Vicor Technologies, Inc. - FORM 10-K/A

Attached files

file	filename
EX-23.1 - EX-23.1 - Vicor Technologies, Inc.	y03966exv23w1.htm
EX-32.2 - EX-32.2 - Vicor Technologies, Inc.	y03966exv32w2.htm
EX-31.2 - EX-31.2 - Vicor Technologies, Inc.	y03966exv31w2.htm
EX-31.1 - EX-31.1 - Vicor Technologies, Inc.	y03966exv31w1.htm
EX-32.1 - EX-32.1 - Vicor Technologies, Inc.	y03966exv32w1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

Amendment No. 1

(Mark One)


þ		ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009


o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-51475

Vicor Technologies, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		20-2903491
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2300 NW Corporate Boulevard Suite 123 Boca Raton, FL 33431		33431
(Address of principal executive offices)		(zip code)

Registrant’s telephone number, including area code:
(561) 995-7313

Securities registered under Section 12(b) of the Exchange Act:
None.

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.0001 par value per share
(Title of Class)

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 þ No o

Indicate by check mark whether the registrant has electronically submitted 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 o No o

Indicate by checkmark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B (Sec.229.405 of this chapter) contained herein, and no disclosure will 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-KSB. o

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. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
	(Do not check if a smaller reporting company)

Check whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The Registrant had no revenue for the year ended December 31, 2009.

The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $27,910,731 as of February 28, 2009 based on the closing price ($.71) of the Company’s common stock on the Over-the-Counter Bulletin Board on said date. For purposes of the foregoing computation, all executive officers, directors and 10% beneficial owners of the Registrant are deemed to be affiliates.

As of February 28, 2010, there were 42,802,863 issued and outstanding shares of the Registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

None

Transitional Small Business Disclosure Format (check one): Yes o No þ

EXPLANATORY NOTE

We originally filed our Annual Report on Form 10-K for the year ended December 31, 2009 (the “Original 10-K”) with the Securities and Exchange Commission (“SEC”) on March 31, 2010 (the “Original Filing Date”). The purpose of this Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) is to revise certain information contained in the discussion and analysis of our financial condition and results of operations (“MD&A”) and to revise our consolidated financial statements for the fiscal year ended December 31, 2009 (“fiscal 2009”) to reclassify certain amounts in the consolidated statements of operations and cash flows and to expand certain footnote disclosures, which are included in our Original 10-K. Management and the Audit Committee of our Board of Directors concluded that the discussion of MD&A, the Company’s financial statements for fiscal 2009 and certain related matters (the “Revisions”) should be revised due certain review comments made by the Staff of the SEC.

This Form 10-K/A only amends and restates Items 7, 8, and 9A of Part II and Item 15 of Part IV of our Original 10-K, in each case, solely as a result of, and to reflect, the Revisions, and no other information in our Original 10-K is amended hereby. Except for the amended or restated information contained herein, this Form 10-K/A continues to speak as of the Original Filing Date (unless explicitly identified as of another date). Other events or circumstances occurring after the Original Filing Date or other disclosures necessary to reflect subsequent events have not been updated subsequent to the date of the Original 10-K. Accordingly, this Form 10-K/A should be read in conjunction with our periodic filings, including any amendments to those filings, as well as any Current Reports on Form 8-K filed with the SEC, subsequent to the Original Filing Date of our Original 10-K.

In addition to this Amendment No. 1 to our Form 10-K, we are simultaneously filing amendments to our Form 10-Q for the quarterly period ended March 31, 2010 and to our Form 10-Q for the quarterly period ended June 30, 2010.

TABLE OF CONTENTS


	Page No.
PART II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		4

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		8

ITEM 9A — CONTROLS AND PROCEDURES		8

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES		9

SIGNATURES		12

PART II

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated financial statements and related notes contained in Item 7 of this Annual Report Form 10-K/A. This Form 10-K/A, including the following discussion, contains trend analysis and other forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Form 10-K/A that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on a number of assumptions and involve risks and uncertainties. Actual results may differ materially from those set forth in such forward-looking statements as a result of factors set forth elsewhere in the Original 10-K, including under “Risk Factors.”

Overview

The following MD&A or Plan of Operations includes the following sections:

	•		Plan of Operations

	•		Critical Accounting Policies

	•		Results of Operations

	•		Liquidity and Capital Resources

	•		Going Concern

	•		Off Balance Sheet Arrangements

Plan of Operations

As a development-stage enterprise, the Company had no significant operating revenues through December 31, 2009. Operating revenues commenced in January 2010 with direct sales to physicians and the signing of a distribution agreement in North Carolina and South Carolina. Revenues will be predominately the result of product sales, fees for tests performed and licensing fees.

At December 31, 2009 our cash balance was $544,000. During 2009 we received $128,000 from the sale of our common stock, $351,000 from the sale of our Series B Convertible Preferred Stock (“Series B preferred stock”), $2,671,000 from the sale of 8% Convertible Promissory Notes (“8% Notes”) and $903,000 from the sale of 8% Subordinated Convertible Notes (“8% Subordinated Notes”). In the first three months of 2010, we received $970,000 from the sale of the 8% Subordinated Notes.

Our Series B preferred stock yields cumulative annual dividends at an annual rate of 8%. Dividends on the Series B preferred stock accrue from their issuance date. Each share of Series B preferred stock is convertible at the option of the holder into shares of our common stock at an initial conversion price equal to $0.80 per share prior to a Qualified Financing plus the amount of all accrued and unpaid dividends on such shares, whether or not declared. A Qualified Financing is defined as the closing of a sale of debt or equity in a registered offering or pursuant to a private placement resulting in at least $3 million of gross proceeds to the Company. The conversion price of the Series B preferred stock is subject to adjustment in certain cases, including dilutive issuances and the issuance of additional shares of common stock. The Series B preferred stock will automatically be converted into shares of common stock upon the consummation of a Liquidation Event. A Liquidation Event is defined as a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Company may, at its option, require all holders of Series B preferred stock then outstanding to convert their shares of Series B preferred stock into shares of common stock at any time on or after the closing of a Qualified Financing. Once the shares of Series B preferred stock are converted into shares of common stock upon a Qualified Financing, there will be no further accruals by the Company for annual dividends.

The 8% Notes accrue interest at the rate of 8% per annum. The 8% Notes are due two years from the date of issue and are convertible into common stock at the option of the holder at any time prior to maturity. The conversion price is equal to the lesser of (i) 75% multiplied by the Market Price, which is defined as the average of the lowest three trading prices for the common stock during the ten trading day period ending one trading day prior to the date the conversion notice is sent by the noteholder to the Company, and

(ii) $1.07 per share. As of December 31, 2009, approximately $1.57 million of the 8% Notes had been converted into 2,513,950 shares of our common stock and as of May 31, 2010 all of the 8% Notes had been converted into 6,585,302 shares of our common stock.

The 8% Subordinated Notes accrue interest at the rate of 8% per annum. The 8% Subordinated Notes are due on October 7, 2012 and are subordinated to the 8% Notes. The 8% Subordinated Notes are subject to mandatory conversion into shares of our common stock at a conversion price equal to the lesser of $.80 per share or 80% of the price per share of common stock sold in a Qualified Funding Event. A Qualified Funding Event is defined as the sale of debt or equity in a registered offering or private placement, which sale results in at least $3 million of gross proceeds to the Company. Until the 8% Notes have been converted by the holders or have been repaid, the holders of the 8% Subordinated Notes have no voluntary conversion rights. Since all the 8% Notes have been converted into shares of our common stock as of May 31, 2010, the holders may voluntarily convert the 8% Subordinated Notes into shares of our common stock at $0.80 per share. Once the 8% Subordinated Notes are converted into shares of common stock upon a Qualified Funding Event, this will eliminate the indebtedness represented by the 8% Subordinated Notes and result in there being no further accruals by the Company for annual interest.

Our plan of operations consists of:

	1.		Increasing sales of the PD2i Analyzer™ to physicians and health care facilities in the United States through the use of independent sales agents and direct sales personnel.

	2.		Raising additional capital with which to expand the sales and administrative infrastructure and fund ongoing operations until our operations generate positive cash flow.

	3.		Completing various clinical trials and 510(k) submission(s) to secure additional marketing claims for the PD2i Analyzer™ to enhance and accelerate marketing efforts.

	4.		Initiating international sales of the PD2i Analyzer^(™) and PD2i-VS^(™) (Vital Sign), including securing CE Mark Clearance, if required.

However, we cannot assure that we will be successful in raising additional capital to implement our business plan. Further, we cannot assure, assuming that we raise additional funds, that we will achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability and positive cash flow, our operating business, financial condition, cash flows and results of operations may be materially and adversely affected.

Critical Accounting Policies and Estimates

The following are deemed to be the most significant accounting policies affecting the Company and our results of operations:

Research and Development Costs

Research and development costs are comprised of costs incurred in performing research and development activities, including wages and associated employee benefits, facilities and overhead costs and payments to collaborative research partners. All such expenditures and costs are expensed as incurred.

Intellectual Property

Intellectual property consists of patents and other proprietary technology, is stated at cost and is amortized on a straight-line basis over the economic estimated useful lives of the assets. Costs and expenses incurred in creating intellectual property are expensed as incurred. The cost of purchased intellectual property is capitalized. Software development costs are expensed as incurred.

Revenue Recognition

Operating revenues commenced in January 2010 and are predominately the result of equipment sales and fees related to the analysis of test results for tests performed. Revenues are recognized at the time of product shipment or upon the performance of tests. The Company also plans on generating revenues from licensing fees which will be recognized in accordance with the contract terms.

Gain on Derivative Financial Instruments

On January 1, 2009 we adopted ASC Topic 820, “Fair Value Measurements and Disclosures”. During 2009 we reported a gain on derivative financial instruments of $2,157,000 that resulted from holders of securities containing embedded derivative features and converting them into our common stock, and from our measuring the periodic changes in the fair value of these derivative financial instruments, during the year.

Accounting for Stock-Based Compensation

We have recorded equity-based compensation expense for employees and nonemployees in accordance with the fair-value provisions of ASC 718, principally the result of granting stock options and warrants to employees with an exercise price below the fair value of the shares on the date of grant.

Equity Based Compensation

The Company grants stock purchase warrants to independent consultants, contractors and note holders and values these warrants using the fair-value provisions of ASC 718.

Results of Operations

The following table sets forth expenses and percentages of total expenses represented by certain items reflected in the Company’s consolidated statements of operations for each of the years ended December 31, 2008 and 2009 and Inception to December 31, 2009


	Years Ended December 31,
											Period from
											August 4,
											2000
											(Inception)
											to December
	2008					2009					31, 2009
Revenues	$	—		0.0	%	$	—		0.0	%	$	844,000		-1.7	%


Operating expenses:
Research and development		993,000		14.8	%		964,000		13.2	%		15,027,000		28.0	%
Selling, general and administrative expenses		2,433,000		36.2	%		3,664,000		50.0	%		28,771,000		53.8	%
Depreciation and amortization		41,000		0.6	%		41,000		0.6	%		323,000		0.6	%
Interest expense		2,161,000		32.1	%		2,485,000		33.9	%		8,128,000		15.2	%
Loss on extinguishment of debt		1,099,000		16.3	%		167,000		2.3	%		1,266,000		2.4	%

Total operating expenses		6,727,000		100.0	%		7,321,000		100.0	%		53,515,000		100.0	%

Gain on derivative financial instruments		—		0.0	%		2,157,000		29.5	%		2,157,000		4.0	%

Net loss		(6,727,000	)	-100.0	%		(5,164,000	)	-70.5	%		(50,514,000	)	-94.3	%

Cumulative effect of change in accounting principle		—		0.0	%		—		0.0	%		480,000		0.9	%
Dividends for the benefit of preferred stockholders:
Payable on Series A and Series B preferred stock		(246,000	)	-3.7	%		(479,000	)	-6.5	%		(913,000	)	-1.7	%
Amortization of derivative discount on Series B preferred stock		—		0.0	%		(979,000	)	-13.4	%		(979,000	)	-1.8	%
Value of warrants issued in connection with sales of Series B preferred stock		(1,536,000	)	-22.8	%		—		0.0	%		(1,536,000	)	-2.9	%

Total dividends for the benefit of preferred stockholders		(1,782,000	)	-26.5	%		(1,458,000	)	-19.9	%		(3,428,000	)	-6.4	%

Net loss applicable to common stock	$	(8,509,000	)	-126.5	%	$	(6,622,000	)	-90.4	%	$	(53,462,000	)	-99.8	%

Year Ending December 31, 2009 Compared to December 31, 2008

Research and Development

For the year ended December 31, 2009, research and development costs were $964,000, or 13.2% of total expenses, compared to $993,000, or 14.8% of total expenses, for the year ended December 31, 2008. The decrease in expenses was primarily attributable to a

decrease in the VITAL Trial costs due to its suspension and commencement of a collaboration with the University of Rochester for data analysis of the MUSIC Trial data for SCD, a less costly process.

