SensiVida Medical Technologies, Inc. - FORM 10-Q

Attached files

file	filename
EX-32 - SensiVida Medical Technologies, Inc.	v229210_ex32.htm
EX-31.2 - SensiVida Medical Technologies, Inc.	v229210_ex31-2.htm
EX-31.1 - SensiVida Medical Technologies, Inc.	v229210_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934

For the quarterly period ended May 31, 2011

¨ 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 000-07405

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

(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

150 Lucius Gordon Drive, Ste. 110
West Henrietta, New York	14586
(Address of principal executive offices)	(Zip Code)

(585) 413-9080

(Registrant’s telephone number, including area code)

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 short period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, and 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-c of the Act).

Yes ¨ No x

As of July 20, 2011, there were outstanding 16,088,112 shares of the registrant’s common stock, $.01 par value.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

INDEX

		PAGE

PART 1.	Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheet as of May 31, 2011 (Unaudited) and February 28, 2011 (Audited)	1

	Consolidated Statement of Operations for the Three Months Ended May 31, 2011 (Unaudited) and May 31, 2010 (Unaudited)	2

	Consolidated Statement of Changes in Stockholders’ Deficit for the Three Months Ended May 31, 2011 (Unaudited)	3

	Consolidated Statement of Cash Flows for the Three Months Ended May 31, 2011 (Unaudited) and May 31, 2010 (Unaudited)	4

	Notes to Consolidated Financial Statements	5-12

Item 2.	Management’s Discussion and Analysis	13-14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4T.	Controls and Procedures	15

PART 11.	Other Information	16-17

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Submission of Matters to a Vote of Security Holders	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

	Signatures	17

	Exhibits

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	May 31,			February 28,
	2011			2011
	(Unaudited)			(Audited)

ASSETS

CURRENT ASSETS
Cash	$	10,970		$	2,240
Total Current Assets		10,970			2,240

PROPERTY AND EQUIPMENT
Net of Accumulated Depreciation of $16,605 (May 31, 2011) and $14,690 (February 28, 2011)		10,574			12,489

OTHER ASSETS
Intellectual Property - Net of Accumulated Amortization of $421,283 (May 31, 2011) and $374,474 (February 28, 2011)		2,387,281			2,434,090
Other Assets		7,760			7,760
Total Other Assets		2,395,041			2,441,850

TOTAL ASSETS	$	2,416,585		$	2,456,579

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Convertible Debt	$	401,500		$	401,500
Accounts Payable		433,639			380,298
Other Loans Payable		94,828			49,828
Officer Loan Payable		18,524			5,524
Accrued Liabilities		2,917,179			2,704,431
Total Current Liabilities		3,865,670			3,541,581

STOCKHOLDERS' (DEFICIT)
Preferred Stock, $.01 Par Value, 11,000,000 Shares Authorized; Issued and Outstanding 2,021,728 Shares May 31, 2011 and February 28, 2011		20,217			20,217
Common Stock $.01 Par Value, Authorized 89,000,000 Shares; Issued and Outstanding Shares - 16,088,112 Shares May 31, 2011 and February 28, 2011		160,881			160,881
Common Stock Subscribed		140,800			140,800
Additonal Paid-in Capital		35,958,067			35,947,558
Accumulated Deficit		(37,729,050	)		(37,354,458	)
Total Stockholders' (Deficit)		(1,449,085	)		(1,085,002	)
TOTAL LIABILITIES & STOCKHOLDERS' (DEFICIT)	$	2,416,585		$	2,456,579

See Notes to Consolidated Financial Statements.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MAY 31, 2011 AND 2010

(UNAUDITED)

	THREE MONTHS
	2011			2010
Net Sales	$	-		$	-
Cost of Sales		-			-
Gross Profit		-			-
General and Administrative Expense		290,366			231,972
Research and Development Expense		9,811			67,843
Total Expenses		300,177			299,815
Other Income		2			17
Interest Expense		(74,417	)		(42,466	)
Total Other Income and Expense		(74,415	)		(42,449	)
Loss Before Taxes		(374,592	)		(342,264	)
Provision for Income Taxes		-			-
Net Loss	$	(374,592	)	$	(342,264	)
Basic and Diluted Loss Per Common Share	$	(0.023	)	$	(0.021	)
Weighted Average Common Shares Outstanding		16,088,112			15,994,063

