UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, | |
| Or | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number:001-34932
VYCOR MEDICAL, INC.
(Exact name of registrant as specified in charter)
| Delaware | 20-3369218 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
951 Broken Sound Boulevard, Suite, 320 Boca Raton, FL 33487
(Address of principal executive offices) (Zip Code)
Registrant’s telephone Number: (561) 558-2000
Securities registered pursuant to section 12(g)Section 12(b) of the Act:
Common Stock par value $.0001
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Common Stock | VYCO | OTCQB |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [ ][X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [ ][X] No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ][X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer [ ] | Accelerated Filer [ ] | |
| Non-accelerated Filer [ ] (Do not check if a smaller reporting company) | Smaller Reporting Company [X] | |
| Emerging Growth Company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $3,140,851$1,482,453 (assuming $0.30$0.14 per share)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 20,071,988date 27,898,200 shares of common stock par value $0.0001 as of March 23, 201830, 2021
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TABLE OF CONTENTS
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This Form 10-K contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this Form 10-K generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.
Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Form 10-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise.
ITEM 1. DESCRIPTION OF BUSINESS.
1. Organizational History
The Company was 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.”. The Company’s listing went effective on February 2009 and on November 29, 2010 Vycor completed the acquisition of substantially all of the assets of NovaVision, Inc. (“NovaVision”) and on January 4, 2012 Vycor, through its wholly-owned NovaVision subsidiary, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”), a previous competitor to NovaVision.
2. Overview of Business
Vycor is dedicated to providing the medical community with innovative and superior surgical and therapeutic solutions and operates two distinct business units within the medical device industry. Vycor Medical designs, develops and markets medical devices for use in neurosurgery. NovaVision provides non-invasive rehabilitation therapies for those who have vision disorders resulting from neurological brain damage such as that caused by a stroke. Both businesses adopt a minimally or non-invasive approach. Both technologies have strong sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has 6665 issued or allowed patents and a further 139 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner.
The Company periodically engages in discussions with potential strategic partners for or purchasers of each or both of our operating divisions. In April 2020, the board of Vycor took the decision to close the German operations of NovaVision, including the German office and NovaVision GmbH, and instead migrate to a licensed business model; Vycor entered into a license agreement and transition agreement (the “Agreements”) with HelferApp GmbH, a cognitive therapy specialist, effective July 1, 2020. Under the Agreements, HelferApp is licensed to provide NovaVision’s products and therapies in Germany, Austria and Switzerland to patients and professionals; and has assumed responsibility for the current patients of NovaVision in the territory. The NovaVision German office was closed effective June 30, 2020.
Vycor Medical
Vycor Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medical’s ViewSite Brain Access System (“VBAS”) is a next generation retraction and access system that was fully commercialized in early 2010 and is the first significant technological change to brain tissue retraction in over 50 years in contrast to significant development in most other neuro-surgical technologies. Vycor Medical is ISO 13485:2003 compliant,2016 and MDSAP (Medical Device Single Audit Program) certified, and VBAS has U.S. FDA 510(k) clearance and CE Marking for Europe (Class III) for brain and spine surgeries, and regulatory approvals in Australia, Brazil, Canada, China, Korea, Japan, Russiaa number of other international markets. Vycor Medical has 27 granted and Taiwan.
 |  |  |
We believe VBAS offers several advantages over other brain retractor systems, commonly known as ribbon or blade retractors that are metallic, including having the potential to significantly reduce brain tissue trauma that arises from excessive pressure at the edges of the blade. The design of VBAS can minimize the size of the brain entry access necessary for surgical procedures and is believed to significantly reduce the pressure and hence trauma on the surrounding brain tissue.9 pending patents.
NovaVision
NovaVision provides non-invasive, computer-based rehabilitation therapies targeted at a substantial and largely un-addressed market of people who have lost their sightimpaired vision as a result of stroke or other brain injury.
NovaVisioninjury, and has a family of therapies that both restore and compensate for lost vision:
VRT and NeuroEyeCoach are therefore highly complementary and are provided in an Internet-delivered suite to ensure broad benefits to NovaVision’s patients. NeET is provided on its own in the UK for those just seeking restoration therapy.38 granted patents.
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NovaVision also has professional models of VRT and NeuroEyeCoach for physiciansThe Company is continuing to execute on a plan to achieve revenue growth and a clinic-based model comprising NeuroEyeCoach and VIDIT, a diagnostic program that enables therapists to perform high-resolution visual field testsreduction in less than ten minutes.
NovaVision’s VRT is the only medical device aimed at the restoration of vision lost as a result of neurological damage which has FDA 510(k) clearance to be marketedcash operating losses1. For Vycor Medical this plan includes: increasing market penetration in the U.S;US; increasing international growth in territories where we are not represented or under represented and NeuroEyeCoach is registered incontinued new product development. In the US as a Class I 510(k) exempt device. VRT, NECthe Company is focused on increasing market penetration through targeting neurosurgeons systematically, both through its distribution network and NeET have CE Marking for the EU. NovaVision has 45 granted and 1 pending patents worldwide.