We anticipate that research and development costs will continue in the future, but at levels more closely approximating those of 2009. As our products become commercially available in the marketplace, we expect more collaborative research efforts from third parties to take place, reducing the extent to which Vicor-sponsored and funded research and development will be required.

Selling, General and Administrative

For the year ended December 31, 2009, selling, general and administrative costs were $3,664,000, or 50.0% of total expenses, compared to $2,433,000, or 36.2% of total expenses, for the year ended December 31, 2008. The $1,231,000 increase was primarily due to increases of $474,000 in legal and accounting fees resulting from advisory services to develop derivatives accounting procedures and legal fees related to various note offerings and $594,000 in consulting and computer programming fees incurred in readying our product for commercial launch, and in building the information technology infrastructure required to support the anticipated demands of our products and operations.

Interest Expense

For the year ended December 31, 2009, interest costs were $2,485,000, or 33.9% of total expenses, compared to $2,161,000, or 32.1% of total expenses, for the year ended December 31, 2008. Interest expense in 2009 includes $1,665,000 of noncash charges from periodic amortization of debt discount and of unamortized debt discount written off upon conversion of convertible notes.

Loss on Extinguishment of Debt

For the year ended December 31, 2009, loss on extinguishment of debt amounted to $167,000, or 2.3% of total expenses, compared to $1,099,000, or 16.3% of total expenses for the year ended December 31, 2008. During 2008 the Company offered incentives to debt holders to tender the debt for shares of the Company’s common stock and Series B preferred stock. There were fewer levels of similar activity in 2009.

Liquidity and Capital Resources

As a development-stage enterprise, we had no significant operating revenues through December 31, 2009. Operating revenues commenced in January 2010. We are working to generate operating cash flow and are continuing to raise capital with which to execute our business plan and finance our commercial operations. Please see the discussions contained in “Plan of Operations” and “Going Concern.”

Going Concern

We have prepared our financial statements for the years ended December 31, 2008 and 2009 on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We incurred a net loss of $5,164,000 for the year ended December 31, 2009 and had an accumulated deficit of $53,462,000 at December 31, 2009. We expect to incur substantial expenditures to further the commercial development of our products. However, our working capital at December 31, 2009, ($542,000), will not be sufficient to meet such objectives. Management recognizes that the Company must generate additional cash to successfully commercialize its products. Management plans include the sale of additional equity or debt securities, alliances or other partnerships with entities interested in and resources to support the further development of the Company’s products as well as other business transactions, to assure continuation of Vicor’s development and operations.

We have raised approximately $23,000,000 since our inception in 2000 in a series of private placements of our common stock, convertible preferred stock and convertible notes.

However, we may not be successful in raising additional capital. Further, assuming that we raise additional funds, the Company may not achieve positive cash flow or profitability. If we are not able to timely and successfully raise additional capital and/or achieve positive cash flow or profitability, our operating business, financial condition, cash flows and results of operations may be materially and adversely affected.

Off-Balance Sheet Arrangements

We have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated under which it has:

	•		a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit;

	•		liquidity or market risk support to such entity for such assets;

	•		an obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument; or

	•		an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to the Company, where such entity provides financing, liquidity, market risk or credit risk support to or engages in leasing, hedging, or research and development services with the Company.

Item 8. Financial Statements and Supplementary Data.

Our Financial Statements are contained on pages F-2 to F-27 of this Annual Report and are incorporated herein by reference.

Item 9A(1). Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, we conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Accounting Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by or under the supervision of our Chief Executive Officer and our Chief Accounting Officer and effected by our board of directors, management and other personnel 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 evaluation of internal control over financial reporting as of December 31, 2009 was conducted on the basis of the framework in “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2009.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to temporary rules of the Commission that permit the Company to provide only management’s report in this Annual Report.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


2.1		Purchase and Royalty Agreement, by and between Vicor Technologies, Inc. and James E. Skinner, dated October 24, 2002 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

2.2		Asset Purchase Agreement, by and between Nonlinear Medicine, Inc. and Enhanced Cardiology, Inc., dated May 29, 2003 (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-1475).

2.3		First Amendment to the Purchase and Royalty Agreement, by and between Vicor Technologies, Inc. and James E. Skinner, dated July 24, 2003 (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

2.4		Second Amendment to the Purchase and Royalty Agreement, by and between Vicor Technologies, Inc. and James E. Skinner, dated September 18, 2003 (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

2.5		First Amendment to the Asset Purchase Agreement, by and between Nonlinear Medicine, Inc. and Enhanced Cardiology, Inc., dated September 18, 2003 (incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

2.6		Agreement and Plan of Merger, by and among SRKP 6, Inc., Vicor Acquisition Corp., and Vicor Technologies, Inc., dated as of July 28, 2006 (incorporated by reference to Annex A to the Registration Statement on Form S-4 filed with the SEC on December 6, 2006, File No. 333-139141).

2.7		First Amendment to the Agreement and Plan of Merger, by and among SRKP 6, Inc., Vicor Acquisition Corp., and Vicor Technologies, Inc., dated as of December 6, 2006 (incorporated by reference to Annex A to the Company’s Registration Statement on Form S-4 filed with the SEC on December 6, 2006, File No. 333-139141).

3.1.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

3.1.2		Certificate of Designations, Preferences and Rights of Series A 8.0% Convertible Cumulative Preferred Stock (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

3.1.3		Certificate of Designations, Preferences and Rights of Series B 8.0% Convertible Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2008 filed with the SEC on May 15, 2008 File No. 000-51475).

3.2		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

4.1		See Exhibits 3.1.1, 3.1.2 , 3.1.3 and 3.2 for provisions of the Articles of Incorporation and Bylaws of the Company defining rights of holders of the Company’s outstanding securities.

10.1		Vicor Technologies, Inc. 2002 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).+

10.2		Form of Participant Agreement for the 2002 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).+


10.3		Executive Court Lease Agreement Boca Office, by and between RJL Company Limited Partnership and Vicor Technologies, Inc., dated July 6, 2006 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).

10.4		Employment Agreement, by and between Vicor Technologies, Inc. and David H. Fater, dated June 1, 2002 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).+

10.5		Amendment No. 1 to the Employment Agreement, by and between Vicor Technologies, Inc. and David H. Fater, dated October 24, 2003 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).+

10.6		Employment Agreement, by and between Vicor Technologies, Inc. and Jerry M. Anchin, dated January 1, 2006 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2010, File No. 000-51475).+

10.7		Employment Agreement, by and between Vicor Technologies, Inc. and James E. Skinner, dated January 1, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2010, File No. 000-51475).+

10.8		Employment Agreement dated January 1, 2010 between the Company and Daniel Weiss (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-K for fiscal 2009 filed with the SEC on March 31, 2010 (File No. 000-51475).*+

10.9		Victor Technologies, Inc. 2008 Stock Incentive Plan (incorporated by reference to Appendix A in the Company’s definitive proxy statement filed with the SEC on May 15, 2008 (File No. 000-51475).+

10.10		Form of Registration Rights Agreement, between the Company and certain stockholders, dated March 30, 2007 (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form SB-2 filed with the SEC on May 14, 2007, File No. 333-142948).

10.11		Form of Registration Rights Agreement, between the Company, certain stockholders and WestPark Capital, Inc., dated March 30, 2007 (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form SB-2 filed with the SEC on May 14, 2007, File No. 333-142948).

10.12		Consulting Agreement dated September 2003 between Vicor Technologies, Inc. and Michael Greer (incorporated by reference to Exhibit 10.1 to the Company’s Amendment No. 1 to its Annual Report on Form 10-K for fiscal 2007 filed with the SEC on April 3, 2008, File No. 000-51475).

10.13		Service Agreement dated January 1, 2007 by and between ALDA & Associates International, Inc. and Vicor Technologies, Inc. (incorporated by reference to Exhibit 10.2 in the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 30, 2007 filed with the SEC on May 15, 2007, File No. 000-51475).

10.14		Form of 8% Convertible Subordinated Note issued to investors (incorporated by reference to Exhibit 10.1 in the Company’s Form 10-Q for the quarter ended June 30, 2009 filed with the SEC on August 19, 2009, File No. 000-51475).

10.15		Consulting Agreement dated January 1, 2010 between Vicor Technologies Inc. and TJ Bohannon, Inc. (incorporated by reference to Exhibit 10.15 in the Company’s Form 10-K for fiscal 2009 filed with the SEC on March 31, 2010, File No. 000-51475).

10.16		Form of 8% Subordinated Convertible Promissory Note issued to investors (incorporated by reference to Exhibit 10.1 in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2010).

14.1		Code of Ethics (incorporated by reference to Exhibit 14.1 in the Company’s Annual Report on Form 10-K for fiscal 2008 filed with the SEC on March 31, 2008, as amended on April 3, 2008, File No. 000-51475).

21.1		List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 5, 2007, File No. 000-51475).


23.1		Consent of Daszkal Bolton, Independent Certified Public Accountants.*

31.1		Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.*

31.2		Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2009.*

32.1		Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*

32.2		Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*


+		Management Compensation Plan or Arrangement.

*		Filed herewith.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to its Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: September 17, 2010


Vicor Technologies, Inc.
By:	/s/ David H. Fater
	Name:	David H. Fater
	Title:	Chief Executive Officer and Chief Financial Officer


By:	/s/ Thomas J. Bohannon
	Name:	Thomas J. Bohannon
	Title:	Chief Accounting Officer

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, this Amendment No. 1 to its Annual Report on Form 10-K has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ David H. Fater	Chief Executive Officer,	September 17, 2010

David H. Fater	Chief Financial Officer and Director

/s/ James E. Skinner, Ph.D.	Vice President and Director of Research and	September 17, 2010

James E. Skinner, Ph.D.	Development and Director

/s/ Jerry M. Anchin	Vice President and Associate Director of Scientific	September 17, 2010

Jerry M. Anchin, Ph.D.	Research; Director

/s/ Joseph A. Franchetti	Director	September 17, 2010

Joseph A. Franchetti

/s/ Frederick M. Hudson	Director	September 17, 2010

Frederick M. Hudson

/s/ Edward Wiesmeier	Director	September 17, 2010

Edward Wiesmeier, M.D.

Vicor Technologies, Inc.
(A Development Stage Company)

Consolidated Financial Statements

For The Years Ended
December 31, 2008 and 2009

F - 1

Table of Contents


Report of Independent Registered Public Accounting Firm		F - 3
Financial Statements:
Consolidated Balance Sheets		F - 4
Consolidated Statements of Operations		F - 5
Consolidated Statements of Changes in Stockholders’ Equity (Net Capital Deficiency)		F - 6 – F - 8
Consolidated Statements of Cash Flows		F - 9 – F - 10
Notes to Consolidated Financial Statements		F - 11 – F - 27

F - 2

(LOGO)

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
VICOR Technologies, Inc.

