Attached files
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EX-31.2 - EX-31.2 - Vicor Technologies, Inc. | y04871exv31w2.htm |
EX-32.2 - EX-32.2 - Vicor Technologies, Inc. | y04871exv32w2.htm |
EX-31.1 - EX-31.1 - Vicor Technologies, Inc. | y04871exv31w1.htm |
EX-32.1 - EX-32.1 - Vicor Technologies, Inc. | y04871exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-51475
VICOR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
20-2903491 (I.R.S. Employer Identification No.) |
|
2300 NW Corporate Boulevard, Suite 123, Boca Raton,
Florida (Address of principal executive office) |
33431 (Zip Code) |
(561) 995-7313
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such 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 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 (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 31, 2011, there were 47,038,864 shares of the Registrants Common Stock, $.0001
par value, outstanding.
Transitional Small Business Disclosure Form (Check one): Yes o No þ
VICOR TECHNOLOGIES, INC.
Quarterly Report on Form 10-Q for the Period Ended March 31, 2011
Quarterly Report on Form 10-Q for the Period Ended March 31, 2011
TABLE OF CONTENTS
Page | ||||||||
PART I Financial Information |
||||||||
Item 1. Condensed Consolidated Financial Statements: |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
8 | ||||||||
16 | ||||||||
21 | ||||||||
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23 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
Vicor Technologies, Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
December 31, 2010 and March 31, 2011
(Unaudited)
(A Development Stage Company)
Condensed Consolidated Balance Sheets
December 31, 2010 and March 31, 2011
(Unaudited)
December 31, | ||||||||
2010 | March 31, 2011 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash |
$ | 1,119,000 | $ | 121,000 | ||||
Accounts receivable |
58,000 | 123,000 | ||||||
Inventory |
58,000 | 34,000 | ||||||
Prepaid expenses |
411,000 | 521,000 | ||||||
Total current assets |
1,646,000 | 799,000 | ||||||
Property and equipment: |
||||||||
Equipment |
213,000 | 235,000 | ||||||
Furniture and fixtures |
24,000 | 24,000 | ||||||
Less accumulated depreciation |
(82,000 | ) | (104,000 | ) | ||||
Net property and equipment |
155,000 | 155,000 | ||||||
Other assets: |
||||||||
Deposits |
18,000 | 18,000 | ||||||
Deferred financing costs |
8,076,000 | 7,067,000 | ||||||
Intellectual property, net of accumulated amortization of $260,000 and
$272,000 at December 31, 2010 and March 31, 2011, respectively |
192,000 | 205,000 | ||||||
$ | 10,087,000 | $ | 8,244,000 | |||||
LIABILITIES AND NET CAPITAL DEFICIENCY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 1,166,000 | $ | 1,654,000 | ||||
Current debt |
360,000 | 560,000 | ||||||
Due to related party |
88,000 | 113,000 | ||||||
Total current liabilities |
1,614,000 | 2,327,000 | ||||||
Long-term liabilities: |
||||||||
Long-term debt |
8,277,000 | 8,077,000 | ||||||
Accrued dividends |
932,000 | 1,047,000 | ||||||
Derivative financial instruments payable in shares of common stock |
7,692,000 | 4,481,000 | ||||||
Total long-term liabilities |
16,901,000 | 13,605,000 | ||||||
Commitments and contingencies |
||||||||
Net capital deficiency: |
||||||||
Preferred stock, $.0001 par value; 25,000,000 shares
authorized: Series B Voting Junior Convertible Cumulative, 5,185,101 shares issued and
outstanding at December 31, 2010 and March 31,2011; preference in liquidation
of $5,795,000 and $5,902,000 at December 31, 2010 and March 31, 2011,
respectively |
| | ||||||
Common stock, $.0001 par value; 150,000,000 shares authorized; 46,799,324 and 47,038,864
shares issued and outstanding at December 31, 2010 and March 31, 2011, respectively |
5,000 | 5,000 | ||||||
Additional paid-in capital |
51,275,000 | 51,692,000 | ||||||
Deficit accumulated during the development stage |
(59,708,000 | ) | (59,385,000 | ) | ||||
Net capital deficiency |
(8,428,000 | ) | (7,688,000 | ) | ||||
$ | 10,087,000 | $ | 8,244,000 | |||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
Vicor
Technologies, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2010 and 2011 and
For the period from August 4, 2000 (inception) to March 31, 2011
(Unaudited)
(A Development Stage Company)
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2010 and 2011 and
For the period from August 4, 2000 (inception) to March 31, 2011
(Unaudited)
Period from | ||||||||||||
August 4, | ||||||||||||
Three | Three | 2000 | ||||||||||
months | months | (Inception) to | ||||||||||
ended March | ended March | March 31, | ||||||||||
31, 2010 | 31, 2011 | 2011 | ||||||||||
Revenue: |
||||||||||||
Sales |
$ | 100,000 | $ | 159,000 | $ | 344,000 | ||||||
Leases |
| 9,000 | 13,000 | |||||||||
Grants and other |
| | 844,000 | |||||||||
100,000 | 168,000 | 1,201,000 | ||||||||||
Cost of revenue |
85,000 | 84,000 | 215,000 | |||||||||
Gross profit |
15,000 | 84,000 | 986,000 | |||||||||
Operating expenses: |
||||||||||||
Research and development |
157,000 | 122,000 | 15,787,000 | |||||||||
Selling, general and administrative |
1,369,000 | 1,455,000 | 36,493,000 | |||||||||
Interest |
445,000 | 1,031,000 | 11,432,000 | |||||||||
Loss from extinguishment of debt |
| | 1,266,000 | |||||||||
Total operating expenses |
1,971,000 | 2,608,000 | 64,978,000 | |||||||||
(1,956,000 | ) | (2,524,000 | ) | (63,992,000 | ) | |||||||
Gain (loss) on derivative financial instruments: |
||||||||||||
Realized |
111,000 | | 1,401,000 | |||||||||
Unrealized |
(228,000 | ) | 3,211,000 | 7,958,000 | ||||||||
(117,000 | ) | 3,211,000 | 9,359,000 | |||||||||
Net income (loss) |
(2,073,000 | ) | 687,000 | (54,633,000 | ) | |||||||
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 |
(126,000 | ) | (115,000 | ) | (1,464,000 | ) | ||||||
Amortization of derivative discount on Series B
preferred stock |
(249,000 | ) | (249,000 | ) | (2,232,000 | ) | ||||||
Value of warrants issued in connection with sales of Series B preferred stock |
| | (1,536,000 | ) | ||||||||
Total dividends for the benefit of preferred stockholders |
(375,000 | ) | (364,000 | ) | (5,232,000 | ) | ||||||
Net income (loss) applicable to common stock |
$ | (2,448,000 | ) | $ | 323,000 | $ | (59,385,000 | ) | ||||
Net income (loss) per common share basic and diluted |
$ | (0.06 | ) | $ | 0.01 | |||||||
Weighted average number of shares of common shares outstanding |
42,425,945 | 46,957,274 | ||||||||||
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
Vicor Technologies, Inc.