Competitionalso directly by leveraging existing KOL neurosurgeon VBAS supporters to access new neurosurgeon users.
The Company continues to target key international territories including Europe where it intends to drive adoption of its VBAS device isproduct through selected key KOL neurosurgeon VBAS users to identify both a brain access systemnew potential users and a retractor and is therefore unique with no direct competitors. Competitive manufacturers of brain retractors include Cardinal Health (V. Mueller line), Aesculap, Integra Life Science and Codman (Division of Johnson & Johnson). Nico Corporation has a brain access device specifically designedalso high quality distribution partners to work with its Myriad resection and suction product.
NovaVision provides restoration therapies (VRT and NeET) and compensation or saccadic therapies (NeuroEyeCoach) for those suffering vision loss as a result of neurological trauma. The other therapy type for this condition is substitution (optical aids such as prisms) and is not considered by NovaVision as competition.
In restoration, competition has been reduced through NovaVision’s acquisition of Sight Science and there are a few very small companies or entities offering some form of vision rehabilitation product in Germany. Within compensation there are no real direct competitors. Other companies in the general rehabilitation space include RevitalVision, PositScience and Dynavision. In the professional market, NovaVision competes with aggregator products or those that provide a range of non-specific therapies, such a Rehacom, Sanet Vision Integrator and Bioness BITS. NovaVision’s products are dedicated to vision.
The Market For the Company’s Products And Therapies
VBAS is used for craniotomy procedures. Based on statistics from the American Association of Neurological Surgeons (AANS), management estimates 700,000 such procedures are performed in the US annually. Of this, management believe approximately 225,000 (32 percent) are addressable by the current VBAS range. Management estimates, for the global market, there exists a current addressable market of approximately 1,100,000 procedures.bolster our existing network.
The market for NovaVision’s therapies comprises those suffering from vision loss resulting from neurological trauma such as stroke or other brain injury. Based on American Heart Association estimates, there are approximately 8 million Americans who have previously had a stroke incident, with 795,000 additional strokes occurring annually; adjusting for repeat strokes and deaths, there are 481,000 new stroke survivors each year. Additionally, approximately 5.3 million Americans live with the long-term effects of a TBI, with a further 275,000 hospitalizations each year. The most recent scientific research estimates that approximately 28.5% experience some visual impediment and 20.5% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living. The target market for VRT and NeET is this subset of patients who have suffered a permanent visual field deficit; NeuroEyeCoach was developed to address up to the 28.5% of patients who experience visual impediments. Management estimates that the addressable target market for its therapies on the basis of these statistics is approximately 2.9 million people in the US and a further 2.8 million people in Europe.
Our Growth Strategy
Vycor Medical
Vycor Medical’s growth strategy includes:
1. Increasing U.S. market penetration through broader hospital coverage and targeted direct physician marketing. Vycor Medical’s sales and marketing strategy is to penetrate a well-defined US target market of 4,500 neurosurgeons. Vycor markets direct to surgeons as well as marketing and distributing through independent distributors, with a focus both on adding new hospitals and expanding to additional surgeons in hospitals where VBAS is already approved, and to expand usage to a broader range of procedures. Vycor is pursuing a policy of continually evaluating and upgrading its distributors as well as adding additional distributors in regions where it has little to no presence.
2. Provision of more Clinical and Scientific Data supporting the products superiority over the current standard-of-care blade retractors and to demonstrate VBAS’ potential for cost savings. Clinical and scientific data (in the form of peer reviewed articles, clinical studies and other reports and case studies) are critical in driving adoption, and in turn revenues, further and faster by demonstrating VBAS’ superiority as a minimally invasive access system that helps VBAS move further up the hospital cost/benefit curve. To date the Company has already had 12 Peer Reviewed studies and 6 other clinical papers published or presented.
3. International Market Growth
Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. VBAS has regulatory approvals in Australia, Brazil, Canada, China, Europe (EU – Class III), Korea, Mexico, Japan, Russia and Taiwan. Vycor Medical is actively pursuing new distribution agreements in the countries where it does not have any market presence.
4. New Product Development
New Product Development is targeted at both driving the use of its existing VBAS product range through ancillary products and modalities that will facilitate the product’s use and through new product extensionsfor some time been working to broaden VBAS applicability to procedures currently not addressed by the existing product line.
