by the Board of Directors without further action by stockholders.  Any preferred stock issued will have preferences with respect to dividends, liquidation and other rights, but will not have preemptive rights.

Subsequent to February 28, 2010, the Company amended its Certificate of Incorporation to provide for 10,000,000 shares of Series A convertible preferred stock and 1,000,000 shares of preferred stock with preferences and characteristics to be determined by the board of Directors.  See Note 11 - Subsequent Events.

Common Stock Issued for Services
During November 2008, the Company issued 314,651 restricted shares of its common stock with a value of $220,256 to a group of financial consultants in exchange for professional services and fund raising efforts, as per their agreement.  The transaction was recognized based on the fair market value of the shares issued (the closing price of the Company’s common stock of the date of issuance).

During 2009, the Company issued 46,333 restricted shares of its common stock with a value of $30,620 to a group of consultants in exchange for professional services, as per their agreements.  The transactions were recognized based on the fair market value of the shares issued (the closing price of the Company’s common stock of the date of issuance).

Common Stock Issued for Future Services
During February 2009, the Company issued 30,000 restricted shares of its common stock with a value of $30,000 to a consulting firm in exchange for public and investor relations consulting services to be rendered over a one year period.  The transaction was recognized based on the fair value of shares issued.

 
41

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 9 – STOCKHOLDERS’ DEFICIT (CONT.)

During July 2009, the Company issued 50,000 restricted shares of its common stock with a value of $37,500 to a medical consultant in exchange for professional services, as per agreement.  The transaction was recognized based on the fair market value of the shares issued (the closing price of the company’s common stock of the date of the agreement).

During February 2010, the Company issued 100,000 restricted shares of its common stock with a value of $40,000 to a financial consultant in exchange for professional services.  The transaction was recognized based on the fair market value of the shares issued (the closing price of the Company’s common stock on the date of issuance).

Common Stock Issued in Acquisition of SensiVida Medical Systems, Inc.
On March 3, 2009, the Company (formerly known as Mediscience Technology Corp.) and SensiVida Medical Systems, Inc. completed a merger of the two companies, with Mediscience changing its name to SensiVida Medical Technologies, Inc.  As consideration for the merger, the Company issued 3,333,333 shares of the Company’s common stock, valued at $2,751,000 to the three stockholders of SensiVida Medical Systems, Inc. as consideration for transaction.

Common Stock Issued in Cancellation of Shareholder Debt
In March 2009, the Company issued 1,172,510 shares of its common stock to Mr. Katevatis in settlement of all his accrued fees and salary to include termination of his employment agreement as Chief Executive Officer and Chairman, along with cancellation of his anti-dilution rights.

On July 31, 2009, the company issued 4,155,222 shares of its common stock to certain note holders who converted principal of $1,205,000 and accrued interest of $249,326 into common stock of the company at a net price of $0.35 per share.

Common Stock Subscribed
In August 2009, the Company received $30,000 for 30,000 shares of the Company’s common stock.  As of February 28, 2010, the shares have not yet been issued.

In December 2009, the Company received $110,800 for 221,600 shares of the company’s common stock.  As of February 28, 2010, the shares have not yet been issued.

2003 Consultants Stock Plan
The Board of Directors previously adopted, subject to stockholder approval, a 2003 Consultants Stock Plan (“Consultants Plan”).  The Consultants Plan was subsequently approved by the stockholders on February 17, 2004.  The aggregate number of shares that may be issued under the options shall not exceed 700,000.  No options were issued prior to stockholder approval and no options were outstanding under this plan as of February 28, 2010 and 2009.

1999 Incentive Stock Option Plan
The Board of Directors previously adopted, subject to stockholder approval, a 1999 Incentive Stock Option Plan (the “Plan”) for officers and employees of the Company.  The stockholders subsequently approved the Plan on February 17, 2004.  Accordingly awards issued under the Plan prior to February 17, 2004 were deemed not to be granted until that date.  The aggregate number of shares that may be issued under the options shall not exceed 300,000.

 
42

 

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2010 AND 2009

NOTE 9 – STOCKHOLDERS’ DEFICIT (CONT.)

Stock Options
Activity related to stock options during the two years ended February 28, 2010 and 2009 is as follows:

               
Weighted
 
         
Exercise
   
Avg. Exercise
 
   
Shares
   
Price Range
   
Price
 
Outstanding, February 29, 2008
    70,000     $10.00 - $20.00     $ 15.00  
Granted
    -                  
Exercised
    -                  
Forfeited
    (40,000 )                
Outstanding, February 28, 2009
    30,000       $10.00     $ 10.00  
Granted
    -                  
Exercised
    -                  
Forfeited
    -                  
Outstanding, February 28, 2010
    30,000       $10.00     $ 10.00  

Stock Warrants
Stock warrant activity during the two years ended February 28, 2010 and 2009 was as follows:

   
Shares
         
Weighted
 
   
Currently