(A Development Stage Company)
Condensed Consolidated Statement of Changes in Net Capital Deficiency
For the three months ended March 31, 2011
(Unaudited)
(A Development Stage Company)
Condensed Consolidated Statement of Changes in Net Capital Deficiency
For the three months ended March 31, 2011
(Unaudited)
Common Stock | Preferred Stock Class B | Additional | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Paid-In Capital | Deficit | Total | ||||||||||||||||||||||
Balance at December 31, 2010 |
46,799,324 | 5,000 | 5,185,101 | | 51,275,000 | (59,708,000 | ) | (8,428,000 | ) | |||||||||||||||||||
Accrued dividends on preferred stock |
| | | | | (115,000 | ) | (115,000 | ) | |||||||||||||||||||
Issuance of stock for interest payments |
728 | | | | | | | |||||||||||||||||||||
Issuance of stock for consulting |
1,786 | | | | 1,000 | | 1,000 | |||||||||||||||||||||
Equity-based compensation |
237,026 | | | | 153,000 | | 153,000 | |||||||||||||||||||||
Issuance of warrants for consulting |
| | | | 14,000 | | 14,000 | |||||||||||||||||||||
Amortization of derivative discounts on Series B
preferred stock |
| | | | 249,000 | (249,000 | ) | | ||||||||||||||||||||
Net income |
| | | | | 687,000 | 687,000 | |||||||||||||||||||||
Balance at March 31, 2011 |
47,038,864 | $ | 5,000 | 5,185,101 | $ | | $ | 51,692,000 | $ | (59,385,000 | ) | $ | (7,688,000 | ) | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
Vicor Technologies, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2010 and 2011 and
For the period from August 4, 2000 (inception) to March 31, 2011
(Unaudited)
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2010 and 2011 and
For the period from August 4, 2000 (inception) to March 31, 2011
(Unaudited)
Period from | ||||||||||||
August 4, 2000 | ||||||||||||
Three months | Three months | (Inception) to | ||||||||||
ended March | ended March | March 31, | ||||||||||
31, 2010 | 31, 2011 | 2011 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | (2,073,000 | ) | $ | 687,000 | $ | (54,633,000 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating
activities: |
||||||||||||
Depreciation and amortization |
15,000 | 34,000 | 438,000 | |||||||||
Noncash interest imputed upon conversion of debt
to equity |
| | 5,620,000 | |||||||||
Noncash interest and amortization of deferred financing costs |
371,000 | 1,009,000 | 5,095,000 | |||||||||
Loss (gain) on derivative financial instruments |
117,000 | (3,211,000 | ) | (9,359,000 | ) | |||||||
Loss from sale of assets |
| | 48,000 | |||||||||
Securities issued for services |
29,000 | 15,000 | 1,959,000 | |||||||||
Beneficial conversion feature of notes payable |
10,000 | | 303,000 | |||||||||
Contributed research and development services |
| | 95,000 | |||||||||
Merger-related costs |
| | 523,000 | |||||||||
Shares in lieu of interest payments |
1,000 | | 387,000 | |||||||||
Equity-based compensation |
286,000 | 153,000 | 19,502,000 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(92,000 | ) | (65,000 | ) | (123,000 | ) | ||||||
Inventory |
(40,000 | ) | 24,000 | (34,000 | ) | |||||||
Prepaid expenses and other assets |
(11,000 | ) | (110,000 | ) | (2,008,000 | ) | ||||||
Accounts payable and accrued expenses |
274,000 | 488,000 | 3,389,000 | |||||||||
Accrued royalties due to related party |
| 43,000 | 43,000 | |||||||||
Net cash used in operating activities |
(1,113,000 | ) | (933,000 | ) | (28,755,000 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of intellectual property |
| (25,000 | ) | (262,000 | ) | |||||||
Net proceeds from sale of equipment |
| | 59,000 | |||||||||
Purchase of property and equipment |
(93,000 | ) | (22,000 | ) | (377,000 | ) | ||||||
Net cash used in investing activities |
(93,000 | ) | (47,000 | ) | (580,000 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Advances from (payments to) related parties |
| (18,000 | ) | 82,000 | ||||||||
Proceeds from bank loans |
| | 300,000 | |||||||||
Proceeds from sale of preferred stock |
| | 2,915,000 | |||||||||
Proceeds from sale of common stock |
| | 11,268,000 | |||||||||
Repayment of notes |
| | (1,005,000 | ) | ||||||||
Proceeds from bridge loan |
| | 300,000 | |||||||||
Proceeds from sale of notes |
970,000 | | 15,402,000 | |||||||||
Proceeds for stock to be issued |
| | 16,000 | |||||||||
Contributed capital |
| | 178,000 | |||||||||
Net cash provided by (used in) financing activities |
970,000 | (18,000 | ) | 29,456,000 | ||||||||
Net increase (decrease) in cash |
(236,000 | ) | (998,000 | ) | 121,000 | |||||||
Cash at beginning of period |
544,000 | 1,119,000 | | |||||||||
Cash at end of period |
$ | 308,000 | $ | 121,000 | $ | 121,000 | ||||||
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
Vicor Technologies, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2010 and 2011 and
For the period from August 4, 2000 (inception) to March 31, 2011
(Unaudited)
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2010 and 2011 and
For the period from August 4, 2000 (inception) to March 31, 2011
(Unaudited)
Period from | ||||||||||||
August 4, 2000 | ||||||||||||
Three months | Three months | (Inception) to | ||||||||||
ended March | ended March | March 31, | ||||||||||
31, 2010 | 31, 2011 | 2011 | ||||||||||
Supplemental cash flow information: |
||||||||||||
Issuance of previously-subscribed common stock |
$ | | $ | | $ | 16,000 | ||||||
Conversion of accounts payable to note payable |
| | 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 |
134,000 | | 674,000 | |||||||||
Exercise of warrants to purchase common stock |
| | 1,000 | |||||||||
Cash paid for interest expense |
18,000 | 15,000 | 1,044,000 | |||||||||
Accrued equity-based compensation |
| | 41,000 | |||||||||
Accrued dividends |
