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EX-5.1 - EX-5.1 - VYCOR MEDICAL INC | d28738_ex5-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Amendment No. 1
VYCOR MEDICAL, INC.
(Name of small business issuer in its charter)
(Exact Name of Registrant as Specified in its Charter)
Delaware |
333-149782 |
20-3369218 |
||||||||
(State or Other
Jurisdiction of Incorporation) |
(Commission File No.) |
(I.R.S. Employer Identification No.) |
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3651 FAU Boulevard, Suite 300, Boca Raton, FL |
33434 |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrants telephone number, including area code: (561) 558-2000
n/a
n/a
(Former name or former address, if changed since last report)
(Address of Principal Offices)
(Address of Principal Offices)
Approximate date of proposed sale to the public: From time to time after this Registration Statement becomes
effective.
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant
to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered |
Amount to be registered |
Proposed maximum offering price per share(1) |
Proposed maximum aggregate offering price |
Amount of registration fee |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock,
$0.0001 par value |
93,602,221 | $ | 0.04 | $ | 3,744,089 | $ | 435.38 | |||||||||||
Total |
93,602,221 | $ | 0.04 | $ | 3,744,089 | $ | 435,38 |
(1) |
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(e) under the Securities Act of 1933. |
The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete
and may be changed. The shareholders may not sell these securities until the registration statement filed with the Securities Exchange Commission is
effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Subject to completion, dated October , 2011
VYCOR MEDICAL, INC.
93,602,221 Shares of Common Stock
Par Value $0.0001 Per Share
Par Value $0.0001 Per Share
This prospectus relates to the offering by the selling
stockholders of VYCOR MEDICAL, INC. of up to 93,602,221 shares of our common stock, par value $0.0001 per share. We will not receive any
proceeds from the sale of common stock.
The selling stockholders have advised us that they will
sell the shares of common stock from time to time in brokers transactions, in the open market, on the OTC Bulletin Board, in privately negotiated
transactions or a combination of these methods, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or
at negotiated prices. We will pay the expenses incurred to register the shares for resale, but the selling stockholders will pay any underwriting
discounts, commissions or agents commissions related to the sale of their shares of common stock.
Our common stock is traded on the OTC Bulletin Board under
the symbol VYCO.OB. On October 21 , 2011, the closing sale price of our common stock was $0.0 3 per share.
You should rely only on the information contained in this
prospectus or any prospectus supplement or amendment. We have not authorized anyone to provide you with different information.
Investing in these securities involves significant
risks. See Risk Factors beginning on page 12.
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of the securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is October ,
2011.
The information contained in this prospectus is not
complete and may be changed. This prospectus is included in the registration statement that was filed by VYCOR MEDICAL, INC. with the Securities and
Exchange Commission. The selling stockholders may not sell these securities until the registration statement becomes effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not
permitted.
TABLE OF CONTENTS
PAGE | |||||||||||
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PART
I. INFORMATION REQUIRED IN A PROSPECTUS |
|||||||||||
ITEM
3. |
SUMMARY INFORMATION AND RISK FACTORS |
1 | |||||||||
ITEM
4. |
USE OF PROCEEDS |
20 | |||||||||
ITEM
5. |
DETERMINATION OF OFFERING PRICE |
20 | |||||||||
ITEM
6. |
DILUTION |
20 | |||||||||
ITEM
7. |
SELLING STOCKHOLDERS |
20 | |||||||||
ITEM
8. |
PLAN OF DISTRIBUTION |
21 | |||||||||
ITEM
9. |
DESCRIPTION OF SECURITIES TO BE REGISTERED |
23 | |||||||||
ITEM
10. |
INTEREST OF NAMED COUNSEL AND EXPERT |
28 | |||||||||
ITEM
11. |
INFORMATION WITH RESPECT TO THE REGISTRANT |
28 | |||||||||
BACKGROUND |
28 | ||||||||||
LEGAL PROCEEDINGS |
33 | ||||||||||
DESCRIPTION OF PROPERTY |
33 | ||||||||||
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
34 | ||||||||||
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
45 | ||||||||||
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS |
45 | ||||||||||
EXECUTIVE COMPENSATION |
48 | ||||||||||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
49 | ||||||||||
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS AND DIRECTOR INDEPENENCE |
50 | ||||||||||
EXPERTS |
52 | ||||||||||
WHERE YOU CAN FIND ADDITIONAL INFORMATION |
52 | ||||||||||
ITEM
12. |
INCORPORATION OF CERTAIN MATERIAL BY REFERENCE |
52 | |||||||||
ITEM 12A. |
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES |
52 | |||||||||
PART
II: INFORMATION NOT REQUIRED IN PROSPECTUS |
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ITEM
13. |
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION |
II-1 | |||||||||
ITEM
14. |
INDEMNIFICATION OF DIRECTORS AND OFFICERS |
II-1 | |||||||||
ITEM
15. |
RECENT SALES OF UNREGISTERED SECURITIES |
II-1 | |||||||||
ITEM
16. |
EXHIBITS |
II-5 | |||||||||
ITEM
17. |
UNDERTAKINGS |
II-6 | |||||||||
SIGNATURES |
II-8 | ||||||||||
EXHIBIT LIST |
II-10 |
i
INFORMATION REQUIRED IN A PROSPECTUS
ITEM 3. SUMMARY INFORMATION AND RISK
FACTORS
SUMMARY
The following summary highlights selected information
contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making
an investment decision, you should read the entire prospectus carefully, including the Risk Factors section, the financial statements, and
the notes to the financial statements.
For purposes of this prospectus, unless otherwise indicated
or the context otherwise requires, all references herein to Vycor, the Company, we, us, and
our, refer to VYCOR MEDICAL, INC., a Delaware corporation.
Going Concern. Our independent auditors,
Paritz & Company, certified public accountants, have expressed substantial doubt concerning our ability to continue as a going concern. We have
incurred losses since our inception, including a net loss of $2,760,927 for the six months ended June 30, 2011 and a net loss of $1,983,822 for the
year ended December 31, 2010 and we expect to incur substantial additional losses, including additional development costs, costs related to clinical
studies and manufacturing expenses. We have incurred negative cash flows from operations since inception. As of June 30, 2011 and December 31, 2010 we
had a stockholders equity of $1,946,617 and $88,714 respectively, total assets of $4,763,584 and $2,153,694 respectively, and cash and cash
equivalents balances of $2,206,616 and $127,081 respectively.
For the six months ended June 30, 2011 the aggregate of
cash used in operating activities and investing activities was $1,477,163, or an average monthly burn rate of approximately $250,000. The
cash and cash equivalent balance of $2,206,616 at June 30, 2011 is therefore equivalent to approximately 9 months of burn rate. This does
not take into account: additional equity issuance, net of debt and accrued interest repayments and net of public and investor relations costs required
under the June Preferred Offering, of $254,219; future sales growth; and future cost cutting. There have been no significant changes in the operations
of the Company since June 30, 2011 and none are anticipated in the next six months which would have a significant impact on the burn
rate.
The Company will seek to obtain additional cash from the
issuance of equity or debt securities although does not presently have any commitments for such funding. There is no assurance that additional funds
from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate funds are not
available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to
commercialize, or cease operations.
1
THE COMPANY
Business Overview
1. Organizational History
We were formed as a limited liability company under the
laws of the State of New York on June 17, 2005 as Vycor Medical LLC. On August 14, 2007, we converted into a Delaware corporation and
changed our name to Vycor Medical, Inc. (Vycor or the Company). On November 29, 2010, Vycor, through its
wholly-owned subsidiary NovaVision Acquisition, Inc., completed the acquisition of substantially all of the assets of the former NovaVision, Inc., a
company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological
visual loss. Subsequent to the purchase, NovaVision Acquisition, Inc. changed its name to NovaVision, Inc. (NovaVision).
2. Overview of Business
Vycor operates two distinct business units within the
medical device industry: Vycor Medical (which operates as a division of the Company) and NovaVision. Vycor Medical is a medical device company that
designs, develops and markets medical devices for use in neurosurgery. NovaVision develops non-invasive, computer-based visual neuro-stimulation
therapy for patients suffering from vision field deficits resulting from neurological trauma such as stroke and traumatic brain injuries, as well as
screening and diagnostic products. In addition to our existing products and products in development, we actively seek acquisition, joint ventures and
in-licensing opportunities in the medical device and therapy fields which we believe are complementary and will add shareholder value.
Vycor Medical, Inc.
Introduction
Vycor Medical is a medical device company that designs,
develops and markets medical devices for use in neurosurgery. Vycor Medical is ISO 13485:2003 compliant, has U.S. Food and Drug Administration
(FDA) 510(k) clearance for brain and spine self-retaining retractors used during surgeries, CE Marking for Europe and Canadian HPB
licensing for sale in Canada of its brain access system.
Vycor Medicals ViewSite Brain Access System
(VBAS), is a neurosurgical access system which was commercially launched in November 2008. The VBAS addresses a market that has not changed
materially in over 50 years in contrast to the numerous developments in most other neurosurgical technologies. VBAS has the potential to reduce brain
tissue trauma when accessing deep brain targets.
In early stages of development is the Cervical Access
System (VCAS), which requires further prototyping and successful market testing prior to commercialization. Like the VBAS, this product is
also designed to allow the surgeon easy access to a desired target; in this case the VCAS allows the surgeon to gain access to the anterior cervical
surgery site.
Vycor Medical has received FDA 510(k) clearance for its
products, with which we are authorized to market our products in the U.S. without further approvals.
Viewsite Brain Access System (VBAS)
To access most surgical sites in the brain, surgeons
usually need to remove part of the skull (craniotomy) and then separate (retract) the soft brain tissue to access the target site. The current standard
of care utilizes a metal blade retractor (also known as a ribbon or blade retractor) to separate the tissue, and the retractor blades are attached to a
head frame in order to apply tension to the tissue and maintain the opening.
With the VBAS system, the surgeon makes an incision,
inserts the clear, elliptical-shaped VBAS introducer through the brain tissue, and then removes the introducer and uses the clear hollow working
channel to provide access to the precise location desired for surgery.
VBAS was designed to be used to access surgical sites in
the brain in a minimally-invasive manner. VBAS provides a minimally traumatic surgical corridor to most areas of the brain for the surgeon. With
various sizes ranging from
2
12mm to 28mm, VBAS can be used for many types of procedures from key hole endoscopic surgery to removal of large tumors using standard instruments. VBAS is compatible with Image Guidance Systems (IGS) and can be used with these neuro-navigation systems to accurately reach the target in the brain. This allows the surgeon real-time visualization of retractor positioning.
The VBAS is a single-use product
and is available in multiple sizes. The series consists of twelve disposable products, offered in four different port diameters of 12mm, 17mm, 21mm and
28 mm and a choice of three lengths for each of 3, 5, and 7cm. We intend to add additional models in the future.
Product Advantages
Management believes that VBAS has a number of advantages
over standard blade or ribbon retractors:
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Less Invasive Procedure: The VBAS shape and minimal footprint enables the surgeon to access a specific target with a smaller incision, resulting in a smaller corticotomy and less disruption to surrounding tissues. |
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Reduction of Venous Pressure: Normal surgical procedures utilizing standard retractors require the pulling away of tissue to expose the target site. Current retractors have low surface areas and edges that in turn may lead to focal pressure on the delicate tissue of the brain. The lack of edges on the VBAS device, and the way in which the elliptical introducer retracts the tissue reduces pressure on the tissue. |
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Superior Field of View: Made of polished transparent polycarbonate, the VBAS increases a surgeons field of vision through a clear, visible and stable channel, allowing for continual monitoring of surrounding tissue and structures during surgery. |
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More Accurate Navigation: The VBAS device when inserted into the brain retracts tissue as the surgeon navigates to the surgical site; standard retractors do not. The VBAS product when used with a navigational pointer allows the surgeon to see on the surgical monitor, in real-time, exactly where the retractor is in relation to critical brain structures and underlying pathologies. This helps the surgeon to accurately reach the target site with minimum healthy tissue trauma. |
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Minimizes target shift: When standard retractors are utilized to access the target site, they pull on the brains soft tissue. This may cause the target area to shift from the location shown on the navigational system. This shifting of the target requires the surgeon to spend time repositioning the retractors as they work towards re-locating the target, exposing the delicate tissue to additional potential pressure. As a result of the VBAS elliptical shape there is even distribution of pressure and therefore less pulling of the tissue in one direction. |
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Potential ability to address previously difficult or inoperable procedures: Through its design, VBAS potentially allows the surgeon to address previously difficult or inoperable conditions, such as tumors seated too deeply or very close to critical structures. |
Product shortcomings
Our products have a few shortcomings:
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As compared to existing blade retractors diameter of our device is fixed as opposed to variable which might give the surgeon less flexibility once he is at the desired location. |
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The diameters and lengths of our devices are set to specific measurements, which may limit the surgeon to these specific sizes. |
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Depending on the case, usage of a disposable product may be viewed as more costly and may not be accepted by our potential end users. |
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Our device uses an ellipitical channel which potentially limits the working area compared to a round channel |
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Certain procedures such as aneurysms require greater site access and therefore are less appropriate for VBAS minimal approach. |
Because our products are relatively new to the market,
there is no guarantee that any of the above mentioned features would prove effective and be useful by the end user, and the extent to which we are
successful in achieving our objectives will be judged by the acceptance of the devices in the market.
3
Vycor Medical Product Pipeline
Brain Access and Related Products
We plan to develop additional Brain Access Systems shapes
and sizes and we are also identifying other products that may be used in conjunction with our VBAS product.
We are developing an extension arm as a re-usable accessory
that attaches to the VBAS device; this will enable easier connection to halo systems and other retractor systems on the market.
Cervical Access Products
We will continue our preliminary development of Cervical
Access System products which would be used by the surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck).
While the Company has filed certain intellectual property applications with respect to this technology, such development is in early
stage.
Market
We believe that approximately 30% of the 4,500 US
neurosurgeons focus predominantly on craniotomies or cranial procedures that could potentially benefit from the VBAS product. Management believes that
there are approximately 1,500 hospitals that represent the majority of its US target market.
Competition
Competing manufacturers of brain retractors include, among
others, Cardinal Health, Aesculap, Integra Life Sciences, Codman (Division of Johnson & Johnson), Medtronic, Stryker and others.
Sales, Marketing and Customers
Vycor Medical is currently focusing its marketing efforts
for VBAS on the US and Canada, China and Europe. Vycor Medical markets VBAS products to leading neurosurgeons and neurosurgery hospitals. Our domestic
distribution partners are independent distributors that have existing relationships with neurosurgeons and target hospitals serving
approximately 75% of the U.S. population.
Our European distribution partners focus on the
neurosurgery markets in Spain, Italy, Belgium, Scandinavia, Switzerland and the U.K. We have also entered into a distribution agreement for VBAS with a
Chinese distributor, however we must receive SFDA clearance before commencing sales in China. Vycor Medical has filed for, but not yet received such
SFDA approval. We are also undertaking the regulatory approval process in Australia and Japan.
In the US Vycor Medical sells to stocking regional
distributors and direct to hospitals through independent representatives. Management believes that its products currently are being utilized in
approximately 80 hospitals in the United States and currently being evaluated in a further 40 hospitals.
Manufacturing
Vycor Medical has executed agreements with Lacey
Manufacturing Company of Bridgeport, CT (Lacey) and C&J Industries of Meadville, PA (C&J) to provide a full range of
vertically integrated services for our products, including engineering, contract manufacturing and logistical support. Lacey and C&J are U.S.
FDA-registered and meet ISO standards and certifications.
Intellectual Property
Patent Applications
Vycor Medical has an issued patent in China and a patent
approved for grant in Russia, as well as 13 patent applications pending in the U.S. and internationally with respect to its
technology.
4
Trademarks
VYCOR MEDICAL is a registered trademark and VIEWSITE is
pending registration as a trademark with the United States Patent and Trademark Office.
NovaVision, Inc.
Introduction
NovaVision provides a non-invasive, computer-based visual
neuro-stimulation rehabilitation therapy called Vision Restoration Therapy (VRT) for those patients suffering from visual field deficits as
a result of neurological trauma. The Company also has some screening and diagnostic products. VRT is a patient-specific diagnostic and therapeutic
platform that can potentially increase a patients visual field and enable them to experience significant functional improvements. VRT is
currently focused on visual deficits resulting from stroke and traumatic brain injuries. It is estimated that 15 to 20% of these patients experience a
visual field deficit (VFD), reducing mobility and other activities of daily living (ADL). Patients with VFD often experience difficulties walking, are
prone to bumping into foreign objects and may be unable to read or even see different foods on their plates. The result is a loss of self-confidence,
decreased mobility, ADL difficulties and a lower quality of life. It is this sub-set of patients that is NovaVisions target market. In the US
alone this target audience is estimated to be in excess of 800,000 treatable patient population. Management believes that VRT could ultimately be
applied to other neurological causes of VFD.
Management believes that NovaVision is a leader in the
field of neurologically-caused VFD rehabilitation in the U.S. and Europe with over 2,000 patients having been treated with VRT. The Companys
therapy can be delivered to market through a variety of different channels physicians, rehabilitation centers, therapy centers and
direct-to-patient. NovaVision has a strong IP portfolio with 19 allowed, issued or granted patents and 17 pending patents.
NovaVision operates in the US and in Germany through
NovaVision AG, its wholly-owned subsidiary and has received 510(k) clearance and CE Marking for VRT.
VRT Platform Technology
The platform technology is comprised of proprietary
algorithms that generate patient-specific therapies enabling NovaVisions products to be used as both diagnostic and therapeutic tools. The
platform technology generates light-based stimulus programs, beginning with a fixation point on a display screen. As the patient focuses on this
fixation point, a series of light stimuli are delivered on the screen that are specific to the patients visual field loss. Most stimuli are
presented along the border of the patients visual field loss and relayed directly to the brain using the optic nerve as a
conduit.
For ophthalmic indications, the platform technology is
incorporated into NovaVisions VRT product and the programmed light sequences stimulate the border zone between the seeing and
blind visual fields. The diagnostic algorithm in the VRT product first maps the visual field and defines the areas of defect in patients
suffering vision loss. The therapeutic algorithm in the VRT product is then specifically designed for each patient based upon the results of the
diagnostic program and it repetitively challenges the visual cortex with multiple stimuli over the course of time.
VRT is performed over a six-month period twice a day for an
hour total, six days a week. Most patients do not necessarily experience material benefits until the third month of treatment, although there have been
a number of cases of faster improvement. During the initial months, patients may need ongoing encouragement so that they remain motivated to continue
with the treatment regimen.
NovaVision currently delivers its program in the US through
an integrated hardware/software package. The VRT device has a monitor and chinrest, along with a computer preloaded with the VRT software application,
to ensure that the patient is optimally positioned to ensure maximum consistency and effectiveness of treatment.
The therapy requires a prescription by a licensed physician
in the US. NovaVision markets VRT technology to active physicians; to date, approximately 500 prescribing physicians in the U.S. have registered with
NovaVision.
5
Product shortcomings
VRT has a few shortcomings:
|
There are certain conditions for which VRT may not be suitable, including: those with a light sensitive seizure disorder such as epilepsy; those with acute central nervous system or eye disease; those with significant cognitive difficulties that would preclude understanding the instructions or maintaining attention for the daily therapy sessions; and those with best corrected visual acuity worse than 20/200, and therefore with an inability to detect the stimuli reliably. |
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Results can vary significantly, and some patients who have been treated have had little to no improvement in their vision field. |
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There may be side effects. The majority of patients who undergo VRT do not experience any noticeable side effects, though a small number of patients have reported infrequent headaches. |
Marketing
NovaVision markets its therapy through physicians and
directly to patients, whom it refers to physicians for consultation, prescription and diagnosis prior to undergoing therapy. Its screening and
diagnostic products are marketed to physicians, medical and rehabilitation centers as well as academic institutions. NovaVision is in the process of
finalizing a significantly enhanced marketing strategy which will entail increased sales and marketing expenditure.
Market
NovaVisions core VRT product addresses a currently
largely unmet and substantial market. In the US alone management believes there are over 7 million stroke sufferers and 2.8 million TBI patients. It is
estimated that this equates to a treatable patient population of approximately 800,000, increasing each year.
NovaVision Product Pipeline
Utilizing VRTs underlying technology, NovaVision has
developed and commercialized related visual products for physicians. Management is in the advanced stages of development of a Class 1 screening device
with an integrated head-mounted perimetry HMP. Management believes its greatest advantage is its portability which enables it to be
utilized in a number of situations where patients with a VFD may otherwise not be able to take a table mounted test.
Regulatory Matters
NovaVisions products are regulated in the U.S. by the
FDA as Class U medical devices subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT as a Class I device. NovaVision received
its FDA 510(k) clearance for VRT specific to Stroke and TBI indications in 2003.
Intellectual Property
Patents
NovaVision maintains a portfolio of patent protection on
its methods and apparatus in the form of issued patents and applications, both domestically and internationally. NovaVision has 19 allowed, issued or
granted patents and 17 pending applications.
Trademarks
NovaVision maintains a portfolio of registered trademarks
for NovaVision, NovaVision VRT and Vision Restoration Therapy amongst others, both in the US and internationally.
6
Manufacturing and Operations
NovaVision assembles and tests all of its medical devices
within the Companys headquarters facility. NovaVision has an FDA Establishment Registration and the Company does not have any long-term
contractual obligations with its vendors to purchase products from them, nor are suppliers contractually obligated to sell products to
NovaVision.
3. Other Matters
Product Liability Insurance
We presently have product liability insurance for both
Vycor Medical and NovaVision.
Government Regulations
We are committed to an integrated total quality management
system. We believe that we have completed the necessary procedures and are certified to the ISO standards expected of medical device manufacturers as
follows:
ISO 13485:2003 Medical Devices Quality Management
Systems
The certification of a quality management system to ISO
13485, specifically for medical devices, is advantageous and often essential for medical companies to export their products to the global market, as
well as maintain and enter into certain agreements and business growth opportunities within the U.S. For example, Canada requires that medical device
manufacturers marketing their products in Canada must have a quality system certified to ISO 13485:2003. The certification is also required for
placement of branded devices into the European Union.
Vycor Medical has the following
certification/licensing:
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Fully Quality Assurance System Directive 93/42/EEC for Medical Devices, Annex II (3) |
|
EC Design-Examination Certificate Directive 93/42/EEC for Medical Devices, Annex II (4) |
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ISO 13485.2003 |
|
HPB Licensing for Canada |
Continuing Regulatory Requirements
Governmental regulation in the United States and other
countries is a significant factor affecting the research and development, manufacture and marketing of medical devices, including our products. In the
United States, the FDA has broad authority under the Federal Food, Drug and Cosmetic Act (the FD&C Act) to regulate the development, distribution,
manufacture, marketing and sale of medical devices. Foreign sales of medical devices are subject to foreign governmental regulation and restrictions
that vary from country to country.
Medical devices intended for human use in the United States
are classified into one of three categories, depending upon the degree of regulatory control to which they will be subject. Such devices are classified
by regulation into either Class I general controls, Class II special standards or Class III pre-market approval (PMA), depending upon the level of
regulatory control required to provide reasonable assurance of the safety and effectiveness of the device.
Most Class I devices are exempt from pre-market
notification (510(k)) or PMA. However, Class I devices are subject to general controls, including compliance with FDA manufacturing
requirements (Quality System Regulation (QSR), sometimes referred to as current good manufacturing practices or CGMPs), adverse event reporting,
labeling and other requirements. Class II devices are subject to general controls and to the pre-market notification requirements under Section 510(k)
of the FD&C Act. For a 510(k) to be cleared by the FDA, the manufacturer must demonstrate to the FDA that a device is substantially equivalent to
another legally marketed device that was either cleared through the 510(k) process or on the market prior to 1976. It generally takes four to twelve
months from the date of submission to obtain 510(k) clearance although it may take longer. Class III is the most stringent regulatory category for
devices. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special
controls. Class III devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human
health, or which present a potential,
7
unreasonable risk of illness or injury. Class III devices also include devices that are not substantially equivalent to other legally marketed devices. To obtain approval to market a Class III device, a manufacturer must obtain FDA approval of a PMA application. The PMA process requires more data, including ordinarily data from clinical studies testing the device in humans, takes longer and is typically a significantly more complex and expensive process than the 510(k) procedure. Clinical studies of devices in humans is also subject to regulation by the FDA. Testing must be conducted in compliance with the investigational device exemption (IDE) regulations.
According to the FDA, Vycor Medicals products have
been classified as Class II products and cleared for marketing through the 510(k) process. NovaVisions VRT product has been cleared as a Class U
product while its HMP has been cleared as a Class 1 device.
We can provide no assurance that we will be able to
maintain and obtain clearances or approvals needed to introduce new products and technologies. After a device is placed on the market, numerous
regulatory requirements apply. These include:
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quality system regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process; |
|
labeling regulations, which prohibit the promotion of products for unapproved or off-label uses and impose other restrictions on labeling; and |
|
medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur. |
Failure to comply with applicable regulatory requirements
can result in enforcement action by the FDA, which may include any of the following sanctions:
|
fines, injunctions, and civil penalties; |
|
recall or seizure of our products; |
|
operating restrictions, partial suspension or total shutdown of production; |
|
Refusing a request for 510(k) clearance or premarket approval of new products; |
|
withdrawing 510(k) clearance or premarket approvals that are already granted; and |
|
criminal prosecution. |
Medical device laws are also in effect in many of the
countries outside of the United States in which we will do business. These laws range from comprehensive device approval and quality system
requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these
requirements are increasing. In June 1998, the European Union Medical Device Directive became effective, and all medical devices must meet the Medical
Device Directive standards and receive CE mark certification. CE mark certification involves a comprehensive Quality System program, and submission of
data on a product to the Notified Body in Europe.
Vycor Medical has obtained the CE marking approval to allow
for distribution of its VBAS products in Europe and has received our HPB licensing approval for distribution in Canada. NovaVisons VRT is
considered a Class 1 device in Europe. HMP does not have European regulatory clearance at this time.
Health Care Regulatory Issues
The health care industry is highly regulated and the
regulatory environment in which we operate may change significantly in the future. In general, regulation of health care-related companies is
increasing. We anticipate that Congress and state legislatures will continue to review and assess alternative health care delivery and payment systems.
We cannot predict what impact the adoption of any federal or state health care reform measures may have on our business.
8
We regularly monitor developments in statutes and
regulations relating to our business. We may be required to modify our agreements, operations, marketing and expansion strategies from time to time in
response to changes in the statutory and regulatory environment. We plan to structure all of our agreements, operations, marketing and strategies in
accordance with applicable law, although we can provide no assurance that our arrangements will not be challenged successfully or that required changes
may not have a material adverse effect on our business, financial condition, results of operations and cash flows.
We believe that the discussion above summarizes all of the
material health care regulatory requirements to which we currently are subject. Complying with these regulatory requirements may involve expense to us,
delay in our operations and/or restructuring of our business relationships. Violations could potentially result in the imposition of civil and/or
criminal penalties.
Employees
We currently have 14 full-time employees.
Outstanding Shares. As of the date of this
prospectus, the Company has 806,157,246 shares of $0.0001par value common stock issued and outstanding to a total of approximately
90 shareholders of record.
Fiscal Year End. The Companys fiscal year end
is December 31.
Website. The Company operates websites at
www.vycormedical.com and www.novavision.com.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements. This
prospectus includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good
faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. These
forward looking statements can be identified by the use of terms and phrases such as believe, plan, intend,
anticipate, target, estimate, expect, and the like, and/or future-tense or conditional constructions
may, could, should, etc. Items contemplating or making assumptions about, actual or potential future sales, market
size, collaborations, and business opportunities also constitute such forward-looking statements.
Although forward-looking statements in this report reflect
the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other
risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are
urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to
update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be
required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed
with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial
condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove
incorrect, our actual results may vary materially from those expected or projected.
CORPORATE ADDRESS AND TELEPHONE
NUMBER
The Company maintains its designated office at 3651 FAU
Boulevard, Suite 300, Boca Raton, FL 33434. The Companys telephone number is 561-559-2000.
9
THE OFFERING
This prospectus will be utilized in connection with the
re-sale of 93,602,221 shares which could be potentially issued in the future as of the result of the prospective exercise of certain investor warrants,
placement agent warrants and other warrants which were issued in connection with the Companys recent stock offering. The Company will not receive
any proceeds from any sales of these shares.
Common stock
currently outstanding |
806,157,246 shares(1) |
|||||
Common stock
offered by the selling stockholders |
93,602,221 shares |
|||||
Use of proceeds
|
We
will not receive any proceeds from the sale of common stock offered by this prospectus. |
(1) |
Shares of common stock outstanding as of October 21 , 2011. |
10
FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations
data contains consolidated statement of operations data and consolidated balance sheet for the fiscal years period ended December 31, 2010 and December
31, 2009. The consolidated statement of operations data and balance sheet data were derived from the audited consolidated financial statements. Such
financial data should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements starting
on page 45 and with Managements Discussion and Analysis of Financial Condition and Results of Operations.
12/31/10 (as restated) |
12/31/09 (as restated) |
12/31/08 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues
|
$ | 316,450 | $ | 199,046 | $ | 129,947 | ||||||||
Net loss
|
$ | (1,983,822 | ) | $ | (1,164,036 | ) | $ | (2,381,295 | ) | |||||
Net loss per
share |
$ | (0.003 | ) | $ | (0.040 | ) | $ | (0.108 | ) | |||||
Weighted
average no. shares |
663,168,900 | 29,183,482 | 21,977,954 | |||||||||||
Stockholders equity (deficit) |
$ | 88,714 | $ | (1,245,940 | ) | $ | (921,427 | ) | ||||||
Total assets
|
$ | 2,153,694 | $ | 400,960 | $ | 633,437 | ||||||||
Total
liabilities |
$ | 2,064,980 | $ | 1,646,900 | $ | 1,554,864 |
The following selected data contains statement of
operations data and balance sheet for the three months ended June 30, 2011 and June 30, 2010. The statement of operations data and balance sheet data
were derived from the financial statements for the periods. Such financial data should be read in conjunction with the unaudited financial statements
and the notes to the financial statements for said periods starting on page 45 and with Managements Discussion and Analysis of Financial
Condition and Results of Operations.
As of June 30, 2011 |
As of June 30, 2010 (restated) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance Sheet
Data: |
||||||||||
Assets
|
$ | 4,760,602 | $ | 2,153,694 | ||||||
Liabilities
|
$ | 2,816,966 | $ | 2,064,980 | ||||||
Total
Stockholders Equity |
$ | 4,760,602 | $ | 2,153,694 | ||||||
Statement of
Operations Data |
||||||||||
Revenue
|
$ | 142,331 | $ | 74,817 | ||||||
Operating
Expenses |
$ | 1,912,851 | $ | 477,021 | ||||||
Net Loss
|
$ | (1,835,258 | ) | $ | (420,185 | ) | ||||
Basis and
Diluted Loss Per Share |
$ | (0.002 | ) | $ | (0.001 | ) | ||||
Weighted
Average Number of Shares Outstanding |
780,845,969 | 649,281,287 |
11
RISK FACTORS
Before you invest in our securities, you should be aware
that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual
report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business,
financial condition or results of operations could be materially adversely affected.
Risks Related to Our Financials
We do not have a significant operating history and
have not achieved profitable operations. If we are unable to achieve profitable operations, you may lose your entire
investment.
Our independent auditors, Paritz
& Company, certified public accountants, have expressed substantial doubt concerning our ability to continue as a going concern. We have incurred
losses since our inception, including a net loss of $1,983,822 for the year ended December 31, 2010 and we expect to incur substantial additional
losses, including additional development costs, costs related to clinical studies and manufacturing expenses. We have incurred negative cash flows from
operations since inception. As of December 31, 2010 we had a stockholders equity of $88,714 and a cash and cash equivalents balance of $127,081
at December 31, 2010. Since we have no record of profitable operations, there is high a possibility that you may suffer a complete loss of your
investment.
The absence of significant operating history for us
makes forecasting our revenue and expenses difficult, and we may be unable to adjust our spending in a timely manner to compensate for unexpected
revenue shortfalls or unexpected expenses.
As a result of the absence of
profitable operating history for us, it is difficult to accurately forecast our future revenue. In addition, we have limited meaningful historical
financial data upon which to base planned operating expenses. Current and future expense levels are based on our operating plans and estimates of
future revenue. Revenue and operating results are difficult to forecast because they generally depend on our ability to promote and sell our products.
As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would result in
further substantial losses. We may also be unable to expand our operations in a timely manner to adequately meet demand to the extent it exceeds
expectations.
Our limited operating history does not afford
investors a sufficient history on which to base an investment decision.
We were formed on June 17, 2005
and are currently in the early stages of marketing our products. There can be no assurance at this time that we will ever operate profitably or that we
will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently
encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:
|
competition; |
|
need for acceptance of products and therapies there can be no assured market for our products and therapies and there is no guarantee of orders or surgeon and patient acceptance; |
|
ability to continue to develop and extend brand identity; |
|
ability to anticipate and adapt to a competitive market; |
|
ability to effectively manage rapidly expanding operations; |
|
amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and |
|
dependence upon key personnel to market and sell our products and the loss of one of our key managers may adversely affect the marketing of our products. |
We cannot be certain that our
business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks,
our business, prospects, financial condition, and results of operations could be materially and adversely affected.