We have audited the accompanying consolidated balance sheets of VICOR Technologies, Inc. (the “Company”) a Delaware Corporation as of December 31, 2008 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity (net capital deficiency) and cash flows for the years then ended and the period from August 4, 2000 (inception) through December 31, 2009. 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 VICOR Technologies, Inc. at December 31, 2008 and 2009, and the results of its operations and its cash flows for the years then ended and the period from August 4, 2000 (inception) through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has suffered recurring losses from operations and had negative cash flows from operations that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Daszkal Bolton LLP
Boca Raton, Florida
March 31, 2010

F - 3

Vicor Technologies, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

December 31, 2008 and 2009


	2008			2009
ASSETS
Current assets:
Cash	$	182,000		$	544,000
Prepaid expenses		14,000			74,000

Total current assets		196,000			618,000


Furniture and fixtures, net of accumulated depreciation of $62,000 and $38,000 at December 31, 2008 and 2009, respectively		2,000			21,000

Other assets:
Deposits		12,000			12,000
Deferred charges		—			168,000
Intellectual property, net of accumulated amortization of $186,000 and and $223,000 at December 31, 2008 and 2009, respectively		266,000			229,000

	$	476,000		$	1,048,000


LIABILITIES AND NET CAPITAL DEFICIENCY

Current liabilities:
Accounts payable and accrued expenses	$	1,000,000		$	600,000
Current debt		900,000			460,000
Due to related parties		100,000			100,000

Total current liabilities		2,000,000			1,160,000


Long-term liabilities:
Long-term debt		—			1,251,000
Accrued dividends		434,000			833,000
Derivative financial instruments payable in shares of common stock		—			4,414,000

Total long-term liabilities		434,000			6,498,000


Commitments and contingencies

Net capital deficiency:
Preferred stock, $.0001 par value; 10,000,000 shares authorized:
Series A Convertible Cumulative, 157,592 shares issued and outstanding at December 31, 2008 and 2009, respectively; preference in liquidation of $691,000 and $751,000 at December 31, 2008 and 2009, respectively		—			—
Series B Voting Junior Convertible Cumulative, 4,781,295 and 5,210,101 shares issued and outstanding at December 31, 2008 and 2009, respectively; preference in liquidation of $4,733,000 and $5,413,000 at December 31, 2008 and 2009, respectively		—			—
Common stock, $.0001 par value; 100,000,000 shares authorized; 32,971,619 and 41,813,959 shares issued and outstanding at December 31, 2008 and 2009, respectively		3,000			4,000
Additional paid-in capital		44,782,000			46,848,000
Stock subscriptions in process		577,000			—
Deficit accumulated during the development stage		(47,320,000	)		(53,462,000	)

Net capital deficiency		(1,958,000	)		(6,610,000	)

	$	476,000		$	1,048,000

See accompanying notes to consolidated financial statements.

F - 4

Vicor Technologies, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

For the Years Ended December 31, 2008 and 2009, and

For the Period from August 4, 2000 (Inception) Through December 31, 2009


	Years Ended December 31,
							Period from
							August 4, 2000
							(Inception) to
							December 31,
	2008			2009			2009
Revenues	$	—		$	—		$	844,000


Operating expenses:
Research and development		993,000			964,000			15,027,000
Selling, general and administrative expenses		2,433,000			3,664,000			28,771,000
Depreciation and amortization		41,000			41,000			323,000
Interest expense		2,161,000			2,485,000			8,128,000
Loss from extinguishment of debt		1,099,000			167,000			1,266,000

Total operating expenses		6,727,000			7,321,000			53,515,000

Gain on derivative financial instruments:
Realized		—			1,083,000			1,083,000
Unrealized		—			1,074,000			1,074,000

		—			2,157,000			2,157,000

Net loss		(6,727,000	)		(5,164,000	)		(50,514,000	)
Cumulative effect of change in accounting principle		—			—			480,000
Dividends for the benefit of preferred stockholders:
Payable on Series A and Series B preferred stock		(246,000	)		(479,000	)		(913,000	)
Amortization of derivative discount on Series B preferred stock		—			(979,000	)		(979,000	)
Value of warrants issued in connection with sales of Series B preferred stock		(1,536,000	)		—			(1,536,000	)

Total dividends for the benefit of preferred stockholders		(1,782,000	)		(1,458,000	)		(3,428,000	)

Net loss applicable to common stock	$	(8,509,000	)	$	(6,622,000	)	$	(53,462,000	)


Net loss per common share — basic and diluted	$	(0.29	)	$	(0.18	)


Weighted average number of shares of common shares outstanding		29,485,339			37,513,205

See accompanying notes to consolidated financial statements.

F - 5

Vicor Technologies, Inc.

(A Development Stage Company)

Consolidated Statements of Changes in Stockholders’ Equity (Net Capital Deficiiency)

For the period from August 4, 2000 (Inception) through December 31, 2009


					Preferred Stock
	Common Stock				Class A				Class B
															Subscription
													Additional		Notes			Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Paid-In Capital		Receivable			Deficit			Total
Balance at August 4, 2000 (inception)		—	$	—		—	$	—		—	$	—	$	—	$	—		$	—		$	—
Issuance of common stock to founders		7,400,000		—		—		—		—		—		—		—			—			—
Contributed research and development services		—		—		—		—		—		—		24,000		—			—			24,000
Issuance of common stock for cash		194,500		—		—		—		—		—		194,000		—			—			194,000
Net loss		—		—		—		—		—		—		—		—			(657,000	)		(657,000	)

Balance at December 31, 2000		7,594,500		—		—		—		—		—		218,000		—			(657,000	)		(439,000	)


Issuance of common stock for services		280,000		—		—		—		—		—		280,000		—			—			280,000
Issuance of warrants for services		—		—		—		—		—		—		1,252,000		—			—			1,252,000
Contributed research and development services		—		—		—		—		—		—		71,000		—			—			71,000
Issuance of common stock for cash		1,362,826		—		—		—		—		—		1,363,000		—			—			1,363,000
Net loss		—		—		—		—		—		—		—		—			(3,181,000	)		(3,181,000	)

Balance at December 31, 2001		9,237,326		—		—		—		—		—		3,184,000		—			(3,838,000	)		(654,000	)


Issuance of common stock for services		360,000		—		—		—		—		—		—		—			—			—
Issuance of warrants and stock options for services		—		—		—		—		—		—		4,722,000		—			—			4,722,000
Subscription Note receivable		500,000												750,000		(750,000	)					—
Contributed research and development services		—				—		—		—		—		—		—			—			—
Issuance of common stock for cash		1,725,424		—		—		—		—		—		3,492,000		—			—			3,492,000
Net loss		—		—		—		—		—		—		—		—			(7,306,000	)		(7,306,000	)

Balance at December 31, 2002		11,822,750		—		—		—		—		—		12,148,000		(750,000	)		(11,144,000	)		254,000


Issuance of common stock for services		27,300		—		—		—		—		—		—		—			—			—
Issuance of warrants and stock options for services		—		—		—		—		—		—		6,365,000		—			—			6,365,000
Issuance of common stock for cash		870,918		—		—		—		—		—		2,718,000		—			—			2,718,000
Issuance of preferred stock for cash		—		—		157,592		—		—		—		448,000		—			—			448,000
Accrued dividends on preferred stock		—		—		—		—		—		—		—		—			(8,000	)		(8,000	)
Net loss		—		—		—		—		—		—		—		—			(9,247,000	)		(9,247,000	)

Balance at December 31, 2003		12,720,968		—		157,592		—		—		—		21,679,000		(750,000	)		(20,399,000	)		530,000


Issuance of common stock for services		217,440		—		—		—		—		—		205,000		—			—			205,000
Issuance of warrants and stock options for services		—		—		—		—		—		—		1,033,000		—			—			1,033,000
Issuance of common stock for cash		308,300		—		—		—		—		—		889,000		—			—			889,000
Accretion of beneficial conversion feature on 10% convertible promissory notes		—		—		—		—		—		—		201,000		—			—			201,000
Accrued dividends on preferred stock		—		—		—		—		—		—		—		—			(39,000	)		(39,000	)
Net loss		—		—		—		—		—		—		—		—			(3,372,000	)		(3,372,000	)

Balance at December 31, 2004		13,246,708		—		157,592		—		—		—		24,007,000		(750,000	)		(23,810,000	)		(553,000	)

Issuance of common stock for services		83,500		—		—		—		—		—		209,000		—			—			209,000
Issuance of warrants and stock options for services		—		—		—		—		—		—		1,817,000		—			—			1,817,000
Issuance of warrants to note holders		—		—		—		—		—		—		17,000					—			17,000
Issuance of common stock for cash		1,329,302		2,000		—		—		—		—		2,165,000		—			—			2,167,000
Accrued dividends on preferred stock		—		—		—		—		—		—		—		—			(43,000	)		(43,000	)
Net loss		—		—		—		—		—		—		—		—			(4,212,000	)		(4,212,000	)

Balance at December 31, 2005		14,659,510	$	2,000		157,592	$	—		—	$	—	$	28,215,000	$	(750,000	)	$	(28,065,000	)	$	(598,000	)

See accompanying notes to consolidated financial statements.

F - 6

Vicor Technologies, Inc.

(A Development Stage Company)

Consolidated Statements of Changes in Stockholders’ Equity (Net Capital Deficiiency)

For the period from August 4, 2000 (Inception) through December 31, 2009


						Preferred Stock
	Common Stock					Class A				Class B							Subscription
														Additional			Notes			Accumulated
	Shares			Amount		Shares		Amount		Shares		Amount		Paid-In Capital			Receivable			Deficit			Total
Balance at December 31, 2005		14,659,510		$	2,000		157,592	$	—		—	$	—	$	28,215,000		$	(750,000	)	$	(28,065,000	)	$	(598,000	)
Issuance of common stock for services		67,400			—		—		—		—		—		169,000			—			—			169,000
Issuance of common stock for debt		43,920			—		—		—		—		—		110,000			—			—			110,000
Issuance of warrants and stock options for services		—			—		—		—		—		—		392,000			—			—			392,000
Cancellation of subscription notes receivable		(300,000	)		—		—		—		—		—		(750,000	)		750,000			—			—
Issuance of common stock for notes receivable		796,000			—		—		—		—		—		398,000			(398,000	)		—			—
Beneficial conversion feature for 12% convertible promissory notes		—			—		—		—		—		—		912,000			—			—			912,000
Issuance of warrants in connection with 15%															139,000			—			—			139,000
promissory notes		—			—		—		—		—		—		—			—			—			—
Accrued dividends on preferred stock		—			—		—		—		—		—		—			—			(47,000	)		(47,000	)
Net loss		—			—		—		—		—		—		—			—			(4,580,000	)		(4,580,000	)

Balance at December 31, 2006		15,266,830			2,000		157,592		—		—		—		29,585,000			(398,000	)		(32,692,000	)		(3,503,000	)


Issuance of common stock for services		177,533			—		—		—		—		—		663,000			—			—			663,000
Common stock issued in merger transaction		677,579			1,000		—		—		—		—		1,140,000			—			—			1,141,000
Stock issued upon conversion of Convertible Notes		1,137,638			—		—		—		—		—		632,000									632,000
Acquisition of SKRP, 6 Inc. net assets		2,700,000			—		—		—		—		—		—			—			—			—
Stock issued for warrants in merger transaction		5,423,891			—		—		—		—		—		—			—			—			—
Stock issued for options in merger transaction		329,700			—		—		—		—		—		—			—			—			—
Payment of subscription notes receivable		—			—		—		—		—		—		(415,000	)		398,000			—			(17,000	)
Stock issued related to notes payable transactions		241,583			—		—		—		—		—		473,000			—			—			473,000
Issuance of common stock for interest payments		26,129			—		—		—		—		—		47,000			—			—			47,000
Accrued dividends on preferred stock		—			—		—		—		—		—		—			—			(51,000	)		(51,000	)
Issuance of warrants in connection with 15%		—			—		—		—		—		—		122,000			—			—			122,000
Issuance of warrants and stock options for services		—			—		—		—		—		—		885,000			—			—			885,000
Contributed capital		—			—		—		—		—		—		178,000			—			—			178,000
Net loss		—			—		—		—		—		—		—			—			(6,068,000	)		(6,068,000	)

Balance at December 31, 2007		25,980,883			3,000		157,592		—		—		—		33,310,000			—			(38,811,000	)		(5,498,000	)

Issuance of stock for services		690,117			—		—		—		177,250		—		837,000			—			—			837,000
Issuance of stock for cash		1,215,000			—		—		—		2,645,000		—		2,420,000			—			—			2,420,000
Stock issued related to notes payable transactions		4,748,880			—		—		—		1,959,045		—		5,883,000									5,883,000
Issuance of stock for interest payments		336,739			—		—		—		—		—		376,000			—			—			376,000
Accrued dividends on preferred stock		—			—		—		—		—		—		1,071,000			—			(1,782,000	)		(711,000	)
Issuance of warrants in connection with preferred stock		—			—		—		—		—		—		633,000			—			—			633,000
Issuance of warrants and stock options for services		—			—		—		—		—		—		252,000			—			—			252,000
Stock subscriptions in process:
To be issued in payment of accrued compensation		—			—		—		—		—		—					561,000			—			561,000
Cash received, stock to be issued		—			—		—		—		—		—					16,000			—			16,000
Net loss		—			—		—		—		—		—		—			—			(6,727,000	)		(6,727,000	)

Balance at December 31, 2008		32,971,619		$	3,000		157,592	$	—		4,781,295	$	—	$	44,782,000		$	577,000		$	(47,320,000	)	$	(1,958,000	)

See accompanying notes to consolidated financial statements.