126,000 | 115,000 | 2,935,000 | |||||||||
Interest on promissory notes paid in common stock |
| | 520,000 | |||||||||
Related-party accrual converted to common stock |
| | 561,000 | |||||||||
Conversion of debt to Series B preferred stock |
| | 1,567,000 | |||||||||
Conversion of notes to common stock |
404,000 | | 5,815,000 | |||||||||
Accrued expenses paid with notes |
| | 703,000 | |||||||||
Accrued expenses paid with preferred stock |
| | 108,000 | |||||||||
Accrued expenses paid with common stock |
| | 772,000 | |||||||||
Fair value of equity-based derivative financial instruments issued |
| | 816,000 | |||||||||
Fair value of debt-based derivative financial instruments issued |
| | 8,316,000 | |||||||||
Deferred costs paid with common stock |
| | 358,000 | |||||||||
Amortization of derivative discounts |
| 249,000 | 1,594,000 | |||||||||
Conversion of Series A preferred stock and accrued dividends to
common stock |
| | 335,000 | |||||||||
Conversion of Series B preferred stock and accrued dividends to
common stock |
| | 91,000 | |||||||||
See accompanying notes to condensed consolidated financial statements.
7
Table of Contents
NOTE 1 ORGANIZATION AND NATURE OF BUSINESS
Organization
Vicor Technologies, Inc. (Vicor) is a development-stage company. Vicor began generating
operating revenues in 2010, but management does not believe these revenues were significant enough
for Vicor to be classified as an operating enterprise at March 31, 2011.
The accompanying condensed consolidated financial statements include Vicor Technologies, Inc.
and its wholly-owned subsidiaries, Nonlinear Medicine, Inc. (NMI) and Stasys Technologies, Inc
(STI). Vicor has no operations independent of its wholly-owned subsidiaries. NMI owns all
intellectual property related to Vicors diagnostic products, and STI owns all intellectual
property related to the Companys 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 of physicians
to accurately risk stratify a specific target population to predict future pathological events such
as autonomic nervous system dysfunction, cardiac mortality (either from arrhythmic death or
congestive heart failure) and imminent death from trauma. 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 Analyzertm (sometimes also referred to as
the PD2i Cardiac Analyzertm and the PD2i-VStm (Vital Sign).
It is also anticipated that the PD2i®Algorithm applications will allow for the early
detection of cerebral disorders as well as other disorders and diseases.
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 Companys
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 Companys 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 Companys competitors may succeed in obtaining FDA
approval for products more rapidly than the Company, which could adversely affect the Companys
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.
The Company also needs additional sources of financing. See Note 2.
NOTE 2 LIQUIDITY AND GOING CONCERN
The Companys financial statements as of and for the three months ended March 31, 2011 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 of $4,806,000 for the year ended December 31, 2010. Although the Company had net income of
$687,000 for the three months ended March 31, 2011, this was affected by a $3,211,000 unrealized
gain on derivative financial instruments; absent this gain, the Company had a loss of $2,524,000.
At March 31, 2011 the Company had a working capital deficiency of $1,528,000, an accumulated
deficit of $59,385,000 and a net capital deficiency of $7,688,000. The Company expects to continue
to incur expenditures to further the commercial development of its products. These matters raise
substantial doubt about the
8
Table of Contents
Companys 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 funds 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 Companys development and operations. The Company is executing its plan to
secure additional capital through a multi-part funding strategy.
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 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 unaudited condensed consolidated financial statements of the Company and the
notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10
of Regulation S-X of the Securities and Exchange Commission (SEC). The December 31, 2010
condensed consolidated balance sheet data was derived from audited financial statements but does
not include all disclosures required by accounting principles generally accepted in the United
States of America. The unaudited condensed consolidated financial statements included herein should
be read in conjunction with the audited consolidated financial statements and the notes thereto
that are included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010,
filed with the SEC on March 31, 2011.
The accompanying condensed 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 Companys condensed consolidated financial statement
amounts have been rounded to the nearest thousand dollars.
The information presented as of March 31, 2011 and for the three months ended March 31, 2010
and 2011 has not been audited. In the opinion of management, the unaudited interim financial
statements include all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Companys condensed consolidated financial position as of March 31, 2011, the
condensed consolidated results of its operations and cash flows for the three months ended March 31, 2010 and
2011, and its condensed consolidated changes in net capital deficiency for the three months
ended March 31, 2011. The results of operations for the three months ended March 31, 2010
and 2011 are not necessarily indicative of the results for the full year.