12
Our revenue is dependent upon acceptance of our
products and therapies by the market. The failure of such acceptance will cause us to curtail or cease operations.
Virtually all of our revenue
comes from the sale of our products and therapies. As a result, we will continue to incur substantial operating losses until such time as sales of our
products and therapies reach a mature level and we are able to generate sufficient revenue from the sale of our products and therapies to meet our
operating expenses. There can be no assurance that customers will adopt our technology and products, or that businesses and prospective customers will
agree to pay for our products and therapies or that there will be adequate insurance reimbursement for our products and therapies, if at all. In the
event that we are not able to significantly increase the number of customers that purchase our products and therapies, or if we are unable to charge
the necessary prices, our financial condition and results of operations will be materially and adversely affected.
Risks Related to Our Business
We cannot be certain that we will obtain patents for
our devices and technology or that such patents will protect us from competitors
We believe that our success and
competitive position will depend in large part on our ability to obtain and maintain patents for our devices. We have filed patent applications for our
Brain Access System and Cervical Access System and for the technologies underlying our NovaVision therapies and products. The U.S. Patent and Trademark
Office typically requires 12-24 months or more to process a patent application. There can be no assurance that our patent applications will be
approved. However we have not waited for the approval of the patent applications before launching sales of our devices. There can be no assurance
regarding how long it will take the U.S. Patent and Trademark Office to decide whether to approve our patent applications or how long it will take
foreign patent offices to grant us patents. There can be no assurance that any patent issued or licensed to us will provide us with protection against
competitive products and therapies or otherwise protect our commercial viability, or that challenges will not be instituted against the validity or
enforceability of any of our patents or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity of a
patent and enforce it against infringement can be substantial and we do not have patent insurance. Even issued patents may later be modified or revoked
by the Patent and Trademark Office or in legal proceedings. Patent applications in the United States are maintained in secrecy until the patent issues
and, since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries, we cannot be certain that we were
the first creator of the inventions covered by our pending patent applications or the first to file patent applications on such
inventions.
Vycor Medical is dependent on two key vendors to
manufacture our products.
Vycor Medical is dependent on
Lacey Manufacturing Company and C&J Industries to provide a full range of engineering, contract manufacturing and logistical support to manufacture
our products. We are dependent upon their manufacture of our products in accordance with our specifications and delivering them on a timely
basis.
If either supplier fails to
manufacture and/or deliver our products as specified, we may need to locate another manufacturer. We can offer no assurances that we will be successful
in finding an alternate manufacturer and negotiating acceptable terms with them on a timely basis without impact on our manufacturing and delivery
schedule.
Both manufacturers are subject to
regulatory requirements and certifications. Loss of such certification would affect our ability to deliver products.
We will need distribution and marketing partners to
help us market our products.
At this time, we only have
limited distribution and marketing channels which we will need to expand in the future. Vycor Medical has contracted with independent medical device
distributors and representatives that collectively have field salespeople who call on neurosurgery departments and have undertaken to expand the
international scope of our sales and distribution. We are in also in discussions with other potential medical device distributors and sales agents for
both Vycor Medical and NovaVision. There is no assurance that the contracted distributors or potential new distributors will be successful in promoting
and selling our products and therapies.
13
We will need to raise substantial additional funds to
bring any products to market and operate.
Our current funds are only
sufficient to allow us to operate for a limited period of time. We will require additional funds in order to continue our operations after we exhaust
our available funding. For the six months ended June 30, 2011 the aggregate of cash used in operating activities and investing activities was
$1,477,163, or an average monthly burn rate of approximately $250,000. The cash and cash equivalent balance of $2,206,616 at June 30, 2011
is therefore equivalent to approximately 9 months of burn rate. This does not take into account: additional equity issuance, net of debt
and accrued interest repayments and net of public and investor relations costs required under the June Preferred Offering, of $254,219; future sales
growth; and future cost cutting. There have been no significant changes in the operations of the Company since June 30, 2011 and none are anticipated
in the next six months which would have a significant impact on the burn rate. Beyond this period the Company believes it will not have
enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There
is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or
at all. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the
Company would otherwise seek to commercialize, or cease operations .
We may not be successful in capturing desired market
share if products are not integrated with neuro-navigational systems.
We believe that integrated Vycor
Medicals products with neuro-navigation systems will be important in gaining market acceptance. We can offer no assurances that we will be able
to conclude a formal integration agreement with any of the manufacturers of these systems. Further, if we were to grant an exclusive to one
manufacturer of neuro-navigation systems, we may be precluded from selling our products to customers who do not use that particular navigation
system.
Sales may not produce
profits.
We may be forced to sell our
products at a lower price than anticipated due to a variety of reasons, including without limitation selling prices of comparable products by our
competitors and budget constraints of our customers. Further, we may sell fewer products than anticipated, and the costs associated with each unit,
including costs of manufacturing and commissions, may be greater than anticipated. As a result, there is a risk that costs associated with the sales of
our products may be greater than we anticipated and that the sale of devices may fail to yield profitability.
Our products may not be accepted in the
marketplace.
Uncertainty exists as to whether
our products and therapies will be fully accepted by the market without extensive additional clinical evaluations. A number of factors may limit the
market acceptance of our products and therapies, including the timing of regulatory approvals and market entry relative to competitive products, the
availability of alternative products and therapies and the price of the our products and therapies relative to alternative products and therapies.
There is a risk that surgeons will be encouraged to use multiple use devices, such as retractors, instead of our single use devices. Our VBAS device is
designed to be used once and then discarded. Vycor Medicals competitors market multiple use devices such as retractors. The multiple use devices
are not appreciably more expensive than our single use devices and therefore they are significantly less expensive on a per use basis. We are assuming
that notwithstanding the difference in price that surgeons will elect to use our devices because of their perception that our devices will permit safer
and less invasive surgery. However, hospitals, medical insurance providers, health maintenance organizations and others approving surgical costs may
decide that the cost outweighs the benefit. In addition, surgeons may opt to use other devices.
14
Even if our products are approved by regulatory
authorities, if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products,
these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain
marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to
continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the
Quality System Regulation, or QSR, for the manufacture of our products which cover the methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval. The FDA enforces the GMP
and QSR through unannounced inspections. We and our third party manufacturers and suppliers will have to successfully complete such inspections.
Failure by us or one of our suppliers, with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate
response to any observations, could result in, among other things, any of the following enforcement actions:
|
warning letters or untitled letters; |
|
fines and civil penalties; |
|
unanticipated expenditures; |
|
withdrawal or suspension of approval by the FDA or other regulatory bodies; |
|
product recall or seizure; |
|
orders for physician notification or device repair, replacement or refund; |
|
interruption of production; |
|
operating restrictions; |
|
injunctions; and |
|
criminal prosecution. |
If any of these actions were to
occur it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently
be or may not continue to be in compliance with applicable regulatory requirements.
If the FDA determines that our
promotional materials, training or other activities constitutes promotion of an unapproved use, it could request that we cease or modify our training
or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement
authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could
result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
Moreover, any modification to a
device that has received FDA approval that could significantly affect its safety or effectiveness, or that would constitute a major change in its
intended use, design or manufacture, requires a new approval from the FDA. If the FDA disagrees with any determination by us that new approval is not
required, we may be required to cease marketing or to recall the modified product until we obtain approval. In addition, we could also be subject to
significant regulatory fines or penalties.
In addition, we may be required
to conduct costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report adverse
events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse
events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR
or GMP, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory
recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.
15
Further, healthcare laws and
regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business
by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory
environment may change in a way that restricts our operations.
Similarly, in Canada, Health
Canada could place a hold on imports from us and could revoke any licenses held for violations of its rules and regulations. Health Canada could issue
a warning the first time around and we would be obligated to fix the problem and follow up with Health Canada.
In Europe, the relevant European
authorities could hold imports from us and remove CE marking for violating their rules and regulations. We could get a warning from a European
Competent Authority or its Notified Body and we would be obligated to fix the problem and follow up with either the Notified Body or Competent
Authorities.
Because product liability is inherent in the medical
devices industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.
Our business exposes us to
potential product liability risks, which are inherent in the manufacturing, marketing and sale of medical devices. While we will take precautions we
deem to be appropriate to avoid product liability suits against us, there can be no assurance that we will be able to avoid significant product
liability exposure. Product liability insurance for the medical products industry is generally expensive, to the extent it is available at all. While
we have product liability coverage, there can be no assurance that we will be able to continue to obtain such coverage on acceptable terms, or that any
insurance policy will provide adequate protection against potential claims. A successful product liability claim brought against us may exceed any
insurance coverage secured by us and could have a material adverse effect on our results or ability to continue marketing our
products.
Because the healthcare industry is subject to
changing policies and procedures, we may find it difficult to continue to compete in an uncertain environment.
The health care industry is
subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare industry
participants. During the past several years government regulation of the healthcare industry has changed significantly in several countries. Healthcare
industry participants may react to new policies by curtailing or deferring use of new treatments for disease, including treatments that would use our
devices. This could substantially impair our ability to successfully marker our products, which would have a material adverse effect on our
performance.
The market success of our products and therapies will
be dependent in part upon third-party reimbursement policies that are often subject to change.
Our ability to successfully
penetrate the market for our products and therapies may depend significantly on the availability of reimbursement to individuals for rehabilitation
therapies and to hospitals for neurosurgical procedures from third-party payers, such as governmental programs, private insurance and private health
plans. There is no guarantee that this will not change in the future or that applicable levels of reimbursement to individuals and hospitals, if any,
will be high enough to allow us to charge a reasonable profit margin. Vycor Medicals products are not specifically reimbursed by third party
payors, they are part of the overall procedure cost and therefore some hospitals may view this as an increase in cost. If levels of reimbursement are
decreased in the future, the demand for our products could diminish or our ability to sell our products on a profitable basis could be adversely
affected.
Some of our competitors are more established and
better capitalized than we are and we may be unable to establish market share.
Some of our competitors are
well-known, more established and better capitalized than we are. As such, they may have at their disposal greater marketing strength and economies of
scale. They may also have more resources to expend on research and development to create more innovative products in competition with ours.
Accordingly, we may not be successful in competing with them for market share.
16
We will need to increase the size of our
organization, and may experience difficulties in managing growth.
We are a small company with
minimal employees. We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that
further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities
on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and its ability to
compete effectively will depend, in part, on its ability to manage any future growth effectively.
We are subject to compliance with securities law,
which exposes us to potential liabilities, including potential rescission rights.
We have offered and sold our
common stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various
state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and
that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our
prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such
exemptions, including information provided by investors themselves.
If any prior offering did not
qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an
investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be
offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes under the
National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face severe financial demands that
could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may
become subject to significant fines and penalties imposed by the SEC and state securities agencies.
The availability of a large number of authorized but
unissued shares of common stock may, upon their issuance, lead to dilution of existing stockholders.
We are authorized to issue
1,500,000,000 shares of common stock, $0.0001 par value per share, of which, as of October 21 , 2011, 806,157,246 shares of common stock
were issued and outstanding. These shares may be issued by our board of directors without further stockholder approval. The issuance of large numbers
of shares, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances
of large numbers of shares may adversely affect the market price of our common stock.
Further, our Certificate of
Incorporation authorizes 10,000,000 shares of preferred stock, $0.0001 par value per share of which as of October 21 , 2011 63.8 shares of
preferred stock were issued and outstanding. The board of directors is authorized to provide for the issuance of these unissued shares of preferred
stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of
directors may issue preferred stock which convert into large numbers of shares of common stock and consequently lead to further dilution of other
shareholders.
There is also a large number of
warrants and options outstanding which, if fully exercised, would increase the number of outstanding shares by approximately 265
million.
We may need additional capital that could dilute the
ownership interest of investors.
We require substantial working
capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these
securities may have rights, preferences or privileges senior to those of the rights of holders of our common stock and they may experience additional
dilution. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. Since our inception, we
have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations in the future. The issuance
of additional common stock by our management, may have
17
the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.
We rely on our current management team for the
management of our business, and the loss of their services may significantly harm our business and prospects.
We depend, to a large extent, on
the abilities and participation of our current management team. The loss of the services of any member of our management team, for any reason, may have
a material adverse effect on our business and prospects. We cannot assure you that the services of the members of our management team will continue to
be available to us, or that we will be able to find a suitable replacement for any of them. We do not have key man insurance on any members of our
management team. If any member of our management team were to die and we are unable to replace either or both of them for a prolonged period of time,
we may be unable to carry out our long term business plan and our future prospect for growth, and our business, may be harmed.
We may not be able to hire and retain qualified
personnel to support our growth and if we are unable to retain or hire such personnel in the future, our ability to improve our products and implement
our business objectives could be adversely affected.
Our future success depends
heavily upon the continuing services of the members of our senior management team. If one or more of our senior executives or other key personnel
is/are unable or unwilling to continue in his/her/their present positions, we may not be able to replace them easily or at all, and our business may be
disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and
personnel is intense, the pool of qualified candidates in the medical device field is very limited, and we may not be able to retain the services of
our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could
materially and adversely affect our future growth and financial condition.
We may not have effective disclosure controls and
procedures and adequate internal accounting controls.
We are constantly striving to
improve our internal accounting controls. Notwithstanding, the Companys CEO and CFO concluded that the Companys disclosure controls and
procedures were not effective as of the period commencing December 2009 through the period ended June 30, 2011 to ensure that information required to
be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Companys
management, including the Companys CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. We do not have a
full-time dedicated Chief Financial Officer. We hope to develop effective disclosure controls and procedures and an adequate internal accounting
control to budget, forecast, manage and allocate our funds and account for them. There is no guarantee that such improvements will be adequate or
successful or that such improvements will be carried out on a timely basis. If we do not have adequate internal accounting controls, we may not be able
to appropriately budget, forecast and manage our funds, we may also be unable to prepare accurate accounts on a timely basis to meet our continuing
financial reporting obligations and we may not be able to satisfy our obligations under US securities laws.
We may have inadequate insurance
coverage
We only have Directors and
Officers Liability Insurance and Product Liability insurance at present. We have exposure in the event of loss or damage to our properties. We are
seeking quotations for property and other necessary insurances.
We cannot assure you that we
would not face liability in the event of the failure of any of our products. This is particularly true given our plan to significantly expand our sales
into international markets, like Europe, where product liability claims are more prevalent. Moreover, our insurance may not be adequate to cover any
such product liability damages.
We do not maintain a reserve fund
for warranty or defective products claims. Our costs could substantially increase if we experience a significant number of warranty claims. We have not
established any reserve funds for
18
potential warranty claims. If we experience an increase in warranty claims or if our repair and replacement costs associated with warranty claims increase significantly, it would have a material adverse effect on our financial condition and results of operations.
Risks Related to an Investment in Our Common
Stock
Fountainhead Capital Management Limited effectively
controls us through their position and stock ownership and their interests may differ from other stockholders
As of October 21 , 2011,
Fountainhead Capital Management Limited beneficially owned, in the aggregate, approximately 66% of our common stock. As a result, they are holders of a
majority of the outstanding shares and they may be able to influence the outcome of stockholder votes on various matters, including the election of
directors and extraordinary corporate transactions, including business combinations. Their interests may differ from other
stockholders.
We do not intend to pay cash dividends in the
foreseeable future
We currently intend to retain all
future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will
review this policy as circumstances dictate.
Our common stock is subject to the Penny Stock
Regulations
Our common stock and will likely
be subject to the SECs penny stock rules to the extent that the price remains less than $5. Those rules, which require delivery of a
schedule explaining the penny stock market and the associated risks before any sale, may further limit your ability to sell your
shares.
The SEC has adopted regulations
which generally define penny stock to be an equity security that has a market price of less than $5 per share. Our common stock, when and
if a trading market develops, may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of
$1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).
For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchasers prior
written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market.
Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited
market in penny stocks. Consequently, the ‘penny stock‘ rules may restrict the ability of broker-dealers to sell our common stock and may
affect the ability of investors to sell their common stock in the secondary market.
Our common stock may be illiquid and subject to price
volatility unrelated to our operations
The market price of our common
stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly
operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the
financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their
operating performance and could have the same effect on our common stock.
Also, as a result of the exercise
or conversion of certain convertible securities by the selling stockholders, there may be a significant number of new shares of common stock on the
market in addition to the current public float. Sales of substantial amounts of common stock, or the perception that such sales could occur, and the
existence of
19
convertible securities to purchase shares of common stock at prices that may be below the then current market price of the common stock, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.
ITEM 4. USE OF PROCEEDS
This prospectus relates to the resale of our common stock
that may be offered and sold from time to time by the selling stockholders. We will not receive any proceeds from the sale of shares of common stock in
this offering.
ITEM 5. DETERMINATION OF OFFERING PRICE
All shares of our common stock being offered will be sold
by the selling stockholders without our involvement. It is our expectation that the selling shareholders will sell their shares at the market prices
prevailing from time-to-time.
ITEM 6. DILUTION
The common stock to be sold by the selling shareholders is
common stock that is currently issued or will be issued to our shareholders upon exercise of certain Warrants issued by the Company. Accordingly, there
will be no dilution to our existing shareholders from these sales, other than from the exercise of the Warrants.
ITEM 7. SELLING STOCKHOLDERS
The following table sets forth the number of shares of
Company common stock issuable on the exercise of warrants beneficially owned, as of the date of this prospectus, by the selling stockholders prior to
the offering contemplated by this prospectus, the number of shares which are issuable on the exercise of warrants beneficially owned by each selling
stockholder which is being offered by this prospectus and the number of shares which are issuable on the exercise of warrants beneficially owned which
each selling stockholder would own beneficially if all such offered shares are sold. None of the selling stockholders is known to us to be a registered
broker-dealer or an affiliate of a registered broker-dealer. Each of the selling stockholders has acquired his, her or its shares solely for investment
and not with a view to or for resale or distribution of such securities. Beneficial ownership is determined in accordance with SEC rules and includes
voting or investment power with respect to the securities.
Name(1) |
Shares of common stock owned prior to the offering |
Shares of common stock to be sold(2) |
Shares of common stock owned after the offering |
Percentage of common stock owned after this offering |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
MKM
Opportunity Master Fund, Limited |
5,555,556 | 5,555,556 | 0 | 0.00 | % | |||||||||||||
Andrew
Mitchell |
555,556 | 555,556 | 0 | 0.00 | % | |||||||||||||
Matthew Balk
|
3,589,333 | 3,589,333 | 0 | 0.00 | % | |||||||||||||
Daniel Balk
|
1,222,222 | 1,222,222 | 0 | 0.00 | % | |||||||||||||
David Balk
|
1,222,222 | 1,222,222 | 0 | 0.00 | % | |||||||||||||
Daniel
Schneiderman |
885,778 | 885,778 | 0 | 0.00 | % | |||||||||||||
Jonathan Balk
|
555,556 | 555,556 | 0 | 0.00 | % | |||||||||||||
Richard L.
Hoffman |
500,000 | 500,000 | 0 | 0.00 | % | |||||||||||||
Robert I and
Sandra S Neborsky Living Trust |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Skriloff
Family Irrevocable Trust for benefit of Samuel Skriloff |
111,111 | 111,111 | 0 | 0.00 | % | |||||||||||||
Skriloff
Family Irrevocable Trust for benefit of Olivia Skriloff |
111,111 | 111,111 | 0 | 0.00 | % | |||||||||||||
Jason Adelman
|
2,771,556 | 2,771,556 | 0 | 0.00 | % | |||||||||||||
Robert and
Amy Bernstein |
555,556 | 555,556 | 0 | 0.00 | % | |||||||||||||
Dick F.
Chase, Jr. |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Boris and
Alexandra Smirnov |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Nadegda
Kassatkina |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Irina Pavlova
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Jeffrey J and
Jennifer S. Clayton |
1,111,111 | 1,111,111 | 0 | 0.00 | % |
20
Name(1) |
Shares of common stock owned prior to the offering |
Shares of common stock to be sold(2) |
Shares of common stock owned after the offering |
Percentage of common stock owned after this offering | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Greenbridge
Capital Partners IV, L.L.C |
1,666,667 | 1,666,667 | 0 | 0.00 | % | |||||||||||||
Core Capital
IV Trust |
1,666,667 | 1,666,667 | 0 | 0.00 | % | |||||||||||||
Rolant
Investments Limited |
6,666,667 | 6,666,667 | 0 | 0.00 | % | |||||||||||||
David Wiener
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
One East
Partners Opportunity L.P. |
3,000,000 | 3,000,000 | 0 | 0.00 | % | |||||||||||||
One East
Partners Master L.P. |
5,888,889 | 5,888,889 | 0 | 0.00 | % | |||||||||||||
Narang Family
Partnership, L.P. |
555,556 | 555,556 | 0 | 0.00 | % | |||||||||||||
Hugh Scott
Campbell |
222,222 | 222,222 | 0 | 0.00 | % | |||||||||||||
Fraser
Campbell |
222,222 | 222,222 | 0 | 0.00 | % | |||||||||||||
Sean Campbell
|
555,556 | 555,556 | 0 | 0.00 | % | |||||||||||||
Dr. Wayne
Fleischacker |
4,444,444 | 4,444,444 | 0 | 0.00 | % | |||||||||||||
Dr. Glenn
Fleischacker |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Jane Ellis
|
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Duane Renfro
|
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Guri Dauti
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Matteo Joseph
Rosselli |
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Sarah
Benveniste |
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Steven
Reichbach |
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Myles
Wittenstein |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Neil Weiss
|
3,333,333 | 3,333,333 | 0 | 0.00 | % | |||||||||||||
Randolf Kahn
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Marc S Cohen
|
6,666,666 | 6,666,666 | 0 | 0.00 | % | |||||||||||||
Millennium
Capital Corporation |
2,300,000 | 2,300,000 | 0 | 0.00 | % | |||||||||||||
Ilex
Investments, L.P. |
4,444,444 | 4,444,444 | 0 | 0.00 | % | |||||||||||||
Carol Tambor
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Stephen
Nicholas Bunzl |
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Jack Lens
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Robert Crames
|
1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||||
Sal &
Kathryn DeMarco |
555.556 | 555,556 | 0 | 0.00 | % | |||||||||||||
Maurice
Reissman |
2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||||
Dashka
Solanky |
444,445 | 444,445 | 0 | 0.00 | % | |||||||||||||
Total
|
93,602,221 | 93,602,221 | 0 | 0.00 | % |
(1) |
All shares are owned of record and beneficially unless otherwise indicated. Beneficial ownership information for the selling stockholders is provided as of October 21 , 2011, based upon information provided by the selling stockholders or otherwise known to us. |
(2) |
Assumes the sale of all shares of common stock registered pursuant to this prospectus. The selling stockholders are under no obligation known to us to sell any shares of common stock at this time. |
ITEM 8. PLAN OF DISTRIBUTION
We are registering the shares offered by this prospectus on
behalf of the selling stockholders. The selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling
stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of
their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. To the extent any of the selling stockholders gift,
pledge or otherwise transfer the shares offered hereby, such transferees may offer and sell the
21
shares from time to time under this prospectus, provided that this prospectus has been amended under Rule 424(b)(3) or other applicable provision of the Securities Act to include the name of such transferee in the list of selling stockholders under this prospectus. The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
|
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
|
an exchange distribution in accordance with the rules of the applicable exchange; |
|
privately negotiated transactions; |
|
short sales |
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
|
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
|
a combination of any such methods of sale; and |
|
any other method permitted pursuant to applicable law. |
The selling stockholders may, from time to time, pledge or
grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
In connection with the sale of our common stock or
interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn
engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our
common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn
may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of
shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling stockholders from the
sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling
stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of
common stock to be made directly or through agents.
The selling stockholders also may resell all or a portion
of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform
to the requirements of that rule.
The selling stockholders might be, and any broker-dealers
that act in connection with the sale of securities will be, deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act, and any commissions received by such broker-dealers and any profit on the resale of the securities sold by them while acting as principals will be
deemed to be underwriting discounts or commissions under the Securities Act. Each selling stockholder has represented and warranted to the company that
it does not have any agreement or understanding, directly or indirectly with any person to distribute shares.
22
To the extent required, the shares of our common stock to
be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or
underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states,
if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states
the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is
available and is complied with.
We have advised the selling stockholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling
stockholders and their affiliates. Regulation Ms prohibition on purchases may include purchases to cover short positions by the selling
stockholders, and a selling stockholders failure to cover a short position at a lenders request and subsequent purchases by the lender in
the open market of shares to cover such short positions, may be deemed to constitute an inducement to buy shares, which is prohibited by Regulation
M.
We will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of
the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.
We have advised the selling stockholders that if a
particular offer of shares is to be made on terms constituting a material change from the information described under a final prospectus, then, to the
extent required, a supplement to the final prospectus must be distributed setting forth the terms and related information as required.
We have agreed to indemnify the selling stockholders
against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by
this prospectus.
We agreed to keep this prospectus effective until the
earlier of (i) the date that is two years following the date that the registration statement, of which this prospectus forms a part, is declared
effective by the SEC; or (ii) the date on which the shares may be resold by the selling stockholders without registration and without regard to any
volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not
be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
ITEM 9. DESCRIPTION OF SECURITIES TO BE
REGISTERED
Our authorized capital stock consists of 1,500,000,000
shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share, the rights and preferences
of which may be established from time to time by our board. As of October 21 , 2011, there were 806,15 7,246 shares of common stock and
63.8 shares of preferred stock issued and outstanding.
Common Stock
Holders of our common stock are entitled to one vote for
each share on all matters voted upon by our stockholders, including the election of directors, and do not have cumulative voting rights. Subject to the
rights of holders of any then outstanding shares of our preferred stock, our common stockholders are entitled to any dividends that may be declared by
our board. Holders of our common stock are entitled to share ratably in our net assets upon our dissolution or liquidation after payment or provision
for all liabilities and any preferential liquidation rights of our preferred stock then outstanding. Holders of our common stock have no preemptive
rights to purchase shares of our stock. The shares of our common stock are not subject to any redemption provisions and are not convertible into any
other shares of our capital stock. All outstanding shares of our common stock are, and the shares of common stock to be issued in the offering will be,
upon payment therefor, fully paid and non-assessable. The rights, preferences and privileges of holders of our common stock will be subject to those of
the holders of any shares of our preferred stock we may issue in the future.
23
Preferred Stock
Our board may, from time to time, authorize the issuance of
one or more classes or series of preferred stock without stockholder approval. Subject to the provisions of our certificate of incorporation and
limitations prescribed by law, our board is authorized to adopt resolutions to issue shares, establish the number of shares, change the number of
shares constituting any series, and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or
restrictions on shares of our preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each
case without any action or vote by our stockholders. One of the effects of undesignated preferred stock may be to enable our board to discourage an
attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise. The issuance of preferred stock may adversely
affect the rights of our common stockholders by, among other things:
|
Restricting dividends on the common stock; |
|
diluting the voting power of the common stock; |
|
impairing the liquidation rights of the common stock; or |
|
delaying or preventing a change in control without further action by the stockholders. |
Series C Convertible Preferred
Stock
At this time, the only issued and outstanding preferred
stock is 63.8 shares of Series C Convertible Preferred Stock. Each share of Series C Preferred Convertible Stock is convertible (at the Holders
option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the Companys Common Stock (at $0.0225 per
share).
On June 7, 2011, the Company completed the sale of 31.4
Units comprising Series C Convertible Preferred Shares and Warrants (the Units) to accredited investors (the Investors) (the
Preferred Offering) for aggregate proceeds of $1,570,000. The Units were issued pursuant to separate Series C Convertible Preferred Stock
Purchase Agreements (the Agreements) between the Company and each of the Investors. This sale was an initial closing (the Initial
Closing) under the Agreements which allows for maximum proceeds of $3,000,000. Each Unit was priced at $50,000 and comprised one share of Series
C Preferred Convertible Stock convertible (at the Holders option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of
the Companys Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Companys Common Stock at $0.03 per share
(subject to adjustments) for a period of three years (the Warrant or Warrants). A total of 31.4 shares of Series C Convertible
Preferred Stock convertible into 69,777,773 shares of the Companys Common Stock and Warrants to purchase 34,888,890 shares of the Companys
Common Stock were issued. On June 28, 2011, the Company completed a second closing of the Preferred Offering (the Second Closing) with the
sale of an additional 15.40 Units to Investors for aggregate proceeds of $770,000. An additional 15.40 shares of Series C Convertible Preferred Stock
convertible into 34,222,220 shares of the common stock and Warrants to purchase 17,111,111 shares of the Companys common stock were issued in
connection with the Second Closing. The Company entered into a Registration Rights Agreement with the Investors with respect to the Warrants. On August
4, 2011, the Company completed a final closing of the Preferred Offering (the Final Closing) with the sale of an additional 13.2 Units to
Investors for aggregate proceeds of $660,000. An additional 13.2 shares of Series C Convertible Preferred Stock convertible into 29,333,330 shares of
the Companys Common Stock and Warrants to purchase 14,666,665 shares of the Companys Common Stock were issued in connection with the Final
Closing. An aggregate of 60 Units were sold to Investors in the First Closing, Second Closing and Final Closing of the Preferred Offering for total
proceeds of $3,000,000. A total of 60 shares of Series C Convertible Preferred Stock were issued, convertible into an aggregate of 133,333,324 shares
of Common Stock, and Warrants to purchase 66,666,666 shares of the Companys Common Stock. The Company entered into a Registration Rights
Agreement with the Investors with respect to the Warrants, and the Common Stock in respect of these Warrants are being registered
hereunder.
Burnham Hill Partners LLC (BHP) served as
placement agent in connection with the sale of 24.8 Units in the Preferred Offering. Pursuant to a placement agent agreement with BHP, the Company paid
BHP a cash placement fee equal to seven percent (7%) of the gross proceeds received by the Company from Units placed by BHP. Also pursuant to the
placement agent agreement, the Company issued BHP Warrants (the Placement Agent Warrants) to purchase a number of shares equal to seven
percent (7%) of the number of shares of common stock issuable
24
upon conversion of the 24.8 Units placed by BHP (3,857,778 shares) in the Preferred Offering. The Placement Agent Warrants are exercisable for three years from the date of issuance at an exercise price of $0.0225 per share, and the shares of Common Stock in respect of these Warrants are being registered hereunder.
On August 26, 2011, the Company completed a new sale of 3.8
Units comprising Series C Convertible Preferred Shares and Warrants (the Units) to an accredited investor (the Investor) (the
New Preferred Offering) for aggregate proceeds of $190,000. Each Unit was priced at $50,000 and comprised one share of Series C Preferred
Convertible Stock convertible (at the Holders option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the
Companys Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Companys Common Stock at $0.03 per share
(subject to adjustments) for a period of three years (the Warrant or Warrants). The Company entered into a Registration Rights
Agreement with the Investor with respect to the Warrants, and the Common Stock in respect of these Warrants are being registered
hereunder.
25
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Beginning on March 30, 2009, our Common Stock was quoted on
the OTC Bulletin Board under the symbol VYCO.
The following table shows the high and low prices of our
common shares on the OTC Bulletin Board for each quarter since our common stock began to trade on the OTC Bulletin Board in March 2009. The following
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual
transactions:
Period |
|
High |
|
Low |
||||||
---|---|---|---|---|---|---|---|---|---|---|
March 30,
2009June 30, 2009 |
$ | 0.35 | $ | 0.33 | ||||||
July 1,
2009September 30, 2009 |
$ | 0.33 | $ | 0.01 | ||||||
October 1,
2009December 31, 2009 |
$ | 0.07 | $ | 0.01 | ||||||
January 1,
2010March 31, 2010 |
$ | 0.15 | $ | 0.04 | ||||||
April 1,
2010June 30, 2010 |
$ | 0.06 | $ | 0.01 | ||||||
July 1,
2010September 30, 2010 |
$ | 0.03 | $ | 0.01 | ||||||
October 1,
2010December 31, 2010 |
$ | 0.04 | $ | 0.01 | ||||||
January 1,
2011March 31, 2011 |
$ | 0.03 | $ | 0.015 | ||||||
April 1,
2011June 30, 2011 |
$ | 0.048 | $ | 0.019 | ||||||
July 1,
2011 September 30, 2011 |
$ | 0.05 | $ | 0.02 |
The market price of our common stock, like that of other
technology companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of technological
innovations or new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our
performance.
Holders
As of October 21 , 2011, there were approximately 90
record holders of our common stock and there were 806,157,246 shares of our common stock outstanding. Please see SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT for information related to the holdings of certain beneficial owners and management of the Company.
Transfer Agent and Registrar
Our transfer agent is Corporate Stock Transfer, Inc., 3200
Cherry Creek Dr. South, Suite 430, Denver, CO 80209, tel. (303) 282-4800.
Dividend Policy
We have never paid any cash dividends on our Common Stock
and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing
operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
The Securities Enforcement and Penny Stock Reform Act of
1990
The Securities and Exchange Commission has also adopted
rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price
of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current
price and volume information with respect to transactions in such securities is provided by the exchange or system).
26
A purchaser is purchasing penny stock which limits the
ability to sell the stock. The shares offered by this prospectus constitute penny stock under the Securities and Exchange Act. The shares will remain
penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a
secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the
purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a
need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission,
which:
|
contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
|
contains a description of the brokers or dealers duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended; |
|
contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; |
|
contains a toll-free telephone number for inquiries on disciplinary actions; |
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defines significant terms in the disclosure document or in the conduct of trading penny stocks; and |
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contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation; |
The broker-dealer also must provide, prior to effecting any
transaction in a penny stock, to the customer:
|
the bid and offer quotations for the penny stock; |
|
the compensation of the broker-dealer and its salesperson in the transaction; |
|
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and |
|
monthly account statements showing the market value of each penny stock held in the customers account. |
In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchasers written acknowledgment of the receipt of a risk disclosure statement, a
written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements
will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules.