F - 7

Vicor Technologies, Inc.

(A Development Stage Company)

Consolidated Statements of Changes in Stockholders’ Equity (Net Capital Deficiiency)

For the period from August 4, 2000 (Inception) through December 31, 2009


	Common Stock				Class A				Class B
																	Stock
																	Subscrip-
														Additional			tions in			Accumulated
	Shares		Amount		Shares		Amount		Shares			Amount		Paid-In Capital			Process			Deficit			Total
Balance at December 31, 2008		32,971,619	$	3,000		157,592	$	—		4,781,295		$	—	$	44,782,000		$	577,000		$	(47,320,000	)	$	(1,958,000	)
Cumulative effect of change in accounting principle		—		—		—		—		—			—		(4,049,000	)		—			480,000			(3,569,000	)
Issuance of stock for services		2,244,684		1,000		—		—		154,096			—		1,581,000			—			—			1,582,000
Issuance of stock for cash		366,000		—		—		—		438,460			—		479,000			—			—			479,000
Conversion of Series B preferred stock to common stock		182,341		—		—		—		(163,750	)		—		149,000			—			(66,000	)		83,000
Stock issued related to notes payable transactions		3,812,769		—		—		—		—			—		2,101,000			—			—			2,101,000
Warrants issued related to notes payable transactions		—		—		—		—		—			—		117,000			—			—			117,000
Issuance of stock for interest payments		51,696		—		—		—		—			—		119,000			—			—			119,000
Accrued dividends on preferred stock		—		—		—		—		—			—		—			—			(413,000	)		(413,000	)
Exercise of warrants		562,918		—		—		—		—			—		—			—			—			—
Issuance of warrants for services		—		—		—		—		—			—		133,000			—			—			133,000
Issuance of stock options for services		—		—		—		—		—			—		362,000			—			—			362,000
Fair value of derivative financial instruments issued in connection with Series B preferred stock		—		—		—		—		—			—		(482,000	)		—			—			(482,000	)
Amortization of discounts related to derivative financial instruments		—		—		—		—		—			—		979,000			—			(979,000	)		—
Stock subscriptions in process — shares issued in payment of accrued compensation		1,621,932		—		—		—		—			—		577,000			(577,000	)		—			—
Net loss		—		—		—		—		—			—		—			—			(5,164,000	)		(5,164,000	)

Balance at December 31, 2009		41,813,959	$	4,000		157,592	$	—		5,210,101		$	—	$	46,848,000		$	—		$	(53,462,000	)	$	(6,610,000	)

See accompanying notes to consolidated financial statements.

F - 8

Vicor Technologies, Inc.
(A Development Stage Company)

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2008 and 2009 and

For the Period from August 4, 2000 (Inception) through December 31, 2009


							Period from
							August 4, 2000
							(Inception) to
							December 31,
	2008			2009			2009
Cash flows from operating activities:
Net loss	$	(6,727,000	)	$	(5,164,000	)	$	(50,514,000	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		41,000			41,000			323,000
Noncash interest imputed upon conversion of debt to equity		2,791,000			331,000			5,620,000
Noncash interest from deferred financing costs and debt-based derivative liabilities		—			2,149,000			2,149,000
Gain on derivative financial instruments		—			(2,157,000	)		(2,157,000	)
Gain from sale of assets		51,000			—			48,000
Securities issued for services		204,000			1,109,000			1,313,000
Beneficial conversion feature of notes payable		—			—			201,000
Contributed research and development services		—			—			95,000
Merger-related costs		—			—			523,000
Shares in lieu of interest payments		214,000			119,000			380,000
Equity-based compensation		437,000			620,000			18,665,000
Changes in assets and liabilities:
Prepaid expenses and other assets		62,000			(311,000	)		(423,000	)
Accounts payable and accrued expenses		734,000			(400,000	)		1,573,000

Net cash used in operating activities		(2,193,000	)		(3,663,000	)		(22,204,000	)

Cash flows from investing activities:
Purchase of intellectual property		—			—			(237,000	)
Net proceeds from sale of equipment		—			—			59,000
Purchase of furniture and fixtures		—			(23,000	)		(177,000	)

Net cash used in investing activities		—			(23,000	)		(355,000	)

Cash flows from financing activities:
Due to related parties		—			—			100,000
Proceeds from bank loans		—			—			300,000
Proceeds from sale of preferred stock		2,116,000			351,000			2,915,000
Proceeds from sale of common stock		304,000			128,000			11,268,000
Repayment of notes		(365,000	)		(300,000	)		(905,000	)
Proceeds from bridge loan		—			300,000			300,000
Proceeds from sale of notes		300,000			3,569,000			8,931,000
Proceeds for stock to be issued		16,000			—			16,000
Contributed capital		—			—			178,000

Net cash provided by financing activities		2,371,000			4,048,000			23,103,000

Net increase in cash		178,000			362,000			544,000
Cash at beginning of period		4,000			182,000			—

Cash at end of period	$	182,000		$	544,000		$	544,000

F - 9

Vicor Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows

For the Years Ended December 31, 2008 and 2009 and

For the Period from August 4, 2000 (Inception) through December 31, 2009


					Period from
					August 4, 2000
					(Inception) to
					December 31,
	2008		2009		2009
Supplemental cash flow information:
Issuance of previously-subscribed common stock	$	—	$	16,000	$	16,000

Conversion of accounts payable to note payable		100,000		—		100,000

Repurchase of common stock for cancellation of subscription note receivable		—		—		750,000

Contributed research and development		—		—		95,000

Acquisition of intellectual property from related party		—		—		200,000

Beneficial conversion features for promissory notes		—		—		912,000

Warrants issued in connection with 15% promissory notes		—		—		261,000

Warrants issued in connection with 8% Subordinated Convertible Notes		—		117,000		117,000

Cash paid for interest expense		237,000		87,000		959,000

Accrued equity-based compensation		41,000		—		41,000

Accrued dividends		1,782,000		413,000		2,383,000

Interest on promissory notes paid in common stock		—		—		520,000

Related-party accrual converted to common stock		561,000		—		561,000

Conversion of debt to Series B Preferred Stock		1,567,000		—		1,567,000

Conversion of notes to common stock		2,691,000		1,918,000		4,609,000

Accrued expenses paid with preferred stock		—		108,000		108,000

Accrued expenses paid with common stock		—		772,000		772,000

Fair value of equity-based derivative financial instruments issued		—		816,000		816,000

Fair value of debt-based derivative financial instruments issued		—		1,046,000		1,046,000

Deferred costs paid with common stock		—		358,000		358,000

Derivative discount on Series B preferred stock		—		341,000		341,000

Conversion of Series B preferred stock and accrued dividends to common stock		—		82,000		82,000

See accompanying notes to consolidated financial statements.

F - 10

Vicor Technologies, Inc.
(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 1 — Organization and Nature of Business

Organization

Vicor Technologies, Inc. (“Vicor”, the “Company”) was incorporated in the State of Delaware on May 24, 2005 as SRKP 6, Inc. (“SRKP”). On August 3, 2005 SKRP filed a registration statement on Form 10-SB, subsequently amended on August 29, 2005, to register common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The registration statement became effective on October 3, 2005, after which time SKRP became a reporting company under the Exchange Act. The Company was formed to pursue a business combination with one or more operating companies.

On March 30, 2007 SKRP acquired Vicor Technologies, Inc., a Delaware corporation (“Old Vicor”) formed in August 2000, through the merger (“Merger”) of Old Vicor with a wholly-owned subsidiary formed for the purpose of facilitating that transaction. Upon the closing of the Merger on March 30, 2007, Old Vicor became a wholly-owned subsidiary. Effective March 31, 2007 Old Vicor was merged into SKRP and changed its name to Vicor Technologies, Inc. At the closing each outstanding share of Old Vicor common stock was cancelled and automatically converted into the right to receive two shares of Vicor common stock. The Company also assumed all outstanding options and warrants to purchase Old Vicor common stock which were not exercised, cancelled, exchanged, terminated, or expired. Upon the consummation of the Merger, the Company was obligated to issue an aggregate of 22,993,723 shares of its common stock to Old Vicor’s former common stockholders and 157,592 shares of its Series A Convertible Cumulative Preferred Stock (“Preferred Stock”) to Old Vicor’s former preferred stockholder. In addition, all securities convertible or exercisable into shares of Old Vicor’s capital stock outstanding immediately prior to the Merger (excluding Old Vicor’s preferred stock and convertible debt) were cancelled, and the holders thereof received similar securities for the purchase of an aggregate of 800,250 shares of Vicor common stock.

The Merger was accounted for as a reverse acquisition, to be applied as an equity recapitalization in accordance with U.S. generally accepted accounting principles for accounting and financial reporting purposes. Under this method of accounting, SRKP was treated as the “acquired” company for financial reporting purposes. In accordance with guidance applicable to these circumstances, the Merger was considered to be a capital transaction in substance. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Old Vicor issuing stock for the net monetary assets of SRKP, accompanied by a recapitalization. The net monetary assets of SRKP were stated at their fair value, essentially equivalent to historical costs, with no goodwill or other intangible assets recorded. The accumulated deficit of Old Vicor was carried forward after the Merger. Operations prior to the Merger are those of Old Vicor.

All share and per share amounts were restated to reflect the recapitalization.

The Company owns all of the outstanding common stock of Nonlinear Medicine, Inc., a Delaware corporation (“NMI”), and Stasys Technologies, Inc., a Delaware corporation (“STI”). NMI owns all intellectual property related to Vicor’s diagnostic products, and STI owns all intellectual property related to the Company’s therapeutic products.

Nature of the business

Vicor is a medical diagnostics company focused on commercializing noninvasive diagnostic technology products based on its patented, proprietary point correlation dimension algorithm (the PD2i^® Algorithm”). The PD2i^®Algorithm facilitates the ability to accurately risk stratify a specific target population to predict future pathological events. The Company believes that the PD2i^® Algorithm represents a noninvasive monitoring technology that physicians and other members of the medical community can use as a new and accurate vital sign and is currently commercializing two proprietary diagnostic medical products which employ software utilizing the PD2i^® Algorithm: the PD2i Analyzer^(™) (sometimes also referred to as the PD2i Cardiac Analyzer^(™)) and the PD2i-VS^(™) (Vital Sign). It is also anticipated that the PD2i^®Algorithm applications will allow for the early detection of Alzheimer’s disease and other disorders and diseases.

The Company’s first product, the PD2i Analyzer^(™), received 510(k) marketing clearance from the Food and Drug Administration (“FDA”) on December 29, 2008. The PD2i Analyzer^(™) displays and analyzes electrocardiographic (ECG) information and measures heart rate variability (“HRV”) in patients at rest and in response to controlled exercise and paced respiration. The clinical significance of HRV and other parameters must be determined by a physician. On January 14, 2010 Vicor announced its first commercial sale of the PD2i Analyzer^(™) to a physician practice in South Carolina and simultaneously announced that it had entered into an exclusive distribution agreement with VF Medical, LLC, a medical products distribution company. VF Medical, LLC will serve as the exclusive distributor for the PD2i Analyzer^(™) in South Carolina, North Carolina, and the cities of Savannah and Augusta, Georgia. VF Medical, LLC will utilize a 25-person medical products distribution team consisting of agents who have long-term relationships with

F - 11

cardiologists, electrophysiologists, and family practice and internal medicine physicians within the designated territory. The Company is seeking other distributors and has begun hiring sales personnel in selected geographic areas.