Receivables
Receivables are reported net of an allowance for doubtful accounts. The allowance is based on
managements evaluation of the collectibility of outstanding balances and is $5,000 at March 31,
2011.
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, | March 31, | |||||||
2010 | 2011 | |||||||
Patents |
$ | 252,000 | $ | 252,000 | ||||
Purchased software |
200,000 | 225,000 | ||||||
452,000 | 477,000 | |||||||
Less accumulated amortization |
(260,000 | ) | (272,000 | ) | ||||
Net intellectual property |
$ | 192,000 | $ | 205,000 | ||||
9
Table of Contents
Financial Instruments
The carrying amount of
financial instruments, including cash, accounts receivable, accounts
payable and notes payable approximates fair value as of December 31, 2010 and March 31, 2011.
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
Companys common stock are accounted for as derivative financial instruments when the exercise and
conversion prices are not considered to be indexed to the Companys 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 common 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 noncurrent asset under the caption deferred financing costs. 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 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.
NOTE 4 CURRENT DEBT
At December 31, 2010 and March 31, 2011 current debt consists of:
December 31, | March 31, | |||||||
2010 | 2011 | |||||||
2004 Notes, 12% |
$ | 250,000 | $ | 250,000 | ||||
12% Convertible Promissory Notes |
110,000 | 110,000 | ||||||
Bank loan, unsecured, 3.45%, due February 2012 |
| 200,000 | ||||||
$ | 360,000 | $ | 560,000 | |||||
The maturity of the 2004 Notes and the 12% Convertible Promissory Notes is currently being
extended on a month-by-month basis by the noteholders.
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NOTE 5 LONG-TERM DEBT
Long-term debt consists of:
December 31, | March 31, | |||||||
2010 | 2011 | |||||||
8% Subordinated Convertible Notes |
$ | 5,273,000 | $ | 5,273,000 | ||||
10% Convertible Promissory Notes |
2,804,000 | 2,804,000 | ||||||
Bank loan, unsecured, 3.45% |
200,000 | | ||||||
$ | 8,277,000 | $ | 8,077,000 | |||||
8% Subordinated Convertible Notes
The 8% Subordinated Convertible Notes (8% Subordinated Notes) are due on October 7, 2012 and
at issuance were subordinated to 8% Convertible Notes sold in 2009. All of the 8% Convertible Notes
were converted in 2010, and the holders of the 8% Subordinated Notes may convert these notes into
shares of the Companys common stock. The 8% Subordinated Notes are mandatorily convertible into
shares of the Companys 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 convertible debt or equity in an offering resulting in at least $3,000,000
of gross proceeds to the Company.
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.
Warrants to purchase 12,500 shares of the Companys common stock at an exercise price of $1.00
per share were issued for each $10,000 of 8% Subordinated Notes sold and expire 5 years from date
of issue. The warrants were valued using the Black-Scholes-Merton options pricing model.
10% Convertible Promissory Notes
The 10% Convertible Promissory Notes (10% Convertible Notes) are due on September 30, 2012
and are convertible into common stock at the option of the holder at any time prior to maturity at
an initial fixed conversion price of $0.45 per share. After the 10% Convertible Notes have been
outstanding for six months, the conversion price adjusts to 75% of the average of the three lowest
closing bid prices during the 10-day period preceding the conversion date. If the Company conducts
a registered public offering, as defined, of its common stock (or securities convertible into or
exercisable for shares of common stock), the conversion price is subject to adjustment.
If the Company raises $5,000,000 or more from the sale of capital stock or debt securities, it
shall offer to redeem the outstanding 10% Convertible Notes for cash at rates ranging from 110% -
115%, depending on the date of the redemption after the issue date, plus accrued but unpaid
interest. The holders are not required to tender the 10% Convertible Notes for redemption.
For a financing of less than $5,000,000, the Company shall offer to redeem a pro rata portion
of the 10% Convertible Notes.
Warrants to purchase 22,200 shares of the Companys common stock at $0.80 per share were
issued for each $10,000 of 10% Convertible Notes sold and expire 4 years from date of issue. The warrants may be exercised in full or in
part and, at the option of the holder, may be exercised on a cashless basis.
The conversion rights embedded in the 10% Convertible 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.
The warrants contain an embedded net issuance feature that causes them to be accounted for as
derivative financial instruments because of the variable number of common stock shares that could
be issued. This was valued at date of issuance using the Black-Scholes-Merton options pricing
model.
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Bank Loan
At December 31, 2010 the bank loan bore interest at 3.54% and was due in January 2011. The
bank loan was renewed at 3.45% and is currently due in February 2012. It was classified as
long-term at December 31, 2010 and as current debt at March 31, 2011. See Note 4.
As a condition to making the loan, the bank received a Certificate of Deposit for $200,000
from the Companys Chief Executive Officer (CEO) as standby collateral. As consideration for this
standby collateral, the Companys Board of Directors authorized (i) the reimbursement of the CEOs
out-of-pocket cash costs associated with this transaction, (ii) the Companys receipt of interest
from the Certificate of Deposit as an offset to the Companys interest expense, and (iii) the
monthly issuance of 728 shares of the Companys common stock to the CEO.
NOTE 6 WARRANTS
The Company has issued stock warrants to certain employees, vendors, investors 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 Companys common stock at exercise prices ranging from $0.01
- $3.12. The warrants were valued using the Black-Scholes-Merton options pricing model. The
weighted average remaining contractual term for the outstanding warrants is 3.03 years.