Therefore, stockholders may have difficulty selling their securities.
Equity Compensation Plan Information
Stock Option Plan
The Company adopted the Vycor Medical, Inc Employee,
Director, and Consultant Stock Plan (the Plan) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified
stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of
directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code.
Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options
granted to participants owning more than 10% of the Companys outstanding voting stock must be granted at an exercise price not less than 110% of
the fair market value of the common stock on the grant date. The options expire on the date determined by the board of directors, but may not extend
mare than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Companys outstanding
voting stock expire five years from the grant date. The vesting
27
period for employees is generally over three years. The vesting Period for non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.
Under ASC Topic 718, the Company estimates the fair value
of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period
during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on
the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. Initial grants of options
to purchase 500,000 shares were issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Companys Chief Executive Officer
and Heather N. Vinas, the Companys then President at an exercise price of $0.135 per share. The options vested 33-1/3% on each of the first,
second, and third anniversary of the grant and expire February 12, 2018. Following Heather Vinas resignation as President of the Company in May
2010, 166,667 unvested options were cancelled.
Stock appreciation rights may be granted either on a
stand-alone basis or in conjunction with all or part of any other stock options granted under the plan. As of October 21 , 2011 there were no
awards of any stock appreciation rights.
Reports
We are subject to certain reporting requirements and will
furnish annual financial reports to our stockholders, certified by our independent accountants, and will furnish unaudited quarterly financial reports
in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website,
www.sec.gov.
ITEM 10. INTEREST OF NAMED EXPERT AND
COUNSEL
The Law Offices of Robert L. B. Diener, 56 Laenani Street,
Haiku, HI 96708 was retained for the purpose of preparing this registration statement, rendering the legal opinion, attached as an exhibit hereto, on
the validity of the common stock to be issued pursuant to this Registration Statement and for an opinion letter to the auditor which was required to
complete the audit enclosed herein. As payment for said service, the Law Office of Robert L. B. Diener was paid a total of $5,000.00. The Law Offices
of Robert L. B. Diener is not receiving any contingent interest, fee or shares in the Company.
The Law Office of Robert L. B. Diener may be retained for
additional legal services in the future at fees to be agreed upon.
The financial statements of Vycor Medical, Inc. as provided
herein, have been audited by an independent public accountant firm approved by the Public Company Accounting Oversight Board. The audit firm that has
provided the audited financials is Paritz & Co., P.A., 15 Warren St., Hackensack NJ 07601. Said firm has been paid the sum of $4,000 for the
work performed to date. Paritz & Co., P.A. is not receiving any contingent interest, fee or shares in the Company.
ITEM 11. INFORMATION WITH RESPECT TO THE
REGISTRANT
BACKGROUND
1. Organizational History
We were formed as a limited liability company under the
laws of the State of New York on June 17, 2005 as Vycor Medical LLC. On August 14, 2007, we converted into a Delaware corporation and
changed our name to Vycor Medical, Inc. (Vycor or the Company). On November 29, 2010, Vycor, through its
wholly-owned subsidiary NovaVision Acquisition, Inc., completed the acquisition of substantially all of the assets of the former NovaVision, Inc., a
company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological
visual loss. Subsequent to the purchase, NovaVision Acquisition, Inc. changed its name to NovaVision, Inc. (NovaVision).
28
2. Overview of Business
Vycor operates two distinct business units within the
medical device industry: Vycor Medical (which operates as a division of the Company) and NovaVision. Vycor Medical is a medical device company that
designs, develops and markets medical devices for use in neurosurgery. NovaVision develops non-invasive, computer-based visual neuro-stimulation
therapy for patients suffering from vision field deficits resulting from neurological trauma such as stroke and traumatic brain injuries, as well as
screening and diagnostic products. In addition to our existing products and products in development, we actively seek acquisition, joint ventures and
in-licensing opportunities in the medical device and therapy fields which we believe are complementary and will add shareholder value.
Vycor Medical, Inc.
Introduction
Vycor Medical is a medical device company that designs,
develops and markets medical devices for use in neurosurgery. Vycor Medical is ISO 13485:2003 compliant, has U.S. Food and Drug Administration
(FDA) 510(k) clearance for brain and spine self-retaining retractors used during surgeries, CE Marking for Europe and Canadian HPB
licensing for sale in Canada of its brain access system.
Vycor Medicals ViewSite Brain Access System
(VBAS), is a neurosurgical access system which was commercially launched in November 2008. The VBAS addresses a market that has not changed
materially in over 50 years in contrast to the numerous developments in most other neurosurgical technologies. VBAS has the potential to reduce brain
tissue trauma when accessing deep brain targets.
In early stages of development is the Cervical Access
System (VCAS), which requires further prototyping and successful market testing prior to commercialization. Like the VBAS, this product is
also designed to allow the surgeon easy access to a desired target; in this case the VCAS allows the surgeon to gain access to the anterior cervical
surgery site.
Vycor Medical has received FDA 510(k) clearance for its
products, with which we are authorized to market our products in the U.S. without further approvals.
Viewsite Brain Access System (VBAS)
To access most surgical sites in the brain, surgeons
usually need to remove part of the skull (craniotomy) and then separate (retract) the soft brain tissue to access the target site. The current standard
of care utilizes a metal blade retractor (also known as a ribbon or blade retractor) to separate the tissue, and the retractor blades are attached to a
head frame in order to apply tension to the tissue and maintain the opening.
With the VBAS system, the surgeon makes an incision,
inserts the clear, elliptical-shaped VBAS introducer through the brain tissue, and then removes the introducer and uses the clear hollow working
channel to provide access to the precise location desired for surgery.
VBAS was designed to be used to access surgical sites in
the brain in a minimally-invasive manner. VBAS provides a minimally traumatic surgical corridor to most areas of the brain for the surgeon. With
various sizes ranging from 12mm to 28mm, VBAS can be used for many types of procedures from key hole endoscopic surgery to removal of large
tumors using standard instruments. VBAS is compatible with Image Guidance Systems (IGS) and can be used with these neuro-navigation systems
to accurately reach the target in the brain. This allows the surgeon real-time visualization of retractor positioning.
The VBAS is a single-use product and is available in
multiple sizes. The series consists of twelve disposable products, offered in four different port diameters of 12mm, 17mm, 21mm and 28 mm and a choice
of three lengths for each of 3, 5, and 7cm. We intend to add additional models in the future.
Product Advantages
Management believes that VBAS has a number of advantages
over standard blade or ribbon retractors:
|
Less Invasive Procedure: The VBAS shape and minimal footprint enables the surgeon to access a specific target with a smaller incision, resulting in a smaller corticotomy and less disruption to surrounding tissues. |
29
|
Reduction of Venous Pressure: Normal surgical procedures utilizing standard retractors require the pulling away of tissue to expose the target site. Current retractors have low surface areas and edges that in turn may lead to focal pressure on the delicate tissue of the brain. The lack of edges on the VBAS device, and the way in which the elliptical introducer retracts the tissue reduces pressure on the tissue. |
|
Superior Field of View: Made of polished transparent polycarbonate, the VBAS increases a surgeons field of vision through a clear, visible and stable channel, allowing for continual monitoring of surrounding tissue and structures during surgery. |
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More Accurate Navigation: The VBAS device when inserted into the brain retracts tissue as the surgeon navigates to the surgical site; standard retractors do not. The VBAS product when used with a navigational pointer allows the surgeon to see on the surgical monitor, in real-time, exactly where the retractor is in relation to critical brain structures and underlying pathologies. This helps the surgeon to accurately reach the target site with minimum healthy tissue trauma. |
|
Minimizes target shift: When standard retractors are utilized to access the target site, they pull on the brains soft tissue. This may cause the target area to shift from the location shown on the navigational system. This shifting of the target requires the surgeon to spend time repositioning the retractors as they work towards re-locating the target, exposing the delicate tissue to additional potential pressure. As a result of the VBAS elliptical shape there is even distribution of pressure and therefore less pulling of the tissue in one direction. |
|
Potential ability to address previously difficult or inoperable procedures: Through its design, VBAS potentially allows the surgeon to address previously difficult or inoperable conditions, such as tumors seated too deeply or very close to critical structures. |
Product shortcomings
Our products have a few shortcomings:
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As compared to existing blade retractors diameter of our device is fixed as opposed to variable which might give the surgeon less flexibility once he is at the desired location. |
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The diameters and lengths of our devices are set to specific measurements, which may limit the surgeon to these specific sizes. |
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Depending on the case, usage of a disposable product may be viewed as more costly and may not be accepted by our potential end users. |
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Our device uses an ellipitical channel which potentially limits the working area compared to a round channel. |
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Certain procedures such as aneurysms require greater site access and therefore are less appropriate for VBAS minimal approach. |
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Because our products are relatively new to the market, there is no guarantee that any of the above mentioned features would prove effective and be useful by the end user, and the extent to which we are successful in achieving our objectives will be judged by the acceptance of the devices in the market. |
Vycor Medical Product Pipeline
Brain Access and Related Products
We plan to develop additional Brain Access Systems shapes
and sizes and we are also identifying other products that may be used in conjunction with our VBAS product.
We are developing an extension arm as a re-usable accessory
that attaches to the VBAS device; this will enable easier connection to halo systems and other retractor systems on the market.
30
Cervical Access Products
We will continue our preliminary development of Cervical
Access System products which would be used by the surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck).
While the Company has filed certain intellectual property applications with respect to this technology, such development is in early
stage.
Market
We believe that approximately 30% of the 4,500 US
neurosurgeons focus predominantly on craniotomies or cranial procedures that could potentially benefit from the VBAS product. Management believes that
there are approximately 1,500 hospitals that represent the majority of its US target market.
Competition
Competing manufacturers of brain retractors include, among
others, Cardinal Health, Aesculap, Integra Life Sciences, Codman (Division of Johnson & Johnson), Medtronic, Stryker and others.
Sales, Marketing and Customers
Vycor Medical is currently focusing its marketing efforts
for VBAS on the US and Canada, China and Europe. Vycor Medical markets VBAS products to leading neurosurgeons and neurosurgery hospitals. Our domestic
distribution partners are independent distributors that have existing relationships with neurosurgeons and target hospitals serving approximately 75%
of the U.S. population.
Our European distribution partners focus on the
neurosurgery markets in Spain, Italy, Belgium, Scandinavia, Switzerland and the U.K. We have also entered into a distribution agreement for VBAS with a
Chinese distributor, however we must receive SFDA clearance before commencing sales in China. Vycor Medical has filed for, but not yet received such
SFDA approval. We are also undertaking the regulatory approval process in Australia and Japan.
In the US Vycor Medical sells to stocking regional
distributors and direct to hospitals through independent representatives. Management believes that its products currently are being utilized in
approximately 80 hospitals in the United States and currently being evaluated in a further 40 hospitals.
Manufacturing
Vycor Medical has executed agreements with Lacey
Manufacturing Company of Bridgeport, CT (Lacey) and C&J Industries of Meadville, PA (C&J) to provide a full range of
vertically integrated services for our products, including engineering, contract manufacturing and logistical support. Lacey and C&J are U.S.
FDA-registered and meet ISO standards and certifications.
Intellectual Property
Patent Applications
Vycor Medical has an issued patent in China and a patent
approved for grant in Russia, as well as 13 patent applications pending in the U.S. and internationally with respect to its
technology.
Trademarks
VYCOR MEDICAL is a registered trademark and VIEWSITE is
pending registration as a trademark with the United States Patent and Trademark Office.
NovaVision, Inc.
Introduction
NovaVision provides a non-invasive, computer-based visual
neuro-stimulation rehabilitation therapy called Vision Restoration Therapy (VRT) for those patients suffering from visual field deficits as
a result of neurological trauma. The Company also has some screening and diagnostic products. VRT is a patient-specific diagnostic and
therapeutic
31
platform that can potentially increase a patients visual field and enable them to experience significant functional improvements. VRT is currently focused on visual deficits resulting from stroke and traumatic brain injuries. It is estimated that 15 to 20% of these patients experience a visual field deficit (VFD), reducing mobility and other activities of daily living (ADL). Patients with VFD often experience difficulties walking, are prone to bumping into foreign objects and may be unable to read or even see different foods on their plates. The result is a loss of self-confidence, decreased mobility, ADL difficulties and a lower quality of life. It is this sub-set of patients that is NovaVisions target market. In the US alone this target audience is estimated to be in excess of 800,000 treatable patient population. Management believes that VRT could ultimately be applied to other neurological causes of VFD.
Management believes that NovaVision is a leader in the
field of neurologically-caused VFD rehabilitation in the U.S. and Europe with over 2,000 patients having been treated with VRT. The Companys
therapy can be delivered to market through a variety of different channels physicians, rehabilitation centers, therapy centers and
direct-to-patient. NovaVision has a strong IP portfolio with 19 allowed, issued or granted patents and 17 pending patents.
NovaVision operates in the US and in Germany through
NovaVision AG, its wholly-owned subsidiary and has received 510(k) clearance and CE Marking for VRT.
VRT Platform Technology
The platform technology is comprised of proprietary
algorithms that generate patient-specific therapies enabling NovaVisions products to be used as both diagnostic and therapeutic tools. The
platform technology generates light-based stimulus programs, beginning with a fixation point on a display screen. As the patient focuses on this
fixation point, a series of light stimuli are delivered on the screen that are specific to the patients visual field loss. Most stimuli are
presented along the border of the patients visual field loss and relayed directly to the brain using the optic nerve as a
conduit.
For ophthalmic indications, the platform technology is
incorporated into NovaVisions VRT product and the programmed light sequences stimulate the border zone between the seeing and
blind visual fields. The diagnostic algorithm in the VRT product first maps the visual field and defines the areas of defect in patients
suffering vision loss. The therapeutic algorithm in the VRT product is then specifically designed for each patient based upon the results of the
diagnostic program and it repetitively challenges the visual cortex with multiple stimuli over the course of time.
VRT is performed over a six-month period twice a day for an
hour total, six days a week. Most patients do not necessarily experience material benefits until the third month of treatment, although there have been
a number of cases of faster improvement. During the initial months, patients may need ongoing encouragement so that they remain motivated to continue
with the treatment regimen.
NovaVision currently delivers its program in the US through
an integrated hardware/software package. The VRT device has a monitor and chinrest, along with a computer preloaded with the VRT software application,
to ensure that the patient is optimally positioned to ensure maximum consistency and effectiveness of treatment.
The therapy requires a prescription by a licensed physician
in the US. NovaVision markets VRT technology to active physicians; to date, approximately 500 prescribing physicians in the U.S. have registered with
NovaVision.
Product shortcomings
VRT has a few shortcomings:
|
There are certain conditions for which VRT may not be suitable, including: those with a light sensitive seizure disorder such as epilepsy; those with acute central nervous system or eye disease; those with significant cognitive difficulties that would preclude understanding the instructions or maintaining attention for the daily therapy sessions; and those with best corrected visual acuity worse than 20/200, and therefore with an inability to detect the stimuli reliably. |
|
Results can vary significantly, and some patients who have been treated have had little to no improvement in their vision field. |
|
There may be side effects. The majority of patients who undergo VRT do not experience any noticeable side effects, though a small number of patients have reported infrequent headaches. |
32
Marketing
NovaVision markets its therapy through physicians and
directly to patients, whom it refers to physicians for consultation, prescription and diagnosis prior to undergoing therapy. Its screening and
diagnostic products are marketed to physicians, medical and rehabilitation centers as well as academic institutions. NovaVision is in the process of
finalizing a significantly enhanced marketing strategy which will entail increased sales and marketing expenditure.
Market
NovaVisions core VRT product addresses a currently
largely unmet and substantial market. In the US alone management believes there are over 7 million stroke sufferers and 2.8 million TBI patients. It is
estimated that this equates to a treatable patient population of approximately 800,000, increasing each year.
NovaVision Product Pipeline
Utilizing VRTs underlying technology, NovaVision has
developed and commercialized related visual products for physicians. Management is in the advanced stages of development of a Class 1 screening device
with an integrated head-mounted perimetry HMP. Management believes its greatest advantage is its portability which enables it to be
utilized in a number of situations where patients with a VFD may otherwise not be able to take a table mounted test.
Regulatory Matters
NovaVisions products are regulated in the U.S. by the
FDA as Class U medical devices subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT as a Class I device. NovaVision received
its FDA 510(k) clearance for VRT specific to Stroke and TBI indications in 2003.
Intellectual Property
Patents
NovaVision maintains a portfolio of patent protection on
its methods and apparatus in the form of issued patents and applications, both domestically and internationally. NovaVision has 19 allowed, issued or
granted patents and 17 pending applications.
Trademarks
NovaVision maintains a portfolio of registered trademarks
for NovaVision, NovaVision VRT and Vision Restoration Therapy amongst others, both in the US and internationally.
Manufacturing and Operations
NovaVision assembles and tests all of its medical devices
within the Companys headquarters facility. NovaVision has an FDA Establishment Registration and the Company does not have any long-term
contractual obligations with its vendors to purchase products from them, nor are suppliers contractually obligated to sell products to
NovaVision.
LEGAL PROCEEDINGS
None
DESCRIPTION OF PROPERTY
The Company leases approximately 14,000 sq. ft located at
3651 FAU Boulevard, Suite 300, Boca Raton, FL 33431 from Boca R & D Project 7, LLC for a basic rent of $8,500 plus sales tax per month. The term of
the lease is twelve (12) months terminating November 30, 2011. The Company is in discussions with the landlord with respect to entering into a new
lease.
33
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and
results of operation for the years ended December 31, 2010 and 2009 and the three and six month periods ended June 30, 2011 and 2010 should be read in
conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes
forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and
intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a
number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and
Our Business sections in this Form 8-K. We use words such as anticipate, estimate, plan,
project, continuing, ongoing, expect, believe, intend, may,
will, should, could, and similar expressions to identify forward-looking statements.
Critical Accounting Policies and
Estimates
Uses of estimates in the preparation of financial statements
The preparation of consolidated
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent
managements estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and
assumptions contained in the accompanying consolidated financial statements include managements estimate of the allowance for uncollectible
accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and
share based compensation.
Going Concern
The Companys financial statements have been presented
on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company
will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $1,983,822 for the year ended December
31, 2010, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs
related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of December 31, 2010
the Company had a stockholders equity of $88,714 and cash and cash equivalents of $127,081. The Company believes it would not have enough cash to
meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance
that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds
are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to
commercialize, or cease operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern. The
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of this uncertainty.
Research and Development
The Company expenses all research
and development costs as incurred. For the years ended December 31, 2010 and 2009, the amounts charged to research and development expenses were
$15,208 and $4,761, respectively.
Cash and cash equivalents
The Company maintains cash
balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash
balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up
to 105% of the account balance. The Company considers all highly liquid investments with a maturity of three months or
34
less when purchased to be cash equivalents. Cash balances in Germany held at NovaVision AG at December 31, 2010 and 2009 includes $1,233 and $0, respectively.
Property and equipment
The Company records property and
equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be
between three and seven years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are
capitalized
Income taxes
The Company accounts for income
taxes in accordance with the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between
financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be
realized.
Patents and Other Intangible Assets
The Company capitalizes legal and
related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with
the development of the patented item or processes are charged to research and development costs as incurred. The capitalized costs are amortized over
the life of the patent. The Company reviews intangible assets on an annual basis using a present value, cash flow method based upon the authoritative
guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative
guidance.
Revenue Recognition
Vycor Medical generates revenue
from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for
the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty
costs.
NovaVision generates revenues
from various programs, therapy services and other sources such as government grants. Therapy services revenues represent fees from NovaVisions
vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services
associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Companys work effort is expended.
NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on
average over 6 months in the U.S. and 10 months in Germany. A patient contract comprise set-up fees and monthly therapy fees. Set-up fees are
recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being
completed by a patient within a specified time frame.
Research grants and other
subsidies represent revenue from certain German government agencies to cover certain patients within an insurance group and also to reimburse
NovaVision AG for certain payroll and other costs. The Company recognizes grant revenue when services or costs have been incurred which would entitle
the Company to use the German government funds, and the grant requirements have been satisfied.
Deferred revenue results from
patients paying for the therapy in advance of receiving the therapy.
Accounts Receivable
The Companys accounts
receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly therapy or physicians for diagnostic
products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for
NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to
exceed the 9 or 10 month therapy period. The outstanding balances are stated net of
35
an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customers ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.
Inventory
Inventories are comprised of
Vycor Medical VBAS devices, components ancillary to NovaVisions medical device provided to patients and centers and diagnostic products, and are
stated at the lower of cost or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a
device is shipped to a customer or patient.
Foreign Currency
The Euro is the local currency of
the country in which NovaVision AG conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are
translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical
rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are
accumulated as part of the accumulated other comprehensive income (loss) and included in shareholders (deficit) in the accompanying Consolidated
Balance Sheet.
Educational marketing and advertising
expenses
The Company may incur costs for
the education of customers on the uses and benefits of its products. The Company will include education, marketing and advertising expense as a
component of selling, general and administrative costs as such costs are incurred.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2010 to the Year
Ended December 31, 2009
Revenue and Gross Margin:
2010 (restated) |
2009 (restated) |
% Change |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: |
||||||||||||||
Vycor Medical
|
$ | 307,582 | $ | 199,046 | 55 | % | ||||||||
NovaVision
|
$ | 8,868 | $ | | NM | |||||||||
$ | 316,450 | $ | 199,046 | 59 | % | |||||||||
Cost of
Revenue: |
||||||||||||||
Vycor Medical
|
$ | (47,607 | ) | $ | (22,482 | ) | 114 | % | ||||||
NovaVision
|
$ | (1,130 | ) | $ | | NM | ||||||||
$ | (48,737 | ) | $ | (22,482 | ) | 100 | % | |||||||
Gross
Profit |
||||||||||||||
Vycor Medical
|
$ | 259,975 | $ | 176,564 | 49 | % | ||||||||
NovaVision
|
$ | 7,738 | $ | | NM | |||||||||
$ | 267,713 | $ | 176,564 | 54 | % |
Vycor Medical recorded revenue of $307,582 from the sale of its products in 2010, an increase of 55% over 2009. The increase in sales was
attributable to greater penetration and usage of our product in hospitals in the United States both direct and through distributors, and increased
sales internationally. Gross margin of 85% was achieved in 2010 compared to 89% for 2009. Gross margin is mostly a product of sale mix between US sales
through distributors, US sales direct and international sales.
NovaVision recorded revenues of $8,868 for the period from
November 30, 2010, the date of the acquisition of NovaVision, and gross margin of 87%. These revenues were all attributable to
Germany.
36
Research and Development Expense:
Research and development expenses were $15,208 in 2010
compared to $4,761 for 2009.
General and Administrative
Expenses:
General and administrative expenses increased by
$ 909,007 to $ 1,919,174 for 2010 from $ 1,101,167 for 2009. Following the recapitalization transaction that closed on December 29,
2009 the board and management of Vycor has embarked on a period of heightened sales and marketing activity and engagement with distributors and
hospital customers following a prolonged period of reduced activity in 2009 as a result of capital constraints. This has lead to an increase in the
marketing-related costs of the Company. Vycor has also carried out a series of fundraisings since the closing of the recapitalization, which has
resulted in additional cash and non-cash expenses.
The increases for 2010 over 2009 are attributable to an
increased level of: sales and marketing activity; personnel costs; fundraising fees and related costs and higher levels of consulting,
professional and regulatory cost, as follows:
Total G&A
expenses for the year ended December 31, 2009 |
$ | 1,101,167 | ||||
Increase in
marketing expenditure and travel costs |
249,182 | |||||
Increase in
personnel costs |
228,599 | |||||
Decrease
in personnel costs non-cash stock compensation (1) |
(324,954 | ) | ||||
Increase in
fundraising costs |
72,500 | |||||
Increase in
consulting fees |
90,768 | |||||
Increase
in consulting fees non-cash stock compensation (1) |
273,769 | |||||
Increase in
professional and regulatory costs |
127,910 | |||||
Increase in
other operating expenses |
191,233 | |||||
Total G&A
expenses year ended December 31, 2010 |
$ | 1, 919,174 |
(1) Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of
amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The aggregate amount in
2010 was $381,713, a decrease of $51,184 over $432,898 in 2009.
Interest Expense:
Interest expense comprises: interest expense on the
Companys debt; and the amortization of the Beneficial Conversion Feature (BCF) recorded on certain of the Companys convertible debt. Net
interest expense for 2010 was reduced by $202,528 to $45,874 from $248,402 for 2009, as a result of the extinguishment of certain debt and related BCF
balances. The amortization of BCF was $0 in 2010, as compared to $145,302 in 2009.
Costs Associated with the Acquisition of
NovaVision:
On November 30, 2010 Vycor acquired substantially all the
assets of the former NovaVision, Inc., including the shares of NovaVision AG, out of bankruptcy, for total proceeds of $900,000. As required under ASC
805 the Company commissioned an independent appraisal of the assets acquired and has entered the assets into its consolidated accounts on the basis of
this valuation. As a result, the Company generated goodwill on acquisition of $58,027 which has been written off as incurred.
The expenses of the transaction, which primarily comprised
legal fees and audit fees in connection with the Form 8-K/A filed on February 14, 2010 amounted to $154,203.
37
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for
the periods ended December 31, 2010 and December 31, 2009:
December 31, 2010 (restated) |
December 31, 2009 (restated) |
$ Change |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash
|
$ | 127,081 | $ | 12,771 | $ | 114,310 | ||||||||
Accounts
receivable, inventory and other current assets |
235,601 | 94,084 | 141,517 | |||||||||||
Total current
liabilities |
(2,064,980 | ) | (1,646,900 | ) | (418,080 | ) | ||||||||
Working
capital (deficit) |
$ | (1,163,777 | ) | $ | (1,540,045 | ) | $ | (376,268 | ) | |||||
Cash provided
by financing activities |
$ | 2,489,500 | $ | 422,552 | $ | 2,066,948 |
As of December 31, 2010 we had $127,081 cash, a working
capital deficit of $1,163,777 and an accumulated deficit of $6,883,163. The Stockholders equity at December 31, 2010 was $88,714, an improvement
from a deficit of $1,245,940 at December 31, 2009. Debt at December 31, 2010 was $1,400,381, a change from $1,245,052 at December 31, 2009. Of this
change, $794,019 was debt to finance the acquisition of NovaVision, resulting in a net debt reduction excluding the NovaVision acquisition of
$638,690.
Our operating activities used $1,450,270 in cash for the
year ended December 31, 2010. Aside from the increased operating expenses discussed above, the Company has significantly reduced Vycor Medicals
accounts payable, from $336,942 in December 2009 to $80,906 in December 2010, acquired NovaVision for $900,000 and increased operating assets. This is
accounted for as follows:
Net cash loss
adjusted for change in accrued interest |
$ | (1,446,086 | ) | |||
Reduction in
Vycor Medical accounts payable |
(242,011 | ) | ||||
Increase in
accounts receivable and inventory |
(36,124 | ) | ||||
Increase in
accrued liabilities |
294,306 | |||||
Net Change in
other assets and liabilities |
(20,355 | ) | ||||
$ | (1,450,270 | ) |
Comparison of the Three Months Ended June 30, 2011 to the
Three Months Ended June 30, 2010
Results for the three months ended June 30, 2010 include
adjustments to reflect of the effects of the restated financial statements included in the Companys Quarterly Report on Form 10-Q/A for the
quarterly period ending June 30, 2010.
Revenue and Gross Margin:
2011 |
2010 |
% Change |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: |
||||||||||||||
Vycor Medical
|
$ | 82,239 | $ | 74,817 | 10 | % | ||||||||
NovaVision
|
60,092 | | NM | |||||||||||
Total Revenue
|
$ | 142,331 | $ | 74,817 | 90 | % | ||||||||
Cost of
Revenue: |
||||||||||||||
Vycor Medical
|
(21,349 | ) | $ | (6,184 | ) | 245 | % | |||||||
NovaVision
|
(13,843 | ) | $ | | NM | |||||||||
Total Cost of
Revenue |
$ | (35,192 | ) | $ | (6,184 | ) | 469 | % | ||||||
Gross
Profit |
||||||||||||||
Vycor Medical
|
60,890 | 68,633 | 11 | % | ||||||||||
NovaVision
|
46,249 | $ | | NM | ||||||||||
Total Gross
Profit |
$ | 107,139 | $ | 68,633 | 56 | % |
38
Vycor Medical recorded revenue of $82,239 from the sale of
its products for the three months ended June 30, 2011, an increase of 10% over the same period in 2010. The increase in sales was attributable to
greater penetration and usage of our product in hospitals in our US and European markets. Gross margin of 74% was achieved compared to 92% for the same
period in 2010. Gross margin is mostly a product of sales mix between US and International sales through different sales channels. Gross margin also
reflects inventory credits in the three months to June 30, 2010 and non-recurring product life extension costs in the three months ended June 30,
2011.
NovaVision recorded revenues of $60,092 for the three
months ended June 30, 2011 and gross margin of 77%.
Research and Development Expense:
Research and development (R&D) expenses
were $37,484 for the three months ended June 30, 2011, as compared to $762 for the same period in 2010. The increase in R&D expense relates
primarily to the inclusion of NovaVision in the 2011 period.
General and Administrative
Expenses:
General and A dministrative expenses increased by
$1,356,811 to $ 1,823,019 for the three months ended June 30, 2011 from $ 466,019 for the same period in 2010. Of this increase,
$892,032 was from non-cash charges representing the value of existing and newly-issued share based payments to non-employee consultants attributable to
the period. The increase was primarily related to the recognition of $658,651 for fully vested warrants issued to Fountainhead during the 2011 period,
as well as the recognition of common stock issued to Jerrald Ginder and GreenBridge Capital Partners. The remaining General and Administrative increase
of $464,799 reflects approximately $200,000 of additional expenses related to the inclusion of NovaVision as well as increased professional and
consulting fees, including increased consulting fees with Fountainhead following the NovaVision acquisition, and a $70,000 contingent bonus accrual
related to our employment agreement with our CEO, Kenneth Coviello.
Interest Expense:
Interest expense includes interest expense on the
Companys debt and insurance policy financing. Interest expense in the three months ended June 30, 2011 increased by $27,816 to $39,613 from
$11,797 for the same period in 2010, reflecting increased debt levels.
Comparison of the Six Months Ended June 30, 2011 to the Six
Months Ended June 30, 2010
Results for the six months ended June 30, 2010 include
adjustments to reflect of the effects of the restated financial statements included in the Companys Quarterly Report on Form 10-Q/A for the
quarterly period ending June 30, 2010.
Revenue and Gross Margin:
2011 |
2010 |
% Change |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: |
||||||||||||||
Vycor Medical
|
$ | 182,081 | $ | 139,103 | 31 | % | ||||||||
NovaVision
|
$ | 105,372 | $ | | NM | |||||||||
$ | 287,453 | $ | 139,103 | 107 | % | |||||||||
Cost of
Revenue: |
||||||||||||||
Vycor Medical
|
$ | (28,467 | ) | $ | (18,772 | ) | 52 | % | ||||||
NovaVision
|
$ | (29,098 | ) | $ | | NM | ||||||||
$ | (57,565 | ) | $ | (18,772 | ) | 207 | % | |||||||
Gross
Profit |
||||||||||||||
Vycor Medical
|
$ | 153,614 | $ | 120,331 | 28 | % | ||||||||
NovaVision
|
$ | 76,274 | $ | | NM | |||||||||
$ | 229,888 | $ | 120,331 | 91 | % |
39
Vycor Medical recorded revenue of $182,081 from the sale of
its products for the six months ended June 30, 2011, an increase of 31% over the same period in 2010. The increase in sales was attributable to greater
penetration and usage of our product in hospitals in the in our US and European markets. Gross margin of 84% was achieved compared to 87% for the same
period in 2010. Gross margin is mostly a product of sales mix between US and International sales through different sales channels. Gross margin also
reflects inventory credits in the six months to June 30, 2010 and non-recurring product life extension costs in the six months ended June 30,
2011.
NovaVision recorded revenues of $105,372 for the six months
ended June 30, 2011 and gross margin of 72%.
Research and Development Expense:
Research and development expenses were $61,336 for the six months ended June 30, 2011 compared to $5,648 for the same period in 2010. The increase in R&D expense relates primarily to the inclusion of NovaVision in the 2011 period.
General and Administrative
Expenses:
General and administrative expenses increased by
$ 1,953,567 to $ 2,783,748 for the six months ended June 30, 2011 from $ 830,181 for the same period in 2010. Of this increase,
$1,018,033 was from non-cash charges representing the value of existing and newly-issued share based payments to employee and non-employee consultants
attributable to the period. The increase was primarily related to the recognition of $658,651 for fully vested warrants issued to Fountainhead during
the 2011 period, as well as the recognition of common stock issued to Jerrald Ginder and GreenBridge Capital Partners IV, LLC. The remaining General
and Administrative increase of $935,534 reflects approximately $450,000 of additional expenses related to the inclusion of NovaVision in 2011,
increased professional and consulting fees, including increased consulting fees with Fountainhead following the NovaVision acquisition, the $70,000
bonus accrual mentioned above, and higher levels of marketing activities in Vycor Medical.