See Notes to Consolidated Financial Statements.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT)

FOR THE THREE MONTHS ENDED MAY 31, 2011

	Series A Convertible
	Preferred Stock				Common Stock
	Number of Shares		Amount		Number of Shares		Amount		Additional Paid- In Capital		Common Stock Subscribed		Accumulated Deficit
BALANCE, FEBRUARY 28, 2011 (Audited)		2,021,728	$	20,217		16,088,112	$	160,881	$	35,947,558	$	140,800	$	(37,354,458	)
Fair Value of Employee Stock Option Grants		-		-		-		-		10,509		-
Net Loss		-		-		-		-		-		-		(374,592	)
BALANCE, MAY 31, 2011 (Unaudited)		2,021,728	$	20,217		16,088,112	$	160,881	$	35,958,067	$	140,800	$	(37,729,050	)

See Notes to Consolidated Financial Statements.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MAY 31, 2011 AND 2010

(UNAUDITED)

	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(374,592	)	$	(342,264	)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities:
Fair Value of Employee Stock Option Grants		10,509			-
Common Stock Issued for Services		-			9,100
Depreciation and Amortization		48,724			46,874
Amortization of Deferred Costs		-			19,375
Subtotal		(315,359	)		(266,915	)
Changes in Assets and Liabilities, Net of Acquisition
Decrease in Prepaid Expenses and Other Assets		-			1,953
Increase (Decrease) in Accounts Payable		53,341			(124,612	)
Increase in Accrued Liabilities		212,748			81,216
Net Cash Used in Operating Activities		(49,270	)		(308,358	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment		-			(1,296	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Officer Loan		13,000			-
Redemption of Convertible Debt		-			(50,000	)
Proceeds from Other Loans Payable		45,000			-
Net Proceeds from Issuance of Series A Preferred Stock		-			1,055,851
Net Cash Provided by Financing Activities		58,000			1,005,851
INCREASE IN CASH		8,730			696,197
CASH
Beginning Balance		2,240			12,002
Ending Balance	$	10,970		$	708,199
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Preferred Stock Issued in Cancellation of Preferred Stock Subscription	$	-		$	250,000
Preferred Stock Issued in Cancellation of Other Loans Payable	$	-		$	50,000
Preferred Stock Issued in Cancellation of Accrued Liabilities	$	-		$	38,778

See Notes to Consolidated Financial Statements.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

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. (“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. All wholly-owned subsidiaries are currently inactive.

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., 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.

The consolidated financial statements as of and for the three month periods ended May 31, 2011 and 2010 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included and have been prepared on a consistent basis using the accounting policies described in the Summary of Accounting Policies included in the Annual Report of Form 10-K for the fiscal year ended February 28, 2011. The interim operating results for the three months ended May 31, 2011 may not necessarily be indicative of the operating results expected for the full year.

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 continues to seek to enter into an agreement with a consulting firm to be an advisor and explore options for the Company to commercialize its technology, 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.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

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

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation is computed using the straight-line method over an estimated useful life of five years for equipment and the shorter of the lease term or fifteen years for leasehold improvements. Depreciation expense was $1,915 and $65 for the three months ended May 31, 2011 and 2010, respectively.

Intellectual Property

Intellectual property consists of technology with patents pending approval that was included in the acquisition of SensiVida Medical Systems, Inc. and is stated at cost. Amortization is computed using the straight-line method over an estimated useful life of fifteen years. Amortization expense was $46,809 and $46,809 for the three months ended May 31, 2011 and 2010, respectively.

Income Taxes

The Company accounts for income taxes under Financial Accounting Standard Board (FASB) Accounting Standards Codification (ASC) 740 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 $9,811 and $67,843 for the three months ended May 31, 2011 and 2010, respectively.

Loss per Common Share

In accordance with FASB ASC 260, 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 the quarters ended May 31, 2011 and 2010, 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

FASB ASC 718, Share-Based Payment 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, this topic 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 three months ended May 31, 2011 and 2010.