Shares Under | Weighted-Average | |||||||
Warrants | Exercise Price | |||||||
Exercisable at December 31, 2010 |
24,466,460 | $ | 0.95 | |||||
Granted |
75,000 | $ | 0.60 | |||||
Expired |
(90,000 | ) | $ | 2.50 | ||||
Exercised |
| $ | | |||||
Exercisable at March 31, 2011 |
24,451,460 | $ | 0.94 | |||||
The weighted-average grant date fair market value of all warrants granted during the
three months ended March 31, 2011 was $0.21 per share.
The warrants expire as follows:
Average | ||||||||
Year of | exercise | |||||||
expiration | Quantity | price | ||||||
2011 |
490,414 | $ | 1.94 | |||||
2013 |
9,028,463 | $ | 0.96 | |||||
2014 |
9,223,081 | $ | 0.85 | |||||
2015 |
5,180,752 | $ | 1.00 | |||||
2016 |
153,750 | $ | 0.38 | |||||
2017 |
375,000 | $ | 1.00 |
NOTE 7 STOCK OPTION PLANS
2008 Stock Incentive Plan
In 2008 the Companys 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 Companys 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.
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Information regarding the 2008 Plan is as follows:
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Number of | Exercise | Options | Exercise | |||||||||||||
Shares | Price | Exercisable | Price | |||||||||||||
Outstanding at December 31, 2010 |
3,817,500 | $ | 0.73 | $ | 2,983,750 | $ | 0.76 | |||||||||
Granted or vested |
200,000 | $ | 0.55 | 39,250 | $ | 0.73 | ||||||||||
Canceled |
| $ | | | $ | | ||||||||||
Outstanding at March 31, 2011 |
4,017,500 | $ | 0.72 | $ | 3,023,000 | $ | 0.76 | |||||||||
Reserved for future option grants at
March 31, 201 |
982,500 | |||||||||||||||
Activity in nonvested options is as follows:
Weighted | ||||||||
average | ||||||||
Number of | grant-date | |||||||
Shares | fair value | |||||||
Outstanding at December 31, 2010 |
833,750 | $ | 332,000 | |||||
Granted |
200,000 | 32,000 | ||||||
Vested or canceled |
(39,250 | ) | (25,000 | ) | ||||
994,500 | $ | 339,000 | ||||||
The fair value for these options was estimated at the date of grant using the
Black-Scholes-Merton options pricing model.
The 2008 Plan has a weighted average grant date fair value of $0.55 and weighted average
remaining contractual term for the vested options of 6.6 years.
Compensation expense related to the granting of options under the 2008 Plan was approximately
$179,000 and $32,000 for the three months ended March 31, 2010 and 2011, respectively.
NOTE 8 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 options 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 instruments level within the fair value hierarchy is based on the lowest level
of input that is significant to the fair value measurement. The Companys 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.
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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 Companys 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 Companys stock since
the commencement of trading in July 2007.
Derivative Financial Instruments
The Companys derivative financial instruments consist of conversion options embedded in 8%
Subordinated Convertible Promissory Notes, 10% Convertible Notes and Series B Preferred Stock and
warrants to purchase common stock issued with 10% Convertible Notes and 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
Companys 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 | ||||||||||
Year ended December 31, 2010: |
||||||||||||
Risk-free interest rate |
1.27% - 2.55 | % | 1.27% - 2.55 | % | 0.64% - 1.43 | % | ||||||
Expected volatility |
63 | % | 63 | % | 63 | % | ||||||
Expected life (in years) |
2.25 - 4.50 | 2.25 - 4.50 | 1.50 - 3.00 | |||||||||
Expected dividend yield |
0 | % | 0 | % | 0 | % | ||||||
Quarter ended March 31, 2011: |
||||||||||||
Risk-free interest rate |
1.29% - 2.24 | % | 2.24 | % | 0.80% - 1.29 | % | ||||||
Expected volatility |
63 | % | 63 | % | 63 | % | ||||||
Expected life (in years) |
1.50 - 3.25 | 1.75 - 3.50 | 1.50 - 1.59 | |||||||||
Expected dividend yield |
0 | % | 0 | % | 0 | % |
The Companys 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, 2010 and March 31, 2011 instruments measured at fair value on a recurring basis categorized as Level 3
represented approximately 42% and 28% of the Companys total liabilities, respectively.
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Fair values of liabilities measured on a recurring basis at as follows:
Quoted prices in | Significant | Significant | ||||||||||||||
active markets for | other observ- | unobservable | ||||||||||||||
identical labilities | able inputs | inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Liabilities: |
||||||||||||||||
Derivative financial instruments
December 31, 2010 |
$ | 7,692,000 | $ | | $ | | $ | 7,692,000 | ||||||||
Derivative financial instruments
March
31, 2011 |
$ | 4,481,000 | $ | | $ | | $ | 4,481,000 | ||||||||
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 three months ended March 31, 2011:
Beneficial | Beneficial | |||||||||||||||
Conversion | Conversion | |||||||||||||||
Preferred | Convertible | |||||||||||||||
Warrants | Stock | notes | Total | |||||||||||||
Balance, December 31, 2010 |
$ | 2,956,000 | $ | 1,256,000 | $ | 3,480,000 | $ | 7,692,000 | ||||||||
Included in earnings: |
||||||||||||||||
Realized loss (gain) |
| | | | ||||||||||||
Unrealized loss (gain) |
(1,501,000 | ) | (382,000 | ) | (1,328,000 | ) | (3,211,000 | ) | ||||||||
Purchases, sales and other |
| | | | ||||||||||||
Settlements and issuances net |
| | | | ||||||||||||
Net transfers in and/or out of Level 3 |
| | | | ||||||||||||
Balance, March 31, 2011 |
$ | 1,455,000 | $ | 874,000 | $ | 2,152,000 | $ | 4,481,000 | ||||||||
NOTE 9 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 PD2i Cardiac Analyzer. Accordingly, this amount, less payments plus
accrued royalties, is included in the accompanying Condensed Consolidated Balance Sheet as Due to
Related Party. 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 Analyzer for the life of the patents. Royalty payments will commence after the Company has
recovered its development costs in full.