Interest Expense:
Interest expense for the six months ended June 30, 2011
increased by $39,132 to $63,534 from $24,402 for the same period in 2010, reflecting increased debt levels.
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for
the periods ended June 30, 2011 and December 31, 2010:
June 30, 2011 |
December 31, 2010 |
$ Change |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash
|
$ | 2,206,616 | $ | 127,081 | $ | 2,079,535 | ||||||||
Accounts
receivable, inventory and other current assets |
1,338,297 | 774,122 | 564,175 | |||||||||||
Total current
liabilities |
(1,500,604 | ) | (2,064,980 | ) | 564,376 | |||||||||
Working
capital surplus (deficit) |
$ | 2,041,327 | $ | (1,163,777 | ) | $ | 3,205,104 | |||||||
Cash provided
by financing activities |
$ | 3,556,194 | $ | 889,500 | $ | 2,666,694 |
As of June 30, 2011 we had $2,206,616 cash, a working capital surplus of $2,041,327 and an accumulated deficit of $9,654,121. Total
Stockholders equity at June 30, 2011 was $1,943,636. Total debt at June 30, 2011, including $504,825 of short term debt included in the working
capital surplus above, was $1,821,187, a change of $405,525 from $1,415,662 at December 31, 2010. Our operating activities used $1,401,297 in cash for
the six months ended June 30, 2011.
Uses of estimates in the preparation of financial
statements
The preparation of consolidated
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To
the
40
extent managements estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include managements estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.
Going Concern
Our financial statements have
been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes
we will continue as a going concern. We have incurred losses since our inception, including a net loss of $2.8 million for the six months ended June
30, 2011, and we expect to continue to incur substantial additional losses in the future, including additional product development, marketing,
manufacturing and distribution expenses. We have generated negative cash flows from operations since inception. As of June 30, 2011 the Company had
stockholders equity of $1.9 million and cash and cash equivalents of $2.2 million. The Company believes it would not have enough cash to meet its
various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that
additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not
available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to
commercialize, or cease operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern. The
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of this uncertainty.
Research and Development
The Company expenses all research
and development costs as incurred.
Cash and cash equivalents
The Company maintains cash
balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash
balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up
to 105% of the account balance. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents.
Property and equipment
The Company records property and
equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be
between three and seven years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are
capitalized
Income taxes
The Company accounts for income
taxes in accordance with the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between
financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be
realized.
Patents and Other Intangible Assets
The Company capitalizes legal and
related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with
the development of the patented item or processes are charged to research and development costs and expensed as incurred. The capitalized costs
are
41
amortized over the life of the patent. The Company reviews intangible assets for impairment on an annual basis. Trademarks have an indefinite life and are also reviewed annually by management for impairment in accordance with the authoritative guidance.
Revenue Recognition
Vycor Medical generates revenue
from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for
the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty
costs.
NovaVision generates revenues
from various programs, therapy services and other sources such as government grants. Therapy services revenues represent fees from NovaVisions
vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services
associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Companys work effort is expended.
NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on
average over 6 months in the U.S. and 10 months in Germany. A patient contract comprise set-up fees and monthly therapy fees. Set-up fees are
recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being
completed by a patient within a specified time frame.
Research grants and other
subsidies represent revenue from certain German government agencies to cover certain patients within an insurance group and also to reimburse
NovaVision AG for certain payroll and other costs. The Company recognizes grant revenue when services or costs have been incurred which would entitle
the Company to use the German government funds, and the grant requirements have been satisfied.
Deferred revenue results from
patients paying for the therapy in advance of receiving the therapy.
Accounts Receivable
The Companys accounts
receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly therapy or physicians for diagnostic
products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for
NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to
exceed the 9 or 10 month therapy period. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its
allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customers ability to pay its
obligations. The Company writes off accounts receivable when they become uncollectible.
Inventory
Inventories are comprised of
Vycor Medical VBAS devices, components ancillary to NovaVisions medical device provided to patients and centers and diagnostic products, and are
stated at the lower of cost or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a
device is shipped to a customer or patient.
Foreign Currency
The Euro is the local currency of
the country in which NovaVision AG conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are
translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical
rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are
accumulated as part of the accumulated other comprehensive income (loss) and included in shareholders (deficit) in the accompanying Consolidated
Balance Sheet.
Educational marketing and advertising
expenses
The Company may incur costs for
the education of customers on the uses and benefits of its products. The Company will include education, marketing and advertising expense as a
component of selling, general and administrative costs as such costs are incurred.
42
Under a previously disclosed
agreement entered into with Fountainhead Capital Management Limited, Fountainhead agreed to fund or procure funding for Vycor Medicals monthly
operating expenses through September 2010 subject to the Company meeting certain financial benchmarks. The Company entered into a new agreement on
September 29, 2010 under which Fountainhead agreed to extend this commitment for Vycor Medicals operating expenses through August,
2011.
Off-Balance Sheet Arrangements
As of December 31, 2010 and June
30, 2011, we had no off-balance sheet arrangements.
Seasonality
Our operating results are not
affected by seasonality.
Inflation
Our business and operating
results are not affected in any material way by inflation.
Restatement
In late July 2011, the
Companys management re-evaluated certain of its accounting policies and procedures in connection with the preparation of the Companys
financial statements for the periods ended June 30, 2011, and determined that it had not properly accounted for warrants issued in connection with
certain service agreements and for the beneficial conversion feature of certain convertible debentures. Specifically, management determined that the
Company had previously not recognized the fair value of warrants issued in connection with certain consulting or other service agreements at the
measurement date, and had previously recognized the expense ratably over the life of the warrant. The Companys management further determined that
the proper accounting, following the guidance in ASC Topic 505, is to record the fair value of these warrants as a prepaid expense on the date of
issuance, and recognize the expense ratably over the life of the underlying service agreement. In addition, the Company had, since December 2009, been
determining the existence of a beneficial conversion feature of convertible debt based on the fair value of the conversion feature on the date of
issuance, rather than using the intrinsic value of the conversion feature on the date of issuance, as required under ASC Topic 470.
Following discussions with the
Companys independent registered public accounting firm, the Companys management met on August 12, 2011 with the Companys Board of
Directors, which concluded that the Companys previously issued consolidated financial statements: (i) for the years ended December 31, 2009 and
2010 (the Annual Financial Statements) included in the Companys Annual Reports on Form 10-K for the years then ended (the
Annual Reports); and (ii) for the interim periods ended March 31, 2010, June 30, 2010, September 30, 2010 and March 31, 2011 (collectively,
the Quarterly Financial Statements) included in the Companys Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010,
June 30, 2010, September 30, 2010 and March 31, 2011 respectively (the Quarterly Reports) should no longer be relied upon and that the
Company should, as soon as practicable, file with the SEC amendments to the aforementioned Annual Reports and Quarterly Reports to restate such Annual
Financial Statements and Quarterly Financial Statements to properly record the warrants and beneficial conversion features and to make related
adjustments and disclosures in connection therewith. The net impact on the Companys previously reported Net Loss for the 18-month period of
October 1, 2009 through March 31, 2011 was to increase losses by approximately $152,000.
Internal Control Deficiencies
Management determined that the
forgoing matters reflected a deficiency in the Companys internal controls that constitutes a significant deficiency. A significant deficiency is
a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet
important enough to merit attention by those responsible for oversight of the Companys financial reporting. The significant deficiency is
discussed in each of the foregoing amended Annual Reports and Quarterly Reports.
43
Critical Accounting Policies
The Securities and Exchange
Commission issued Financial Reporting Release No. 60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies suggesting
that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the
Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a
companys financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently uncertain. See Uses of estimates in the preparation of financial statements
above.
44
CHANGES AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Since inception until the present
time, the principal independent accounting firm for the Company has not resigned, declined to stand for reelection or been dismissed. We have no
disagreements with our independent registered public accounting firm on any matter of accounting principles or with any financial statement
disclosures.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Our Directors and Executive Officers
Set forth below is certain
biographical information concerning our current executive officers and directors. We currently have two executive officers as described
below.
Directors and Executive Officers |
Position/Title |
Age |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Adrian
Christopher Liddell |
Chairman of the
Board and a Director |
53 |
||||||||
David Marc
Cantor |
President and a
Director |
45 |
||||||||
Peter C.
Zachariou |
Executive Vice
President and a Director |
50 |
||||||||
Kenneth T.
Coviello |
Chief Executive
and a Director |
60 |
||||||||
Heather N.
Vinas |
Director |
32 |
||||||||
Pascale
Mangiardi |
Director |
39 |
||||||||
Steven
Girgenti |
Director |
66 |
Adrian Christopher
Liddell, 53, has been Chairman of the Board and a Director of the Company since January 2010. He is an advisor to Fountainhead Capital
Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to
growth companies in healthcare and other sectors. Mr. Liddell has 30 years of strategic, corporate and financial advisory and company investment. From
2003 2006, Mr. Liddell was an investment advisor at Phoenix Equity Partners, a European private equity fund. From 1998 to 2003, Mr. Liddell
served as Managing Director, Mergers & Acquisitions at Donaldson Lufkin & Jenrette and then Citigroup in London. From 1984 to 1998, Mr. Liddell
held various positions at Samuel Montagu & Co, Lehman Brothers and Erik Penser Corporate Finance in London. Mr. Liddell qualified as a Chartered
Accountant in 1984 and holds an MA from Christs College, Cambridge University.
David Marc Cantor,
45, has been President of the Company since September 2010 and a Director since January 2010. He is an investment manager of Fountainhead Capital
Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to
growth companies across a broad range of sectors. Mr. Cantor has over 22 years experience in Investment Banking with a focus on Mergers and
Acquisitions and Equity Capital Raisings. Prior to Fountainhead from 2001 2005 he was at Citigroup Capital Markets where he was Co-head of its
European Business Development and subsequently European Head of its Diversified Industrials and Aerospace activities. Prior to Citigroup he was a
Managing Director in M&A at Donaldson Lufkin & Jenrette and worked at Lehman Brothers both in New York and London in both the Equity capital
and M&A groups. Mr. Cantor has a BSc with Honours from City Business School, London.
Peter C. Zachariou,
50, was appointed a Director of the Company in May 2010 and Executive Vice President in September 2010. He is an investment manager for Fountainhead
Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice
to growth companies in healthcare and other sectors. For the past 20 years, Mr. Zachariou has been an active investor in a variety of companies and
industries, both public and private, specializing in workouts and capital formation. Mr. Zacharious investments and activities have predominantly
been in U.S. emerging and growth companies across a broad range of industry sectors. He has also been proprietor and operator of several businesses in
the U.K. and U.S. in the manufacturing, retail and leisure industries.
Kenneth Coviello,
60, is our Chief Executive and a Director of the Company. Mr. Coviello has more than 25 years of experience in successfully developing, selling and
marketing medical devices and managing medical device and healthcare product companies. Mr. Coviello has held positions of Vice President, Senior Vice
President and President of medical device companies, including Lumex and Graham Field. From 2000 2005, he was Senior
45
Vice President at Misonix Inc., a public NASDAQ-listed medical device company that specializes in the design, manufacture and sale of ultrasonic surgical devices for orthopedic, neurosurgical, wound and urological applications. Mr. Coviello was responsible for Misonix medical device revenues and profitability, distribution partner contracts and factory operations in Farmingdale, NY. During his association with Misonix, Inc., Misonix increased its medical devices line from a single product to nine, grew medical device revenue, acquired and developed medical technology. While he was with Misonix, Inc, he was also appointed by Misonix, Inc. to the position of Chief Executive Officer of Hearing Innovations, Inc., a major funding entity and senior debt holder of Misonix, Inc. from August 2002 November 2005. Mr. Coviello joined us on January 1, 2006 after leaving Misonix, Inc. in November 2005. Previous associations were:
19992000 FNC Medical
manufacturer and distributor of diabetic skin care supplies,
19921998 Graham Field
manufacturer and distributor of Medical devices, equipment and supplies
19721991 Lumex Inc.
manufacturer of medical devices and healthcare products
Heather N. Vinas,
32, is our founder and former President and a director. Ms. Vinas has more than 10 years experience in the medical profession ranging from hospitals to
medical device manufacturing. Ms. Vinas joined us in November 2005. Ms. Vinass most recent position from 2001 2005 was as Director of
Sales at Misonix, Inc., a public NASDAQ-listed medical device company that specializes in ultrasonic surgical devices for orthopedic, neurosurgical,
wound and urological applications. Ms. Vinass responsibilities included international and domestic business development, knowledge and
certification in export compliance, regulatory approval process and high-level executive contact and negotiations at some of the largest device
companies in the world such as Tyco, Mentor, Aesculap, Richard Wolf and ACMI. She was also responsible for both domestic and international sales
development. Ms. Vinas belongs to the Brain Injury Association, American Brain Tumor Association, and the National Association for Female Executives.
She holds an Associates Degree in Business with a focus on Human Sciences and has additional credits in business administration from Katharine Gibbs
College.
Pascale Mangiardi,
39, has been our director since October 30, 2007. She is presently the founder and President of Rougemont Management Services LLC and Chief Financial
Officer of Optimus Services, LLC. From 2002 2006, she was a financial officer for John R. Mangiardi, MD, PC and from 20012002, she was the
Assistant CEO at Hirslanden-Group Management AG, Zurich. Ms. Mangiardi holds a Diploma from the Swiss Business Administration School.
Steven Girgenti,
66, has been a director since November 19, 2008. He is President, CEO, Director and Co-Founder DermWorx, a specialty pharmaceutical company dedicated
to solutions for dermatological conditions. Steve is also the Worldwide Chairman of Ogilvy Healthworld, a leading global healthcare communications
network with 55 offices in 36 countries. The network has more than 1,000 brand assignments from nearly 200 clients worldwide, providing strategic
marketing and communications services to many of the worlds leading healthcare companies. Mr. Girgenti founded Healthworld in 1986 and, under his
leadership, the company has made numerous acquisitions to expand and diversify the business. Healthworld went public in 1997. In addition to Vycor
Medical, Mr. Girgenti has served as a director of Burren Pharmaceuticals and Pharmacon International, and is currently a director of AVTV Networks. He
is also Vice Chairman of the Board of Governors for the Mt. Sinai Hospital Prostate Disease and Research Center in New York City, and is on the Board
of Directors for Jack Martin Fund, a Mt. Sinai Hospital affiliated charitable organization devoted to pediatric oncology research. He graduated from
Columbia University and has worked in the pharmaceutical industry since 1968 for companies such as Bristol-Myers Squibb, Carter Wallace and DuPont, as
well as advertising agencies that specialize in healthcare. During his career, Steve has held positions in marketing research, product management, new
product planning and commercial development.
All of our directors hold office
until the next annual meeting of stockholders and until their respective successors have been elected or qualified. Officers serve at the discretion of
the board of directors. There are no family relationships among our directors or executive officers. There is no arrangement or understanding between
or among our officers and directors pursuant to which any director or officer was or is to be selected as a director or officer, and there is no
arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current board
of directors.
46
None of our directors and
executive officers have during the past five years:
|
had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time; |
|
been convicted in a criminal proceeding and is not subject to a pending criminal proceeding; |
|
been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; |
|
or been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. |
Committees of the Board of Directors
Our Board of Directors does not
have any committees.
Compensation Committee Interlocks and Insider
Participation
None of our executive officers
serves as a member of the Board of Directors or compensation committee of any other entity that has one or more of its executive officers serving as a
member of our Board of Directors.
There are no family relationships
between our officers and directors. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of
stockholders, or until his successor is elected and qualified.
At the date of this prospectus,
the Company is not engaged in any transactions, either directly or indirectly, with any persons or organizations considered promoters.
Identification of Significant Employees
The Company does not presently
have any significant employees other than the named officers and directors.
Corporate Code of Conduct and Ethics
As of the present date, the
Company has not adopted a Code of Conduct and Ethics, but plans to do so in the future.
Officers and Directors Indemnification
Under our Certificate of
Incorporation and Bylaws of the corporation, the Company may indemnify an officer or director who is made a party to any proceeding, including a
lawsuit, because of his or her position, if he or she acted in good faith and in a manner he or she reasonably believed to be in the Companys
best interest. The Company may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the
merits in a proceeding as to which he or she is to be indemnified, the Company must indemnify the officer or director against all expenses incurred,
including attorneys fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in
defending the proceeding, and if the officer or director is judged liable, then only by a court order. The indemnification coverage is intended to be
to the fullest extent permitted by applicable laws.
Regarding indemnification for
liabilities arising under the Securities Act of 1933, which may be permitted to officers or directors under applicable state law, the Company is
informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is,
therefore, unenforceable.
47
EXECUTIVE COMPENSATION
The following is a summary of the
compensation we paid for each of the last two years ended December 31, 2010 and 2009, respectively (i) to the persons who acted as our principal
executive officer during our fiscal year ended December 31, 2010 and (ii) to the person who acted as our next most highly compensated executive officer
other than our principal executive officer who was serving as our executive officer as of the end of our last fiscal year.
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) (1) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation |
Non-Qualified Deferred Compensation Earnings ($) |
All other Compensation ($) |
Total ($) |
|||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Kenneth T.
Coviello |
2010 | $ | 153,989 | | | $ | 29,212 | | | $ | 12,578 | $ | 195,779 | |||||||||||||||||||||||||
(Chief
Executive Officer) |
2009 | $ | 102,230 | | $ | 162,477 | $ | 29,212 | | | $ | 21,813 | $ | 315,732 | ||||||||||||||||||||||||
Heather N.
Vinas |
2010 | $ | 72,739 | | | $ | 29,212 | | | $ | 9,184 | $ | 111,135 | |||||||||||||||||||||||||
(Former
President) |
2009 | $ | 102,230 | | $ | 162,477 | $ | 29,212 | | | $ | 26,644 | $ | 320,563 | ||||||||||||||||||||||||
David Cantor
|
2010 | $ | | | | | | | | | ||||||||||||||||||||||||||||
(President) |
(1) |
Management Warrants |
OUTSTANDING EQUITY AWARDS
Grants of Plan-Based Awards
Initial grants under the 2008
Stock Plan were to Kenneth T. Coviello and Heather N. Vinas of options to purchase 1,000,000 shares in the aggregate. There were no option exercises by
or stock vested in fiscal 2009 or 2010. Following the resignation of Heather N. Vinas, 166,667 options were cancelled.
Option Awards |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Grant Date |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Number of Securities Underlying Unexercised Options (#) Unexercisable (1) |
Option Exercise Price ($) |
Option Expiration Date |
|||||||||||||||||||||
Kenneth T.
Coviello |
2/15/2008 | | | 500,000 | $ | 0.135 | 2/12/2018 | ||||||||||||||||||||
Heather N.
Vinas |
2/15/2008 | | | 333,333 | $ | 0.135 | 2/12/2018 |
Equity Compensation Plan
Information |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) |
|||||||||||||
Equity
compensation plans approved by security holders |
1,000,000 | $ | 0.135 | 2,651,345 | ||||||||||||
Equity
compensation plans not approved by security holders |
50,000 | 0.19 | | |||||||||||||
Total
|
1,050,000 | $ | 0.138 | 2,651,345 |
(1) |
As of December 31, 2010 |
48
Warrants Issued to Management
Name |
Grant Date |
Number of Securities Underlying Unexercised Exercisable Warrants (1) |
Number of Securities Underlying Unexercised Exercisable Warrants (1) |
Warrant Exercise Price ($) |
Warrant Expiration Date |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Kenneth T.
Coviello |
12/29/2009 | | 16,450,066 | $ | 0.00717 | 12/29/2014 | ||||||||||||||||
Heather N.
Vinas |
12/29/2009 | | 8,225,063 | $ | 0.00717 | 12/29/2014 | ||||||||||||||||
Total
|
| 24,675,129 | $ | 0.00717 |
(1) |
As of December 31, 2010 |
Employment Agreements
Effective December 29, 2009, the
Company entered into new employment agreements with each of our Chief Executive Officer, Mr. Kenneth Coviello and with our Former President, Ms.
Heather Vinas. Ms. Vinas employment agreement terminated when she resigned her employment with the Company in May 2010. These new employment
agreements superseded all prior employment agreements or arrangements between the Company and these individuals.
Effective September 30, 2010, the
Company entered into identical employment agreements with David Cantor to serve as the Companys President and Peter C. Zachariou to serve as the
Companys Executive Vice President. Each employment agreement continues until August 30, 2011 and is then extended for 60 day terms and provides
that the executives will receive no compensation for services rendered under the agreements.
Compensation of Directors
During the period January 1, 2010
through October 21 , 2011, we granted Steven Girgenti a total of 1,674,858 shares of the Companys Common Stock for Mr. Girgentis
service to the Board of Directors. Mr. Girgenti is entitled to receive $5,000 in cash or stock at the option of the company per quarter and $1,500 per
board meeting. No other directors of the Company receive compensation for their service to the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
OWNERS AND MANAGEMENT
The following table sets forth
certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of any class of
voting securities, (ii) each director, (iii) our chief executive officer and president and (iv) all executive officers and directors as a group as of
October 21 , 2011. Unless noted, the address for the following beneficial owners and management is 3651 FAU Boulevard, Suite 300, Boca Raton, FL
33431.
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Owner (1) |
Percent of Class (2) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common
Stock |
Kenneth
Coviello |
5,284,587 | * | |||||||||||
Common
Stock |
Heather N.
Vinas |
5,284,587 | * | |||||||||||
Common
Stock |
Pascale
Mangiardi |
| 0.00 | % | ||||||||||
Common
Stock |
Steven
Girgenti |
1,378,948 | * | |||||||||||
Common
Stock |
Adrian
Christopher Liddell |
| 0.00 | % | ||||||||||
Common
Stock |
Marc David
Cantor |
| 0.00 | % | ||||||||||
Common
Stock |
Peter C.
Zachariou |
| 0.00 | % | ||||||||||
Common
Stock |
All executive
officers and directors as a group |
11,947,462 | 1.5 | % | ||||||||||
Common
Stock |
Fountainhead
Capital Management Limited Portman House Hue Street, St. Helier, Jersey JB4 5RP |
531,376,500 | 66.0 | % |
* |
Less than 1% |
49
(1) |
In determining beneficial ownership of our common stock, the number of shares shown includes shares which the beneficial owner may acquire upon exercise of debentures, warrants and options which may be acquired within 60 days. In determining the percent of common stock owned by a person or entity on August 31, 2011, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which the beneficial ownership may acquire within 60 days of exercise of debentures, warrants and options, and (b) the denominator is the sum of (i) the total shares of that class outstanding on October 21 , 2011 ( 806,157,246 shares of common stock) and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the debentures, warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares. |
(2) |
In addition, in determining the percent of common stock owned by a person or entity on October 21 , 2011, (a) the numerator is the number of shares of the class beneficially owned by such person and includes shares which the beneficial owner may acquire within 60 days upon conversion or exercise of a derivative security, and (b) the denominator is the sum of (i) the shares of that class outstanding on October 2 1, 2011 ( 806,157,246 shares of common stock) and (ii) the total number of shares that the beneficial owner may acquire upon conversion or exercise of a derivative security within such 60 day period. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of the shares. |
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN
CONTROL
PERSONS AND DIRECTOR INDEPENDENCE
PERSONS AND DIRECTOR INDEPENDENCE
Related Transactions
In January 2010 the Company issued a convertible debenture
for $74,500 to Fountainhead Capital Management Limited (Fountainhead), holder of approximately 72.6% of the common shares of the Company,
as more fully disclosed in Note 5 of the Notes to the Financial Statements. This debenture was repaid in May 2010.
In February 2010 the Company issued a convertible debenture
for $70,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In February 2010 the Company entered into a Consulting
Agreement with Fountainhead. Under the terms of the agreement, Fountainhead receives $8,500 as a monthly consulting fee, which is to be accrued and
converted into stock or paid in cash once a certain level of cash has been raised. Under the terms of the agreement, the Company also issued warrants
to Fountainhead to purchase up to 39,063,670 shares of the Companys common stock at $.0125 per share. The warrants are valid from February 10,
2010 for a period of five years.
In March 2010 the Company issued a convertible debenture
for $102,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements. This debenture was repaid in May
2010.
In May 2010 the Company issued a convertible debenture for
$45,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements. This debenture was repaid in May
2010.
In September 2010 the Company issued a convertible
debenture for $85,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In September 2010 the Company entered into a new agreement
with Fountainhead under which Fountainhead agreed to extend a previously disclosed agreement to fund or procure funding for Vycor Medicals
monthly operating expenses for through August 2011. Under the terms of the agreement, the Company issued warrants to Fountainhead to purchase up to
50,627,407 shares of the Companys common stock at $.0175 per share. The warrants are valid from September 29, 2010 for a period of five
years.
In October 2010 the Company issued a convertible debenture
for $90,000, and a $77,500 non-convertible debenture to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial
Statements.
In November 2010 the Company issued a non-convertible
debenture for $322,500, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In November 2010 the Company issued an unsecured,
subordinated loan note to Fountainhead for $20,000. The note was repaid in December 2010.
50
In November 2010 the Company issued a convertible debenture
for $350,000 to Peter Zachariou, a director of the Company, as more fully disclosed in Note 5 of the Notes to the Financial Statements. In December
2010 $50,000 of this debenture was repaid and the convertible rights removed.
In January, February and March 2011 the Company issued
unsecured, subordinated loan notes to Fountainhead for a total of $99,000. The loan notes are subordinated to the Companys secured debentures,
bear interest at a rate of 6% and are due April 30, 2011.
In January 2011 the Company issued an unsecured,
subordinated loan note to Peter Zachariou, a director of the Company for $15,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due April 30, 2011.
In February 2011 the Company issued an unsecured,
subordinated loan note to Peter Zachariou, a director of the Company for $40,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due April 30, 2011.
In February 2011 the Company issued an unsecured,
subordinated loan note to David Cantor, a director of the Company for $15,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due April 30, 2011.
On May 6, 2011, the Company entered into a Supplement to a
prior Consulting Agreement with Fountainhead entered into on February 10, 2010 (amended September 29, 2010) to recognize Fountainheads expanded
responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Supplement, commencing January
1, 2011 the Company will pay to FCM an additional monthly retainer of $29,000. This additional monthly retainer shall be accrued and paid out to
Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.0225 per share; or (ii) in cash following the closing of a
fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011.
Notwithstanding, Fountainhead shall have the option to receive up to $5,000 of the additional monthly retainer in cash each month, commencing April 1,
2011. In addition, the term of the Consulting Agreement was extended to May 5, 2013. Other than as supplemented, the Consulting Agreement remains in
full force and effect according to its terms.
Under the terms of a Consulting Agreement dated February
10, 2010 with Fountainhead, the Company was required to issue to Fountainhead fully vested warrants to purchase an additional 39,063,670 shares of the
Companys Common Stock, at a price of $0.0125 per share should new funding totaling $3 million in aggregate in Common Stock of Vycor or in
securities convertible into Common Stock of Vycor at a price of no less than $0.0125 per share of Common Stock be closed during the term of the
Consulting Agreement. These warrants became issuable upon completion of the Preferred Offering and were issued in June 2011.
On June 6, 2011, in connection the Preferred Offering,
Fountainhead agreed to extend to maturity of debentures totaling $931,362 to December 31, 2012. At the same time, Peter Zachariou, a director of the
Company, agreed to extend the maturity of debentures totaling $300,000 to the same date.
On September 30, 2011, short-term loans including
accrued interest of $102,449.75 and accrued interest on the loans extended on June 6, 2011 of $76,658.01, were repaid to Fountainhead. At the same
time, short-term loans including accrued interest of $57,003.84 and accrued interest on the loans extended on June 6, 2011 of $14,991.78 were repaid to
Peter Zachariou, a director of the Company; and short-term loans including accrued interest of $10,351.78 were repaid to David Cantor, a director of
the Company .
Other
The officers and directors for the Company are involved in
other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes
available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy
for the resolution of such conflicts.
Director Independence
The Company has three independent directors
within the meaning of Nasdaq Marketplace Rule 4200Steven Girgenti, Heather Vinas and Pascale Mangiardi.
51
EXPERTS
Our financial statements for the fiscal years ended
December 31, 2010 and December 31, 2009 along with the related consolidated statements of operations, stockholders equity and cash flows in this
prospectus have been audited by Paritz & Co P.C., of Hackensack, New Jersey, independent registered public accounting firm, to the extent and for
the periods set forth in their report, and are set forth in this prospectus in reliance upon such report given upon the authority of them as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Our filings are available to the public at the SECs
web site at http://www.sec.gov. You may also read and copy any document with the SEC at the SECs Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Further information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
We have filed a registration statement on Form S-1 with the
SEC under the Securities Act for the common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the
registration statement, certain parts of which have been omitted in accordance with the rules and regulations of the SEC. For further information,
reference is made to the registration statement and its exhibits. Whenever we make references in this prospectus to any of our contracts, agreements or
other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for the copies
of the actual contract, agreement or other document.
ITEM 12 INCORPORATION OF CERTAIN MATERIAL BY
REFERENCE
The Registrant does not elect to incorporate any material
by reference.
ITEM 12A DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
SECURITIES ACT LIABILITIES
The Securities and Exchange Commissions Policy on
Indemnification
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the company pursuant to any provisions contained in its
Articles of Incorporation, Bylaws, or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of registrants legal counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
52
FINANCIAL STATEMENTS
Our consolidated financial
statements are included with this prospectus. These financial statements have been prepared on the basis of accounting principles generally accepted in
the United States and are expressed in US dollars.
Index to
Financial Statements |
||||||
Fiscal years
ended December 31, 2010 (restated) and December 31, 2009 (restated) (audited) |
F-3 | |||||
Three and Six
Months ended June 30, 2011 and June 30, 2010 (restated) (unaudited) |
F-32 |
F-1
Paritz &
Company, P.A. |
15 Warren Street, Suite 25 Hackensack, New Jersey 07601 (201)342-7753 Fax: (201) 342-7598 E-Mail: paritz @paritz.com |
Certified Public
Accountants
REPORT OF INDEPENDENT REGISTERED ACCOUNTING
FIRM
Board of Directors
Vycor Medical Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying restated consolidated
balance sheets of Vycor Medical Inc. and Subsidiaries as of December 31, 2010 and 2009 and the related restated consolidated statements of operations,
changes in stockholders deficit and cash flows for the years then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform
an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the restated consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Vycor Medical Inc. and Subsidiaries as of December 31,
2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted
in the United States of America.
As described in Note 5 to the financial statements, the
financial statements as of and for the years ended December 31, 2010 and 2009 have been restated to recognize the fair value of warrants issues and to
correct the amortization period of these warrants and to record the fair value of the warrants as a prepaid item at the date of issuance pursuant to
ASC 505. Also a correction of an error was made in the recording of a beneficial conversion feature from the intrinsic method to the fair value
pursuant to ASC 470.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a loss since
inception, has a net accumulated deficit and may be unable to raise further equity. These factors raise substantial doubt about its ability to continue
as a going concern. Managements plans regarding those matters are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Paritz & Company, P.A.
Hackensack, New Jersey
March 22, 2011, except for Note 5 as to which the date is
August 28, 2011
F-2
VYCOR MEDICAL, INC.
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, 2010 (restated) |
December 31, 2009 (restated) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
|||||||||||
Current
Assets |
|||||||||||
Cash
|
$ | 127,081 | $ | 12,771 | |||||||
Accounts
receivable |
76,460 | 29,748 | |||||||||
Inventory
|
52,360 | 41,967 | |||||||||
Prepaid
expenses |
645,302 | 22,369 | |||||||||
Total Current
Assets |
901,203 | 106,855 | |||||||||
Fixed assets,
net |
773,188 | 191,009 | |||||||||
Intangible
and Other assets: |
|||||||||||
Trademarks |
130,000 | | |||||||||
Patents, net
of accumulated amortization |
333,072 | 93,704 | |||||||||
Website, net
of accumulated amortization |
3,932 | 7,042 | |||||||||
Security
deposits |
12,299 | 2,350 | |||||||||
479,303 | 103,096 | ||||||||||
TOTAL
ASSETS |
$ | 2,153,694 | $ | 400,960 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|||||||||||
Current
Liabilities |
|||||||||||
Accounts
payable |
$ | 114,447 | $ | 336,942 | |||||||
Accrued
interest |
36,992 | 2,904 | |||||||||
Accrued
liabilities |
406,998 | 62,002 | |||||||||
Other current
liabilities |
106,162 | | |||||||||
Notes
payable |
1,400,381 | 1,245,052 | |||||||||
TOTAL
LIABILITIES |
2,064,980 | 1,646,900 | |||||||||
STOCKHOLDERS EQUITY (DEFICIT) |
|||||||||||
Preferred
stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding |
| | |||||||||
Common Stock,
$0.0001 par value, 1,500,000,000 shares authorized, 724,488,929 and 557,798,599 shares issued and outstanding at December 31, 2010 and 2009,
respectively |
72,449 | 55,780 | |||||||||
Additional
Paid-in Capital |
6,902,427 | 3,597,621 | |||||||||
Accumulated
Deficit |
(6,883,163 | ) | (4,899,341 | ) | |||||||
Accumulated
Other Comprehensive Income |
(2,999 | ) | | ||||||||
88,714 | (1,245,940 | ) | |||||||||
TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 2,153,694 | $ | 400,960 |
See accompanying notes to financial
statements
F-3
VYCOR MEDICAL, INC.