In January 2008 Vicor executed a Collaborative Research and Development Agreement (“Research and Development Agreement”) with the U.S. Army Institute of Surgical Research (“US Army”) for “Prediction of Injury Severity and Outcome in the Critically Ill Using the Point Correlation Dimension Algorithm, or PD2i.” The U.S. Army is exploring ways to assess the severity of injury, and probability of survival, of critically injured combat casualties and critically ill civilian patients. The US Army in conjunction with Vicor is testing the PD2i — VS^(™) in several diverse cohorts, including human trauma, patients in the intensive care units (“ICU Patients”) and combat casualties. Various experiments have been performed under the Research and Development Agreement, and the U.S. Army has presented the findings at several conferences in the United States and Europe. Manuscripts and abstracts have also been published by leading journals with Vicor and the US Army as co-authors. The PD2i- VS^(™) is anticipated to be used for civilian triage and trauma emergency response.

In early 2009 Vicor signed a Research Agreement with the University of Rochester and the Catalan Institute of Cardiovascular Sciences in Barcelona to collaborate on the PD2i analysis of data collected for the Merte Subita en Insufficiencia Cardiaca (MUSIC) Trial. The collaboration is entitled “Prognostic Significance of Point Correlation Dimension Algorithm (PD2i) in Chronic Heart Failure.” The Company is using the PD2i Analyzer^(™) to retrospectively predict Sudden Cardiac Death (“SCD”) in the 651 congestive heart failure patients who participated in the MUSIC Trial (of which 52 actually died from SCD). This analysis was completed in the first quarter of 2010, and Vicor believes it will yield a dataset sufficient to support a 510(k) submission to include a claim for SCD.

Risks

The Company is subject to all the risks inherent in an early stage company in the biotechnology industry. The biotechnology industry is subject to rapid and technological change. The Company has numerous competitors, including major pharmaceutical and chemical companies, medical device manufacturers, specialized biotechnology firms, universities and other research institutions. These competitors may succeed in developing technologies and products that are more effective than any that are being developed by the Company or that would render the Company’s technology and products obsolete and noncompetitive. Many of these competitors have substantially greater financial and technical resources and production and marketing capabilities than the Company. In addition, many of the Company’s competitors have significantly greater experience than the Company in pre-clinical testing and human clinical trials of new or improved pharmaceutical products and in obtaining FDA and other regulatory approvals on products or devices for use in health care.

The Company has limited experience in conducting and managing pre-clinical testing necessary to enter clinical trials required to obtain government approvals and has limited experience in conducting clinical trials. Accordingly, the Company’s competitors may succeed in obtaining FDA approval for products more rapidly than the Company, which could adversely affect the Company’s ability to further develop and market its products. If the Company commences significant commercial sales of its products, it will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which the Company has limited or no experience.

Note 2 — Liquidity

The Company’s financial statements as of and for the year ended December 31, 2009 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss applicable to common stockholders of $8,509,000 and $6,622,000 for the years ended December 31, 2008 and 2009, respectively, and at December 31, 2009 had negative working capital of $542,000, an accumulated deficit of $53,462,000 and a net capital deficiency of $6,610,000. The Company expects to continue to incur expenditures to further the commercial development of its products. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management recognizes that the Company must generate additional resources to successfully commercialize its products. Management plans include the sale of additional equity or debt securities, alliances or other partnerships with entities interested in and having the resources to support the further development of its products as well as other business transactions to assure continuation of the Company’s development and operations. The Company is executing its plan to secure additional capital through a multi-part funding strategy. The Company believes that the amount of capital generated by this plan will be sufficient to permit completion of various clinical trials and provide sufficient working capital for the next 24 — 30 months, by which time it is expected that the Company will generate positive cash flow through the sales of its products.

However, no assurances can be given that the Company will be successful in raising additional capital or entering into business alliances. Further, there can be no assurance, assuming the Company successfully raises additional funds or enters into a business alliance, that the Company will achieve profitability or positive cash flow. If the Company is not able to timely and successfully raise

F - 12

additional capital and/or achieve positive cash flow, its business, financial condition, cash flows and results of operations will be materially and adversely affected.

Note 3 — Summary of Significant Accounting Policies and Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s consolidated financial statement amounts have been rounded to the nearest thousand.

Cumulative Effect of a Change in Accounting Principle

On June 25, 2008, the Financial Accounting Standards Board ratified the consensus reached by the Emerging Issues Task Force in Accounting Standards Codification (“ASC”) 815, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.” This Issue provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of Statement 133. If an embedded feature (for example, the conversion option embedded in a convertible debt instrument) does not meet the scope exception in paragraph 11(a) of Statement 133, it would be separated from the host contract (the debt instrument) and be separately accounted for as a derivative by the issuer. ASC 815 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, to be applied to outstanding instruments as of the effective date.

The Company’s Series B preferred stock and related warrants contain terms in which the conversion or exercise price may be reduced if the company issues or sells shares of its common stock at a price less than the conversion price of the Series B Preferred Stock or the exercise price of the warrants. Under the consensus reached in ASC 815, the conversion option is not considered indexed to the Company’s own stock because the conversion rate can be affected by future equity offerings undertaken by the Company at the then-current market price of the related shares. Therefore, such embedded features are now accounted for as derivatives, which are presented as liabilities under generally accepted accounting principles. As a change in accounting principle, this resulted in adjustments on January 1, 2009 as follows:


	Derivative
	financial
	instruments
	payable in
	shares of			Additional			Accumu-
	common stock			paid-in capital			lated deficit
Aggregate fair value at issuance	$	(4,568,000	)	$	4,568,000		$	—
2008 mark-to-market gain		999,000			—			(999,000	)
2008 preferred dividend for discount amortization		—			(519,000	)		519,000


As recorded on January 1, 2009	$	(3,569,000	)	$	4,049,000		$	(480,000	)

Management calculated the fair values at issuance and the mark-to-market gains using the Black-Scholes-Merton options pricing method with the following assumptions: risk-free interest rate of 2.10% — 4.25%, expected life of 5 years, expected volatility of 63% and dividend yield of zero.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. Management believes the financial risks associated with these financial instruments are minimal. The Company places its cash with high credit quality financial institutions and makes short-term investments in high credit quality money market instruments of short-term duration. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2009 the Company had accounts with balances in excess of FDIC insured limits by $257,164. The Company has not experienced any losses in such accounts.

F - 13

Property and Equipment

Furniture, fixtures and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are stated at cost and amortized over the shorter of the estimated useful lives of the assets or the lease term. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.

Research and Development Costs

Research and development expenditures, are comprised of costs incurred in performing research and development activities. These include payments to collaborative research partners, including wages and associated employee benefits, facilities and overhead costs. These are expensed as incurred.

Revenue Recognition

As discussed in Note 1, operating revenues commenced in January 2010 and are predominately the result of equipment sales and fees related to the analysis of test results for tests performed.

The Company recognizes revenue when it is realized or realizable and earned. Revenue is considered realized and earned when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; fees to the customer are fixed or determinable; and collection of the resulting receivable is reasonably assured.

The Company sells equipment to physicians and other health-care providers (“Customer” or “Customers”) both through sales representatives employed by the Company and also independent sales agents. Revenues from equipment sales to Customers are generally recognized when title transfers to the Customer, typically upon delivery and acceptance, and includes training that is provided at the time of product delivery. Revenues from sales of equipment to independent sales agents to be used by the agents as demonstration units are recognized upon shipment.

The Company’s normal payment terms are net 30 days. However, in cases where the Company grants extended payment terms to a Customer, the Company defers revenue recognition until Customer acceptance of the equipment.

Revenues from the analysis of test results are recognized upon provision of the test results to the Customers.

The Company obtained Phase I and II Small Business Innovation Research (“SBIR”) Grants in 2003 - 2005 amounting to a total of $844,000. The funds received were utilized to develop software for the PD2i Cardiac Analyzer and to conduct a study of 700 patients with chest pain presenting at emergency rooms in six (6) tertiary care facilities. The aim of the grant was to test and establish “good medical practice” through wide experimental use of the Analyzer at different emergency room sites with high risk patients. The funds received for this Grant have been treated as revenues by the Company in its consolidated financial statements and were recorded when costs to perform such research and development activities were incurred.

Cash and Cash Equivalents

The Company considers all investments purchased with original maturities of three months or less to be cash and cash equivalents.

Intellectual Property

Intellectual property, consisting of patents and other proprietary technology acquired by the Company is stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets.


	December 31,
	2008			2009
Patents	$	252,000		$	252,000
Purchased software		200,000			200,000

		452,000			452,000
Less accumulated amortization		(186,000	)		(223,000	)

Net intellectual property	$	266,000		$	229,000

Amortization expense for the years ended December 31, 2008 and 2009 was $37,000 in each year. Legal fees related to the prosecution of new patents and intellectual property are expensed as incurred and amounted to $90,000 and $236,000 in 2008 and 2009, respectively.

F - 14

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.

Accounting for Stock-Based Compensation

The Company uses the fair value-based method of accounting for stock-based employee compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the grant date and is recognized over the periods in which the related services are rendered.

The Company has also granted stock purchase warrants to independent consultants and contractors and values these warrants using the fair value-based method described in the preceding paragraph. The compensation cost so determined is recognized over the period the services are provided which usually results in compensation cost being recognized at the date of the grant.

Financial Instruments

The carrying amount of financial instruments, including cash and cash equivalents, accounts payable and notes payable approximates fair value as of December 31, 2008 and 2009.

Convertible securities with detachable warrants that do not contain features requiring them to be accounted for as embedded derivatives are valued by allocating the proceeds between the warrant and the convertible security based on relative fair values, with any resulting fixed beneficial conversion feature (“BCF”) embedded in the convertible security being recorded at its intrinsic value.

Convertible securities containing detachable warrants where the conversion price of the security and/or the exercise price of the warrants are affected by the current market price of the Company’s common stock are accounted for as derivative financial instruments when the exercise and conversion prices are not considered to be indexed to the Company’s own stock. These derivatives are recorded as a liability and presented in the consolidated balance sheet under the caption “derivative financial instruments payable in common stock”.

For such issuances of convertible securities with detachable warrants, the Company initially records both the warrant and the BCF at fair value, using options pricing models commonly used by the financial services industry (Black-Scholes-Merton options pricing model) using inputs generally observable in the financial services industry. These derivative financial instruments are marked to market each reporting period, with unrealized changes in value reflected in earnings under the caption “gain (loss) on derivative financial instruments”.

For discounts arising from issuances of instruments embedded in a debt security, the discount is accounted for as a discount to the principal amount of the related note payable. For discounts arising from issuances of instruments embedded in an equity security, the discount is accounted for as a reduction to additional paid-in capital.

The resulting discounts arising from the initial recording of the warrants are amortized over the term of the host security, and the discounts arising from the BCF are amortized over the period when the conversion right first becomes exercisable. The classification of the amortization is based on the nature of the host instrument. In this respect, amortization of discounts associated with debt issuances are classified as interest expense, whereas amortization of discounts associated with preferred stock issuances are classified as preferred stock dividends.

At the time a warrant is exercised or a BCF is exercised, the fair value of the derivative financial instrument at time of exercise/conversion is calculated, and a realized gain or loss on conversion is determined and reported as “gain (loss) from derivative financial instruments”.

Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows. During the years ended December 31, 2008 and 2009, there were no deemed impairments of long-lived assets.

F - 15

Date of Management Review

The Company evaluates events and transactions occurring subsequent to the date of the financial statements for matters requiring recognition or disclosure in the financial statements. The accompanying consolidated financial statements consider events through March 31, 2010, the date through which the consolidated financial statements were available to be issued.

Recent Accounting Developments

Accounting Standards Codification — The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification (“ASC”) as the source of authoritative U.S. generally accepted accounting principles recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission, (“SEC”) under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All nongrandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed nonauthoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASC 105 had no impact on the Company’s financial condition, results of operations or cash flows.

Subsequent Events — In February 2010 the FASB issued ASU 2010-09, Subsequent Events (Topic 855), to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. This change removes potential conflicts with current SEC guidance. ASU 2010-09 also clarifies the intended scope of the reissuance disclosure provisions, is effective upon issuance and had no impact on the Company’s financial condition, results of operations, or cash flows. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855 defines (1) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (3) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective prospectively for interim and annual periods ending after June 15, 2009. The adoption of ASC 855 had no impact on the Company’s financial condition, results of operations, or cash flows.