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
Companys Chief Executive and Financial Officer whereby the Companys employees became employees of
ALDA under a Professional Employer Organization (PEO) arrangement. Associated costs amounted to
$380,000 for the three months ended March 31, 2010. The Service Agreement, which was a cost
reimbursement only contract, provided for reimbursement of all of ALDAs actual payroll and
insurance related costs for these employees and was terminated effective January 1, 2011.
As discussed in Note 4 the Company has a bank loan. As a condition to making the loan, the
bank received a certificate of deposit valued at $200,000 from the Companys Chief Executive
Officer as standby collateral.
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NOTE 10 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 Companys
financial condition, results of operations or liquidity. See Note 11.
NOTE 11 SUBSEQUENT EVENTS
On April 11, 2011 the Company was served with a derivative suit (styled Craig Hudson, Mark
Woods and Edward Wiesmeier, derivatively on behalf of nominal defendant Vicor Technologies, Inc., a
Delaware corporation, Plaintiffs vs. David H. Fater, et al., Defendants Circuit Court of the
Fifteenth Judicial Circuit, In and For Palm Beach County, Florida, Case No. 50-2011 CA 005338).
This derivative suit alleges claims for breach of fiduciary duty, abuse of control and gross
mismanagement against all of the directors as well as a claim for unjust enrichment against David
H. Fater, the Companys President and Chief Executive Officer. The Company is reviewing the
derivative lawsuit with counsel to determine an appropriate response.
On May 4, 2011 the Company commenced the solicitation of the exercise of outstanding common
stock purchase warrants (collectively, the Warrants) and has reduced the exercise price of these
Warrants to $0.25 per share during the time period beginning on April 25, 2011 and ending on June
30, 2011. The stated exercise prices of these Warrants are $0.50, $1.00, $1.25, $2.00, $2.25, $2.50
and $3.12 per share. If all the Warrants are exercised, the Company could receive approximately
$4.5 million, although no assurances can be given as to the number of Warrants that will be
exercised. The Company will use all the proceeds for working capital.
In April and May, 2011 the Company issued 15% Promissory Notes totaling $350,000 to private
investors.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
In this Quarterly Report on Form 10-Q, Vicor, and the terms Company, we, us and our
refer to Vicor Technologies, Inc. and its subsidiaries, unless the context indicates otherwise.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other than statements of
historical fact, including statements regarding guidance, industry prospects or future results of
operations or financial condition, made in this Quarterly Report on Form 10-Q are forward-looking.
We use words such as anticipates, believes, expects, future, intends and similar expressions to
identify forward-looking statements. Forward-looking statements reflect managements current
expectations and are inherently uncertain. Actual results could differ materially for a variety of
reasons, including those risks described in our Annual Report on Form 10-K for the year ended
December 31, 2010 filed with the Securities and Exchange Commission (SEC) on March 31, 2011, and
the risks discussed in other SEC filings. These risks and uncertainties as well as other risks and
uncertainties could cause our actual results to differ significantly from managements
expectations. The forward-looking statements included in this Quarterly Report on Form 10-Q reflect
the beliefs of our management on the date of this report. We undertake no obligation to update
publicly any forward-looking statements for any reason.
Plan of Operations
The Company is a development-stage enterprise. Operating revenues commenced in 2010, and the
Company has engaged various independent sales agents and sales representatives to market and sell
its products in selected geographic areas in the United States. Revenues will be predominately the
result of equipment sales, fees from physicians and other health-care providers related to the
analysis of test results and licensing fees.
In April 2011 the Company received 510(k) clearance from the U.S. Food and Drug Administration
for its PD2i® nonlinear algorithm and software to be used as a measure of
heart rate variability at rest and in response to controlled exercise and paced respiration (Ewing
Maneuvers) in patients specifically undergoing cardiovascular disease testing. Physician use of the
PD2i Analyzer is supported by an expanding body of literature demonstrating the value of the
PD2i® nonlinear algorithm as a metric for risk stratifying specific target
populations for future pathological events, including diabetics for the presence of diabetic
autonomic neuropathy (DAN), cardiovascular disease patients for death resulting from arrhythmia or
congestive heart failure, and trauma victims for imminent death absent immediate lifesaving
intervention.
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This approval enables Vicor to market the PD2i Analyzer directly to cardiologists as a
diagnostic specifically targeted for use in cardiovascular disease testing, including the Ewing
Maneuvers which are performed during PD2i Analyzer ECG data collection. We view this as
recognition of the PD2i Analyzer as a meaningful metric for cardiovascular testing and validation
of, from a
regulatory perspective, our use of the Internet for the delivery of test data and analyses.
While cardiologists are already among users of the PD2i Analyzer as a diagnostic for heart rate
variability, which is a widely-accepted measure of autonomic nervous system health and by extension
cardiac health, we believe this new clearance will contribute positively to our
cardiologist-directed marketing efforts of the PD2i Analyzer and spur market acceptance of the
PD2i Analyzer as a valuable new diagnostic for cardiovascular disease testing.
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) submissions 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. |
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 Estimates
The following are deemed to be the most significant accounting estimates affecting us and our
results of operations:
Research and Development Costs
Research and development costs include payments to collaborative research partners and costs
incurred in performing research and development activities, including wages and associated employee
benefits, facilities and overhead costs. These are expensed as incurred.
Intellectual Property
Intellectual property, consisting of patents and other proprietary technology, are stated at
cost and amortized on the straight-line basis over their estimated useful economic lives. 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
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) through both 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.
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The Companys normal payment terms are net 30 days. However, in those cases where the Company
grants extended payment terms to a Customer, the Company defers revenue recognition until Customer
acceptance of the equipment.