Consolidated Statement of Operations
Consolidated Statement of Operations
For the year ended December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 (restated) |
2009 (restated) |
||||||||||
Revenue
|
$ | 316,450 | $ | 199,046 | |||||||
Cost of
Goods Sold |
48,737 | 22,482 | |||||||||
Gross
Profit |
267,713 | 176,564 | |||||||||
Operating
expenses: |
|||||||||||
Research and
development |
15,208 | 4,761 | |||||||||
Depreciation
and Amortization |
56,801 | 36,995 | |||||||||
General and
administrative |
1,919,174 | 1,101,167 | |||||||||
Goodwill on
Acquisition of Subsidiary |
58,027 | | |||||||||
Costs
related to Acquisition of Subsidiary |
154,203 | | |||||||||
Total
Operating expenses |
2,203,413 | 1,142,923 | |||||||||
Operating
loss |
(1, 935,700 ) | (966,359 | ) | ||||||||
Other
income (expense) |
|||||||||||
Interest
income |
8 | 257 | |||||||||
Interest
expense |
(45,882 | ) | (248,659 | ) | |||||||
Forgiveness of
previously accrued salaries |
| 50,725 | |||||||||
Total Other
Income (expense) |
( 45,874 ) | (197,677 | ) | ||||||||
Net Loss
Before Taxes |
(1,981,574 | ) | (1,164,036 | ) | |||||||
Taxes
|
(2,248 | ) | | ||||||||
Net
Loss |
$ | (1,983,822 | ) | $ | (1,164,036 | ) | |||||
Loss Per
Share |
|||||||||||
Basic and
diluted |
$ | (0.003 | ) | $ | (0.040 | ) | |||||
Weighted
Average Number of Shares Outstanding |
663,168,900 | 29,183,482 |
See accompanying notes to financial
statements
F-4
VYCOR MEDICAL, INC.
Statement of Stockholders Equity (Deficiency) (Restated)
Statement of Stockholders Equity (Deficiency) (Restated)
Shares |
Common Stock |
Preferred Stock Series B |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at
January 1, 2009 |
25,463,455 | $ | 25,463 | $ | | $ | 2,788,415 | $ | (3,735,305 | ) | $ | (921,427 | ) | |||||||||||||
Common stock
issued in conjunction with Altcar Investments note payable |
866,867 | $ | 867 | $ | 105,758 | $ | 106,625 | |||||||||||||||||||
Issuance of
stock for consulting fees |
91,777 | 92 | 17,345 | 17,437 | ||||||||||||||||||||||
Share-based
compensation for consulting services |
32,667 | 32,667 | ||||||||||||||||||||||||
Share-based
compensation employee options vesting |
57,840 | 57,840 | ||||||||||||||||||||||||
Share-based
compensation Coviello and Vinas, in accordance with FHC recapitalization transaction |
324,954 | 324,954 | ||||||||||||||||||||||||
Retroactive
change to par value (see Note 10) |
(23,780 | ) | 23,780 | | ||||||||||||||||||||||
Retroactive
reflection of conversion of Series A Preferred Shares in accordance with FHC recapitalization transaction (see Note 9) |
531,376,500 | 53,138 | 246,862 | 300,000 | ||||||||||||||||||||||
Net loss for
twelve months ended December 31, 2009 |
$ | (1,164,036 | ) | (1,164,036 | ) | |||||||||||||||||||||
Balance at
December 31, 2009 |
557,798,599 | $ | 55,780 | $ | | $ | 3,597,621 | $ | (4,899,341 | ) | $ | (1,245,940 | ) | |||||||||||||
Issuance of
stock for consulting fees |
2,612,500 | 261 | 40,364 | 40,625 | ||||||||||||||||||||||
Share-based
compensation for consulting services |
823,693 | 823,693 | ||||||||||||||||||||||||
Share-based
compensation employee options vesting |
57,840 | 57,840 | ||||||||||||||||||||||||
Purchases of
equity Series B preferred |
14 | 139,986 | 140,000 | |||||||||||||||||||||||
Common stock
issuance for conversion of Series B preferred and interest |
11,768,197 | 1,177 | (14 | ) | 5,939 | 7,102 | ||||||||||||||||||||
Common stock
issuance for conversion of debt |
64,295,200 | 6,430 | 797,260 | 803,690 | ||||||||||||||||||||||
Purchases of
equity Common stock |
87,079,447 | 8,708 | 1,425,792 | 1,434,500 | ||||||||||||||||||||||
Common stock
issuance for satisfaction of accounts payable |
934,986 | 93 | 13,932 | 14,025 | ||||||||||||||||||||||
Net loss for
twelve months ended December 31, 2010 |
$ | (1,983,822 | ) | (1,983,822 | ) | |||||||||||||||||||||
Accumulated
Comprehensive Loss |
$ | (2,999 | ) | |||||||||||||||||||||||
Balance at
December 31, 2010 |
724,488,929 | $ | 72,449 | $ | | $ | 6,902,427 | $ | (6,883,163 | ) | $ | 88,714 |
See accompanying notes to financial
statements
F-5
VYCOR MEDICAL, INC.
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
For the twelve months ended December 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 (restated) |
2009 (restated) |
||||||||||
Cash flows
from operating activities: |
|||||||||||
Net loss
|
$ | (1,983,822 | ) | $ | (1,164,036 | ) | |||||
Adjustments
to reconcile net loss to cash used in operating activities: |
|||||||||||
Amortization
of intangible assets |
21,539 | 14,046 | |||||||||
Depreciation
of fixed assets |
35,262 | 22,949 | |||||||||
Amortization
of debt discount expense |
| 145,302 | |||||||||
Share based
compensation |
342,864 | 415,462 | |||||||||
Shares issued
for consulting services |
38,854 | 17,437 | |||||||||
Interest
satisfied with stock conversion |
7,102 | 6,625 | |||||||||
Goodwill
written off on acquisition of subsidiary |
58,027 | | |||||||||
Changes in
assets and liabilities: |
|||||||||||
Accounts
receivable |
(40,032 | ) | 60,017 | ||||||||
Inventory
|
3,908 | 29,560 | |||||||||
Prepaid
expenses |
(39,262 | ) | (15,329 | ) | |||||||
Security
deposit |
(9,949 | ) | | ||||||||
Accounts
payable |
(247,163 | ) | 23,331 | ||||||||
Accounts
payable satisfied with common stock |
14,025 | | |||||||||
Accrued
interest |
34,088 | (85,684 | ) | ||||||||
Accrued
liabilities |
294,306 | (13,466 | ) | ||||||||
Other current
liabilities |
19,983 | | |||||||||
Cash used in
operating activities |
(1,450,270 | ) | (543,786 | ) | |||||||
Cash flows
used in investing activities: |
|||||||||||
Acquisition
of subsidiary, net of cash acquired |
(898,017 | ) | | ||||||||
Purchase of
fixed assets |
(21,521 | ) | | ||||||||
Acquisition
of patents |
(8,575 | ) | (62,133 | ) | |||||||
Cash used in
investing activities |
(928,113 | ) | (62,133 | ) | |||||||
Cash flows
from financing activities: |
|||||||||||
Proceeds from
sale of equity Common stock |
1,434,500 | 300,000 | |||||||||
Proceeds from
sale of equity Series B preferred |
140,000 | | |||||||||
Proceeds from
short term Notes Payable |
1,276,500 | 1,449,052 | |||||||||
Repayment of
short term Notes Payable |
(361,500 | ) | (1,326,500 | ) | |||||||
Cash provided
by financing activities |
2,489,500 | 422,552 | |||||||||
Foreign
currency translation adjustment |
3,193 | | |||||||||
Net increase
(decrease) in cash |
114,310 | (183,367 | ) | ||||||||
Cash at
beginning of period |
12,771 | 196,138 | |||||||||
Cash at end
of period |
$ | 127,081 | $ | 12,771 | |||||||
Supplemental
Disclosures of Cash Flow information: |
|||||||||||
Interest
paid: |
$ | | $ | | |||||||
Taxes paid
|
$ | 2,248 | $ | | |||||||
Non-Cash
Transactions: |
|||||||||||
Warrants,
options and common stock issued for debt financing |
$ | 803,690 | $ | 400,000 |
See accompanying notes to financial
statements
F-6
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
1. FORMATION AND BUSINESS OF THE COMPANY
Business Description
Vycor Medical, LLC, (the Company) was formed in
June 17, 2005 under the laws of the State of New York. The Company converted its entity form on August 14, 2007 from a New York Limited Liability
Company to a Delaware Corporation with 16,048 of common stock exchange for each partnership unit with 1122 units outstanding at date of conversion. The
assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are
presented as if the change occurred on the first day of the earliest period presented; thus all are references to number of shares prior to the date of
conversion are based upon the common stock equivalent of the units. The Company designs, develops and markets neurological medical devices and
therapies and operates through two divisions: Vycor Medical brain surgical access system for sale to hospitals and medical professionals; and
NovaVision neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss.
2. GOING CONCERN
The Companys financial statements have been presented
on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company
will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $1,983,822 for the year ended December
31, 2010, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs
related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of December 31, 2010
the Company had stockholders equity of $88,714 and cash and cash equivalents of $127,081. The Company believes it would not have enough cash to
meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance
that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds
are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to
commercialize, or cease operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern. The
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of this uncertainty.
Under a previously disclosed agreement entered into with
Fountainhead Capital Management Limited, Fountainhead agreed to fund or procure funding for Vycor Medicals monthly operating expenses through
September 2010 subject to the Company meeting certain financial benchmarks. The Company entered into a new agreement on September 29, 2010 under which
Fountainhead agreed to extend this commitment for Vycor Medicals operating expenses through August, 2011.
3. BUSINESS ACQUISITION
On November 29, 2010, the Company completed its acquisition
(the Acquisition) of substantially all of the assets of NovaVision, Inc., a company that had been in the business of researching,
developing and providing medical technologies to restore the vision of patients with neurological visual loss (NovaVision). The purchase
price for the Acquisition was $900,000 in cash.
As required under Financial Accounting Standards Board
Accounting Standards Codification (ASC) 805, Business Combinations, the Company commissioned an independent appraisal of the assets
acquired which was finalized in March 2011. The Company determined the fair value of the assets acquired pursuant to the acquisition method as defined
in ASC 805 and ASC 350, Intangibles-Goodwill and Other. Included in this valuation were assumptions concerning the cost of equity determined via the
build-up method, the cost of debt and the weighted average cost of capital. Cash flows as included in the valuation were projected based on historical
operations as well as managements projections for future results based on these historical amounts. The trademark valuations
F-7
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
3. BUSINESS ACQUISITION
(Continued)
were based upon the Relief-from Royalty Method on an
after tax basis. The value of the Internally Developed Software was based upon the Multi-period Excess Earnings Method utilizing, among other factors,
a discount rate based on the Weighted Average Cost of Capital.
The assets of NovaVision were entered into the
Companys consolidated accounts on the basis of this valuation As a result, the Company generated goodwill on acquisition of $58,027 which has
been written off as incurred.
The expenses of the transaction, which primarily comprised
legal fees and audit fees in connection with the Form 8-K/A filed on February 14, 2010 amounted to $154,203.
The following table represents the final purchase price
allocation to the estimated fair value of the assets and liabilities assumed:
As of
November 30, 2010 |
Amount |
|||||
US |
||||||
Purchased
Software |
10,000 | |||||
Therapy
Devices |
31,000 | |||||
Internally
Developed Software |
540,000 | |||||
Inventory |
9,179 | |||||
Trademarks
|
130,000 | |||||
Patents
|
250,000 | |||||
Germany |
||||||
Therapy
Devices, Machinery and Office Equipment |
14,378 | |||||
Current
Assets |
57,756 | |||||
Current
Liabilities |
(200,340 | ) | ||||
841,973 | ||||||
Goodwill on
acquisition |
$ | 58,027 | ||||
Purchase Price
|
$ | 900,000 |
Principles of Consolidation
Assuming the acquisition discussed above had occurred on
January 1, 2010, for the year ended December 31, 2010, pro forma revenues, net loss and net loss per share for the Company would have been $680,982,
$(2,916,434) and $(0.004), respectively.
Assuming the acquisition discussed above had occurred on
January 1, 2009, for the year ended December 31, 2009, pro forma revenues, net loss and net loss per share for the Company would have been $1,120,081,
$(8,765,364) and $(0.236), respectively.
The pro forma results are not necessarily indicative of the
operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily
indicative of future operating results
4. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of Vycor Medical, Inc., and its subsidiaries, NovaVision, Inc. (a U.S. corporation incorporated in Delaware) and NovaVision AG (German corporation), a
wholly owned subsidiary of NovaVision, Inc. (individually and collectively referred to herein as the Company), which is
F-8
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
4. ACCOUNTING POLICIES (Continued)
headquartered in Boca Raton, FL. The operations of NovaVision, Inc have been consolidated from November 30, 2010, the date of the acquisition of substantially all the assets of the former NovaVision, Inc. All material inter-company accounts, transactions, and profits have been eliminated in consolidation.
Research and Development
The Company expenses all research and development costs as
incurred. For the years ended December 31, 2010 and 2009, the amounts charged to research and development expenses were $15,208 and $4,761,
respectively.
Software Development Costs
The authoritative guidance requires software development
costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the
development of the features and functionality of the Companys software, incurred during the application development stage, are capitalized and
amortized using the straight-line method of the estimated life of five years. The Company acquired internally developed software valued at $540,000 as
part of the acquisition of the assets of NovaVision, Inc.
Concentration of Credit Risk
The Company maintains cash balances at various financial
institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash balances may at times exceed
the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up to 105% of the account
balance. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash
balances in Germany held at NovaVision AG at December 31, 2010 and 2009 includes $1,233 and $0, respectively.
Property and equipment
The Company records property and equipment at cost and
calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and ten
years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
Patents and Other Intangible Assets
The Company capitalizes legal and related costs associated
with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with the development of the
patented item or processes are charged to research and development costs as incurred. The capitalized costs are amortized over the life of the
patent.
The Company reviews intangible assets on an annual basis
using a present value, cash flow method based upon the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by
management for impairment in accordance with the authoritative guidance
Income taxes
The Company accounts for income taxes in accordance with
the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and
tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be realized.
F-9
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
4. ACCOUNTING POLICIES (Continued)
Uses of estimates in the preparation of financial
statements
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent managements estimates
prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the
accompanying consolidated financial statements include managements estimate of the allowance for uncollectible accounts receivable, amortization
of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based
compensation.
Revenue Recognition
Vycor Medical generates revenue from the sale of its
surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the
product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.
NovaVision generates revenues from various programs,
therapy services and other sources such as government grants. Therapy services revenues represent fees from NovaVisions vision restoration
therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services associated with the
therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Companys work effort is expended. NovaVision provides
vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average over 6 months in
the U.S. and 10 months in Germany. A patient contract comprise set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the
contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a
specified time frame.
Research grants and other subsidies represent revenue from
certain German government agencies to cover certain patients within an insurance group and also to reimburse NovaVision AG for certain payroll and
other costs. The Company recognizes grant revenue when services or costs have been incurred which would entitle the Company to use the German
government funds, and the grant requirements have been satisfied.
Deferred revenue results from patients paying for the
therapy in advance of receiving the therapy.
Accounts Receivable
The Companys accounts receivable are due from the
hospitals and distributors in the case of Vycor Medical, and from patients directly therapy or physicians for diagnostic products in the case of
NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for NovaVision therapy
patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to exceed the 9 or 10 month
therapy period. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a
number of factors, including the length of time accounts receivable are past due, and the customers ability to pay its obligations. The Company
writes off accounts receivable when they become uncollectible.
Inventory
Inventories are comprised of Vycor Medical VBAS devices,
components ancillary to NovaVisions medical device provided to patients and centers and diagnostic products, and are stated at the lower of cost
or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a device is shipped to a
customer or patient.
F-10
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
4. ACCOUNTING POLICIES (Continued)
Foreign Currency
The Euro is the local currency of the country in which
NovaVision AG conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are translated to U.S.
dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical rates. Operating
statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated as
part of the accumulated other comprehensive income (loss) and included in shareholders (deficit) in the accompanying Consolidated Balance
Sheet.
Educational marketing and advertising
expenses
The Company may incur costs for the education of customers
on the uses and benefits of its products. The Company will include education, marketing and advertising expense as a component of selling, general and
administrative costs as such costs are incurred.
Website Costs
The Company capitalizes the costs associated with the
acquisition of hardware and development tools as well as the creation of database tools in connection with the Companys website pursuant to
authoritative guidance. Other costs including the development of functionality and identification of software tools are expensed as
incurred.
Stock-Based Compensation
The Company accounts for stock based compensation awards to
employees using a fair-value-based method, for costs related to all share-based payments including stock options. These standards require companies to
estimate the fair value of share-based payment awards on the date of grant using an option-pricing model.
Fair Values of Assets and Liabilities
Effective January 1, 2008, the relevant FASB standards
define the fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These standards
require that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. These standards also established a
fair value hierarchy, which prioritizes the valuation inputs into three broad levels.
There are three general valuation techniques that may be
used to measure fair value, as described below:
a) |
Market approach Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources; |
b) |
Cost approach Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and |
c) |
Income approach Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate. |
Financial assets and liabilities are valued using either
level 1 inputs based on unadjusted quoted market prices within active markets or using level 2 inputs based primarily on quoted prices for similar
assets or liabilities in active or inactive markets. For certain long-term debt, fair value is based on present value techniques using inputs
derived
F-11
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
4. ACCOUNTING POLICIES (Continued)
principally or corroborated from market data. Using level 3 inputs uses managements assessment about the assumptions market participants would utilize in pricing the asset or liability. In the Companys case this entailed assumptions used in pricing models for attached warrant calculations. Valuation techniques utilized to determine fair value are consistently applied.
The Company has no items that are subject to these
standards as of December 30, 2010.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss
by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common
shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares
are excluded when the effect would be to reduce a net loss per share. The Companys potential dilutive shares, which include outstanding common
stock options, convertible notes payable and warrants, have not been included in the computation of diluted net loss per share for all periods as the
result would be anti-dilutive.
The following table sets forth the potential shares of
common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each
period presented:
December 31, 2010 |
December 31, 2009 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Stock options
outstanding |
833,333 | 1,050,000 | ||||||||
Warrants to
purchase common stock |
90,191,077 | 38,510,584 | ||||||||
Debentures
convertible into common stock |
47,414,223 | 99,604,160 | ||||||||
Total
|
138,438,633 | 139,164,744 |
Recent Accounting Pronouncements
In December 2009, FASB issued ASU No. 2009-16, Accounting
for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB
Statement No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140. The amendments in this Accounting
Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and
the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred
financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its
continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be
improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale
accounting. The adoption of this ASU did not have a material impact on our consolidated financial statements.
In January 2010, FASB issued ASU No. 2010-06
Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1)
Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for
fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases,
sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes
F-12
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
4. ACCOUNTING POLICIES (Continued)
of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In February 2010, FASB issued ASU No. 2010-9
Amendments to Certain Recognition and Disclosure Requirements. This update addresses certain implementation issues related to an entitys
requirement to perform and disclose subsequent-events procedures, removes the requirement that public companies disclose the date of their financial
statements in both issued and revised financial statements. According to the FASB, the revised statements include those that have been changed to
correct an error or conform to a retrospective application of U.S. GAAP. The adoption of this ASU did not have a material impact on our consolidated
financial statements.
In March 2010, FASB issued ASU No. 2010-11 Scope
Exception Related to Embedded Credit Derivatives. Embedded credit-derivative features related only to the transfer of credit risk in the form of
subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting as clarified by recently issued
FASB guidance. Other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately. This
update provides guidance on whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt
obligations (CDOs) and synthetic CDOs are subject to bifurcation and separate accounting. The guidance is effective at the beginning of a
companys first fiscal quarter beginning after June 15, 2010. We do not expect the adoption of this ASU to have a material impact on our
consolidated financial statements.
In April 2010, the FASB issued ASU No. 2010-13,
Compensation Stock Compensation: Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which
the Underlying Equity Security Trades. ASU 2010-13 clarifies that a share-based payment award with an exercise price denominated in the currency of a
market in which a substantial portion of the entitys equity securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity. ASU
2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early adoption
permitted. We are currently evaluating the potential impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact
on our consolidated financial statements.
The Company does not believe that any other recently
issued, but not yet effective accounting standards will have a material effect on the Companys consolidated financial position, results of
operations or cash flows.
5. RESTATEMENT OF CONSOLIDATED FINANCIAL
STATEMENTS
On August 15, 2011, the Company filed with the Securities
and Exchange Commission (SEC) a Current Report on Form 8-K, to report managements determination that the Companys financial
statements for the year ended December 31, 2010, included in its Annual Report on Form 10-K filed with the SEC on March 31, 2011 (the 2010 Form
10-K), should no longer be relied upon due to incorrect accounting in such financial statements with respect to warrants issued in connection
with service agreements and for the beneficial conversion feature of certain convertible debentures. The Company determined that the historical
financial statements for the year ended December 31, 2010 included in the Companys 2010 Form 10-K require restatement to properly record these
warrants and beneficial conversion features.
The Current Report on Form 8-K which the Company filed with
the SEC on August 15, 2011 also reported managements determination that the Companys following financial statements should no longer be
relied upon due to incorrect accounting in such financial statements with respect warrants issued in connection with service agreements and for the
beneficial conversion feature of certain convertible debentures:
(i) |
for the year ended December 31, 2009, included in the Companys Annual Report on Form 10-K filed with the SEC on March 31, 2010; |
F-13
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
5. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(ii) |
for the three months ended March 31, 2010, included in the Companys Quarterly Report on Form 10-Q filed with the SEC on May 12, 2010; |
(iii) |
for the three and six months ended June 30, 2010, included in the Companys Quarterly Report on Form 10-Q filed with the SEC on August 16, 2010; |
(iv) |
for the three and nine months ended September 30, 2010 included in the Companys Quarterly Report on Form 10-Q filed with the SEC on November 15, 2010; and |
(v) |
for the three months ended March 31, 2011 included in the Companys Quarterly Report on Form 10-Q filed with the SEC on May 14, 2010 |
The Companys management re-evaluated certain of its
accounting policies and procedures in connection with the preparation of the Companys financial statements for the periods ended June 30, 2011,
and determined that it had not properly accounted for warrants issued in connection with service agreements and for the beneficial conversion feature
of certain convertible debentures. The Company had previously not recognized the fair value of warrants issued in connection with consulting or other
service agreements at the measurement date, and has previously recognized the expense ratably over the life of the warrant. The Companys
management has determined that the proper accounting, following the guidance in ASC Topic 505, is to record the fair value of these warrants as a
prepaid expense on the date of issuance, and recognize the expense ratably over the life of the underlying service agreement. The Company has, since
December 2009, been determining the existence of a beneficial conversion feature of convertible debt based on the fair value of the conversion feature
on the date of issuance, rather than using the intrinsic value of the conversion feature on the date of issuance, as required under ASC Topic
470.
The Companys board of directors and management has
discussed the matters set forth herein with Paritz & Co., P.A., the Companys registered independent public accounting firm. Paritz & Co.
was the Companys independent public accounting firm for each of the periods being restated as set forth above.
The tables below show the effects of the restatements on
(i) the Companys consolidated balance sheets as of December 31, 2010 and 2009, (ii) the consolidated statements of operations for the years ended
December 31, 2010 and 2009, and (iii) the consolidated statements of cash flows for the years ended December 31, 2010 and 2009. These adjustments are
non-cash items and do not impact the Companys operating activities or cash flows from operations in any way.
F-14
Vycor Medical, Inc.
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, 2010 |
December 31, 2009 |
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As Reported |
Adjustment |
Restated |
As Reported |
Adjustment |
Restated |
||||||||||||||||||||||
Prepaid
Expenses |
106,782 | 538,520 | a | 645,302 | 22,369 | | a | 22,369 | |||||||||||||||||||
Total Current
Assets |
362,683 | 538,520 | 901,203 | 106,855 | | 106,855 | |||||||||||||||||||||
Total
Assets |
1,615,174 | 538,520 | 2,153,694 | 400,960 | | 400,960 | |||||||||||||||||||||
Notes
Payable |
1,344,300 | 56,081 | b | 1,400,381 | 1,111,053 | 133,999 | b | 1,245,052 | |||||||||||||||||||
Total
Liabilities |
2,008,899 | 56,081 | 2,064,980 | 1,512,901 | 133,999 | 1,646,900 | |||||||||||||||||||||
Additional
Paid-in Capital |
6,375,175 | 527,252 | a,b | 6,902,427 | 3,708,967 | (111,346 | ) a,b,e | 3,597,621 | |||||||||||||||||||
Accumulated
Deficit |
(6,838,350 | ) | (44,813 | ) c,d | (6,883,163 | ) | (4,876,688 | ) | (22,653 | ) d,e | (4,899,341 | ) | |||||||||||||||
Total
Stockholders Equity (Deficit) |
(393,725 | ) | 482,439 | 88,714 | (1,111,941 | ) | (133,999 | ) | (1,245,940 | ) | |||||||||||||||||
Total
Liabilities and Stockholders Equity |
1,615,174 | 538,520 | 2,153,694 | 400,960 | | 400,960 |
F-15
Vycor Medical, Inc.
Consolidated Statements of Operations
Consolidated Statements of Operations
For the Years Ended |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2010 |
December 31, 2009 |
||||||||||||||||||||||||||
As Reported |
Adjustment |
Restated |
As Reported |
Adjustment |
Restated |
||||||||||||||||||||||
General and
administrative |
1,728,227 | 190,947 | c | 1,919,174 | 1,077,411 | 23,756 | 1,101,167 | ||||||||||||||||||||
Goodwill on
Acquisition of Subsidiary |
| (58,027 | ) f | (58,027 | ) | ||||||||||||||||||||||
Costs
related to Acquisition of Subsidiary |
| (154,203 | ) f | (154,203 | ) | ||||||||||||||||||||||
Total
Operating Expenses |
1,800,236 | 403,177 | 2,203,413 | 1,119,167 | 23,756 | 1,142,923 | |||||||||||||||||||||
Total
Operating Loss |
(1,532,523 | ) | (403,177 | ) | (1,935,700 | ) | (942,603 | ) | (23,756 | ) | (966,359 | ) | |||||||||||||||
Interest
Expense |
(214,661 | ) | 168,787 | d | (45,874 | ) | (249,505 | ) | (1,103 | ) d | (248,402 | ) | |||||||||||||||
Goodwill on
Acquisition of Subsidiary |
(58,027 | ) | | f | 58,027 | ||||||||||||||||||||||
Costs
related to Acquisition of Subsidiary |
(154,203 | ) | | f | 154,203 | ||||||||||||||||||||||
Total Other
Income (Expense) |
(426,891 | ) | 381,017 | (45,874 | ) | (198,780 | ) | 1,103 | (197,677 | ) | |||||||||||||||||
Net Loss
|
(1,961,662 | ) | (22,160 | ) | (1,983,822 | ) | (1,141,383 | ) | (22,653 | ) | (1,164,036 | ) | |||||||||||||||
Net Loss per
share |
(0.003 | ) | (0.000 | ) | (0.003 | ) | (0.039 | ) | (0.001 | ) | (0.040 | ) |
F-16
Vycor Medical, Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
For the Years Ended |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2010 |
December 31, 2009 |
||||||||||||||||||||||||||
As Reported |
Adjustment |
Restated |
As Reported |
Adjustment |
Restated |
||||||||||||||||||||||
Net Loss
|
(1,961,662 | ) | (22,160 | ) | (1,983,822 | ) | (1,141,383 | ) | (22,653 | ) | (1,164,036 | ) | |||||||||||||||
Amortization of
Debt Discount Expense |
168,785 | (168,785 | ) d | | 146,405 | (1,103 | ) d | 145,302 | |||||||||||||||||||
Share-based
compensation |
152,069 | 190,795 | c | 342,864 | 391,706 | 23,756 | e | 415,462 | |||||||||||||||||||
Shares issued
for consulting services |
40,625 | (1,771 | ) | 38,854 | 17,437 | | 17,437 | ||||||||||||||||||||
Changes in
Accrued liabilities |
292,385 | 1,921 | 294,306 | (13,466 | ) | | (13,466 | ) | |||||||||||||||||||
Cash used in
operating activities |
(1,450,270 | ) | | (1,450,270 | ) | (543,786 | ) | | (543,786 | ) | |||||||||||||||||
Cash used in
investing activities |
(928,113 | ) | | (928,113 | ) | (62,133 | ) | | (62,133 | ) | |||||||||||||||||
Cash provided
by financing activities |
2,489,500 | | 2,489,500 | 422,552 | | 422,552 | |||||||||||||||||||||
Foreign
currency translation adjustments |
3,193 | | 3,193 | | | | |||||||||||||||||||||
Net Increase
(Decrease) in Cash |
114,310 | (0 | ) | 114,310 | (183,367 | ) | | (183,367 | ) | ||||||||||||||||||
Notes:
a |
Grant date fair value of warrants issued for consulting services |
b |
Elimination debt discount where no Beneficial Conversion Feature exists |
c |
Net change in expense from converting amortization period from life of warrant to life of service agreement |
d |
Reversal of BCF amortization where no Beneficial Conversion Feature exists |
e |
Write-off of unamortized balance of share-based consulting fees for terminated agreements |
f |
Re-presentation of Goodwill and Costs related to Acquisition of Subsidiary as operating expenses rather than non-operating expenses |
F-17
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
6. NOTES PAYABLE
As of December 31, 2010 and December 31, 2009, Notes
Payable consists of:
December 31, 2010 |
December 31, 2009 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
On December 29,
2009, in conjunction with a debt restructuring, the Company issued a convertible debenture in the amount of $70,000 payable to Fountainhead Capital
Management Limited (Fountainhead). This debenture accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first
priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other obligations of the Company,
subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture into shares of common
stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. On May 14, 2010, this loan
was repaid |
| 70,000 | |||||||||
On December 29,
2009, in conjunction with a debt restructuring, the Company issued a convertible debenture in the amount of $371,362 payable to Fountainhead. This
debenture accrues interest rate of 6% per annum, was due August 31, 2010, is secured by a first priority security interest in all of the assets of the
Company, and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to
convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion
price of $0.0125 per share, subject to adjustment and does not require bifurcation. On May 14, 2010, the due date for satisfaction was extended to
March 30, 2011 and on March 28, 2011 this was further extended to August 31, 2011. |
371,362 | 371,362 | |||||||||
On December 29,
2009, the Company issued a convertible debenture in the amount of $350,000 payable Regent Private Capital, LLC (Regent). This debenture
accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company,
and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all
or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of
$0.0125 per share, subject to adjustment and does not require bifurcation. On December 29, 2009, this debenture was amended to provide for automatic
conversion, subject to the Company authorizing sufficient shares to convert this, and other existing instruments, and transferred to three parties. On
January 11, 2010 (see Note 10), these notes were satisfied in accordance with the automatic conversion clause. |
| 350,000 |
F-18
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
6. NOTES PAYABLE (Continued)
December 31, 2010 |
December 31, 2009 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
On December 29,
2009, the Company issued a convertible debenture in the amount of $453,690 payable Regent Private Capital, LLC (Regent). This debenture
accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company,
and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all
or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of
$0.0125 per share, subject to adjustment and does not require bifurcation. On December 29, 2009, this debenture was amended to provide for automatic
conversion, subject to the Company authorizing sufficient shares to convert this, and other existing instruments, and transferred to five parties. On
January 11, 2010, these notes were satisfied in accordance with the automatic conversion clause. |
| 453,690 | |||||||||
On February 3,
2010, the Company issued a convertible debenture in the amount of $70,000 payable to Fountainhead. This debenture accrues interest rate of 6% per
annum, was due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari
passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the
principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share,
subject to adjustment and does not require bifurcation. On May 14, 2010, the due date for satisfaction was extended to March 30, 2011 and on March 28,
2011 this was further extended to August 31, 2011. |
70,000 | | |||||||||
On September 30,
2010, the Company issued a convertible debenture in the amount of $85,000 payable to Fountainhead. This debenture accrues interest rate of 6% per
annum, is due August 31, 2011, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari
passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the
principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.0175 per share,
subject to adjustment and does not require bifurcation. |
85,000 | | |||||||||
On October 14,
2010, the Company issued a convertible debenture in the amount of $90,000 payable to Fountainhead. This debenture accrues interest rate of 6% per
annum, is due August 31, 2011, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari
passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the
principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.0175 per share,
subject to adjustment and does not require bifurcation. |
90,000 | |
F-19
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
6. NOTES PAYABLE (Continued)
December 31, 2010 |
December 31, 2009 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
On October 26,
2010, the Company issued a debenture in the amount of $77,500 payable to Fountainhead. This debenture accrues interest rate of 6% per annum, is due on
the earlier of August 31, 2011 or the date of receipt by the Company of cash from fundraisings in excess of a cumulative $3 million from October 26,
2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other
obligations of the Company, subject to certain conditions. |
77,500 | | |||||||||
On November 15,
2010, the Company issued a debenture in the amount of $322,500 payable to Fountainhead. This debenture accrues interest rate of 6% per annum, is due on
the earlier of August 31, 2011 or the date of receipt by the Company of cash from fundraisings in excess of a cumulative $3 million from October 26,
2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other
obligations of the Company, subject to certain conditions. |
322,500 | | |||||||||
On November 15,
2010, the Company issued a convertible debenture in the amount of $350,000 payable to Peter Zachariou, a Director of the Company. This debenture
accrues interest rate of 6% per annum, is due on the earlier of August 31, 2011 or the date of receipt by the Company of cash from fundraisings in
excess of a cumulative $3 million from October 26, 2010, is secured by a first priority security interest in all of the assets of the Company, and is
senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any
amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per
share, subject to adjustment and does not require bifurcation. On December 20, the Company repaid $50,000 of this debenture and removed the convertible
rights. |
300,000 | | |||||||||
On December 3,
2010, the Company issued a debenture in the amount of $40,000 payable to Berardino Investment Group. This debenture accrues interest rate of 6% per
annum, is due June 30, 2011, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari
passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the
principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per share, subject
to adjustment and does not require bifurcation. |
40,000 | | |||||||||
e33,000
unsecured, non-interest bearing loan from the chief executive of NovaVision AG, advanced a total of to NovaVision AG, which is being repaid in monthly
installments to December 31, 2011 |
44,019 | | |||||||||
Total Notes
Payable: |
$ | 1,400,381 | $ | 1,245,052 |
F-20
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
6. NOTES PAYABLE (Continued)
The following is a schedule of future minimum loan
payments:
Twelve months
ending December 31, |
Amount |
|||||
2011
|
$ | 1,400,381 | ||||
2012
|
| |||||
2013
|
| |||||
2014
|
| |||||
2015
|
| |||||
Thereafter
|
| |||||
$ | 1,400,381 |
As of December 31, 2010, $1,356,362 of the Companys
notes payable is secured by a first security interest in all of the assets of the Company. The Company determines the existence of a beneficial
conversion feature of its convertible debt under the guidance of ASC Topic 470 by assessing the intrinsic value of such conversion feature at the time
of issuance. For each of the convertible debt instruments set out above, the fair value of the stock on the date of issue was either the same or less
than the conversion price, and so there was no value attributable to any beneficial conversion feature.