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 2010 financial statements have been reclassified to conform to the 2011 financial statement presentation.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

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

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2010, FASB issued ASU No. 2010-29, Business Combination (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company will adopt the disclosure requirements for any business combinations after March 1, 2011.

As of May 31, 2011, the FASB has issued Accounting Standards Updates (ASU) through No. 2011-04. None of the ASUs have had an impact on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of May 31, 2011, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

NOTE 2 – RELATED PARTY TRANSACTIONS

See Notes 7 and 8 for details regarding the Company’s consulting agreement with one of its principal stockholders and Notes 4 and 5 for related party loans and accrued liabilities.

NOTE 3 – CONVERTIBLE DEBT

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 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.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

NOTE 3 – CONVERTIBLE DEBT (CONT’D).

Accrued interest payable on the notes as of May 31, 2011 and February 28, 2011 was $185,575 and $173,499, respectively. Interest expense on the notes for the three months ended May 31, 2011 and 2010 was $12,076 and $13,620, 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 through 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.

NOTE 4 – OTHER LOANS PAYABLE AND OFFICER LOAN 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 May 31, 2011 and February 28, 2011 was $49,828. Interest accrued on the note was $9,476 and $8,272 as of May 31, 2011 and February 28, 2011, respectively.

On March 2, 2011, the Company borrowed $25,000 from an individual. The loan calls for interest at 8% per annum. The note has a maturity date of May 2, 2011 and is currently in default. On June 17, 2011, a payment of $5,000 was made to the individual.

On April 22, 2011, the Company entered into a convertible note agreement to borrow $60,000 from a shareholder. The note calls for interest at 12% per annum, and the note has a maturity date of April 22, 2013. The Company is able to draw on the note $10,000 every two weeks up to the principal amount but any additional principal amount over the first $10,000 loaned to the Company is at the discretion of the note holder. The note holder has an option to convert the note into common stock equal to the outstanding principal and accrued interest. The conversion price per share is $0.35. Simultaneously with the execution of the note, the Company issued a warrant exercisable for five years at an exercise price of $0.20 per share to purchase the number of shares of common stock equal to 100% of the principal amount of the note.

On May 10, 2011, an officer of the Company advanced $13,000 to the Company resulting in a total balance due to the officer approximating $18,500. The loan has no interest rate or repayment terms.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

NOTE 5 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:

	May 31, 2011		February 28, 2011
Legal and professional fees	$	233,247	$	225,747
Consulting fees and expenses		1,500,086		1,489,254
Salaries and wages		682,916		562,917
Accrued Interest		459,730		385,313
Other		41,200		41,200
Totals	$	2,917,179	$	2,704,431

Accrued legal and professional fees include services rendered by Mr. Peter Katevatis, former CEO of the Company. The amount of the accrual was $2,500 as of May 31, 2011 and February 28, 2011, respectively.

Accrued consulting fees and expenses include costs owed to Dr. Robert R. Alfano, a principal stockholder and former chairman of the Company’s Scientific Advisory Board , with respect to his prior consulting agreement, of $1,489,254 as of May 31, 2011 and February 28, 2011, which fees and expenses the Company is contesting in litigation between Dr. Alfano and the Company.

Dr. Alfano had previously 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 $2.50 per share. The option was unlimited in duration. If the Company were to receive financing, he may elect to receive all or part of such accrued salary or fees in cash or common stock.

Accrued salaries and wages consist of the following:

	May 31, 2011		February 28, 2011
Jose Mir, President	$	287,500	$	250,000
David R. Smith, Chairman of the Board		127,000		115,000
Margaret Lydon, Chief Operating Officer		83,333		52,083
John Spoonhower, Chief Technical Officer		83,333		52,083
Frank D. Benick, Chief Financial Officer		35,500		27,500
Kamal Sarbadhikari, Former Chief Executive Office		66,250		66,250
Totals	$	682,916	$	562,916

NOTE 5 – ACCRUED LIABILITIES (CONT’D).