Fair Value Measurements and Disclosures — In January 2010 the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements, which provides additional guidance relating to fair value measurement disclosures. Specifically, companies will be required to separately disclose significant transfers into and out of Level 1 and Level 2 measurements in the fair value hierarchy and the reasons for those transfers. For Level 3 fair value measurements, the new guidance requires a gross presentation of activities within the Level 3 roll forward. Additionally, the FASB also clarified existing fair value measurement disclosure requirements relating to the level of disaggregation, inputs, and valuation techniques. This ASU is effective for interim or annual reporting periods beginning after December 15, 2009, except for the detailed Level 3 disclosures, which are effective for interim or annual reporting periods beginning after December 15, 2010. Since ASU 2010-06 only affects disclosure requirements, the adoption of these provisions will have no impact on the Company’s financial condition, results of operations, or cash flows.

Fair Value of Financial Instruments — ASC 825-10-65 updates ASC 825, Financial Instruments, to increase the frequency of fair value disclosures from an annual basis to a quarterly basis. The guidance relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. These provisions of ASC 825 are effective for interim and annual periods ending after June 15, 2009. Since these provisions only affect disclosure requirements, the adoption of these provisions under ASC 825 had no impact on the Company’s financial condition, results of operations, or cash flows.

Other new accounting pronouncements issued but not effective until after December 31, 2009, are not expected to have a significant effect on the Company’s financial condition, results of operations, or cash flows.

Note 4 — Current Debt

At December 31, 2008 and 2009 current debt consists of:


	2008		2009
2004 Notes	$	250,000	$	250,000
12% Convertible Promissory Notes		150,000		110,000
15% Promissory Notes		100,000		—
Bank loans		300,000		100,000
Other		100,000		—

	$	900,000	$	460,000

F - 16

2004 Notes

The 2004 Notes consist of a 12% convertible promissory note payable to a stockholder and is convertible to common stock at $2.25 per common share. The maturity of the notes is being extended on a month-to-month basis by agreement with the stockholder.

In 2006 the maturity date of the 2004 Notes was extended, and unamortized interest of $24,000 resulting from this event was recognized in 2008.

During 2008 holders of $340,000 of the 2004 Notes agreed to tender them to the Company in consideration for 425,000 shares of Series B Junior Convertible Preferred Stock (convertible at $0.80 per share) and warrants to purchase 425,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Company recognized a charge of $329,000 on the transaction, which was classified as noncash interest expense. The beneficial conversion feature embedded in the Series B Junior Convertible Preferred Stock and the warrants were valued at time of issuance using the Black-Scholes-Merton options pricing method with the following assumptions: risk-free interest rates ranging from 2.94% to 3.90%, expected life of 5 years, expected volatility ranging from 42% to 138% and dividend yield of zero. (The beneficial conversion feature embedded in the Series B Junior Convertible Preferred Stock and warrants are accounted for as derivative liabilities as they contain certain “down round” pricing protection.)

12% Convertible Promissory Notes

The 12% Convertible Promissory Notes (“12% Notes) were originally due at varying dates in 2007 and bear interest at 12% per annum, payable monthly. During 2007 the Company negotiated extensions of maturity and modified the terms of the conversion feature.

During 2008 holders of $1,427,236 of the 12% Notes agreed to tender them to the Company in consideration for 1,534,045 shares of Series B Junior Convertible Preferred Stock (convertible at $0.80 per share) and warrants to purchase 1,534,045 shares of the Company’s common stock at an exercise price of $1.00 per share. The Company recognized a charge of $522,000 on the transaction, which was classified as noncash interest expense. The beneficial conversion feature embedded in the Series B Junior Convertible Preferred Stock and warrants were valued at time of issuance using the Black-Scholes-Merton options pricing method with the following assumptions: risk-free interest rates ranging from 2.94% to 4.29%, expected life of 5 years, expected volatility ranging from 42% to 138% and dividend yield of zero. (The beneficial conversion feature embedded in the Series B Junior Convertible Preferred Stock and warrants are accounted for as derivative liabilities as they contain certain “down round” pricing protection.)

Three officers, who were also directors, and one director holding a total of $40,000 of the 12% Notes converted them into 12,500 shares of Series B preferred stock and 12,500 warrants to purchase common stock in the transaction described above.

Also during 2008, four of the 12% Notes valued at $72,000 were redeemed for cash and 11,719 immediately exercisable penalty warrants, which expire five years after date of issuance, were issued at an exercise price of $0.64 per share. The Company recognized $10,000 in noncash interest expense. The maturity dates of the remaining $110,000 of the 12% Notes are being extended on a month-by-month basis.

15% Promissory Notes

Interest on the 15% Promissory Notes (“15% Notes”) is payable monthly.

Certain holders of the 15% promissory notes sold the notes to third parties in 2008 and 2009, and the Company induced conversions of $100,000 and $300,000 of these notes in 2008 and 2009, respectively, by issuing shares of its common stock. The stock was valued on the date of the transaction, the debt for each note was extinguished and the difference was recorded as interest expense of $248,000 and $88,000 for the years ended December 31, 2008 and 2009, respectively.

Also during 2008 the Company negotiated extensions of various 15% Notes in exchange for 115,000 shares of common stock representing $99,000 of interest expense. Noncash interest expense of $92,000 and $9,000 was recognized in 2008 and 2009, respectively.

Bank Loans

At December 31, 2008 the Company had unsecured loans of $200,000 and $100,000 from Branch Banking and Trust Company (“BB&T”) (formerly Colonial Bank, N.A.) under a loan agreement. In 2009 the maturity of the $200,000 loan was extended, resulting in its being classified as long term at December 31, 2009. The $100,000 loan is classified as current, has a due date of October 26, 2010 and bears interest at 4.83%. As a condition to making the loans, the bank received Certificates of Deposit for $100,000 and $200,000 from the Company’s Chief Executive and Financial Officer, David H. Fater, as standby collateral. As consideration for this

F - 17

standby collateral, the Company’s Board of Directors authorized (i) the reimbursement of Mr. Fater’s out-of-pocket cash costs associated with this transaction, (ii) the Company’s receipt of interest from the Certificates of Deposit as an offset to the Company’s interest expense, and (iii) the monthly issuance of 1,092 shares of the Company’s common stock.

Mr. Fater received 13,104 and 14,196 shares of the Company’s common stock in 2008 and 2009, respectively, related to these bank loans.

Other Notes Payable

In September 2008 the Company converted a $100,000 account payable to an unsecured 10% promissory note due in September 2009. In September 2009 the holder of the note sold it to an investor. The Company induced conversion of the note by issuing 200,000 shares of its common stock to the investor. The stock was valued on the date of the transaction, the debt for the note was extinguished and $79,000 of interest expense was recorded.

Note 5 — Long-term debt

Long-term debt consists of:


	2008		2009
8% Convertible Notes	$	—	$	773,000
8% Subordinated Convertible Promissory Notes		—		278,000
Bank loans (see Note 4)		—		200,000

	$	—	$	1,251,000

8% Convertible Notes

During the period from May 1, 2009 through September 17, 2009 the Company sold 8% Convertible Notes (“8% Notes”). The 8% Notes are due two years from date of issue and are convertible into common stock at the option of the holder any time prior to maturity. The conversion price is equal to the lesser of 75% of the weighted average common stock price, as defined, for the three days immediately prior to the date of the conversion notice or $1.07 per share of common stock.

The conversion rights embedded in the 8% Notes are accounted for as derivative financial instruments because of the beneficial conversion feature embedded therein. The beneficial conversion feature was valued at date of issuance using the Black-Scholes-Merton options pricing model with the following assumptions: risk-free interest rates ranging from 1.33% to 3.02%, expected life of 2 years, expected volatility of 63% and dividend yield of zero, resulting in fair value at date of issuance of $1,996,000 in 2009.


8% Notes sold	$	2,671,000
8% Notes converted in 2009		(1,574,000	)

		1,097,000
Unamortized discount		(324,000	)

Balance at December 31, 2009	$	773,000

During 2009 certain 8% Notes were converted into common stock as provided for by terms of the debt instrument. This resulted in a $1,083,000 realized gain to the Company, included in the amount reported in the consolidated statement of operations as “gain on derivative financial instruments”, and measured by the difference between the fair value of the beneficial conversion feature just prior to the conversion and the fair value of the beneficial conversion feature as of the most recent mark-to-market calculation. The beneficial conversion feature was valued at dates of conversion using the Black-Scholes-Merton options pricing model with the following assumptions: risk-free interest rates ranging from 1.04% to 3.02%, expected life of 2 years, expected volatility of 63% and dividend yield of zero. Related unamortized discount of $1,095,000 was recognized as interest expense as a result of the conversions.

8% Subordinated Convertible Promissory Notes

During the fourth quarter of 2009 the Company sold 8% Subordinated Convertible Promissory Notes (“8% Subordinated Notes) and warrants to purchase shares of the Company’s common stock at $1.00 per share (12,500 warrants were issued for each $10,000 of 8% Subordinated Notes). The 8% Subordinated Notes are due on October 7, 2012 and are subordinated to the 8% Notes sold between May 1, 2009 and September 17, 2009. They are mandatorily convertible into shares of the Company’s common stock at a conversion price equal to the lesser of $0.80 per share of common stock or 80% of the price per share of common stock sold in a qualified funding event, defined as the sale of debt or equity in an offering resulting in a least $3,000,000 of gross proceeds to the Company.

Until the 8% Notes have been converted by the holders or have been repaid (which shall be no later than September 16, 2011) the holders of the 8% Subordinated Notes have no voluntary conversion rights. Thereafter, the holders may voluntarily convert the 8% Subordinated Notes.

F - 18

The conversion rights embedded in the 8% Subordinated Notes are accounted for as derivative financial instruments because of the beneficial conversion feature embedded therein. The beneficial conversion feature was valued at date of issuance using the Black- Scholes-Merton options pricing model with the following assumptions: risk-free interest rates ranging from 1.66% to 2.10%, expected life of 3 years, expected volatility of 63% and dividend yield of zero, resulting in fair value of date of issuance of $559,000 in 2009.

The warrants issued with the 8% Subordinated Notes expire 5 years from date of issuance and were valued using the Black-Scholes-Merton options pricing model with the following assumptions: risk-free interest rates ranging from 1.66% to 2.86%, expected life of 5 years, expected volatility of 63% and dividend yield of zero. The value of the warrants was recorded based on the relative fair value of the principal amount of the 8% Subordinated Notes and the beneficial conversion feature, resulting in a credit of $117,000 to additional paid-in capital.


8% Subordinated Notes sold	$	903,000
Unamortized discount		(625,000	)

Balance at December 31, 2009	$	278,000

Note 6 — Preferred Stock

The Company has two classes of preferred stock: Series A Convertible Cumulative and Series B Voting Junior Convertible Cumulative.

The Series A Convertible Cumulative preferred stock (“Series A” or “Series A preferred stock”) yields cumulative annual dividends at an annual rate of 8%. Dividends on the Series A accrue and compound annually on such amount from the date of issuance until paid in full or at the option of the holder converted into additional Series A stock at $3.17 per share. At December 31, 2008 and 2009 accrued dividends payable were $243,000 and $303,000, respectively. Each share of Series A is convertible at the option of the holder into shares of common stock at a conversion rate of 1:1. The conversion price of the Series A is subject to adjustment in certain cases to prevent dilution using a weighted-average anti-dilution formula. The Series A preferred stock will automatically be converted into shares of common stock upon the consummation of a Liquidation Event, which is defined as a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

The Series A preferred stock is senior to all other outstanding capital stock and is entitled to a liquidation preference equal to the greater of (i) the issue price per share for the Series A plus any accrued and unpaid dividends or (ii) any accrued and unpaid dividends as of the date of the liquidation plus the amount the holder would have received if prior to liquidation the Series A preferred stock had been converted into common stock. At December 31, 2008 and 2009 the liquidation preference as described for item (i) totals $691,000 and $751,000, respectively.