7. SEGMENT REPORTING, GEOGRAPHICAL
INFORMATION
(a) |
Business segments |
The Company operates in two business segments: Vycor
Medical, devices for neurosurgery; and NovaVision, neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field
loss. Set out below are the revenues, gross profits and total assets for each segment.
December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Revenue: |
|||||||||||
Vycor
Medical |
$ | 307,582 | $ | 199,046 | |||||||
NovaVision |
8,868 | | |||||||||
Total Revenue
|
$ | 316,450 | $ | 199,046 | |||||||
Gross
Profit: |
|||||||||||
Vycor
Medical |
259,975 | 176,564 | |||||||||
NovaVision |
7,738 | | |||||||||
Total Gross
Profit |
$ | 267,713 | $ | 176,564 | |||||||
Total
Assets: |
(restated) |
(restated) |
|||||||||
Vycor
Medical |
1,085,680 | 400,960 | |||||||||
NovaVision |
1,068,014 | | |||||||||
Total
Assets |
$ | 2,153,694 | $ | 400,960 |
(b) |
Geographic information. The Company operates in two geographic segments, the United States and Germany. Set out below are the revenues, gross profits and total assets for each segment. |
F-21
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
7. SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(Continued)
December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Revenue: |
|||||||||||
United
States |
$ | 307,582 | $ | 199,046 | |||||||
Germany |
8,868 | | |||||||||
Total
Revenue |
$ | 316,450 | $ | 199,046 | |||||||
Gross
Profit: |
|||||||||||
United
States |
259,975 | 176,564 | |||||||||
Germany |
7,738 | | |||||||||
Total Gross
Profit |
$ | 267,713 | $ | 176,564 | |||||||
Total
Assets: |
(restated) |
(restated) |
|||||||||
United
States |
2,084,029 | 400,960 | |||||||||
Germany |
69,665 | | |||||||||
Total
Assets |
$ | 2,153,694 | $ | 400,960 |
8. PROPERTY AND EQUIPMENT
As of December 31, 2010 and 2009, Property and Equipment
and the estimated lives used in the computation of depreciation is as follows:
2010 |
2009 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Machinery and
equipment |
$ | 93,764 | $ | 9,125 | ||||||
Purchased
Software |
10,000 | | ||||||||
Molds and
Tooling |
230,830 | 211,240 | ||||||||
Furniture and
fixtures |
18,288 | | ||||||||
Therapy
Devices |
44,412 | | ||||||||
Internally
Developed Software |
540,000 | | ||||||||
937,294 | 220,365 | |||||||||
Less:
Accumulated depreciation and amortization |
(164,106 | ) | (29,356 | ) | ||||||
Property and
Equipment, net |
$ | 773,188 | $ | 191,009 |
Estimated useful lives of property and equipment are as
follows:
Therapy devices
|
3
years |
|||||
Computer
equipment and software |
3
years |
|||||
Furniture and
fixtures |
7
years |
|||||
Machinery and
office equipment |
5
years |
|||||
Internally
Developed Software |
5
years |
F-22
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
9. INTANGIBLE ASSETS
As of December 31, 2010 and 2009, Intangible Assets
consists of:
December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2008 |
||||||||||
Amortized
intangible assets: Patent (8 years useful life) |
|||||||||||
Gross
carrying Amount |
$ | 381,740 | $ | 123,166 | |||||||
Accumulated
Amortization |
(48,668 | ) | (29,462 | ) | |||||||
$ | 333,072 | $ | 93,704 | ||||||||
Intangible
assets not subject to amortization |
|||||||||||
Trademarks
|
130,000 | |
Amortization expense for the periods ended December 31,
2010 and 2009 was $21,539 and $14,046, respectively.
10. EQUITY
Certain Equity Transactions
On January 11, 2010, in accordance with the terms
prescribed in Vycor Preferred Stock Series A Convertible Preferred Stock (New Preferred Shares), a total of 531,376,500 New
Preferred Shares held by Fountainhead were automatically converted into the same number of common shares. The New Preferred Shares had been issued to
Fountainhead on conversion of $300,000 debentures in connection with a debt restructuring effective December 29, 2009.
On January 11, 2010, in accordance with the terms
prescribed in debentures totaling $803,690, the Company issued 64,295,200 common shares to automatically convert said debentures at the rate of $0.0125
per share.
In accordance with the previously filed Certificate of
Designation, the Company sold 140,000 shares of Series B Preferred Stock during the current fiscal year for $140,000. These shares were converted on
September 11 2010, along with accrued interest, into 11,768,197 shares of the Companys Common Stock at a multiple of 80 common shares per Series
B share.
On February 23, 2010, in consideration for services
provided to the Board of (valued at $10,000), the Company issued 800,000 shares of its common stock.
In accordance with an agreement with Joe Simone for
consulting services relating to identifying sales and marketing opportunities, increasing investor awareness of the Company, identifying potential new
investors who might have an interest in investing in the Company, and other activities in the furtherance of the above, the Company issued 750,000
shares of its Common Stock valued at $9,375.
On April 14, 2010, by written consent of the Board of
Directors, the Company developed the 2010 Professional/Consultant Stock Compensation Plan. It was further resolved that these shares be issued to
Gregory Sichenzia for services provided to the Company by Sichenzia Ross Friedman Ference LLP, valued at $14,025.
From April 13, 2010 through May 10, 2010, the Company
accepted Subscription Agreements from eleven subscribers for the purchase of its Common Stock. In accordance with these Agreements, 49,966,665 shares
were purchased at $0.015 per share, totaling $749,500. Approximately $72,500 of reimbursable out-of-pocket costs were incurred by consultants in
furtherance of these transactions.
On August 11, 2010, in consideration for services provided
to the Board of Directors (valued at $16,250), the Company issued 812,500 shares of its common stock.
From July 20, 2010 through September 30, 2010, the Company
accepted Subscription Agreements from six subscribers for the purchase of its Common Stock. In accordance with these Agreements, 9,428,571 shares were
purchased at $0.0175 per share, totaling $165,000.
F-23
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
10. EQUITY (Continued)
During October and November, 2010, the Company accepted two
Subscription Agreements from a subscriber for the purchase of its Common Stock. In accordance with these Agreements, 4,000,000 shares were purchased at
$0.0175 per share, totaling $70,000.
On November 12, 2010, in consideration for services
provided to the Board of Directors (valued at $5,000), the Company issued 250,000 shares of its common stock.
From October to December, 2010, the Company accepted
Subscription Agreements from six subscribers for the purchase of its Common Stock. In accordance with these Agreements, 23,684,211 shares were
purchased at $0.019 per share, totaling $450,000.
11. AMENDMENTS TO ARTICLES OF INCORPORATION OR
BY-LAWS
Effective January 11, 2010, the Company (a) amended its
Certificate of Incorporation to increase the Companys authorized capital to 1,010,000,000 shares comprising 1,000,000,000 shares of Common Stock
par value $.0001 per share and 10,000,000 shares of Preferred Stock par value $0.0001 per share and (b) decreased the par value of the Companys
Common Stock and Preferred Stock from $.001 per share to $.0001 per share
Effective July 11, 2010, the Company amended its
Certificate of Incorporation to increase the Companys authorized capital to 1,510,000,000 shares comprising 1,500,000,000 shares of Common Stock
par value $.0001 per share and 10,000,000 shares of Preferred Stock par value $0.0001 per share.
12. SHARE-BASED COMPENSATION
The Company recognizes the cost of all share-based payments
under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Companys
common stock or financial instruments that grant the recipient the right to acquire shares of the Companys common stock. For share-based payments
to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with
the provisions of ASC Topic 718, Stock Compensation (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service
providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, Equity Payments to Non-Employees
or other applicable authoritative guidance.
Stock Option Plan
The Company adopted the Vycor Medical, Inc Employee,
Director, and Consultant Stock Plan as of February 13, 2008, that includes both incentive stock options and nonqualified stock options to be granted to
employees, officers, and consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms
and conditions of all stock options grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be
granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more
than 10% of the Companys outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common
stock on the grant date. The options expire on the date determined by the board of directors, but may not extend mare than 10 years from the grant
date, while incentive stock options granted to participants owning more than 10% of the Companys outstanding voting stock expire five years from
the grant date. The vesting period for employees is generally over three years. The vesting Period for nonemployees is determined based on the services
being provided.
Under ASC Topic 718, the Company estimates the fair value
of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period
during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Under these standards, compensation cost for
F-24
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
12. SHARE-BASED COMPENSATION
(Continued)
employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. No employee stock options were granted for the years ended December 31, 2010 and 2009.
Initial grants totaling 500,000 shares each were issued on
February 13, 2008 to Kenneth T. Coviello, Chief Executive Officer and Heather N. Vinas, President at an exercise price of $.135 per share. The options
vest 33 1/3 % on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Accordingly, for the year ended December
31, 2010, the Company recognized share-based compensation amounts of $28,920 and $28,920, for each of the respective grants. Following Heather
Vinas resignation as President of the Company in May 2010, 166,667 options were cancelled.
The maximum number of shares of stock which maybe delivered
under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number
of shares of stock then outstanding on a fully diluted basis.
Stock appreciation rights may be granted either on a stand
alone basis or in conjunction with all or part of any other stock options granted under the plan. As of December 31, 2009 there were no awards of any
stock appreciation rights.
The Company from time to time issues common stock, stock
options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other
than employees or directors are recorded on the basis of their fair value, which is measured as of the measurement date using an option
pricing model. The measurement date for options and warrants related to contracts that have substantial disincentives to non-performance is
the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line
basis over the shorter of the period over which services are to be received or the life of the option or warrant.
The details of the outstanding rights, options and warrants
and value of such rights, options and warrants are as follows:
STOCK WARRANTS:
Number of shares |
Weighted average exercise price per share |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding
at January 1, 2009 |
6,460,920 | $ | 0.39 | |||||||
Granted
|
32,900,132 | 0.007 | ||||||||
Exercised |
| | ||||||||
Cancelled or
expired |
(3,867,880 | ) | 0.26 | |||||||
Outstanding
at January 1, 2010 |
35,493,172 | $ | 0.03 | |||||||
Granted
|
90,191,077 | 0.015 | ||||||||
Exercised
|
| | ||||||||
Cancelled or
expired |
(9,079,473 | ) | 0.015 | |||||||
Outstanding
at December 31, 2010 |
116,604,776 | $ | 0.019 |
F-25
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
12. SHARE-BASED COMPENSATION
(Continued)
STOCK OPTIONS:
Number of shares |
Weighted average exercise price per share |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding
at January 1, 2009 |
1,050,000 | $ | 0.14 | |||||||
Granted
|
| | ||||||||
Exercised
|
| | ||||||||
Cancelled or
expired |
(50,000 | ) | 0.14 | |||||||
Outstanding
at January 1, 2010 |
1,000,000 | $ | 0.14 | |||||||
Granted
|
| | ||||||||
Exercised
|
| | ||||||||
Cancelled or
expired |
(166,667 | ) | 0.14 | |||||||
Outstanding
at December 31, 2010 |
833,333 | $ | 0.14 |
The weighted-average remaining contractual life of
outstanding warrants and options is 2.24 and 7.88 years, respectively.
Employment Agreements
On February 10, 2010, Kenneth T. Coviello, Chief Executive
Officer and Heather N. Vinas, (former President and Chairwoman) executed amendments to their existing employment agreements. Each agreed to a
modification of monthly compensation from $8,500 to $12,500, and further agreed to forego a provision for potential cash bonus in excess of base
compensation. All other terms and conditions of the existing agreements remain in full force. Concurrent with this amendment, Coviello and Vinas each
executed amendments to their existing warrants to purchase common stock. These amendments reduce the total number of shares subject to purchase from
80,631,353 to 48,540,708 for each officer.
Consulting Agreements
On February 10, 2010, the Company entered into a Consulting
Agreement with Fountainhead Capital Management Limited (FCML) pursuant to which FCML will provide a number of services to the Company.
These services include, but are not limited to, certain strategic advisory services, certain financial services, identifying and evaluating potential
investors and or potential merger and acquisition candidates for the Company, and other advisory services. The term of the Consulting Agreement is two
years. In consideration for the above, FCML will be paid a monthly retainer of $8,500, which shall be accrued and paid (at the option of FCML) in cash
(following Vycor completing an additional funding of at least $1.5 million) or in Company stock valued at $0.0125 per share. In addition, upon
execution of the Consulting Agreement, the Company shall issue to FCML warrants to purchase 39,063,670 shares of the Companys Common Stock, at a
price of $0.0125 per share and is obligated to issue to FCML warrants to purchase an additional 39,063,670 shares of the Companys Common Stock,
at a price of $0.0125 per share should new funding totaling $3 million in aggregate in Common Stock of Vycor or in securities convertible into Common
Stock of Vycor at a price of no less than $0.0125 per share of Common Stock be closed during the term of the Consulting Agreement. All warrants are
exercisable over a five-year term.
On May 14, 2010, upon the resignation and foregoing of the
existing employment agreement, Heather N. Vinas (Vinas) entered into a Consulting Agreement to provide transition services to the Company
to assist in a seamless and smooth transition from her position with the Company. In this regard, Vinas will make herself available for up to five
hours per month to provide services to the Company and will communicate with the Companys customers, related physicians, vendors and other
persons or entities who do business with the Company to advise them of the new capacity under which she shall operate in support of the Companys
good and continued relationships with
F-26
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
12. SHARE-BASED COMPENSATION
(Continued)
such persons and entities. In consideration of these services, beginning in July, 2010 the Company will pay Vinas $6,250 per month over the 12 month term of the Consulting Agreement.
Non-Employee Stock Based Compensation
Under the terms of a consulting agreement dated February
2010, the Company issued fully vested warrants to Fountainhead to purchase up to 39,063,670 shares of the Companys common stock at $0.0125 per
share. The warrants are valid from February 10, 2010 for a period of five years. The fair value of these warrants was estimated using the Black-Scholes
option pricing model and is being amortized over the two-year life of the consultancy agreement. For the year ended December 31, 2010, $158,698 was
recognized as share-based compensation in connection with this agreement.
Under the terms of a twelve month sales and marketing
consulting agreement dated March 2010, the Company issued 750,000 shares of its Common Stock to Joe Simone, valued at $9,375. For the year ended
December 31, 2010, $7,604 was recognized as share-based compensation in connection with this agreement.
During the year ended December 31, 2010, the Company issued
an aggregate 1,150,000 of shares of common stock to Steven Girgenti for services rendered to the board of directors. For the year ended December 31,
2010, $20,000 was recognized as share-based compensation for the issuance of these shares.
During the year ended December 31, 2010, the Company issued
an aggregate 262,500 of shares of common stock to Konstantin V. Slavin and 300,000 to Ramin Rak for services rendered to the board of directors. For
the year ended December 31, 2010, $11,250 was recognized as share-based compensation for the issuance of these shares.
Under the terms of an Extension of Funding Commitment
agreement dated September 2010, the Company issued warrants to Fountainhead to purchase up to 50,627,407 shares of the Companys common stock at
$0.0175 per share. The warrants are valid from September 29, 2010 for a period of five years. The fair value of these warrants was estimated using the
Black-Scholes model and is being amortized over the life of the agreement to August 30, 2011. For the year ended December 31, 2010, $126,043 was
recognized as share-based compensation in connection with this agreement.
Under the terms of a one year consulting agreement dated
December 6, 2010, the Company issued warrants to Market Media Connect, LLC to purchase up to 500,000 shares of the Companys common stock at $0.07
per share. The warrants are valid from December 1, 2010 for a period of three years. The fair value of these warrants was estimated using the
Black-Scholes model and is being amortized over the life of the consulting agreement. For the year ended December 31, 2010, $278 was recognized as
share-based compensation in connection with this agreement.
Aggregate stock-based compensation expense charged to
operations on employee options and on stock and warrants granted to the above non-employees for the year ended December 31, 2010 is $381,718. As of
December 31, 2010, there was approximately $600,034 of total unrecognized compensation costs related to warrant and stock awards and non-vested
options, which are expected to be recognized over a weighted average period of approximately 0.76 years
Stock-based compensation expenses related to employee
options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or
warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis
over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share
options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock
on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair
value of the common stock is determined by the then-prevailing private placement purchase price.
F-27
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
12. SHARE-BASED COMPENSATION
(Continued)
Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Constant Maturity rate.
The following assumptions were used in calculations of the
Black-Scholes option pricing model in the years ended December 31, 2010 and 2009:
Year ended December 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Risk-free
interest rates |
0.102.39% |
0.10% |
|||||||||
Expected
life |
3
years |
3
years |
|||||||||
Expected
dividends |
0% |
0% |
|||||||||
Expected
volatility |
96% |
96% |
|||||||||
Vycor Common
Stock fair value |
$0.0125$0.019 |
$0.0125 |
13. INCOME TAXES
The Company has incurred net operating losses since
inception. The Company has not reflected any benefit of such net operating loss carry forward in the financial statements. Prior to August 15, 2007 the
Company was a limited liability company and losses were flowed through to the individual members, therefore the Company only has potential tax benefits
from the date it became ‘C corporation.
In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income.
Based on the level of historical taxable losses and
projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it
is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has provided a
valuation allowance against the gross deferred tax assets as follows:
December 31, 2010 |
December 31, 2009 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Gross
deferred tax assets |
1,573,000 | 1,032,500 | ||||||||
Valuation
allowance |
(1,573,000 | ) | (1,032,500 | ) | ||||||
Net deferred
tax asset |
| |
As of December 31, 2010 and 2009, the Company has U.S.
federal net operating loss carryforwards of approximately $4,493,000 and $2,950,000, respectively. The federal net operating loss carryforwards expire
in the tax years 2027 through 2030.
Federal tax laws impose significant restrictions on the
utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined
by the Internal Revenue Code Section 382. The Companys net operating loss carryforwards and research and development credits may be subject to
the above limitations.
At December 31, 2010 the Company has available for
carryforward German net operating losses of approximately $130,000, to be applied against future German taxable income which may be subject to certain
restrictions and limitations. Such carryforwards are subject to certain restrictions and limitations in the event of changes in the NovaVision
AGs ownership.
The authoritative guidance requires a valuation allowance
to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management has determined that a 100% valuation allowance is appropriate at December 31, 2010 and
2009.
F-28
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
14. COMMITMENTS AND CONTINGENCIES
Lease
The Company executed a lease agreement for administrative
office space at its current location of 3651 FAU Boulevard, Boca Raton, Florida. The lease term is 12 months from December 1, 2010. Rental expense for
the year ended December 31, 2010 and 2010 were $56,795 and $20,351, respectively.
15. RELATED PARTY TRANSACTIONS
In January 2010 the Company issued a convertible debenture
for $74,500 to Fountainhead Capital Management Limited (Fountainhead), holder of approximately 72.6% of the common shares of the Company,
as more fully disclosed in Note 6 of the Notes to the Financial Statements. This debenture was repaid in May 2010
In February 2010 the Company issued a convertible debenture
for $70,000 to Fountainhead, as more fully disclosed in Note 6 of the Notes to the Financial Statements.
In February 2010 the Company entered into a Consulting
Agreement with Fountainhead. Under the terms of the agreement, Fountainhead receives $8,500 as a monthly consulting fee, which is to be accrued and
converted into stock or paid in cash once a certain level of cash has been raised. Under the terms of the agreement, the Company also issued warrants
to Fountainhead to purchase up to 39,063,670 shares of the Companys common stock at $0.0125 per share. The warrants are valid from February 10,
2010 for a period of five years.
In March 2010 the Company issued a convertible debenture
for $102,000 to Fountainhead, as more fully disclosed in Note 6 of the Notes to the Financial Statements. This debenture was repaid in May
2010
In May 2010 the Company issued a convertible debenture for
$45,000 to Fountainhead, as more fully disclosed in Note 6 of the Notes to the Financial Statements. This debenture was repaid in May
2010.
In September 2010 the Company issued a convertible
debenture for $85,000 to Fountainhead, as more fully disclosed in Note 6 of the Notes to the Financial Statements.
In September 2010 the Company entered into a new agreement
with Fountainhead under which Fountainhead agreed to extend a previously disclosed agreement to fund or procure funding for Vycor Medicals
monthly operating expenses for through August 2011. Under the terms of the agreement, the Company issued warrants to Fountainhead to purchase up to
50,627,407 shares of the Companys common stock at $.0175 per share. The warrants are valid from September 29, 2010 for a period of five
years.
In October 2010 the Company issued a convertible debenture
for $90,000, and a $77,500 non-convertible debenture to Fountainhead, as more fully disclosed in Note 6 of the Notes to the Financial
Statements.
In November 2010 the Company issued a non-convertible
debenture for $322,500, as more fully disclosed in Note 6 of the Notes to the Financial Statements.
In November 2010 the Company issued an unsecured,
subordinated loan note to Fountainhead for $20,000. The note was repaid in December 2010.
In November 2010 the Company issued a convertible debenture
for $350,000 to Peter Zachariou, a director of the Company, as more fully disclosed in Note 6 of the Notes to the Financial Statements. In December
2010 $50,000 of this debenture was repaid and the convertible rights removed.
In January, February and March 2011 the Company issued
unsecured, subordinated loan notes to Fountainhead for a total of $99,000. The loan notes are subordinated to the Companys secured debentures,
bear interest at a rate of 6% and are due April 30, 2011
F-29
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
15. RELATED PARTY TRANSACTIONS
(Continued)
In January 2011 the Company issued an unsecured,
subordinated loan note to Peter Zachariou, a director of the Company for $15,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due April 30, 2011
In February 2011 the Company issued an unsecured,
subordinated loan note to Peter Zachariou, a director of the Company for $40,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due April 30, 2011
In February 2011 the Company issued an unsecured,
subordinated loan note to David Cantor, a director of the Company for $10,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due April 30, 2011
16. SUBSEQUENT EVENTS
Common Stock Subscriptions
In January and February 2011, the Company received
subscription agreements from three investors to purchase an aggregate of 7,578,947 shares of Company common stock at a price of $0.010 per share for
aggregate gross proceeds of $144,000.
On February 5, 2011, in consideration for services provided
to the Board of Directors (valued at $5,000), the Company issued 250,000 shares of its common stock to Steven Girgenti.
Loan Agreements
In January, February and March 2011, the Company issued
unsecured, subordinated loan notes to Fountainhead, Peter Zachariou and David Cantor all related parties totaling $164,000. The loan
notes are subordinated to the Companys secured debentures, bear interest at a rate of 6% and are due April 30, 2011.
In February and March 2011, the Company issued unsecured,
subordinated loan notes to Craig Kirsch totaling $40,000. The loan notes are subordinated to the Companys secured debentures, bear interest at a
rate of 6% and are due April 30, 2011.
On March 25, 2011 the Company issued a term note for
$300,000 to EuroAmerican Investment Corp. The term note bears interest at 16% per annum and is due June 25, 2011. In connection with the loan the
company also issued warrants to purchase 400,000 shares of Company common stock at an exercise price of $0.03 per share for a period of three (3)
years
Warrant Issuance
On March 2, 2011 the Company issued warrants to seven
parties to purchase 14,710,530 shares of the Companys common stock at a price of $0.03 per share. The warrants are exercisable over a period of
three years from the date of issuance.
Consulting Agreement
In March 2011 the Company entered into a consultancy
agreement with Mr Jerold Ginder, a sales executive of Stryker Corporation. Mr Ginder has extensive experience in sales and marketing and the
development of medical device products, and has contacts which will be of use to the Company. Under the terms of the one year agreement, which the
Company has the right to terminate with 30 days notice, Mr Ginder will receive $5,000 a month and 18,000,000 restricted shares of common stock of the
Company.
F-30
VYCOR MEDICAL, INC.
Consolidated Balance Sheets
(unaudited)
Consolidated Balance Sheets
(unaudited)
June 30, 2011 |
December 31, 2010 (restated, refer to Note 5) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||||
Current
Assets |
||||||||||
Cash
|
$ | 2,206,616 | $ | 127,081 | ||||||
Accounts
receivable, net |
106,249 | 76,460 | ||||||||
Inventory
|
67,234 | 52,360 | ||||||||
Prepaid
expenses and other current assets |
1,164,832 | 645,302 | ||||||||
Total Current
Assets |
3,541,931 | 901,203 | ||||||||
Fixed assets,
net |
711,662 | 773,188 | ||||||||
Intangible
and Other assets: |
||||||||||
Trademarks
|
130,000 | 130,000 | ||||||||
Patents, net
of accumulated amortization |
359,822 | 333,072 | ||||||||
Website, net
of accumulated amortization |
5,935 | 3,932 | ||||||||
Security
deposits |
11,252 | 12,299 | ||||||||
507,009 | 479,303 | |||||||||
TOTAL ASSETS
|
$ | 4,760,602 | $ | 2,153,694 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||
Current
Liabilities |
||||||||||
Accounts
payable |
$ | 233,010 | $ | 114,447 | ||||||
Accrued
interest |
93,261 | 36,992 | ||||||||
Accrued
liabilities |
514,934 | 406,998 | ||||||||
Other current
liabilities |
154,574 | 90,881 | ||||||||
Notes payable
current |
504,825 | 1,415,662 | ||||||||
1,500,604 | 2,064,980 | |||||||||
Notes payable
long-term |
1,316,362 | | ||||||||
TOTAL
LIABILITIES |
2,816,966 | 2,064,980 | ||||||||
STOCKHOLDERS EQUITY |
||||||||||
Preferred
stock, $0.0001 par value, 10,000,000 shares authorized, 46.8 and none issued and outstanding as at June 30, 2011 and December 31, 2010 respectively
|
| | ||||||||
Common Stock,
$0.0001 par value, 1,500,000,000 shares authorized, 804,985,775 and 724,488,929 shares issued and outstanding at June 30, 2011 and December 31, 2010
respectively |
80,499 | 72,449 | ||||||||
Additional
Paid-in Capital |
11,537,350 | 6,902,427 | ||||||||
Accumulated
Deficit |
(9,654,121 | ) | (6,883,163 | ) | ||||||
Accumulated
Other Comprehensive Income |
(20,092 | ) | (2,999 | ) | ||||||
1,943,636 | 88,714 | |||||||||
TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 4,760,602 | $ | 2,153,694 |
See accompanying notes to financial
statements
F-31
VYCOR MEDICAL, INC.
Consolidated Statement of Operations
(unaudited)
Consolidated Statement of Operations
(unaudited)
For the three months ended June 30, |
For the six months ended June 30, |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 (restated, refer to Note 5) |
2011 |
2010 (restated, refer to Note 5) |
||||||||||||||||
Revenue
|
$ | 142,331 | $ | 74,817 | $ | 287,453 | $ | 139,103 | |||||||||||
Cost of
Goods Sold |
35,192 | 6,184 | 57,565 | 18,772 | |||||||||||||||
Gross
Profit |
107,139 | 68,633 | 229,888 | 120,331 | |||||||||||||||
Operating
expenses: |
|||||||||||||||||||
Research and
development |
37,484 | 762 | 61,336 | 5,648 | |||||||||||||||
Depreciation
and Amortization |
52,348 | 10,051 | 101,753 | 19,824 | |||||||||||||||
General and
administrative |
1,823,019 | 466,208 | 2,783,748 | 830,181 | |||||||||||||||
Total
Operating expenses |
1,912,851 | 477,021 | 2,946,837 | 855,653 | |||||||||||||||
Operating
loss |
(1,805,712 | ) | (408,388 | ) | (2,716,949 | ) | (735,322 | ) | |||||||||||
Other
income (expense) |
|||||||||||||||||||
Other income
|
10,067 | | 10,067 | | |||||||||||||||
Interest
expense |
(39,613 | ) | (11,797 | ) | (63,534 | ) | (24,402 | ) | |||||||||||
Total
Other expense |
(29,546 | ) | (11,797 | ) | (53,467 | ) | (24,402 | ) | |||||||||||
Net Loss
Before Taxes |
(1,835,258 | ) | (420,185 | ) | (2,770,416 | ) | (759,724 | ) | |||||||||||
Taxes
|
| | 542 | 2,078 | |||||||||||||||
Net
Loss |
$ | (1,835,258 | ) | $ | (420,185 | ) | $ | (2,770,958 | ) | $ | (761,802 | ) | |||||||
Loss Per
Share |
|||||||||||||||||||
Basic and
diluted |
$ | (0.002 | ) | $ | (0.001 | ) | $ | (0.004 | ) | $ | (0.001 | ) | |||||||
Weighted
Average Number of Shares Outstanding |
780,845,969 | 649,281,287 | 753,940,244 | 631,918,392 |
See accompanying notes to financial
statements
F-32
VYCOR MEDICAL, INC.
Consolidated Statement of Cash Flows
(unaudited)
Consolidated Statement of Cash Flows
(unaudited)
For the six months ended June 30 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 (restated, refer to Note 5) |
||||||||||
Cash flows
from operating activities: |
|||||||||||
Net loss
|
$ | (2,770,958 | ) | $ | (761,802 | ) | |||||
Adjustments
to reconcile net loss to cash used in operating activities: |
|||||||||||
Amortization
of intangible assets |
83,685 | 8,253 | |||||||||
Depreciation
of fixed assets |
17,989 | 11,571 | |||||||||
Amortization
of debt discount expense |
4,884 | | |||||||||
Share based
compensation |
1,164,600 | 146,367 | |||||||||
Foreign
currency gain |
(4,156 | ) | | ||||||||
Net loss
|
(1,504,156 | )) | (595,612 | ) | |||||||
Changes in
assets and liabilities: |
|||||||||||
Accounts
receivable |
(29,592 | ) | (32,864 | ) | |||||||
Inventory
|
(14,467 | ) | (12,894 | ) | |||||||
Prepaid
expenses |
(187,517 | ) | (29,120 | ) | |||||||
Security
deposit |
1,047 | (1,283 | ) | ||||||||
Accounts
payable |
116,485 | (170,079 | ) | ||||||||
Accrued
interest |
57,459 | 20,743 | |||||||||
Accrued
liabilities |
102,909 | 51,497 | |||||||||
Other current
liabilities |
56,535 | | |||||||||
Cash used in
operating activities |
(1,401,297 | ) | (769,611 | ) | |||||||
Cash flows
used in investing activities: |
|||||||||||
Purchase of
fixed assets |
(16,071 | ) | (1,931 | ) | |||||||
Purchase of
website |
(3,360 | ) | | ||||||||
(Acquisition
of)/reduction of patents |
(56,435 | ) | 2,387 | ||||||||
Cash used in
investing activities |
(75,866 | ) | 456 | ||||||||
Cash flows
from financing activities: |
|||||||||||
Net proceeds
from issuance of Common stock |
889,000 | 749,500 | |||||||||
Net proceeds
from issuance of Series B preferred stock |
| 140,000 | |||||||||
Net proceeds
from issuance of Series C preferred stock |
2,218,200 | | |||||||||
Net proceeds
from issuance of Notes Payable |
530,576 | 291,500 | |||||||||
Repayment of
Notes Payable |
(81,582 | ) | (291,500 | ) | |||||||
Cash provided
by financing activities |
3,556,194 | 889,500 | |||||||||
Effect of
exchange rate changes on cash |
504 | | |||||||||
Net increase
in cash |
2,079,535 | 120,345 | |||||||||
Cash at
beginning of period |
127,081 | 12,771 | |||||||||
Cash at end
of period |
$ | 2,206,616 | $ | 133,116 | |||||||
Supplemental
Disclosures of Cash Flow information: |
|||||||||||
Interest
paid: |
$ | | $ | | |||||||
Taxes paid
|
$ | | $ | 2,078 | |||||||
Non-Cash
Transactions: |
|||||||||||
Warrants,
options and common stock issued for debt financing |
40,000 | $ | 803,690 |
See accompanying notes to financial
statements
F-33
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of December 31,
2010, which has been derived from restated audited financial statements, and the accompanying unaudited condensed financial statements have been
prepared by Vycor Medical, Inc. (together with its consolidated subsidiaries, the Company or Vycor) in accordance with
accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions
to the quarterly report on Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the three
and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These
financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Companys annual report on
Form 10-K/A for the year ended December 31, 2010, as amended and restated. Certain prior period amounts have been reclassified to conform to the
current presentation. All financial information included in these Notes relating to the Companys financial position as of December 31, 2010 and
results of operations for the interim periods ended June 30, 2010 have been restated to give effect to the accounting corrections discussed in Note
5.