The Company also enters into lease agreements for certain equipment sales. Revenue from the
leases is recognized ratably over the term of the lease.
Revenues from the analysis of test results are recognized upon provision of the test results
to the Customers.
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.
Accounting for Derivative Financial Instruments
We evaluate financial instruments using the guidance provided by ASC 815 and apply the
provisions thereof to the accounting of items identified as derivative financial instruments not
indexed to our stock.
Fair Value of Financial Instruments
The Company follows the provisions of ASC 820. This Topic defines fair value, establishes a
measurement framework and expands disclosures about fair value measurements.
The Company uses fair value measurements for determining the valuation of derivative financial
instruments payable in shares of its common stock. This primarily involves option pricing models
that incorporate certain assumptions and projections to determine fair value. These require
management judgment.
Results of Operations
As a development stage enterprise, Vicor began generating revenues in 2010. Because the
revenue volume is low relative to operating expenses and other gains and/or losses, management
believes the most informative presentation is to present and comment separately on revenues and
cost of sales, operating expenses and gain/loss on derivative financial instruments.
Revenues and cost of sales
Three months ended March 31, | ||||||||||||||||
2010 | 2011 | |||||||||||||||
Revenue: |
||||||||||||||||
Sales |
$ | 100,000 | 100.0 | % | $ | 159,000 | 94.6 | % | ||||||||
Leases |
| 0.0 | % | 9,000 | 5.4 | % | ||||||||||
100,000 | 100.0 | % | 168,000 | 100.0 | % | |||||||||||
Cost of revenue |
85,000 | 85.0 | % | 84,000 | 50.0 | % | ||||||||||
Gross profit |
$ | 15,000 | 15.0 | % | $ | 84,000 | 50.0 | % | ||||||||
At March 31, 2011 Vicor had 50 independent sales representatives. The increased gross
profit in 2011 results from an improved pricing structure and the efforts of our sales
representatives.
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Operating expenses
Three months ended March 31, | ||||||||||||||||
2010 | 2011 | |||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
$ | 157,000 | 8.0 | % | $ | 122,000 | 4.7 | % | ||||||||
Selling, general and administrative |
1,369,000 | 69.5 | % | 1,455,000 | 55.8 | % | ||||||||||
Interest |
445,000 | 22.5 | % | 1,031,000 | 39.5 | % | ||||||||||
Total operating expenses |
$ | 1,971,000 | 100.0 | % | $ | 2,608,000 | 100.0 | % | ||||||||
Research and Development
Research and development costs decreased $35,000 in 2011 compared to 2010. This was primarily
the result of lower costs of clinical studies and increased research by independent researchers. We
anticipate that future research and development expenses will remain relatively low due to
independent research efforts and the absence of a need for large scale clinical trials.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $86,000 in 2011. There were several
components of the net increase, as follows:
| Payroll and related costs were affected by a decrease of $291,000 in equity-based compensation expense. There were numerous management-level hires in 2010 with stock and stock option incentives. | ||
Recurring payroll costs increased due to overall higher staffing levels in 2011 compared to 2010 with related benefits. | |||
| Equity-based consulting expense increased $84,000 in 2011. This was caused by increased compensation of the Scientific Advisory Board, and especially its new Chairman, in recognition of the increased level of activity on behalf of Vicor, increase in expense recognized for independent members of the Board of Directors to reflect changes in vesting of stock options and warrants issued to a consultant as payment for services. | ||
| The amortization of certain deferred financing costs began in the second quarter of 2010 and increased 2011 expense by $81,000. | ||
| Legal and accounting expense increased $44,000. This increase is primarily attributable to the services by our outside law firm which serves as general counsel and independent accountants to assist management and the Board of Directors in matters related to the involvement of independent counsel in a special investigation authorized by the Board of Directors. |
Interest Expense
Interest expense increased $586,000 in 2011, most of which did not require the expenditure of
cash. The increase was primarily caused by $605,000 of increased amortization of deferred financing
costs related to derivative discounts and certain nonderivative warrants; and $134,000 of interest
on our debt instruments. Interest expense in 2010 of $139,000, related to the conversion of 8%
Notes, did not recur in 2011.
Gain (loss) on derivative financial instruments
There was a loss on derivative financial instruments of $117,000 for the three months ended
March 31, 2010 compared to a gain of $3,211,000 for the three months ended March 31, 2011. The
primary reason for this $3,328,000 difference was volatility in the Companys common stock price,
which rose during the first quarter of 2010 and declined in the first quarter of 2011. The fair
value resulting from the periodic mark-to-market calculation varies inversely to the change in the
stock price used in the Black-Scholes-Merton options pricing model.
Liquidity and Capital Resources
We generated revenues of $168,000 in the three months ended March 31, 2011, which compares
very favorably to 2010 annual total revenues of $189,000. While our revenues are generally in
accord with our current business plan, they are not yet sufficient to fully execute our business
plan and continue development of our products. Management recognizes that the Company must raise
additional capital to successfully continue operations, and, accordingly, we continue to look to
outside sources to raise capital.
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At March 31, 2011 we had a working capital deficiency of $1,528,000 and $121,000 in cash.
Based on our cash balance as of May 13, 2011, management believes that we have sufficient funds to
continue current operations through at least July 15, 2011. We anticipate various short-term
financings over the next 3 - 5 months to provide liquidity in anticipation of a more significant
financing event. These include short-term borrowings and sales of equity.
We engaged in no significant financing activities during the three months ended March 31,
2011. As of March 31, 2011 our primary debt instruments consist of 8% Subordinated Convertible
Notes (8% Subordinated Notes) and 10% Convertible Promissory Notes (10% Convertible Notes).