The Company has the right of first refusal to acquire the Series A and certain holders have entered into an Investor Rights Agreement providing for customary drag-along and tag-along rights in connection with a bona fide offer from a third party to acquire the Company. Furthermore, pursuant to the Investor Rights Agreement, one of the holders has the right to designate one nonvoting observer to the Board of Directors.

The Series B Voting Junior Convertible Cumulative preferred stock (“Series B” or “Series B preferred stock”) yields cumulative annual dividends at an annual rate of 8%. Dividends on the Series B accrue and compound annually on such amount from the date of issuance. At December 31, 2008 and 2009 accrued dividends payable were $191,000 and $530,000, respectively. Each share of Series B preferred stock is convertible at the option of the holder into shares of common stock at a conversion price equal to the lesser of $0.80 or 80% of the price per share of any common stock sold in a Qualified Financing, plus the amount of all accrued and unpaid dividends on such shares, whether or not declared. A Qualified Financing is defined as the closing of a sale of debt or equity in a registered offering or pursuant to a private placement resulting in at least $3,000,000 of gross proceeds to the Company. The conversion price of the Series B preferred stock is subject to adjustment in certain cases, including dilutive issuances and the issuance of additional shares of common stock. The Series B preferred stock will automatically be converted into shares of common stock upon the consummation of a Liquidation Event, which is defined as a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Company may, at its option, require all holders of Series B preferred stock then outstanding to convert their shares of Series B into shares of common stock at any time on or after: (i) the closing of a Qualified Financing or (ii) the consummation of a Liquidation Event.

The Series B preferred stock is entitled to a liquidation preference after distribution or payment is made to holders of the Series A equal to the greater of (i) the issue price per share for the Series B plus any accrued and unpaid dividends or (ii) any accrued and unpaid dividends as of the date of the liquidation plus the amount the holder would have received if prior to liquidation the Series B preferred stock had been converted into common stock. At December 31,2008 and 2009 the liquidation preference as described for item (i) totals $4,733,000 and $5,413,000, respectively.

F - 19

In 2008 the Company issued 4,781,295 shares of Series B preferred stock, convertible into shares of common stock, and 4,781,295 warrants to purchase common stock, sold as a unit. The Series B and warrants are derivative financial instruments because the conversion rates embedded in the Series B units contain “down round” price protection. The fair values of the Series B units were determined at time of issuance using the Black-Scholes-Merton options pricing method with the following assumptions: risk-free interest rates ranging from 3.30% to 4.25%, expected life of 5 years, expected volatility of 63% and dividend yield of zero. The calculated fair values of the conversion options totals $2,207,000 and of the warrants totals $2,361,000.

In 2009 the Company issued 438,460 shares of Series B preferred stock, convertible into shares of common stock, and 438,460 warrants to purchase common stock, sold as a unit. The Series B and warrants are derivative financial instruments because the conversion rates embedded in the Series B units contain “down round” price protection. The fair values of the Series B units were determined at time of issuance using the Black-Scholes-Merton options pricing method with the following assumptions: risk-free interest rates ranging from 1.87% to 3.00%, expected life of 5 years, expected volatility of 63% and dividend yield of zero. The calculated fair values of the conversion options totals $252,000 and of the warrants totals $228,000.

The consent of 2/3 of the holders of all Series A preferred stock and Series B preferred stock, voting as separate classes, will be required (i) to amend, alter or repeal any provisions of Series A preferred stock, Series B preferred stock, or the Company’s Certificate of Incorporation or Bylaws that materially adversely affect any of the preferences, rights, powers or privileges of the Series A preferred stock or Series B preferred stock, respectively; (ii) to pay any dividends on or redeem or repurchase any shares of the Company’s common stock or other junior securities; (iii) create, authorize or issue any other class or series of preferred stock on a parity with, or having greater or preferential rights than, the Series A preferred stock or Series B preferred stock with respect to liquidation, dividends, distribution or conversion upon a liquidation event; (iv) merge, consolidate, sell or dispose of the Company’s assets in a transaction that requires stockholder approval; (v) declare bankruptcy, file an assignment for the benefit of creditors, effect any judicial or voluntary winding up or dissolution or liquidation of the Company or any similar transaction; (vi) borrow funds outside the ordinary course of business; (vii) enter into any transaction with related parties or affiliates of the Company; and (viii) effect any judicial or voluntary winding up or dissolution of the Company or liquidation of the business.

Note 7 — Stockholders’ Equity

The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.0001. The Board has the authority to issue the shares in one or more series and to fix the designations, preferences, powers and other rights, as it deems appropriate.

The Company has 100,000,000 shares of common stock authorized with a par value of $0.0001. Each share of common stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.

The Company has issued stock warrants to certain employees, vendors and independent contractors. The warrants are immediately exercisable for a period of three to ten years and enable the holders to purchase shares of the Company’s common stock at exercise prices ranging from $0.01 - $3.12. The fair value per warrant based on the Black-Scholes-Merton options pricing method ranges from $0.31 to $4.99. The weighted average remaining contractual term for the outstanding warrants is 3.9 years.

The cost of these warrants was treated as compensation and, accordingly, the Company recorded expense of $251,000 and $883,000 for 2008 and 2009, respectively.

The fair value for these warrants was estimated at the date of grant using the Black-Scholes-Merton options pricing model with the following weighted-average assumptions: risk-free interest rate of 2.96% in 2008 and 1.87% — 3.00% in 2009; dividend yield of 0%; common stock fair market value of $0.84 in 2008 and $0.68 in 2009, respectively; a weighted average expected warrant life of four years; and a volatility factor of 63% for both years.

F - 20


				Weighted-
	Shares Under			Average
	Warrants			Exercise Price
Balance at inception		—		$	—
Granted in connection with stock sold		148,000			1.00
Exercised		—			—

Outstanding at December 31, 2000		148,000			1.00
Granted to employees and others		900,000			0.67
Exercised		—			—

Exercisable at December 31, 2001		1,048,000			0.72
Granted to employees and others		1,270,252			1.09
Exercised		(750	)		—

Exercisable at December 31, 2002		2,317,502			0.92
Granted to employees and others		1,520,332			1.14
Exercised		(750	)		—

Exercisable at December 31, 2003		3,837,084			1.01
Granted to employees and others		126,200			0.93
Exercised		—			—

Exercisable at December 31, 2004		3,963,284			1.01
Granted to employees and others		595,180			1.21
Exercised		(101,750	)		—

Exercisable at December 31, 2005		4,456,714			1.06
Granted to employees and others		70,000			2.50
Exercised		(398,000	)		—

Exercisable at December 31, 2006		4,128,714			1.09
Granted to employees and others		470,500			1.00
Exercised		(3,469,908	)		—

Exercisable at December 31, 2007		1,129,306			1.96
Granted to employees and others		9,976,707			0.85
Exercised		—			—

Exercisable at December 31, 2008		11,106,013			0.96
Granted to employees and others		1,941,823			0.90
Exercised		(624,494	)		0.09

Exercisable at December 31, 2009		12,423,342		$	1.00

The weighted-average grant date fair value of all warrants granted during 2008 and 2009 was $0.75 and $0.94, respectively.

The warrants expire as follows:


			Average
Year of			exercise
expiration	Quantity		price
2010		62,492	$	2.50
2011		580,858	$	2.44
2013		9,128,019	$	0.95
2014		2,266,973	$	0.95
2016		10,000	$	1.25
2017		375,000	$	1.00

The warrants expiring in 2011 were originally issued in 2005 and expired in 2008. In the first quarter of 2008 the warrants were extended for three years. Management calculated the deemed dividend using the Black-Scholes-Merton options pricing method with the following assumptions: risk-free interest rate of 3.21%, expected life of two years, expected volatility of 50% and dividend yield of zero. This yielded a value of less than $50,000, which was not reported separately in the 2008 consolidated statement of operations and consolidated statement of stockholders’ equity (net capital deficiency).

Note 8 – Stock Option Plan

In 2002 the Company’s stockholders approved the Vicor Technologies, Inc. 2002 Stock Option Plan (the “2002 Plan”), which provides for the granting of options to purchase up to 1,000,000 shares of the Company’s common stock. Both incentive stock options and nonqualified stock options may be issued under the provisions of the 2002 Plan. Employees of the Company and its subsidiaries, members of the Board of Directors, independent consultants and advisors are eligible to participate in the 2002 Plan. The granting and vesting of options under the 2002 Plan are authorized by the Company’s Board of Directors or a committee of the Board of Directors.

F - 21

During 2002 the Company granted stock options to employees at an exercise price of $3.00 per share, which vested over a two-year period. In 2004 the Company granted 1,000 stock options to a director at an exercise price of $3.25 per share. During 2005 the Company granted a total of 269,000 options to employees and directors with an exercise price of $2.50. Total compensation expense related to the granting of options under the 2002 Plan for the year ended December 31, 2007 based on a fair value of $1.37 per share was approximately $110,000.

The fair value for these options was estimated at the date of grant using the Black- Scholes-Merton options pricing model with the following weighted-average assumptions: risk-free interest rate of 5.24%, dividend yield of 0%, fair market value of $1.37 in 2007, a weighted-average expected option life of 10 years; and a minimal volatility factor since the Company’s stock was not then actively traded on an established public market.

Information regarding the 2002 Plan is as follows:


	Number of			Weighted-Average		Options		Weighted-Average
	Shares			Exercise Price		Excercisable		Exercise Price
Options outstanding at inception
Granted		50,000		$	3.00		—	$	0.00

Outstanding at December 31, 2002		50,000		$	3.00		10,000	$	3.00
Granted		—		$	0.00		—	$	0.00

Outstanding at December 31, 2003		50,000		$	3.00		30,000	$	3.00
Granted		1,000		$	3.25		—	$	0.00

Outstanding at December 31, 2004		51,000		$	3.01		51,000	$	3.01
Granted		269,000		$	2.50		—	$	0.00
Cancelled		(25,000	)	$	2.50		—	$	0.00

Outstanding at December 31, 2005		295,000		$	0.00		295,000	$	2.59
Granted		80,000		$	2.50		—	$	0.00
Cancelled		(35,000	)	$	0.00		—	$	0.00

Outstanding at December 31, 2006		340,000					340,000	$	2.58
Granted		122,500		$	0.78		—	$	0.78
Exercised in cashless exercise March 30, 2007		(340,000	)	$	2.58		—

Outstanding at December 31, 2007, 2008 and 2009		122,500					122,500

Reserved for future option grants at December 31, 2008		477,500

In 2008 the Company’s stockholders approved the Vicor Technologies, Inc. 2008 Stock Incentive Plan (the”2008 Plan”). This plan provides for the granting of options to purchase up to 5,000,000 shares of the Company’s common stock. Directors, officers and other employees of the Company and its subsidiaries, and other persons who provide services to the Company are eligible to participate in the 2008 Plan, and both incentive stock options and nonqualified stock options may be issued under the provisions of the 2008 Plan. The 2008 Plan is administered by the Board of Directors and its Compensation Committee.

Information regarding the 2008 Plan is as follows:


	Number of		Weighted-Average		Options		Weighted-Average
	Shares		Exercise Price		Excercisable		Exercise Price
Options outstanding at inception		—
Granted		417,500	$	0.72		417,500	$	0.72

Outstanding at December 31, 2008		417,500
Granted		2,150,000	$	0.78		1,762,500	$	0.78

Outstanding at December 31, 2009		2,567,500				2,180,000

Reserved for future option grants at December 31, 2009		2,432,500

There was a total of 2,690,000 options outstanding for both plans at December 31, 2009.

The fair value for these options was estimated at the date of grant using the Black- Scholes-Merton options pricing model with the following weighted-average assumptions: risk-free interest rate of 3.97%, dividend yield of 0%, weighted-average expected option life of 10 years; and a volatility factor of 56% in 2008; expected option lives of 7 — 10 years, risk-free interest rate ranging from 2.51% — 3.91%, dividend yield of 0%, and volatility factors ranging from 63% to 172% in 2009.

The 2008 Plan has a weighted average grant date fair value of $0.75 and weighted average remaining contractual term for the vested options of 6.7 years.

Compensation expense related to the granting of options under the 2008 Plan was approximately $176,000 and $1,559,000 in 2008 and 2009, respectively.