Accrued interest consists of the following:

	May 31, 2011		February 28, 2011
Convertible Debt	$	185,575	$	173,499
Series A Preferred Stock		264,030		203,542
Other Debt		10,125		8,272
Totals	$	459,730	$	385,313

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

NOTE 6 – INCOME TAXES

There is no income tax benefit for the losses for the three months ended May 31, 2011 and 2010 because the Company has determined that the realization of the net deferred tax asset is not assured. The company has created a valuation allowance for the entire amount of such. There was no change in unrecognized tax benefits during the period ended May 31, 2011 and there was no accrual for uncertain tax positions as of May 31, 2011.

NOTE 7 – 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, Dr. Alfano filed a civil action against the Company, alleging that he was owed $1,487,053 in consulting fees and expenses. The Company had accrued the consulting fees in conjunction with the consulting agreement (Note 6). In addition, Dr. Alfano contested the termination of his anti-dilution rights and claimed that the Company owed him 132,000 shares of common stock (Note 10). The Company does not believe the case has merit and has filed an Answer and Counterclaim. The Company intends to vigorously defend against 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 three months ended May 31, 2011 and 2010.

Employment Agreements

On November 15, 2005, the Company entered into a two year employment agreement with Frank D. Benick as Chief Financial Officer. Mr. Benick was paid a monthly salary of $3,000 per month for the first two months and then $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 three year employment contracts with Kamal Sarbadhikari as Chief Executive Officer and Jose Mir as Chief Technical Officer. Under the terms of those employment agreements, Mr. Sarbadhikari and Mr. Mir are each 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 year employment contract with David R. Smith as Chairman of the Board. Under the terms of the employment agreement, Mr. Smith is to be paid $60,000 per annum.

On August 15, 2010, the Company entered into three year employment contracts with Margaret Lydon as Chief Operating Officer and John P. Spoonhower as Chief Technology Officer. Under the terms of their employment contracts, Ms. Lydon and Mr. Spoonhower are to be paid a base salary of $125,000 per annum. Both Ms. Lydon and Mr. Spoonhower were each granted 400,000 options, for a total of 800,000 options, to acquire 400,000 shares each, of the Company’s common stock over a three year vesting period with an exercise price of $0.36 per share. The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 28.6%, based on comparable companies in similar industries, risk free interest rate of 2.68% and expected option life of three years. The total estimated employer cost associated with these options approximates $126,100, which is being amortized over the life of the employment agreements. In the interim vesting period, the Company’s 1999 stock incentive plan will require revision as the plan previously had a limitation on the aggregate number of shares it may issue.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

NOTE 7 – COMMITMENTS AND CONTINGENCIES (CONT’D).

Lease Agreements

The Company entered into a renewal lease agreement for office space in West Henrietta, NY. The term of the lease runs from July 2010 to June 2011. Base rent and expenses total $1,819 per month. The Company also entered into a lease agreement for laboratory space in Rochester, NY. The term of the lease runs from October 2010 to September 2011. The rental is $1,053 per month.

NOTE 8 – STOCKHOLDERS’ DEFICIT

On March 1, 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.

Series A Convertible Preferred Stock Offering

During March 2010, 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 $.035 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. As of May 31, 2011, 2,021,728 shares of preferred stock were sold. 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 at $1.00 per share. As of May 31, 2011, 2,888,182 warrants were granted.

Common Stock

On March 1, 2010, the Company amended its Certificate of Incorporation to provide for 89,000,000 authorized shares of common stock, $.01 par value.

Common Stock Issued for Services

During March 2010, the Company issued 17,500 restricted shares of its common stock with a value of $9,100 to two consultants in exchange for professional services, as per their agreements. The transactions were recognized based on the fair market value of the services rendered.

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, 2011, the shares have not yet been issued. The Company anticipates the shares to be issued in July 2011.

In December 2009, the Company received $110,800 for 221,600 shares of the company’s common stock. As of February 28, 2011, the shares have not yet been issued. The Company anticipates the shares to be issued in July 2011.

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 May 31, 2011 and 2010.

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.

SENSIVIDA MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2011

NOTE 8 – STOCKHOLDERS’ DEFICIT (CONT’D).