Vycor is modifying its existing VBAS product suite to make it easier tobetter integrate with Image Guidance Systems (IGS) by re-engineering its VBAS product range so that the entire range of 12 devices, excluding the VBASmini, will be able to more easily accommodate pointers from the leading IGS system providers.with neuronavigation. The first phase of thisthe modification of the existing VBAS product range was completed in September 2017 and has been well received by surgeons. The second phase involves the introduction of an optional Alignment Clip accessory that will snap onto the VBAS and allow for a neuronavigation pointer to be fully integrated with the VBAS. This VBAS AC model range has received FDA 510(k) clearance and is in the final phasereview stage for EU clearance; it is envisaged that it will be completed during 2018available by the summer of 2021. The Company will continue to work with neuronavigation companies to seek ways to further integrate the VBAS with neuronavigation and then subjectwith other companies with complementary technologies used in neurosurgery. We will also be exploring with surgeons and focus groups additional selected development work targeted at increasing the ease and applicability of our products to regulatory approval in the US and internationally. Increasingly, all major neuro centers have image guidance systems, and where this is in place management believes over 90% of surgeries are carried out using IGS and management strongly believes that the existing VBAS rigid structure lends itself well to being incorporated into this increasing trend.additional common procedures.
For NovaVision,
While speech, physical, and occupational therapies are given the long-standing treatment standards for stroke and brain injury survivors, vision has been largely unaddressed. Increasingly the healthcare community, partly driven by strong lobbying by stroke associations worldwide, are recognizing that vision is not only a significant issue post stroke or brain injury, but that visual field loss can have a significant impact on the success of other rehabilitation modalitiescompany’s resources, and the patient’s quality of life. VRT is the first and only FDA-cleared clinical-supported vision restoration therapy that can physically enhance the visual field after a stroke or brain injury.
NovaVision is now able to provide a clinically supported, cost-effective and scalable visual therapy solutions offering broad benefits to patients suffering from visual impairments following neurological brain damage; and a highly flexible range of products and licensing options for medical professionals.
NovaVisions’s potential customers often tend to have other medical issues associated with their neurological condition making this a hard target universe. Rehabilitation therapies of this type are a time and effort commitment for patients, who therefore need to be in a condition to carry them out and to be motivated to rehabilitate their vision disorder. The market is also very diverse; stroke patients pass through the rehabilitation system in the first weeks after stroke, and unless they are acute patients are then sent home for recovery. At this point they may see physiotherapists, occupational therapists, eye-care professionals and other physicians, as well as stroke support groups. NovaVision’s challenge, has been to continue to drive awareness amongst patients understanding that they are subject to a diverse range of other influencers.
NovaVision taking the aforementioned issue into consideration has chosen to target four routes-to-market aimed at patients and professionals, comprising: direct-to-patient; optometrists and other eye-care professionals, rehabilitation centers and clinics; stroke associations and support groups; and other physicians. NovaVision has initially focused on direct-to-patient, with a website lead-driven inbound and outbound marketing strategy targeted at prospective patients and relatives. Given the company’s resources,large size and diversity of its end markets, we believe that the most efficient way to tackle the distribution of its broad range of patient and professional market, NovaVision believes the best route to market hereproducts is by partnering with entities who alreadyin selected geographies that have the capability of deliveryeither direct access to the various professional target markets.end users or a desire and financial wherewithal to leverage the NovaVision is identifyingtherapy platform. As a result, the Company has now closed the NovaVision German office and is entering into a license agreement with HelferApp, a cognitive therapy specialist, for Germany, Austria and Switzerland, and is seeking similar partnerships in dialogueother territories with such qualified entities; theregional companies able to leverage NovaVision’s clinically supported vision therapies. Management is also open to a broad range of alternatives for NovaVision as a whole, which could comprise distribution and marketing partnerships, licensing, merger sale and/or restructuringsale.
The NovaVision German operation accounted for a very substantial proportion of its activities.Vycor’s operating cash loss1 during the year ended December 31, 2019. This proportion has been reduced during the twelve months ended December 31, 2020 for two reasons: firstly, the selling, general and administrative expenses of NovaVision Germany have been reduced as the operation has been wound down; and secondly due to the impact on Vycor revenues from Covid-19 discussed below.
COVID-19
Vycor Medical experienced a reduction in demand during the twelve months ended December 31, 2020 in the US and Europe, particularly in the second quarter, with some recovery in the third and fourth quarters. Although neurosurgery is not considered an elective procedure, general hospital dislocation and diversion of resources away from non-emergency surgeries, or surgeries that can be postponed for a short period without harm, has impacted our revenues during the twelve months ended December 31, 2020 and could continue to do so. In addition, sales and marketing efforts by Vycor’s representatives have been disrupted or curtailed due to lockdown and social distancing, and this has and may continue to hinder the recovery of revenues. While our operations are principally located in the United States, and our sub-contract manufacturers are located in the United States, we participate in a global supply chain, and COVID-19 may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from supplier staff absences due to COVID-19 illness or isolation requirements, the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Although we have implemented business continuity plans for our offices and personnel to enable continuity of service remotely, if a critical number of our employees become too ill to work, or we are not able to access a sufficient quantity of our inventory for shipment due to enforced office closures, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.