The 8% Subordinated Notes are due in October 2012, and there are currently no restrictions on
their conversion into common stock. The 8% Subordinated Notes are mandatorily convertible into
shares of the Companys 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 convertible debt or equity in an offering resulting in at least $3,000,000
of gross proceeds to the Company. Once the 8% Subordinated Notes are converted into shares of
common stock, this will eliminated the indebtedness represented by the 8% Subordinated Notes and
result in there being no further interest burden to the Company for the 8% Subordinated Notes.
Warrants to purchase 12,500 shares of the Companys common stock at $1.00 per share were
issued for each $10,000 of 8% Subordinated Notes sold and expire 5 years from date of issue.
The 10% Convertible Notes are due in September 2012 and are convertible into common stock at
the option of the holder at any time prior to maturity at a conversion price of 75% of the average
of the three lowest closing bid prices during the 10-day period preceding the conversion date. If
the Company conducts a registered public offering, as defined, of its common stock (or securities
convertible into or exercisable for shares of common stock), the conversion price is subject to
adjustment.
If the Company raises $5,000,000 or more from the sale of capital stock or debt securities, it
shall offer to redeem the 10% Convertible Notes for cash at rates
ranging from 110% - 115%,
depending on the date of the redemption after the issue date, plus accrued but unpaid interest. The
holders are not required to tender the 10% Convertible Notes for redemption.
For a financing of less than $5,000,000, the Company shall offer to redeem a pro rata portion
of the 10% Convertible Notes.
Warrants to purchase 22,200 shares of the Companys common stock at $0.80 per share were
issued for each $10,000 of 10% Convertible Notes sold and expire 4 years from date of issue. The warrants may be exercised in full or in
part and, at the option of the holder, may be exercised on a cashless basis.
Subsequent to March 31, 2011 the holders of the 10% Convertible Notes began the process of
converting their notes into shares of common stock under the supervision of an independent
investment manager. Such conversions are expected to be handled in an orderly manner, one that we
expect not to have a significant impact on our common stock prices. The conversions are expected to
be completed in approximately six months.
We have raised approximately $27,000,000 since our inception in 2000 in a series of private
placements of our common stock, convertible preferred stock and convertible notes to accredited
investors, a number of whom are physicians.
However, we may not be successful in raising additional capital. Further, assuming that we
raise additional funds, the Company may not achieve profitability or positive cash flow. If we are
not able to timely and successfully raise additional capital and/or achieve profitability or
positive cash flow, our operating business, financial condition, cash flows and results of
operations may be materially and adversely affected.
Going Concern
The Companys financial statements as of and for the three months ended March 31, 2011 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 of $4,806,000 for the year ended December 31, 2010. Although the Company had net income of
$687,000 for the three months ended March 31, 2011, this was affected by a $3,211,000 unrealized
gain on derivative financial instruments; absent this gain, the Company had a loss of $2,524,000.
At March 31, 2011 the Company had a working capital deficiency of $1,528,000, an accumulated
deficit of $59,385,000 and a net capital deficiency of $7,688,000. Although sales
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commenced in 2010, the Company anticipates operating losses over the next 12 months (and
likely longer) as it continues to incur expenditures necessary to further the commercial
development of its products. These matters raise substantial doubt about the Companys 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 funds 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 Companys development and operations. The Company is executing its plan to
secure additional capital through a multi-part funding strategy. The
Company anticipates 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 18 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 additional capital and/or achieve positive cash flow, its business, financial
condition, cash flows and results of operations will be materially and adversely affected.
Off-Balance Sheet Arrangements
We have not entered into any transaction, agreement or other contractual arrangement with an
unconsolidated entity under which we have:
| 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; or | ||
| An obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of David H. Fater, our Chief Executive Officer, and Thomas
J. Bohannon, our Chief Financial 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 our Chief Financial Officer concluded that at March 31, 2011 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 Commissions rules and forms and that such
information is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, or persons performing similar functions, as appropriate,
to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls
There was no change in our internal controls or in other factors that could affect these
controls during the quarter ended March 31, 2011 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 10 Commitments and Contingencies and Note 11 Subsequent Events in the Notes to
Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report
for information about legal proceedings in which we are involved.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31 2011, Vicor:
| Issued 239,540 shares of common stock to employees and consultants for services rendered. | ||
| Issued 200,000 options to an employee at an exercise price of $0.55 per share for a term of 7 years, vesting over two years, pursuant to the 2008 Stock Option Plan and 75,000 immediately exercisable warrants that expire February 2018 to a consultant at an exercise price of $0.60 per share. |
These securities issued in the foregoing transactions were exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended (Securities Act) or Rule 506 of Regulation
D, as transactions by an issuer not involving a public offering. All of the investors were
knowledgeable, sophisticated and had access to comprehensive information about the Company and
represented their intention to acquire the securities for investment only and not with a view to
distribute or sell the securities. No general advertising or solicitation was used in selling the
securities and no commissions or brokers fees were paid for the sale of the securities. The
Company placed legends on the certificates stating that the securities were not registered under
the Securities Act and set forth the restrictions on their transferability and sale.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Reserved and removed.
None.
Item 5. Other Information.
None.
Item 6. Exhibits
Exhibit No. | Description | |
31.1
|
Certification of David H. Fater, Chief Executive Officer and President, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.* | |
31.2
|
Certification of Thomas J. Bohannon, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.* | |
32.1
|
Certification of David H. Fater, Chief Executive Officer and President of Vicor Technologies, Inc., pursuant to 18 U.S.C. 1350.* | |
32.2
|
Certification of Thomas J. Bohannon, Chief Financial Officer of Vicor Technologies, Inc., pursuant to 18 U.S.C. 1350.* |
* | Filed herewith |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: May 16, 2011 | Vicor Technologies, Inc. |
|||
By: | /s/ David H. Fater | |||
David H. Fater Chief Executive Officer and President |
||||
By: | /s/ Thomas J. Bohannon | |||
Name: | Thomas J. Bohannon | |||
Title: | Chief Financial Officer | |||
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