Stock Options

Activity related to stock options during the three months ended May 31, 2011 is as follows:

					Weighted
			Exercise		Avg. Exercise
	Shares		Price Range		Price
Outstanding, February 28, 2011		800,000	$	0.36	$	0.36
Granted		-
Exercised		-
Forfeited/Expired		-
Outstanding, May 31, 2011		800,000	$	0.36	$	0.36

Weighted average remaining life of options approximates 2.21 years at May 31, 2011.

As of May 31, 2011, there were no exercisable stock options. 200,000 options shall vest and become exercisable on August 14, 2011, 200,000 on August 14, 2012 and 400,000 on August 14, 2013.

Stock Warrants

Stock warrant activity during the three months ended May 31, 2011 was as follows:

	Shares					Weighted
	Currently			Exercise		Avg. Exercise
	Exercisable			Price Range		Price
Outstanding, February 28, 2011		3,391,415		$	0.60 - $2.50	$	1.08
Granted		300,000		$	0.20
Exercised		-			-
Forfeited/Expired		(66,666	)		2.50
Outstanding, May 31, 2011		3,624,749		$	0.20 - $2.50	$	0.98

Weighted average remaining life of warrants approximates 1.93 years at May 31, 2011.

Anti-Dilution Rights

The Company and Dr. Robert Alfano had an anti-dilution rights agreement which provided that Dr. Alfano’s ownership interest would at all times represent 4% of the issued and outstanding shares of the Company. The anti-dilution rights were exercisable at Dr. Alfano’s sole discretion. As of February 28, 2007, the Company was obligated to issue an additional 1,400 shares to Dr. Alfano in connection with the anti-dilution rights. As a result of the completion of Dr. Alfano’s consulting agreement as of March 5, 2007, the anti-dilution rights terminated. Subsequent to March 5, 2007, Dr. Alfano was issued 6,400 shares of the Company’s common stock in connection with the anti-dilution rights of which 5,000 shares were issued in error. The Company has placed a stop order and requested the 5,000 shares be returned by Dr. Alfano for cancellation. Dr. Alfano’s anti-dilution rights are currently in the process of litigation along with amounts owed to him for consulting and related expenses.

NOTE 9 – RETIREMENT PLAN

During July 2010, the Company adopted a 401-K plan for its employees. As of May 31, 2011, the Company has not recognized any employer retirement costs associated with the plan.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation

Results of Operations

Three Months Ending May 31, 2011 Compared to

Three Months Ending May 31, 2010

Revenues

We had no revenues during the three months ending May 31, 2011 and May 31, 2010. Previously, our primary focus was our continued development of our light-based technology. 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 $58,000, or 25%, during the current three month period ended May 31, 2011 as compared to the three month period ended May 31, 2010. The increase was the net of increases and decreases in major expense components. Accrued salaries, wages and related expenses approximating $137,500 for the quarter ended May 31, 2011 increased approximately $72,000 from the prior year period, primarily as a result of the hiring of Ms. Margaret Lydon as Chief Operating Officer and Mr. John P. Spoonhower as Chief Technology Officer with accrued salaries to date approximating $62,000 plus stock option costs of approximately $10,000.

In addition, professional fees increased approximately $18,000 during the current three month period when compared to the prior year three month period ending May 31, 2010. The increase is associated with the increase of professional activities with management as it continues to seek financing to support ongoing activities.

As an offset to the increase in general and administrative expenses for the three months ended May 31, 2011, consulting and marketing costs decreased approximately $40,000 during the current period ended. The decrease is associated with the decline in resources to fund ongoing consulting and marketing activities.

Other increases in general and administrative expenses for the three months ended May 31, 2011 as compared to the three months ended May 31, 2010 were occupancy costs of $5,000, telephone of $2,000, depreciation of $2,000 and printing of $2,000. All other general and administrative expenses netted to a decrease of approximately $2,000 when compared to the prior year period.

Product Development Expense

Product development expense decreased approximately $58,000, or 86%, during the current three month period ended May 31, 2011 when compared to the prior three month period ended May 31, 2010. The decrease is directly related to the lack of funding to continue allergy test product development that was being conducted in Rochester, NY, by the Company and its consultants.