2. FORMATION AND BUSINESS OF THE COMPANY
Business Description
Vycor Medical, LLC was formed on June 17, 2005 as a New
York Limited Liability Company. The Company changed its name to Vycor Medical, Inc. and converted to a Delaware Corporation on August 14, 2007 and
issued 16,048 shares of common stock in exchange for each of the 1,122 partnership units outstanding at date of conversion. The assets, liabilities and
operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change
occurred on the first day of the earliest period presented. Accordingly, all references to number of shares prior to the date of conversion are based
upon the common stock equivalent of the partnership units outstanding on such dates.
The Company designs, develops and markets neurological
medical devices and therapies through two operating divisions: Vycor Medical and NovaVision. Vycor Medical focuses on brain and cervical surgical
access systems for sale to hospitals and medical professionals; NovaVision focuses on neuro-stimulation therapies and diagnostic devices for the
treatment and screening of vision field loss.
3. GOING CONCERN
The Companys financial statements have been presented
on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company
will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $2,770,958 for the six months ended June
30, 2011, and the Company expects to continue to incur substantial additional losses in the future, including significant development, marketing,
manufacturing and distribution costs. The Company has generated negative cash flows from operations since inception. As of June 30, 2011 the Company
had a stockholders equity of $1,943,636 and cash and cash equivalents of $2,206,616. The Company believes it will not have enough cash to meet
its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that
additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate
funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise
seek to commercialize, or cease operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome of this uncertainty.
F-34
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
4. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation) and NovaVision AG (a German corporation), a wholly
owned subsidiary of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. The operations of NovaVision, Inc. have been consolidated from
November 30, 2010, the date of the acquisition of substantially all the assets of the former NovaVision, Inc. All material inter-company accounts,
transactions, and profits have been eliminated in consolidation.
Research and Development
The Company expenses all research and development costs as
incurred. For the six months ended June 30, 2011 and 2010 the amounts charged to research and development expenses were $61,336 and $5,648,
respectively.
Software Development Costs
The authoritative accounting guidance requires software
development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with
the development of the features and functionality of the Companys software, incurred during the application development stage, are capitalized
and amortized using the straight-line method of the estimated life of three years. The Company acquired internally developed software valued at
$540,000 as part of the acquisition of the assets of NovaVision, Inc. on November 30, 2010. For the six months ended June 30, 2011 and 2010 there was
no capitalization of software development costs.
Uses of estimates in the preparation of financial
statements
The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those estimated. To the extent managements estimates prove to be incorrect, financial
results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial
statements include managements estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair
values of options and warrants included in the determination of debt discounts and share based compensation.
Fair Values of Assets and Liabilities
Effective January 1, 2008, the relevant FASB standards
define the fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These standards
require that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. These standards also established a
fair value hierarchy, which prioritizes the valuation inputs into three broad levels.
There are three general valuation techniques that may be
used to measure fair value, as described below:
a) |
Market approach Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources; |
b) |
Cost approach Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and |
c) |
Income approach Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing |
F-35
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
4. ACCOUNTING POLICIES (Continued)
models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate. |
Financial assets and liabilities are valued using either
level 1 inputs based on unadjusted quoted market prices within active markets or using level 2 inputs based primarily on quoted prices for similar
assets or liabilities in active or inactive markets. For certain long-term debt, fair value is based on present value techniques using inputs
principally derived or corroborated from market data. Using level 3 inputs uses managements assessment about the assumptions market participants
would utilize in pricing the asset or liability. In the Companys case this entailed assumptions used in pricing models for attached warrant
calculations. Valuation techniques utilized to determine fair value are consistently applied.
The Company has no items that are subject to these
standards as of June 30, 2011.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss
by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise
of stock options and warrants and conversion of preferred stock and convertible debt. Such potentially dilutive shares are excluded when the effect
would be to reduce a net loss per share. No dilution adjustment has been made to the weighted average outstanding common shares in the periods
presented because the assumed exercise of outstanding options and warrants and the conversion of preferred stock and debt would be
anti-dilutive.
The following table sets forth the potential shares of
common stock that are not included in the calculation of diluted net loss per share:
June 30, 2011 |
June 30, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Stock options
outstanding |
833,333 | 833,333 | ||||||||
Warrants to
purchase common stock |
243,142,310 | 66,139,264 | ||||||||
Debentures
convertible into common stock |
55,308,960 | 35,308,960 | ||||||||
Preferred
shares convertible into common stock |
103,999,993 | | ||||||||
Total
|
403,284,596 | 102,281,557 |
Recent Accounting Pronouncements
From time to time new accounting pronouncements are issued
by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Companys accounting and reporting.
The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future
will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and
cash flows when implemented.
5. RESTATEMENT
On August 15, 2011, the Company filed with the Securities
and Exchange Commission (SEC) a Current Report on Form 8-K, to report managements determination, and following discussions with the
Companys independent registered public accounting firm, that the Companys financial statements for the year ended December 31, 2010,
included in its Annual Report on Form 10-K filed with the SEC on March 13, 2011 (the 2010 Form 10-K), should no longer be relied upon due
to incorrect accounting in such financial statements with respect to warrants issued in connection with service agreements and for the beneficial
conversion feature of certain convertible debentures. The Company determined that the historical financial statements for the year ended December 31,
2010 included
F-36
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
5. RESTATEMENT (Continued)
in the Companys 2010 Form 10-K require restatement to properly record these warrants and beneficial conversion features.
The Current Report on Form 8-K which the Company filed with
the SEC on August 15, 2011 also reported managements determination that the Companys financial statements should no longer be relied upon
due to incorrect accounting in such financial statements with respect warrants issued in connection with service agreements and for the beneficial
conversion feature of certain convertible debentures:
(i) |
for the year ended December 31, 2009 included in the Companys Annual Report on Form 10-K filed with the SEC on March 31, 2010; |
(ii) |
for the three months ended March 31, 2010, included in the Companys Quarterly Report on Form 10-Q filed with the SEC on May 12, 2010; |
(iii) |
for the three and six months ended June 30, 2010, included in the Companys Quarterly Report on Form 10-Q filed with the SEC on August 16, 2010; |
(iv) |
for the three and nine months ended September 30, 2010 included in the Companys Quarterly Report on Form 10-Q filed with the SEC on November 15, 2010; and |
(v) |
for the three months ended March 31, 2011 included in the Companys Quarterly Report on Form 10-Q filed with the SEC on May 14, 201 1 |
The Companys management re-evaluated certain of its
accounting policies and procedures in connection with the preparation of the Companys financial statements for the periods ended June 30, 2011,
and determined that it had not properly accounted for warrants issued in connection with service agreements and for the beneficial conversion feature
of certain convertible debentures. The Company had previously not recognized the fair value of warrants issued in connection with consulting or other
service agreements at the measurement date, and has previously recognized the expense ratably over the life of the warrant. The Companys
management has determined that the proper accounting, following the guidance in ASC Topic 505, is to record the fair value of these warrants as a
prepaid expense on the date of issuance, and recognize the expense ratably over the life of the underlying service agreement. The Company has, since
December 2009, been determining the existence of a beneficial conversion feature of convertible debt based on the fair value of the conversion feature
on the date of issuance, rather than using the intrinsic value of the conversion feature on the date of issuance, as required under ASC Topic
470.
The Company is in the process of preparing amendments to
the Forms 10-Q and 10-K for the prior periods noted above and plans to file those amendments with the SEC, reflecting the restatements related to these
warrants and convertible debentures.
The Companys board of directors and management has
discussed the matters set forth herein with Paritz & Co., P.A., the Companys registered independent public accounting firm which was also the
Companys independent public accounting firm for the period impacted by this restatement as described above
The tables below show the effects of the restatements on
(i) the Companys consolidated balance sheet as of December 31, 2010, (ii) the consolidated statements of operations for the three and six months
ended June 30, 2010 and (iii) the consolidated statement of cash flows for the six months ended June 30, 2010. These adjustments are non-cash items and
do not impact the Companys operating activities or cash flows from operations in any way.
F-37
VYCOR MEDICAL, INC.
Consolidated Balance Sheets
(unaudited)
Consolidated Balance Sheets
(unaudited)
Year Ended December 31, 2010 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
As Previously Reported |
As Restated |
||||||||||
ASSETS |
|||||||||||
Prepaid
expenses and other current assets |
106,782 | 645,302 | |||||||||
Total Current
Assets |
362,683 | 901,203 | |||||||||
Total Assets
|
$ | 1,615,174 | $ | 2,153,694 | |||||||
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY |
|||||||||||
Notes payable
|
1,344,300 | 1,415,662 | |||||||||
Total
Liabilities |
2,008,899 | 2,064,980 | |||||||||
Additional
Paid-in Capital |
6,375,175 | 6,902,427 | |||||||||
Accumulated
Deficit |
(6,838,350 | ) | (6,883,163 | ) | |||||||
Total
Stockholders (Deficit) Equity |
(393,725 | ) | 88,714 | ||||||||
Total
Liabilities and Stockholders Deficit |
$ | 1,615,174 | $ | 2,153,694 |
F-38
VYCOR MEDICAL, INC.
Consolidated Statement of Operations
(unaudited)
Consolidated Statement of Operations
(unaudited)
For the three months ended June 30, 2010 |
For the six months ended June 30, 2010 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As Previously Reported |
As Restated |
As Previously Reported |
As Restated |
||||||||||||||||
Operating
expenses: |
|||||||||||||||||||
General and
administrative |
491,851 | 466,208 | 833,677 | 830,181 | |||||||||||||||
Total
Operating expenses |
502,664 | 477,021 | 859,149 | 855,653 | |||||||||||||||
Operating
loss |
(434,031 | ) | (408,338 | ) | (738,818 | ) | (735,322 | ) | |||||||||||
Other
income (expense) |
|||||||||||||||||||
Interest
expense |
(27,047 | ) | (11,797 | ) | (96,184 | ) | (24,402 | ) | |||||||||||
Total
Other Income (expense) |
(27,047 | ) | (11,797 | ) | (96,184 | ) | (24,402 | ) | |||||||||||
Net
Loss |
$ | (461,078 | ) | $ | (420,185 | ) | $ | (837,080 | ) | $ | (761,802 | ) | |||||||
Loss Per
Share |
|||||||||||||||||||
Basic and
diluted |
$ | (0.001 | ) | $ | (0.001 | ) | $ | (0.001 | ) | $ | (0.001 | ) | |||||||
Weighted
Average Number of Shares Outstanding |
649,281,287 | 649,281,287 | 631,918,392 | 631,918,392 |
F-39
VYCOR MEDICAL, INC.
Statement of Cash Flows
(unaudited)
Statement of Cash Flows
(unaudited)
For the six months ended June 30, 2010 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
As Previously Reported |
As Restated |
||||||||||
Cash flows
from operating activities: |
|||||||||||
Net
loss |
$ | (837,080 | ) | $ | (761,802 | ) | |||||
Adjustments
to reconcile net loss to cash used in operating activities: |
|||||||||||
Amortization
of debt discount expense |
71,781 | | |||||||||
Share based
compensation |
149,863 | 146,367 | |||||||||
Cash used in
operating activities |
(769,611 | ) | (769,611 | ) | |||||||
Cash provided
by / (used in) investing activities |
456 | 456 | |||||||||
Cash provided
by financing activities |
889,500 | 889,500 | |||||||||
Net increase
(decrease) in cash |
120,345 | 120,345 | |||||||||
Cash at
beginning of period |
12,771 | 12,771 | |||||||||
Cash at end
of period |
$ | 133,116 | $ | 133,116 |
6. NOTES PAYABLE
As of June 30, 2011 and December 31, 2010 Notes Payable
consists of:
June 30, 2011 |
December 31, 2010 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
On December 29,
2009 and February 3, 2010, the Company issued convertible debentures in the amount of $371,362 and $70,000, respectively, payable to Fountainhead
Capital Management (Fountainhead), the beneficial owner of more than 50% of the Companys common stock. These debentures accrue
interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to or pari
passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the
principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share,
subject to adjustment and does not require bifurcation. These debentures were originally due August 31, 2010. On May 14, 2010, the due date for
satisfaction was extended to March 30, 2011, on March 28, 2011 the due date was further extended to August 31, 2011 and on June 6, 2011 the due date
was further extended to December 31, 2012. |
441,362 | 441,362 | |||||||||
F-40
June 30, 2011 |
December 31, 2010 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
On September 30,
2010 and October 14, 2010, the Company issued convertible debentures payable to Fountainhead in the amount of $85,000 and $90,000, respectively. These
debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are
senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any
amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0175
per share, subject to adjustment and does not require bifurcation. The debentures were originally due August 31, 2011, however the due date for
satisfaction was extended on June 6, 2011 to December 31, 2012. |
175,000 | 175,000 | |||||||||
On October 26,
2010 and November 15, 2010, the Company issued debentures payable to Fountainhead in the amount of $77,500 and $322,500, respectively. These debentures
accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to or
pari passu with, all other obligations of the Company, subject to certain conditions. The debentures were originally due August 31, 2011,
however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012. |
400,000 | 400,000 | |||||||||
On November 15,
2010, the Company issued a convertible debenture in the amount of $350,000 payable to Peter Zachariou, a Director of the Company. This debenture
accrues interest rate of 6% per annum, is due on the earlier of August 31, 2011 or the date of receipt by the Company of cash from fundraisings in
excess of a cumulative $3 million from October 26, 2010, is secured by a first priority security interest in all of the assets of the Company, and is
senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any
amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per
share, subject to adjustment and does not require bifurcation. On December 20, 2010, the Company repaid $50,000 of this debenture and removed the
convertible rights. On June 6, 2011 the due date for satisfaction was extended to December 31, 2012. |
300,000 | 300,000 | |||||||||
On December 3,
2010, the Company issued a debenture in the amount of $40,000 payable to Berardino Investment Group. This debenture accrued interest at a rate of 6%
per annum, was due June 30, 2011, was secured by a first priority security interest in all of the assets of the Company, and was senior to or pari
passu with, all other obligations of the Company, subject to certain conditions. The Holder was entitled to convert all or any amount of the
principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per share, subject
to adjustment and did not require bifurcation. On June 30, 2011, the entire principal and unpaid interest on this debenture was converted into
2,167,902 shares of the Companys Common Stock at the conversion price of $0.019 per share. |
| 40,000 | |||||||||
F-41
June 30, 2011 |
December 31, 2010 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
In January,
February and March 2011 the Company issued short term, unsecured notes payable to Fountainhead in the amount of $15,000, $64,000 and $20,000,
respectively. The notes accrue interest at a rate of 6% per annum, are due on demand and are junior to the secured convertible and non-convertible
debentures of the Company. |
99,000 | | |||||||||
In January and
February 2011 the Company issued short term, unsecured notes payable to Peter Zachariou in the amount of $15,000 and $40,000, respectively. The notes
accrue interest rate of 6% per annum, are due on demand and are junior to the secured convertible and non-convertible debentures of the
Company. |
55,000 | | |||||||||
In February 2011
the Company issued short term, unsecured notes in the amount of $10,000 payable to David Cantor, a Director of the Company. The notes accrue interest
rate of 6% per annum, are due on demand and are junior to the secured convertible and non-convertible debentures of the Company. |
10,000 | | |||||||||
On March 25,
2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. (EuroAmerican). The term note bears interest at 16% per
annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the
Companys common stock at an exercise price of $0.03 per share for a period of three (3) years. On June 25, 2011 the due date for this note was
extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then
outstanding and accrued interest into shares of common stock of the Company at the conversion price of $0.03 per share, subject to adjustment and does
not require bifurcation. |
300,000 | | |||||||||
Unsecured,
non-interest bearing loan from the chief executive of NovaVision AG, advanced a total of to NovaVision AG, which is being repaid in monthly
installments to December 31, 2011. As of June 30, and December 31, 2010 the remaining balance is e19,500 and e33,000, respectively. |
27,701 | 44,019 | |||||||||
Insurance policy
finance agreements |
13,124 | 15,281 | |||||||||
Total Notes
Payable: |
$ | 1,821,187 | $ | 1,415,662 |
The following is a schedule of future minimum loan
payments:
Twelve months
ending June 30, |
Amount |
|||||
2011
|
$ | 504,825 | ||||
2012
|
1,316,362 | |||||
2013
|
| |||||
2014
|
| |||||
2015
|
| |||||
Thereafter
|
| |||||
Total
|
$ | 1,821,187 |
As of June 30, 2011, $1,316,362 of Companys notes
payable are secured by a first security interest in all of the assets of the Company.
F-42
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
7. SEGMENT REPORTING, GEOGRAPHICAL
INFORMATION
(a) |
Business segments |
The Company operates in two business segments: Vycor
Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses on neuro stimulation therapies and diagnostic devices for the
treatment and screening of vision field loss. Set out below are the revenues, gross profits and total assets for each segment.
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
2011 |
2010 |
||||||||||||||||
Revenue: |
|||||||||||||||||||
Vycor
Medical |
$ | 82,239 | $ | 74,817 | $ | 182,081 | $ | 139,103 | |||||||||||
NovaVision |
60,092 | | 105,372 | | |||||||||||||||
Total
Revenue |
$ | 142,331 | $ | 74,817 | $ | 287,453 | $ | 139,103 | |||||||||||
Gross
Profit: |
|||||||||||||||||||
Vycor
Medical |
60,890 | 68,633 | 153,615 | 120,331 | |||||||||||||||
NovaVision |
46,249 | | 76,273 | | |||||||||||||||
Total Gross
Profit |
$ | 107,139 | $ | 68,633 | $ | 229,888 | $ | 120,331 |
June 30, 2011 |
December 31, 2010 (restated, refer to Note 5) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Total
Assets: |
||||||||||
Vycor Medical
|
3, 319,053 | 1,085,680 | ||||||||
NovaVision
|
1,441,549 | 1,068,014 | ||||||||
Total Assets
|
$ | 4, 760,602 | $ | 2,153,694 |
(b) |
Geographic information |
The Company operates in two geographic segments, the United
States and Germany. Set out below are the revenues, gross profits and total assets for each segment.
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
2011 |
2010 |
||||||||||||||||
Revenue: |
|||||||||||||||||||
United States
|
$ | 105,193 | $ | 74,817 | $ | 209,202 | $ | 139,103 | |||||||||||
Germany
|
37,138 | | 78,251 | | |||||||||||||||
Total Revenue
|
$ | 142,331 | $ | 74,817 | $ | 287,453 | $ | 139,103 | |||||||||||
Gross
Profit: |
|||||||||||||||||||
United States
|
79,767 | 68,633 | 173,658 | 120,331 | |||||||||||||||
Germany
|
27,372 | | 56,230 | | |||||||||||||||
Total Gross
Profit |
$ | 107,139 | $ | 68,633 | $ | 229,888 | $ | 120,331 |
June 30, |
December 31, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 (restated, refer to Note 5) |
|||||||||
Total
Assets: |
||||||||||
United
States |
4,69 1,472 | 2,084,029 | ||||||||
Germany |
69,130 | 69,665 | ||||||||
Total
Assets |
$ | 4, 760,602 | $ | 2,153,694 |
F-43
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
8. PROPERTY AND EQUIPMENT
As of June 30, 2011 and December 31, 2010, Property and
Equipment and the estimated lives used in the computation of depreciation is as follows:
June 30, 2011 |
December 31, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Machinery and
equipment |
$ | 103,993 | $ | 93,764 | ||||||
Purchased
Software |
15,608 | 10,000 | ||||||||
Molds and
Tooling |
230,830 | 230,830 | ||||||||
Furniture and
fixtures |
19,729 | 18,288 | ||||||||
Therapy
Devices |
52,219 | 44,412 | ||||||||
Internally
Developed Software |
540,000 | 540,000 | ||||||||
962,379 | 937,294 | |||||||||
Less:
Accumulated depreciation and amortization |
(250,717 | ) | (164,106 | ) | ||||||
Property and
Equipment, net |
$ | 711,662 | $ | 773,188 |
Estimated useful lives of property and equipment are as
follows:
Therapy devices
|
3
years |
|||||
Computer
equipment and software |
3
years |
|||||
Furniture and
fixtures |
7
years |
|||||
Machinery and
office equipment |
5
years |
|||||
Internally
Developed Software |
5
years |
9. INTANGIBLE ASSETS
As of June 30, 2011 and December 31, 2010, Intangible
Assets consists of:
June 30, |
December 31, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
|||||||||
Amortized
intangible assets: Patent (8 years useful life) |
||||||||||
Gross
carrying Amount |
$ | 430,679 | $ | 381,740 | ||||||
Accumulated
Amortization |
(78,353 | ) | (48,668 | ) | ||||||
$ | 352,326 | $ | 333,072 | |||||||
Intangible
assets not subject to amortization |
||||||||||
Trademarks
|
$ | 130,000 | $ | 130,000 |
Amortization expense for the six month periods ended June
30, 2011 and 2010 was $29,685 and $8,253, respectively.
9. EQUITY
Certain Equity Transactions
In January and February 2011, the Company issued an
aggregate of 7,578,947 shares of common stock to three investors at a price of $0.019 per share for aggregate gross proceeds of
$144,000.
In February 2011, the Company issued 250,000 shares of its
common stock (valued at $5,000) to Steven Girgenti in consideration for services provided to the Board of Directors. In May 2011, the Company issued an
additional 222,222 shares of its common stock (valued at $5,000) to Mr. Girgenti.
F-44
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
9. EQUITY (Continued)
On March 2, 2011, the Company issued warrants to seven
parties to purchase 14,710,530 shares of the Companys common stock at a price of $0.03 per share. The warrants are exercisable over a period of
three years from the date of issuance.
On March 25, 2011, in connection with the issuance by the
Company of a term note for $300,000 to EuroAmerican Investment Corp, the Company issued warrants to purchase 400,000 shares of Company common stock at
an exercise price of $0.03 per share for a period of three years from the date of issuance. The estimated fair value of this warrant was recorded as a
debt discount at issuance and was amortized over the three-month term of the loan as interest expense.
In April 2011, the Company issued 24,444,442 shares of
common stock together with Warrants to purchase 12,222,221 shares of common stock at an exercise price of $0.03 per share for a period of three years
for aggregate gross proceeds of $550,000.
In April 2011, in connection with a consultancy agreement,
the Company issued 18,000,000 shares of common stock (valued at $360,000) to Jerrald Ginder. On June 25, 2011, pursuant to an amendment to this
consultancy agreement, the Company issued an additional 2,666,667 shares of common stock to Mr. Ginder in lieu of aggregate monthly cash payments due
under the agreement totaling $60,000.
In May 2011, the Company issued 8,666,666 shares of common
stock together with Warrants to purchase 4,333,334 shares of Company common stock at an exercise price of $0.03 per share for a period of three years
for aggregate gross proceeds of $195,000.
On June 7, 2011, the Company completed the sale of 31.4
Units comprising Series C Convertible Preferred Shares and Warrants (the Units) to accredited investors (the Investors) (the
Preferred Offering) for aggregate proceeds of $1,570,000. The Units were issued pursuant to separate Series C Convertible Preferred Stock
Purchase Agreements (the Agreements) between the Company and each of the Investors. This sale was an initial closing (the Initial
Closing) under the Agreements which allows for maximum proceeds of $3,000,000. Each Unit was priced at $50,000 and comprised one share of Series
C Preferred Convertible Stock convertible (at the Holders option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of
the Companys Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Companys Common Stock at $0.03 per share
(subject to adjustments) for a period of three years (the Warrant or Warrants). A total of 31.4 shares of Series C Convertible
Preferred Stock convertible into 69,777,773 shares of the Companys Common Stock and Warrants to purchase 34,888,890 shares of the Companys
Common Stock were issued. On June 28, 2011, the Company completed a second closing of the Preferred Offering (the Second Closing) with the
sale of an additional 15.40 Units to Investors for aggregate proceeds of $770,000. An additional 15.40 shares of Series C Convertible Preferred Stock
convertible into 34,222,220 shares of the common stock and Warrants to purchase 17,111,111 shares of the Companys common stock were issued in
connection with the Second Closing. The Company entered into a Registration Rights Agreement with the Investors with respect to the
Warrants.
On June 3, 2011, in connection with a consultancy
agreement, the Company issued 15,500,000 shares of common stock (valued at $348,750) to GreenBridge Capital Partners IV, LLC.
On June 6, 2011, in connection with a consultancy
agreement, the Company issued 1,000,000 shares of common stock (valued at $22,500) to Burnham Hill Advisors, LLC.
Burnham Hill Partners LLC (BHP) served as
placement agent in connection with the sale of 24.8 Units in the Preferred Offering. Pursuant to a placement agent agreement with BHP, the Company paid
BHP a cash placement fee equal to seven percent (7%) of the gross proceeds received by the Company from Units placed by BHP. Also pursuant to the
placement agent agreement, the Company issued BHP Warrants (the Placement Agent Warrants) to purchase a number of shares equal to seven
percent (7%) of the number of shares of common stock issuable upon conversion of the 24.8 Units placed by BHP (3,857,778 shares) in the Preferred
Offering. The Placement Agent Warrants are exercisable for three years from the date of issuance at an exercise price of $0.0225 per
share.
F-45
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
9. EQUITY (Continued)
On June 30, 2011, the entire principal and unpaid interest
on a Debenture dated December 3, 2010 payable to Berardino Investment Group in the original principal amount of $40,000 was converted into 2,167,902
shares of common stock at a conversion price of $0.019 per share.
Under the terms of a Consulting Agreement dated February
10, 2010 with Fountainhead, the Company was required to issue to Fountainhead fully vested warrants to purchase 39,063,670 shares of the Companys
common stock should certain conditions be met during the term of the Consulting Agreement. These warrants are exercisable at $0.0125 per share for a
period of five years from February 2010. These warrants became issuable upon completion of the Preferred Offering and were issued in June
2011.
10. SHARE-BASED COMPENSATION
The Company recognizes the cost of all share-based payments
under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Companys
common stock or financial instruments that grant the recipient the right to acquire shares of the Companys common stock. For share-based payments
to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with
the provisions of ASC Topic 718, Stock Compensation (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service
providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, Equity Payments to Non-Employees
or other applicable authoritative guidance.
Stock Option Plan
The Company adopted the Vycor Medical, Inc Employee,
Director, and Consultant Stock Plan (the Plan) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified
stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of
directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code.
Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options
granted to participants owning more than 10% of the Companys outstanding voting stock must be granted at an exercise price not less than 110% of
the fair market value of the common stock on the grant date. The options expire on the date determined by the board of directors, but may not extend
mare than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Companys outstanding
voting stock expire five years from the grant date. The vesting period for employees is generally over three years. The vesting Period for
non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall
automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock
then outstanding on a fully diluted basis.
Under ASC Topic 718, the Company estimates the fair value
of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period
during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on
the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. No employee stock options
were granted for the six month periods ended June 30, 2011 and 2010.
Initial grants of options to purchase 500,000 shares were
issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Companys Chief Executive Officer and Heather N. Vinas, the
Companys President at an exercise price of $0.135 per share. The options vested 33-1/3% on each of the first, second, and third anniversary of
the grant and expire February 12, 2018. Following Heather Vinas resignation as President of the Company in May 2010, 166,667 unvested options
were cancelled. Accordingly, for the six months ended June 30, 2011, the Company recognized share-based compensation only for the grant to Mr.
Coviello.
F-46
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
10. SHARE-BASED COMPENSATION
(Continued)
Stock appreciation rights may be granted either on a stand
alone basis or in conjunction with all or part of any other stock options granted under the plan. As of June 30, 2010 there were no awards of any stock
appreciation rights.
The Company from time to time issues common stock, stock
options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other
than employees or directors are recorded on the basis of their fair value, which is measured as of the measurement date using an option
pricing model. The measurement date for options and warrants related to contracts that have substantial disincentives to non-performance is
the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line
basis over the shorter of the period over which services are to be received or the life of the option or warrant.
The details of the outstanding rights, options and warrants
and value of such rights, options and warrants are as follows:
STOCK WARRANTS:
Number of shares |
Weighted average exercise price per share |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at
December 31, 2009 |
35,493,172 | $ | 0.030 | ||||||||
Granted
|
90,191,077 | 0.015 | |||||||||
Exercised
|
|||||||||||
Cancelled or
expired |
(9,079,473 | ) | 0.015 | ||||||||
Outstanding at
December 31, 2010 |
116,604,776 | $ | 0.019 | ||||||||
Granted
|
126,587,534 | 0.025 | |||||||||
Exercised
|
| | |||||||||
Cancelled or
expired |
(50,000 | ) | 0.500 | ||||||||
Outstanding at
June 30, 2011 |
243,142,310 | $ | 0.022 |
STOCK OPTIONS:
Number of shares |
Weighted average exercise price per share |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at
December 31, 2009 |
1,000,000 | $ | 0.14 | ||||||||
Granted
|
|||||||||||
Exercised
|
|||||||||||
Cancelled or
expired |
(166,667 | ) | 0.14 | ||||||||
Outstanding at
December 31, 2010 |
833,333 | $ | 0.14 | ||||||||
Granted
|
| | |||||||||
Exercised
|
| | |||||||||
Cancelled or
expired |
| | |||||||||
Outstanding at
June 30, 2011 |
833,333 | $ | 0.14 |
As of June 30, 2011, the weighted-average remaining
contractual life of outstanding warrants and options is 3.45 and 7.88 years, respectively.
F-47
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
10. SHARE-BASED COMPENSATION
(Continued)
Non-Employee Stock Compensation
Under the terms of a consulting agreement dated February
2010, the Company issued fully vested warrants to Fountainhead to purchase up to 39,063,670 shares of the Companys common stock at $0.0125 per
share. The warrants are valid from February 10, 2010 for a period of five years. The fair value of these warrants was estimated using the Black-Scholes
option pricing model and is being amortized over the two-year life of the consultancy agreement. For the six months ended June 30, 2011, $89,548 was
recognized as share-based compensation in connection with this agreement. Under the same agreement, the Company was also required to issue fully vested
warrants to purchase an additional 39,063,670 shares of the Companys common stock, at a price of $0.0125 per share should new funding totaling $3
million in aggregate in Common Stock of Vycor or in securities convertible into Common Stock of Vycor at a price of no less than $0.0125 per share of
Common Stock be closed during the term of the Consulting Agreement. These warrants became issuable upon completion of the Preferred Offering and were
issued in June 2011. The fair value of these warrants was estimated at $658,651 using the Black-Scholes model and, because the performance criteria of
the warrants had been satisfied on the date of issuance the full value was expensed immediately.
During the six months ended June 30, 2011, the Company
issued an aggregate of 472,222 shares of common stock to Steven Girgenti for services rendered to the board of directors. For the six months ended June
30, 2011, $10,000 was recognized as share-based compensation for the issuance of these shares.
Under the terms of a twelve month sales and marketing
consulting agreement dated March 2010, the Company issued 750,000 shares of its Common Stock to Joe Simone, valued at $9,375. For the six months ended
June 30, 2011, $1,771 was recognized as share-based compensation in connection with this agreement.
Under the terms of an Extension of Funding Commitment
agreement dated September 2010, the Company issued warrants to Fountainhead to purchase up to 50,627,407 shares of the Companys common stock at
$0.0175 per share. The warrants are valid from September 29, 2010 for a period of five years. The fair value of these warrants was estimated using the
Black-Scholes model and is being amortized over the life of the agreement to August 30, 2011. For the six months ended June 30, 2011, $252,086 was
recognized as share-based compensation in connection with this agreement.
Under the terms of a one year consulting agreement dated
December 6, 2010, the Company issued warrants to Market Media Connect, LLC to purchase up to 500,000 shares of the Companys common stock at $0.07
per share. The warrants are valid from December 1, 2010 for a period of three years. The fair value of these warrants was estimated using the
Black-Scholes model and is being amortized over the life of the consulting agreement. For the six months ended June 30, 2011, $1,671 was recognized as
share-based compensation in connection with this agreement.
In March 2011 the Company entered into a one year
consultancy agreement with Mr Jerrald Ginder, effective April 1, 2011. Mr Ginder has extensive experience in sales and marketing and the development of
medical device products, and has contacts which will be of use to the Company. Under the terms of the agreement, which the Company has the right to
terminate with 30 days notice, Mr. Ginder was to receive $60,000 cash, payable monthly, and 18,000,000 restricted shares of common stock of the
Company. The stock has been valued by the Company at $360,000 and is being amortized over the life of the agreement as share-based compensation
expense. On June 22, 2011, the Company and Mr. Ginder entered into an Amendment to the Consulting Agreement. Pursuant to this amendment, the Company
issued to Mr. Ginder an additional 2,666,667 shares of the Companys common stock in lieu of the $60,000 cash due under the Consulting Agreement.