F - 22

NOTE 9 — Fair Value of Financial Instruments

The Company follows the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This Topic defines fair value, establishes a measurement framework and expands disclosures about fair value measurements.

The Company measures financial assets in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

	•		Level 1 — Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value (“NAV”) on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds.

	•		Level 2 — Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active.

	•		Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The availability of observable inputs can vary from instrument to instrument and in certain cases the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument.

Recurring Fair Value Measurement Valuation Techniques

The fair value for certain financial instruments is derived using pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available will generally have a higher degree of price transparency than financial instruments that are thinly traded or not quoted. In accordance with ASC Topic 820, the criteria used to determine whether the market for a financial instrument is active or inactive is based on the particular asset or liability. As a result, the valuation of these financial instruments included significant management judgment in determining the relevance and reliability of market information available. The Company considered the inactivity of the market to be evidenced by several factors, including limited trading of the Company’s stock since the commencement of trading in July 2007.

Derivative Financial Instruments

The Company’s derivative financial instruments consist of conversion options embedded in 8% Convertible Notes, 8% Subordinated Convertible Promissory Notes, Series B Preferred Stock and warrants to purchase common stock issued with preferred stock. These instruments are valued with pricing models commonly used by the financial services industry using inputs generally observable in the financial services industry. These models require significant judgment on the part of management, including the inputs utilized in its pricing models. The Company’s derivative financial instruments are categorized in Level 3 of the fair value hierarchy. The Company estimates the fair value of derivatives utilizing the Black-Scholes-Merton option pricing model and the following assumptions:


		Beneficial	Beneficial
		Conversion –	Conversion –
	Warrants	Preferred Stock	Convertible Notes
Quarter ended March 31, 2008:
Risk-free interest rate	3.30%	3.30%	n/a
Expected volatility	63%	63%	n/a
Expected life (in years)	5	5	n/a
Expected dividend yield	0%	0%	n/a

F - 23


		Beneficial	Beneficial
		Conversion –	Conversion –
	Warrants	Preferred Stock	Convertible Notes
Quarter ended June 30, 2008:
Risk-free interest rate	4.25%	4.25%	n/a
Expected volatility	63%	63%	n/a
Expected life (in years)	4.75 - 5.00	4.75 - 5.00	n/a
Expected dividend yield	0%	0%	n/a

Quarter ended September 30, 2008:
Risk-free interest rate	3.98%	3.98%	n/a
Expected volatility	63%	63%	n/a
Expected life (in years)	4.5 - 5.00	4.5 - 5.00	n/a
Expected dividend yield	0%	0%	n/a

Quarter ended December 31, 2008:
Risk-free interest rate	2.10%	2.10%	n/a
Expected volatility	63%	63%	n/a
Expected life (in years)	4.25 - 5.00	4.25 - 5.00	n/a
Expected dividend yield	0%	0%	n/a

Quarter ended March 31, 2009:
Risk-free interest rate	1.87%	1.87%	n/a
Expected volatility	63%	63%	n/a
Expected life (in years)	5	5	n/a
Expected dividend yield	0%	0%	n/a

Quarter ended June 30, 2009:
Risk-free interest rate	2.37% - 2.96%	2.37% - 2.96%	2.58% - 3.02%
Expected volatility	63%	63%	63%
Expected life (in years)	3.75 - 4.75	3.75 - 4.75	2
Expected dividend yield	0%	0%	0%

Quarter ended September 30, 2009:
Risk-free interest rate	2.64% - 3.00%	2.64% - 3.00%	1.30% - 1.40%
Expected volatility	63%	63%	63%
Expected life (in years)	3.5 - 4.75	3.5 - 4.75	1.75 - 2.00
Expected dividend yield	0%	0%	0%

Quarter ended December 31, 2009:
Risk-free interest rate	3.02%	3.02%	1.46% - 2.04%
Expected volatility	63%	63%	63%
Expected life (in years)	3.25 - 4.50	3.25 - 4.50	1.50 - 3.00
Expected dividend yield	0%	0%	0%

Prior to January 1, 2009 the Company used the historical prices of its common stock to determine its volatility. Subsequently, the Company determined that the historical prices of its common stock were not the best proxy to estimate such volatility. Effective January 1, 2009 the Company’s methodology to estimate volatility of its common stock is based on an average of published volatilities contained in the most recent audited financial statements of other publicly-reporting companies in industries similar to that of the Company.

Level 3 Assets and Liabilities

Level 3 liabilities include instruments whose value is determined using pricing models and for which the determination of fair value requires significant management judgment or estimation. As of December 31, 2009 instruments measured at fair value on a recurring basis categorized as Level 3 represented approximately 58% of the Company’s total liabilities.

F - 24

Fair values of liabilities measured on a recurring basis are as follows:


			Quoted prices
			in active
			markets for		Significant
			identical		other observ-		Significant
			labilities (Level		able inputs		unobservable
	Fair Value		1)		(Level 2)		inputs (Level 3)
Liabilities:
Derivative financial instruments - January 1, 2009	$	3,569,000	$	—	$	—	$	3,569,000

Derivative financial instruments - December 31, 2009	$	4,414,000	$	—	$	—	$	4,414,000

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the gains for liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs. The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2009:


				Beneficial			Beneficial
				Conversion –			Conversion –
				Preferred			Convertible
	Warrants			Stock			notes			Total
Balance, January 1, 2009	$	1,905,000		$	1,664,000		$	—		$	3,569,000
Included in earnings:
Realized loss (gain)		—			—			—			—
Unrealized loss (gain)		133,000			161,000			—			294,000
Purchases, sales and other		174,000			193,000			—			367,000
Settlements and issuances — net		—			—			—			—
Net transfers in and/or out of Level 3		—			—			—			—

Balance, March 31, 2009		2,212,000			2,018,000			—			4,230,000
Included in earnings:											—
Realized		—			—			(36,000	)		(36,000	)
Unrealized		78,000			28,000			18,000			124,000
Purchases, sales and other		33,000			36,000			779,000			848,000
Settlements and issuances — net		—			—			—			—
Net transfers in and/or out of Level 3		—			—			—			—

Balance, June 30, 2009		2,323,000			2,082,000			761,000			5,166,000
Included in earnings:
Realized		—			—			(972,000	)		(972,000	)
Unrealized		762,000			712,000			(21,000	)		1,453,000
Purchases, sales and other		6,000			4,000			1,120,000			1,130,000
Settlements and issuances — net		—			—			—			—
Net transfers in and/or out of Level 3		—			—			—			—

Balance, September 30, 2009		3,091,000			2,798,000			888,000			6,777,000
Included in earnings:
Realized		—			—			(37,000	)		(37,000	)
Unrealized		(1,172,000	)		(1,059,000	)		(715,000	)		(2,946,000	)
Purchases, sales and other		(42,000	)		(41,000	)		709,000			626,000
Settlements and issuances — net		(6,000	)		—			—			(6,000	)
Net transfers in and/or out of Level 3		—			—			—			—

Balance, December 31, 2009	$	1,871,000		$	1,698,000		$	845,000		$	4,414,000


(1)		Gain included in earnings is reported as gain on derivative financial instruments.

(2)		Total unrealized gain related to Level 3 instruments held at December 31, 2009.

F - 25

Note 10 — Related Party Transactions

In 2003 the Company purchased the software related to the PD2i Cardiac Analyzer^(™) from one of its founding scientists, who is now an employee and a director. Terms of the Purchase and Royalty Agreement provide that $100,000 of the purchase price be deferred until the Company begins receiving revenue from the Analyzer. Accordingly, this amount is included in the accompanying Consolidated Balance Sheet as Due to Related Parties. The Agreement further provides for an ongoing royalty to be paid to the scientist amounting to 10% of amounts received by the Company from any activities relating to the PD2i Cardiac Device for the life of the patents. Royalty payments will commence after the Company has recovered its development costs in full.

Additionally, on January 1, 2007 the Company entered into a Service Agreement (“Service Agreement”) with ALDA & Associates International, Inc. (“ALDA”), a consulting company owned and controlled by the Company’s Chief Executive and Financial Officer whereby three of the Company’s employees became employees of ALDA under a Professional Employer Organization (“PEO”) arrangement. This was subsequently increased to seven employees. The Service Agreement, which is a cost reimbursement only contract, provides for reimbursement of all of ALDA’s actual payroll and insurance related costs for these employees. Costs associated with the contract amounted to $308,000 and $909,000 for the years ended December 31, 2008 and 2009, respectively.

As discussed in Notes 4 and 5 the Company has certain bank loans. As a condition to making the loans, the bank received a two Certificates of Deposit valued at $300,000 from the Company’s Chief Executive and Financial Officer, David H. Fater, as standby collateral.

Note 11 — Income Taxes

For income tax purposes the Company has capitalized its losses (other than contract research and development) as start up costs. The startup costs will be amortized over a five-year period when operations commence. The tax loss carry forward at December 31, 2009 amounts to $2,207,061 and begins to expire in 2016.

Significant components of the Company’s deferred tax assets are shown below. A valuation allowance has been recognized to offset the deferred tax assets as of December 31, 2008 and 2009 as realization of such assets is uncertain.


	2008			2009
Deferred income tax assets:
Tax loss carry forward	$	414,000		$	830,000
Start up costs		13,695,000			15,071,000
Equity-based compensation expense		1,116,000			853,000
Derivative liability		260,000			1,661,000
General business credit carry forward		—			357,000

		15,485,000			18,772,000


Deferred income tax liabilities:
Debt discount on derivative instruments		—		$	(357,109	)

Total deferred tax asset	$	15,485,000		$	18,414,891

Valuation allowance:
Beginning of year	$	(14,594,000	)	$	(15,485,000	)
Increase during the year		(891,000	)		(2,929,891	)

	$	(15,485,000	)	$	(18,414,891	)

Net deferred tax assets and liabilities	$	—		$	—

Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of any of the Company’s net operating loss and credit carryforwards may be limited if cumulative changes in ownership of more than 50% occur during any three year period.

Note 12 — Property and Equipment

Property and equipment consist of the following


	December 31,
	2008			2009
Computers and equipment	$	40,000		$	35,000
Furniture and fixtures		24,000			24,000

		64,000			59,000
Less accumulated depreciation		(62,000	)		(38,000	)

Net property and equipment	$	2,000		$	21,000

Depreciation expense was $4,000 for both the years ended December 31, 2008 and 2009.

F - 26

Note 13 — Leases

The Company is obligated under an operating lease agreement for its administrative offices and office equipment. The lease is for a two-year term beginning August 2009. Annual future minimum lease obligations as of December 31, 2009 are $89,000 in 2010 and $56,000 in 2011.

Rent expense for the years ended December 31, 2008 and 2009 was $92,000 and $95,000, respectively.

Note 14 — Retirement plan

In December 2009 the Company established a defined contribution plan (“Plan”) to provide retirement benefits in return for services rendered. The Plan provides an individual account for each participant and has terms that specify how contributions to participant accounts are determined. Employees are eligible to participate in the Plan at time of hire as well as certain independent contractors at the discretion of management. The Plan provides for the Company to match employee contributions up to 4% of the employee’s salary and also provides for Company discretionary contributions of up to 6% of employee compensation. The Company made an initial grant to the Plan equal to 4% of each participant’s 2009 base compensation, resulting in Plan expense of $54,000 for 2009.

Note 15 — Commitments and Contingencies

From time to time the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

The Company has employment agreements with its Chief Executive Officer, its Chief Medical Officer and its scientists. Such agreements provide for minimum salary levels, adjusted annually for cost-of-living changes.

Note 16 — Subsequent Events

On January 10, 2010 the Company’s Board of Directors authorized the issuance of an additional $1,500,000 of 8% Subordinated Convertible Notes.

In January through March 2010 the Company sold $975,000 of 8% Subordinated Convertible Promissory Notes.

On March 19, 2010 the Company leased additional office space in the facility where its corporate office is located. The lease is expected to commence in April 2010 at a rate of approximately $2,000 per month and will expire in August 2011.

F - 27

Index to Exhibits


23.1		Consent of Daszkal Bolton, Independent Certified Public Accountants.*

31.1		Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.*

31.2		Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.*

32.1		Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*


*		Filed herewith

Vicor Technologies, Inc. - FORM 10-K/A - September 17, 2010

Attached files

Vicor Technologies, Inc. Reports