Liquidity and Capital Resources

We had a deficiency in working capital as of May 31, 2011 of approximately $3,855,000 compared to a deficiency of approximately $3,539,000 at February 28, 2011 representing an increase in the deficiency of approximately $316,000 for the current three month period ended May 31, 2011. The increase in the deficiency consisted of an increase of approximately $8,000 in cash offset by an increase of approximately $324,000 in current liabilities. The principal reason for the increase in cash during the three months ended May 31, 2011 was the Company borrowed $58,000 from various individuals to fund ongoing operations, as the Company continues to seek financing to fund its allergy research and maintain general operations.

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 and the engagement of an FDA/regulatory consultant. 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 for the next 12 months from financings 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.

Critical Accounting Policies

The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported herein. The most significant of these involve the use of estimates. In each situation, management is required to make estimates about the effects of matters or future events that are inherently uncertain.

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and, as such, include amounts based on informed estimates and judgments of management, such as:

Determining accruals and contingencies;

Valuing options and other equity instruments;

Reviewing the realization/recoverability of deferred costs resulting from the issuance of common stock to acquire certain consulting services to be rendered in future periods.

Deferred tax valuation allowance.

Measurement of effects on business combinations.

The Company used what it believes are reasonable assumptions where applicable, established valuation techniques in making its estimates. Actual results could differ from those estimates.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4T.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Office and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of May 31, 2011, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of May 31, 2011, the end of the period covered by this report are not effective due to the existence of material weaknesses in our internal control over financial reporting, discussed below.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our system of internal control over financial reporting includes those policies and procedures that: pertain to the maintenance of records that, in reasonable detail,

i. We do not have an independent board of directors or audit committee to oversee our internal control over financial reporting.

ii. We have a limited number of personnel and as a result, there is limited segregation of duties amongst the Company's employees with respect to preparation and review of the Company's financial statements.

iii. We have limited ability to account for complex equity transactions, such that our controls relating to disclosure and related assertions in the financial statements in the area of non-routine transactions were not adequate.

iv. We have informal policies and procedures and we lack a formal budgeting process.

These material weaknesses may affect management's ability to effectively review and analyze elements of the financial statement closing process and prepare financial statements in accordance with generally accepted accounting principles.

Changes in Internal Control Over Financial Reporting

During the last fiscal quarter, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

In October 2009, a civil action was entered against the Company by Dr. Robert Alfano, alleging that he is owed approximately $1,490,000 in consulting fees and expenses. The Company had accrued the consulting fees in conjunction with a consulting agreement. 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. The Company does not believe the case has merit and has filed a motion to dismiss. The Company intends to vigorously contest these claims.

Item 1A.

Risk Factors

Not Applicable

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3.

Defaults Upon Senior Securities

Effective April 15, 2008, the first $1,000,000 tranche of the Company’s 12% convertible promissory notes (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 to the Note holders as compensation for the delay of the secondary offering which is expected to take place prior to April 15, 2009. As of July 15, 2009, there have been no demands for repayment by the Note holders.

Effective April 15, 2009, the second tranche of the Notes in the amount of $656,500 were also 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. As of May 19, 2010, one convertible note holder demanded repayment of principal of $50,000 with a subsequent demand for accrual interest approximating $17,588. As of June 1, 2010, both principal and interest had been satisfied. The remaining notes are in default.

Item 4.

Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5.

Other Information

Not Applicable

Item 6.

Exhibits

31.1	Certification of the President required by Rule 13a-14(a) or Rule 15d-14(a)

31.2	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

32	Certification of the President and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SENSIVIDA MEDICAL TECHNOLOGIES, INC.
	(Registrant)

July 20, 2011	/s/ Jose Mir

	Jose Mir
	President


July 20, 2011	/s/ Frank D. Benick

	Frank D. Benick, CPA
	Chief Financial Officer
	Principal Financial and Accounting Officer

SensiVida Medical Technologies, Inc. - FORM 10-Q - July 20, 2011

Attached files

SensiVida Medical Technologies, Inc. Reports