The $60,000 value of the additional shares is also being amortized as share-based compensation over the life of the agreement. For the six months ended
June 30, 2011, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $91,720.
In June 2011, the Company entered into a one year
Consulting Agreement with GreenBridge Capital Partners, IV, LLC, to provide consulting and advisory services to the Company. Under the terms of this
agreement, GreenBridge
F-48
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
10. SHARE-BASED COMPENSATION
(Continued)
is to receive up to 15,500,000 shares of the Companys common stock. The stock has been valued by the Company at $348,750 and is being amortized over the life of the agreement as share-based compensation expense. For the six months ended June 30, 2011, $26,156 was recognized as share-based compensation in connection with this agreement.
In June 2011 the Company entered into a Consulting
Agreement with Burnham Hill Advisors LLC (BHA) under which BHA shall provide, for a period of six months, financial and strategic advice to
the Company. BHA received 1,000,000 restricted shares of the Companys common stock. The stock has been valued by the Company at $22,500 and is
being amortized over the life of the agreement as share-based compensation expense. For the six months ended June 30, 2011, $3,000 was recognized as
share-based compensation in connection with this agreement.
Aggregate stock-based compensation expense charged to
operations on employee options and on stock and warrants granted to the above non-employees for the six months ended June 30, 2011 is $1,164,400. As of
June 30, 2011, there was approximately $865,739 of total unrecognized compensation costs related to warrant and stock awards and non-vested options,,
which are expected to be recognized over a weighted average period of approximately 0.79 years.
Stock-based compensation expenses related to employee
options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or
warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis
over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share
options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock
on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair
value of the common stock is determined by the then-prevailing private placement purchase price. Expected volatility was based on the historical
volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the life of the option, and the
risk-free rate used was based on the U.S. Treasury Constant Maturity rate.
The following assumptions were used in calculations of the
Black-Scholes option pricing model in the six month periods ended June 30, 2011 and 2010:
Six months ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
Risk-free
interest rates |
0.571.60% |
2.39% |
|||||||||
Expected life
|
3
years |
3
years |
|||||||||
Expected
dividends |
0% |
0% |
|||||||||
Expected
volatility |
96% |
96% |
|||||||||
Vycor Common
Stock fair value |
$0.0125 |
$0.019$0.0225 |
11. INCOME TAXES
The Company has incurred net operating losses since
inception. The Company has not reflected any tax benefit related to such net operating losses in the financial statements. Prior to August 15, 2007 the
Company was a limited liability company and losses were passed through to the individual members, therefore the Company only has potential tax benefits
from the date it became a ‘C corporation.
In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income.
The authoritative guidance requires a valuation allowance
to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred
tax assets will not
F-49
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
11. INCOME TAXES (Continued)
be realized. Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, management has determined that a 100% valuation allowance is appropriate at June 30, 2011 and December 31, 2010. The Companys gross deferred tax assets and valuation allowance at June 30, 2011 and December 31, 2010 are as follows:
June 30, 2011 |
December 31, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Gross
deferred tax assets |
1,900,000 | 1,573,000 | ||||||||
Valuation
allowance |
(1,900,000 | ) | (1,573,000 | ) | ||||||
Net deferred
tax asset |
| |
As of June 30, 2011 and December 31, 2010, the Company has
U.S. federal net operating loss carryforwards of approximately $5,600,000 and $4,493,000, respectively. The federal net operating loss carryforwards
expire in the tax years 2027 through 2031.
Federal tax laws impose significant restrictions on the
utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined
by the Internal Revenue Code Section 382. The Companys net operating loss carryforwards and research and development credits may be subject to
the above limitations.
At June 30, 2011 and December 31, 2010 the Company has
available for carryforward German net operating losses of approximately $285,000 and $125,000 respectively, to be applied against future German taxable
income which may be subject to certain restrictions and limitations. Such carryforwards are subject to certain restrictions and limitations in the
event of changes in the NovaVision AGs ownership.
12. COMMITMENTS AND CONTINGENCIES
Lease
The Company executed a lease agreement for administrative
office space at its current location of 3651 FAU Boulevard, Boca Raton, Florida. The lease term is 12 months from December 1, 2010. The Company vacated
its premises at 80 Orville Drive, Bohemia, NY in February, 2011. Rental expense for the six months ended June 30, 2011 and 2010 was $104,337 and
$17,108, respectively.
Kenneth Coviello retention bonus
Under the terms of the 2009 Recapitalization Agreement,
certain accrued salaries totaling $70,643 were converted into a contingent retention bonus payable either on the closing of a Company fundraising of
more than $1.5 million or on the sale of the Company (or substantially all of its assets) at a value above $3 million. The Company and Mr. Coviello are
in negotiations with regard to this agreement and potential payment.
13. CONSULTING AND OTHER AGREEMENTS
Consulting Agreement with Jerrald Ginder
In March 2011 the Company entered into a one year
consultancy agreement with Mr. Jerrald Ginder, a sales executive of Stryker Corporation, effective April 1, 2011. Mr. Ginder has extensive experience
in sales and marketing and the development of medical device products, and has contacts which will be of use to the Company. Under the terms of the
agreement, which the Company has the right to terminate with 30 days notice, Mr. Ginder was to receive $60,000 cash, payable monthly, and 18,000,000
restricted shares of common stock of the Company. The stock has been valued by the Company at $360,000 and is being amortized over the life of the
agreement as share-based compensation expense. On June 22, 2011, the Company and Mr. Ginder entered into an Amendment
F-50
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
13. CONSULTING AND OTHER AGREEMENTS
(Continued)
to the Consulting Agreement. Pursuant to this amendment, the Company issued to Mr. Ginder an additional 2,666,667 shares of the Companys common stock in lieu of the $60,000 cash due under the Consulting Agreement. The $60,000 value of the additional shares is also being amortized as share-based compensation over the life of the agreement. For the six months ended June 30, 2011, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $91,720.
Supplement to Consulting Agreement with Fountainhead
Capital Management Limited
On May 12, 2011, the Company entered into a Supplement to a
prior Consulting Agreement with Fountainhead entered into on February 10, 2010 (amended September 29, 2010) to recognize Fountainheads expanded
responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Supplement, commencing January
1, 2011 the Company will pay to Fountainhead an additional monthly retainer of $29,000. This additional monthly retainer shall be accrued and paid out
to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.0225 per share; or (ii) in cash following the closing of
a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011.
Notwithstanding, Fountainhead shall have the option to receive up to $5,000 of the additional monthly retainer in cash each month, commencing April 1,
2011. In addition, the term of the Consulting Agreement was extended to May 5, 2013. Other than as supplemented, the Consulting Agreement remains in
full force and effect according to its terms.
Consulting Agreement with GreenBridge Capital Partners,
IV, LLC
On June 3, 2011,the Company entered into a Consulting
Agreement with GreenBridge Capital Partners, IV, LLC, a Delaware limited liability company (GreenBridge), to provide consulting and
advisory services to the Company. Under the terms of this agreement GreenBridge is to receive up to 15,500,000 shares of the Companys Common
Stock. Said shares are subject to a Company repurchase option, which may be exercised within specified time periods at the Companys sole
discretion.
Consulting Agreement with Burnham Hill Advisors
LLC
The Company entered into a Consulting Agreement dated June
6, 2011 with Burnham Hill Advisors LLC (BHA) under which BHA shall provide, for a period of six months, financial and strategic advice to
the Company. BHA shall receive fees of $10,000 per month and received 1,000,000 restricted shares of the Companys Common Stock.
14. RELATED PARTY TRANSACTIONS
In January, February and March 2011 the Company issued
unsecured, subordinated loan notes to Fountainhead for a total of $99,000. The loan notes are subordinated to the Companys secured debentures,
bear interest at a rate of 6% and are due May 30, 2011.
In January and February 2011 the Company issued unsecured,
subordinated loan notes to Peter Zachariou, a director of the Company for a total of $55,000. The loan notes are subordinated to the Companys
secured debentures, bear interest at a rate of 6% and are due on demand.
In February 2011 the Company issued an unsecured,
subordinated loan note to David Cantor, a director of the Company for $10,000. The loan notes are subordinated to the Companys secured
debentures, bear interest at a rate of 6% and are due on demand.
On May 6, 2011, the Company entered into a Supplement to a
prior Consulting Agreement with Fountainhead entered into on February 10, 2010 (amended September 29, 2010) to recognize Fountainheads expanded
responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Supplement, commencing January
1, 2011 the Company will pay to FCM an additional monthly retainer
F-51
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
14. RELATED PARTY TRANSACTIONS
(Continued)
of $29,000. This additional monthly retainer shall be accrued and paid out to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.0225 per share; or (ii) in cash following the closing of a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011. Notwithstanding, Fountainhead shall have the option to receive up to $5,000 of the additional monthly retainer in cash each month, commencing April 1, 2011. In addition, the term of the Consulting Agreement was extended to May 5, 2013. Other than as supplemented, the Consulting Agreement remains in full force and effect according to its terms.
Under the terms of a Consulting Agreement dated February
10, 2010 with Fountainhead, the Company was required to issue to Fountainhead fully vested warrants to purchase an additional 39,063,670 shares of the
Companys Common Stock, at a price of $0.0125 per share should new funding totaling $3 million in aggregate in Common Stock of Vycor or in
securities convertible into Common Stock of Vycor at a price of no less than $0.0125 per share of Common Stock be closed during the term of the
Consulting Agreement. These warrants became issuable upon completion of the Preferred Offering and were issued in June 2011.
On June 6, 2011, in connection the Preferred Offering,
Fountainhead agreed to extend to maturity of debentures totaling $931,362 to December 31, 2012. At the same time, Peter Zachariou, a director of the
Company, agreed to extend the maturity of debentures totaling $300,000 to the same date.
15. SUBSEQUENT EVENTS
Preferred Stock Subscriptions
On August 4, 2011, the Company completed a final closing of
the Preferred Offering (the Final Closing) with the sale of an additional 13.2 Units to Investors for aggregate proceeds of $660,000. An
additional 13.2 shares of Series C Convertible Preferred Stock convertible into 29,333,330 shares of the Companys Common Stock and Warrants to
purchase 14,666,665 shares of the Companys Common Stock were issued in connection with the Final Closing. An aggregate of 60 Units were sold to
Investors in the First Closing, Second Closing and Final Closing of the Preferred Offering for total proceeds of $3,000,000. A total of 60 shares of
Series C Convertible Preferred Stock, convertible into an aggregate of 133,333,324 shares of Common Stock, and Warrants to purchase 66,666,666 shares
of the Companys Common Stock.
Common Stock and Warrant Issuance
In August 2011 the Company issued 154,640 shares of Common
Stock (valued at $5,000) to Steven Girgenti, 78,301 shares of Common Stock to Alvaro Pascale-Leone (valued at $3,125) and 428,571 shares of Common
Stock (valued at $10,000) to McCombie Group, LLC in respect of consulting agreements.
In August 2011 the Company issued Warrants to purchase
2,300,000 shares of Company common stock at an exercise price of $0.03 per share for a period of three years to Millennium Capital Corporation in
respect of consulting and advisory services.
Agreement with Partizipant, LLC
On July 31, 2011, the Company entered into an Agreement
(the Agreement) with Partizipant, LLC, a Delaware limited liability company (Partizipant), to provide a broad range of investor
relations and public relations services as more particularly described in the Agreement, a copy of which is attached as Exhibit 10.1 to the
Companys Current report on Form 8-K filed on August 4, 2011. Pursuant to the Agreement, the Company agreed to pay Partizipant a one-time payment
of $300,000.
Agreement with Greenbridge Capital Partners IV,
LLC
On August 18, 2011, the Company agreed with GreenBridge
Capital Partners IV, LLC (GreenBridge) to amend the Consulting Agreement between the parties dated as of June 3, 2011 (Consulting
Agreement) to modify the
F-52
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011
(unaudited)
15. SUBSEQUENT EVENTS (Continued)
dates for exercise of the Companys repurchase option related to the shares delivered to Greenbridge pursuant to the terms of the Agreement. Specifically, the parties agreed that, of the 15,500,000 shares delivered to GreenBridge, the Company would have the option to repurchase 5,166,666 of the shares prior to November 30, 2011 and an additional 5,166,667 shares prior to February 28, 2012. The remaining 5,000,000 shares are not subject to a repurchase option. The shares which are the subject of the repurchase option are to be held in escrow by a third party. In all other respects, the original Consulting Agreement remains in full force and effect as written.
Loan Agreements
On October 25, 2011 the term note of $350,000 to
EuroAmerican Investment Corp. due September 25, 2011 was extended to December 10, 2011.
F-53
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution
Although we will receive no proceeds from the sale of
shares pursuant to this prospectus, we have agreed to bear the costs and expenses of the registration of the shares. Our expenses in connection with
the issuance and distribution of the securities being registered are estimated as follows:
Nature of expense |
Amount |
|||||
---|---|---|---|---|---|---|
SEC
Registration fee |
$ | 435.00 | ||||
Accounting
fees and expenses |
$ | 5,000.00 | ||||
Legal fees
and expenses |
$ | 5,000.00 | ||||
Printing
expenses |
$ | 2,000.00 | ||||
Miscellaneous
|
$ | 1,000.00 | ||||
TOTAL |
$ | 13,435.00 |
All amounts are estimates other than the Securities and
Exchange Commissions registration fee. We are paying all expenses of the offering listed above through advances to the Company by the
Companys founding shareholders. No portion of these expenses will be borne by the selling shareholders. The selling shareholders, however, will
pay any other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.
Item 14. Indemnification of Directors
and Officers
Pursuant to our Certificate of Incorporation and By-Laws,
we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith
and in a manner he reasonably believed to be in our best interest. In certain cases, we may advance expenses incurred in defending any such proceeding.
To the extent that the officer or director is successful on the merits in any such proceeding as to which such person is to be indemnified, we must
indemnify him against all expenses incurred, including attorneys fees. With respect to a derivative action, indemnity may be made only for
expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The
prior discussion of indemnification in this paragraph is intended to be to the fullest extent permitted by the laws of the State of
Delaware.
Indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors or officers pursuant to the foregoing provisions. However, we are informed that, in
the opinion of the Commission, such indemnification is against public policy, as expressed in the Act and is, therefore,
unenforceable.
Item 15. Recent Sales of Unregistered
Securities
Below is a list of securities sold by us from January 1,
2010 to the present date which were not registered under the Securities Act.
Name of Purchaser |
Date of Sale |
Title of Security |
Amount of Securities Sold |
Consideration |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fountainhead
Capital Management Limited |
January 11, 2010 |
Common Stock |
531,376,500 | Debenture Exchange |
||||||||||||||
Jodi Yeager
|
January 11, 2010 |
Common Stock |
4,000,000 | Debenture Conv. |
||||||||||||||
Panamerica
Capital Group, Inc. |
January 11, 2010 |
Common Stock |
8,787,600 | Debenture Conv. |
||||||||||||||
Hyperlink
Media, LLC |
January 11, 2010 |
Common Stock |
9,187,600 | Debenture Conv. |
||||||||||||||
Karen Ginder
|
January 11, 2010 |
Common Stock |
10,320,000 | Debenture Conv. |
||||||||||||||
Accessible
Development Corp. |
January 11, 2010 |
Common Stock |
4,000,000 | Debenture Conv. |
II-1
Name of Purchaser |
Date of Sale |
Title of Security |
Amount of Securities Sold |
Consideration | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Altitude
Group, LLC |
January 11, 2010 |
Common Stock |
16,000,000 | Debenture Conv. |
||||||||||||||
Mario
Zachariou |
January 11, 2010 |
Common Stock |
6,000,000 | Debenture Conv. |
||||||||||||||
Anthony Cantor
|
January 11, 2010 |
Common Stock |
6,000,000 | Debenture Conv. |
||||||||||||||
SLJ Consulting
Corp |
January 12, 2010 |
Series B. Pref. |
80,000 | $80,000 |
||||||||||||||
Joseph Simone
|
January 12, 2010 |
Series B. Pref. |
80,000 | $35,000 |
||||||||||||||
Steven
Girgenti |
February 23, 2010 |
Common Stock |
800,000 | Professional services |
||||||||||||||
Kenneth D.
Watkins |
March
11, 2010 |
Series B. Pref. |
25,000 | $25,000 |
||||||||||||||
Jane G. Ellis
|
April, 2010 |
Common Stock |
6,666,667 | $100,000 |
||||||||||||||
Gregory
Sichenzia |
April
2010 |
Common Stock |
934,986 | Professional Services |
||||||||||||||
Joe Simone
|
April
2010 |
Common Stock |
750,000 | Professional services |
||||||||||||||
Myles F.
Wittenstein |
May
2010 |
Common Stock |
3,300,000 | $49,500 |
||||||||||||||
Guri Dauti
|
May
2010 |
Common Stock |
2,333,333 | $35,000 |
||||||||||||||
Stanley Katz
|
May
2010 |
Common Stock |
3,000,000 | $45,000 |
||||||||||||||
Stanley Katz
|
May
2010 |
Common Stock |
3,000,000 | $45,000 |
||||||||||||||
Duane John
Renfro |
May
2010 |
Common Stock |
3,333,333 | $50,000 |
||||||||||||||
Glenn
Fleischacker |
May
2010 |
Common Stock |
3,333,333 | $50,000 |
||||||||||||||
Datavision
Computer Video, Inc. |
May
2010 |
Common Stock |
1,666,667 | $25,000 |
||||||||||||||
Thomas Ambrose
|
May
2010 |
Common Stock |
3,333,333 | $50,000 |
||||||||||||||
Jack Lens
|
May
2010 |
Common Stock |
3,333,333 | $50,000 |
||||||||||||||
IRA Services
Trust Company |
May
2010 |
Common Stock |
13,333,333 | $200,000 |
||||||||||||||
Falcon
Partners BVBA |
May
2010 |
Common Stock |
3,333,333 | $50,000 |
||||||||||||||
Konstantin
Slavin |
July
2010 |
Common Stock |
262,500 | Professional services |
||||||||||||||
Ramon Rak
|
July
2010 |
Common Stock |
300,000 | Professional Services |
||||||||||||||
Steven
Girgenti |
July
2010 |
Common Stock |
250,000 | Professional services |
||||||||||||||
Sal &
Kathryn DeMarco |
July
2010 |
Common Stock |
4,241,072 | $76,250 |
||||||||||||||
Jarvis D &
Molly Littlefield |
August 2010 |
Common Stock |
2,857,143 | $50,000 |
||||||||||||||
Berardino
Investment Group |
August 2010 |
Common Stock |
1,428,571 | $25,000 |
||||||||||||||
Panayiotis
Panayiotou |
August 2010 |
Common Stock |
571,429 | $10,000 |
||||||||||||||
Simon Becker
|
August 2010 |
Common Stock |
6,285,714 | $110,000 |
||||||||||||||
Richard H.
Lawson |
September 2010 |
Common Stock |
1,428,571 | $25,000 |
||||||||||||||
SLJ Consulting
|
September 2010 |
Common Stock |
6,548,515 | Preferred Conversion |
||||||||||||||
Joe Simone
|
September 2010 |
Common Stock |
3,139,463 | Preferred Conversion |
||||||||||||||
Kenny Watkins
|
September 2010 |
Common Stock |
2,080,219 | Preferred Conversion |
||||||||||||||
Sal &
Kathryn DeMarco |
October 2010 |
Common Stock |
2,285,714 | $40,000 |
||||||||||||||
Sal &
Kathryn DeMarco |
November 2010 |
Common Stock |
1,714,286 | $30,000 |
||||||||||||||
Steven
Girgenti |
November 2010 |
Common Stock |
250,000 | Professional services |
||||||||||||||
Myles F.
Wittenstein |
November 2010 |
Common Stock |
2,631,579 | $50,000 |
||||||||||||||
Brunella Jacs
LLC |
November 2010 |
Common Stock |
2,631,579 | $50,000 |
||||||||||||||
Dr. Sam Fox
|
November 2010 |
Common Stock |
2,631,579 | $50,000 |
||||||||||||||
Neil A. Weiss
|
December 2010 |
Common Stock |
5,263,158 | $100,000 |
||||||||||||||
Stephen
Nicholas Bunzl |
December 2010 |
Common Stock |
7,894,737 | $150,000 |
||||||||||||||
Peter Lawrence
|
December 2010 |
Common Stock |
2,631,579 | $50,000 |
II-2
Name of Purchaser |
Date of Sale |
Title of Security |
Amount of Securities Sold |
Consideration | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen
Rathkopf |
January 2011 |
Common Stock |
1,000,000 | $19,000 |
||||||||||||||
Steven
Girgenti |
January 2011 |
Common Stock |
250,000 | Professional services |
||||||||||||||
Datavision
Computer Video, Inc. |
February 2011 |
Common Stock |
1,315,789 | $25,000 |
||||||||||||||
Dr. Wayne
Fleischacker |
February 2011 |
Common Stock |
5,263,158 | $100,000 |
||||||||||||||
Jerrald Ginder
|
April
2011 |
Common Stock |
18,000,000 | $360,000 |
||||||||||||||
Ilex
Investments, LP |
April
2011 |
Common Stock |
8,888,888 | $200,000 |
||||||||||||||
Carol Tambor
|
April
2011 |
Common Stock |
2,222,222 | $50,000 |
||||||||||||||
Neil Weiss
|
April
2011 |
Common Stock |
4,444,444 | $100,000 |
||||||||||||||
Myles
Wittenstein |
April
2011 |
Common Stock |
2,222,222 | $50,000 |
||||||||||||||
Duane John
Renfro |
April
2011 |
Common Stock |
2,222,222 | $50,000 |
||||||||||||||
Stephen
Nicholas Bunzl |
April
2011 |
Common Stock |
2,222,222 | $50,000 |
||||||||||||||
Jack Lens
|
April
2011 |
Common Stock |
2,222,222 | $50,000 |
||||||||||||||
Robert Crames
|
May
2011 |
Common Stock |
2,222,222 | $50,000 |
||||||||||||||
Sal &
Kathryn DeMarco |
May
2011 |
Common Stock |
1,111,111 | $25,000 |
||||||||||||||
Steven
Girgenti |
May
2011 |
Common Stock |
222,222 | Professional Services |
||||||||||||||
Maurice
Reissman |
May
2011 |
Common Stock |
4,444,444 | $100,000 |
||||||||||||||
GreenBridge
Capital Partners IV, LLC |
June
2011 |
Common Stock |
15,500,000 | Consulting Services |
||||||||||||||
Matthew Balk
|
June
2011 |
Common Stock |
700,000 | Financial Advisory Services |
||||||||||||||
Jason Adelman
|
June
2011 |
Common Stock |
200,000 | Financial Advisory Services |
||||||||||||||
Daniel
Schneiderman |
June
2011 |
Common Stock |
100,000 | Financial Advisory Services |
||||||||||||||
Dashka Solanky
|
June
2011 |
Common Stock |
888,889 | $20,000 |
||||||||||||||
Berardino
Investment Group |
June
2011 |
Common Stock |
2,167,902 | Debenture Conversion |
||||||||||||||
Jerrald Ginder
|
June
2011 |
Common Stock |
2,666,667 | Debt Conversion |
||||||||||||||
Alvaro Pascale
Leone |
August 2011 |
Common Stock |
78,300 | Services |
||||||||||||||
Steven
Girgenti |
August 2011 |
Common Stock |
154,600 | Professional Services |
||||||||||||||
McCombie
Group, LLC |
August 2011 |
Common Stock |
428,571 | Consulting Services |
||||||||||||||
MKM
Opportunity Master Fund, Ltd |
June
7, 2011 |
Series C Preferred Stock |
3.0 | * | $250,000 |
|||||||||||||
Andrew
Mitchell |
June
7, 2011 |
Series C Preferred Stock |
.5 | * | $25,000 |
|||||||||||||
Matthew Balk
|
June
7, 2011 |
Series C Preferred Stock |
.8 | * | $40,000 |
|||||||||||||
Daniel Balk
|
June
7, 2011 |
Series C Preferred Stock |
1.1 | * | $55,000 |
|||||||||||||
David Balk
|
June
7, 2011 |
Series C Preferred Stock |
1.1 | * | $55,000 |
|||||||||||||
Daniel
Schneiderman |
June
7, 2011 |
Series C Preferred Stock |
.45 | * | $22,500 |
|||||||||||||
Jonathan Balk
|
June
7, 2011 |
Series C Preferred Stock |
.5 | * | $25,000 |
II-3
Name of Purchaser |
Date of Sale |
Title of Security |
Amount of Securities Sold |
Consideration | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Richard L.
Hoffman |
June
7, 2011 |
Series C Preferred Stock |
.45 | * | $22,500 |
|||||||||||||
Robert I and
Sandra S Neborsky Living Trust |
June
7, 2011 |
Series C Preferred Stock |
2.0 | * | $100,000 |
|||||||||||||
Skriloff
Family Irrevocable Trust F/B/O Samuel Skriloff |
June
7, 2011 |
Series C Preferred Stock |
.1 | * | $5,000 |
|||||||||||||
Skriloff
Family Irrevocable Trust F/B/O Olivia Skriloff |
June
7, 2011 |
Series C Preferred Stock |
.1 | * | $5,000 |
|||||||||||||
Jason Adelman
|
June
7, 2011 |
Series C Preferred Stock |
1.8 | * | $90,000 |
|||||||||||||
Robert and Amy
Bernstein |
June
7, 2011 |
Series C Preferred Stock |
.5 | * | $25,000 |
|||||||||||||
Dick F. Chase,
Jr. |
June
7, 2011 |
Series C Preferred Stock |
2 | * | $100,000 |
|||||||||||||
Boris and
Alexandra Smirnov |
June
7, 2011 |
Series C Preferred Stock |
2 | * | $100,000 |
|||||||||||||
Nadegda
Kassatkina |
June
7, 2011 |
Series C Preferred Stock |
2 | * | $100,000 |
|||||||||||||
Irina Pavlova
|
June
7, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Jeffrey J and
Jennifer S. Clayton |
June
7, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Greenbridge
Capital Partners IV, LLC |
June
7, 2011 |
Series C Preferred Stock |
1.5 | * | $75,000 |
|||||||||||||
Core Capital
IV Trust |
June
7, 2011 |
Series C Preferred Stock |
1.5 | * | $75,000 |
|||||||||||||
Rolant
Investments Limited |
June
7, 2011 |
Series C Preferred Stock |
6 | * | $300,000 |
|||||||||||||
David Wiener
|
June
28, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
One East
Partners Opportunity L.P. |
June
28, 2011 |
Series C Preferred Stock |
2.7 | * | $135,000 |
|||||||||||||
One East
Partners Master L.P. |
June
28, 2011 |
Series C Preferred Stock |
5.3 | * | $265,000 |
|||||||||||||
Narang Family
Partnership, LP |
June
28, 2011 |
Series C Preferred Stock |
.5 | * | $25,000 |
|||||||||||||
Hugh Scott
Campbell |
June
28, 2011 |
Series C Preferred Stock |
.2 | * | $10,000 |
|||||||||||||
Fraser
Campbell |
June
28, 2011 |
Series C Preferred Stock |
.2 | * | $10,000 |
|||||||||||||
Sean Campbell
|
June
28, 2011 |
Series C Preferred Stock |
.5 | * | $25,000 |
|||||||||||||
Dr. Wayne
Fleischacker |
June
28, 2011 |
Series C Preferred Stock |
2 | * | $100,000 |
II-4
Name of Purchaser |
Date of Sale |
Title of Security |
Amount of Securities Sold |
Consideration | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dr. Glenn
Fleischacker |
June
28, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Jane Ellis
|
June
28, 2011 |
Series C Preferred Stock |
2 | * | $100,000 |
|||||||||||||
Duane Renfro
|
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Guri Dauti
|
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Matteo Joseph
Rosselli |
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Sarah
Benveniste |
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Steven
Reichbach |
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Dr. Glenn
Fleischacker |
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Myles
Wittenstein |
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Neil Weiss
|
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Randolf Kahn
|
August 4, 2011 |
Series C Preferred Stock |
1 | * | $50,000 |
|||||||||||||
Dr. Wayne
Fleischacker |
August 4, 2011 |
Series C Preferred Stock |
2 | * | $100,000 |
|||||||||||||
Marc S Cohen
|
August 4, 2011 |
Series C Preferred Stock |
2.2 | * | $110,000 |
|||||||||||||
Marc S Cohen
|
August 26, 2011 |
Series C Preferred Stock |
3.8 | * | $190,000 |
|||||||||||||
Joseph
Simone |
September 30, 2011 |
Common Stock |
510,000 | Consulting Services |
* |
Units comprising one share of Series C Convertible Preferred Stock convertible into 2,222,222 shares of common stock and a warrant to purchase 1,111,111 shares of common stock at $0.0225 per share |
The securities issued in the abovementioned transactions
were issued in connection with private placements exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended,
pursuant to the terms of Section 4(2) of that Act and Rule 506 of Regulation D.
Item
16. Exhibits
Exhibit No. |
Description |
|||||
---|---|---|---|---|---|---|
3.1(a) |
Certificate of Incorporation of Vycor Medical, Inc. (filed with Form S-1 on September 7, 2011) |
|||||
3.1(b) |
Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of January 11, 2010 (filed with Form S-1 on
September 7, 2011) |
|||||
3.1(c) |
Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of July 20, 2010 (filed with Form S-1 on September
7, 2011) |
|||||
3.2 |
Bylaws of Vycor Medical, Inc. (filed with Form S-1 on September 7, 2011) |
|||||
5.1* |
Legal Opinion of Legal Robert Diener, Esq. |
II-5
Exhibit No. |
Description | |||||
---|---|---|---|---|---|---|
23.1* |
Legal Opinion of Legal Robert Diener, Esq. (included with Exhibit 5.1) |
|||||
23.2 |
Consent of Independent Auditors (filed with Form S-1 on September 7, 2011) |
* |
filed herewith |
Item
17. Undertakings
The undersigned registrant hereby
undertakes:
1. |
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
i. |
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
ii. |
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement. |
iii. |
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided however, That: |
(A) |
Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; and |
(B) |
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement. |
2. |
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
3. |
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
4. |
If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of |
II-6
the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. |
5. |
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
i. |
If the registrant is relying on Rule 430B: |
A. |
Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
B. |
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or |
ii. |
If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
6. |
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
i. |
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
ii. |
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
iii. |
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
iv. |
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boca
Raton in the State of Florida on the 2 6th day of October ,
2011.
Vycor Medical, Inc. |
||||||||||
(Registrant) |
||||||||||
By: |
/s/ Kenneth T. Coviello |
|||||||||
Kenneth T. Coviello |
||||||||||
Chief
Executive and Director (Principal Executive Officer) |
||||||||||
Date |
October 26 , 2011 |
|||||||||
By: |
/s/ Adrian Liddell |
|||||||||
Adrian Liddell |
||||||||||
Chairman of the Board and Director |
||||||||||
(Principal Financial and Accounting Officer) |
||||||||||
Date |
October 26 , 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of
the registrant and in the capacity and on the date indicated.
By: |
/s/ Kenneth T. Coviello |
|||||||||
Kenneth T. Coviello |
||||||||||
Chief
Executive and Director (Principal Executive Officer) |
||||||||||
Date |
October 26 , 2011 |
|||||||||
By: |
/s/ Heather Vinas |
|||||||||
Heather Vinas |
||||||||||
Director |
||||||||||
Date |
October 26 , 2011 |
|||||||||
By: |
/s/ Pascale Mangiardi |
|||||||||
Pascale Mangiardi |
||||||||||
Director |
||||||||||
Date |
October 26 , 2011 |
|||||||||
By: |
Steven Girgenti |
|||||||||
Director |
||||||||||
Date |
October 26 , 2011 |
|||||||||
By: |
/s/ Adrian Christopher Liddell |
|||||||||
Adrian Christopher Liddell |
||||||||||
Chairman of the Board and Director (Principal Financial and Accounting Officer) |
||||||||||
Date |
October 26 , 2011 |
II-8
By: |
/s/ David Marc Cantor |
|||||||||
David
Marc Cantor |
||||||||||
President and Director |
||||||||||
Date |
October 26 , 2011 |
|||||||||
By: |
/s/ Peter C. Zachariou |
|||||||||
Peter
C. Zachariou |
||||||||||
Executive Vice President and Director |
||||||||||
Date |
October 26 , 2011 |
II-9
EXHIBIT LIST
Exhibit No. |
Description |
|||||
---|---|---|---|---|---|---|
3.1(a) |
Certificate of Incorporation of Vycor Medical, Inc. (filed with Form S-1 on September 7, 2011) |
|||||
3.1(b) |
Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of January 11, 2010 (filed with Form S-1 on
September 7, 2011) |
|||||
3.1(c) |
Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of July 20, 2010 (filed with Form S-1 on September
7, 2011) |
|||||
3.2 |
Bylaws of Vycor Medical, Inc. (filed with Form S-1 on September 7, 2011) |
|||||
5.1 * |
Legal Opinion of Legal Robert Diener, Esq. |
|||||
23.1 * |
Legal Opinion of Legal Robert Diener, Esq. (included with Exhibit 5.1) |
|||||
23.2 |
Consent of Independent Auditors (filed with Form S-1 on September 7, 2011) |
* |
filed herewith |
II-10