1 Operating Loss before Depreciation, Amortization and non-cash Stock Compensation
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Manufacturing
Vycor Medical uses a sub-contract manufacturer to manufacture, package, label and sterilize its VBAS products. The Company has migrated all its VBAS manufacturing to Life Science Outsourcing, Inc. in Brea, California that is FDA-registered, ISO 13485:2016 certified and meets other applicable ISO standards and certifications.
Intellectual Property
Patents
Vycor Medical maintains a portfolio of patent protection on its methods and apparatus for its Brain and Spine products and technology in the form of issued patents and applications, both domestically and internationally, with a total of 21 granted/allowed and 12 pending 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, with a total of 45 granted and 1 pending patents (including Sight Science).
Trademarks
VYCOR MEDICAL is a registered trademark andVIEWSITE is a common law trademark.
NovaVision maintains a portfolio of registered trademarks forNOVAVISION, NOVAVISION VRT,VRT VISION RESTORATION THERAPY and NEUROEYECOACH, amongst others, along with relevant logos, both in the US and internationally.
3. Other Matters
Product Liability Insurance
We presently have Product Liability insurance for both Vycor Medical and Professional Liability insurance NovaVision.
Government Regulations
We are committed to an integrated total quality management system. We believe that we have completed the necessary procedures and Vycor Medical is certified to the ISO standards expected of medical device manufacturers as follows:
ISO 13485:20032016 Medical Devices — Quality Management Systems
The certification of a quality management system to ISO 13485,1348:2016, 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 13485:2003.2016 and from January 1, 2019 also be certified to MDSAP. The certification is also required for placement of branded devices into the European Union.
Vycor Medical has the following certification/licensing:
| ● | ISO 13485.2016 | |
| ● | MDSAP (Medical Device Single Audit Program) | |
| ● | 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) | |
Continuing Regulatory Requirements
Vycor Medical’s productsVBAS and VBAS AC have been classified as Class II products by the FDA and cleared for marketing through the 510(k) process. NovaVision’s VRT product has been cleared as a Class U product through the 510(k) while its NeuroEyeCoach is registered as an exempt Class 1 device.
After a device is placed on the market, numerous regulatory requirements apply. Failure to comply with applicable regulatory requirements, and failure to respond to requested corrective actions on an ongoing basis, can result in enforcement action by the FDA.
Medical device laws are also in effect in many of the countries outside of the United States in which we 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 as a Class III device and has received HPB licensing approvala Health Canada Medical Device License (MDL) for distribution in Canada as a Class II device; both of these clearances are pending for its VBAS AC device. VBAS also has full regulatory or partial approvals in Australia, Brazil, China, Korea, Japan and Russia.a number of other international markets. NovaVison’s VRT, NeuroEyeCoach and Sight Science’s NeET have CE mark registrations as Class I devices in Europe.
Employees
We currently have 116 employees.
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Website.
The Company operates websites at www.vycormedical.com, www.vycorvbas.com, www.novavision.com and www.sightscience.com. NovaVision’s German partner, HelferApp, maintains the www.novavision.de and www.sightscience.comwebsite
Smaller reporting companies are not required to provide the information required by this item. Notwithstanding, in addition to risk factors highlighted in previous reports, the Company adds the following additional risk factor:
We do not yet know the extent we could be affected by the Coronavirus (COVID-19) pandemic
Vycor Medical experienced a reduction in demand during the twelve months ended December 31, 2020 in the US and Europe, particularly in the second quarter, with some recovery in the third and fourth quarters. Although neurosurgery is not considered an elective procedure, general hospital dislocation and diversion of resources away from non-emergency surgeries, or surgeries that can be postponed for a short period without harm, has impacted our revenues during the twelve months ended December 31, 2020 and could continue to do so. In addition, sales and marketing efforts by Vycor’s representatives have been disrupted or curtailed due to lockdown and social distancing, and this has and may continue to hinder the recovery of revenues. While our operations are principally located in the United States, and our sub-contract manufacturers are located in the United States, we participate in a global supply chain, and COVID-19 may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from supplier staff absences due to COVID-19 illness or isolation requirements, the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Although we have implemented business continuity plans for our offices and personnel to enable continuity of service remotely, if a critical number of our employees become too ill to work, or we are not able to access a sufficient quantity of our inventory for shipment due to enforced office closures, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
N/A
The Company leased office space located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease was 5 years and 6 months and terminated July 30, 2017. Effective August 1, 2017 the Company leasedleases office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2L.P.2 L.P., for a gross rent of approximately $5,700$4,000 per month plus sales taxother charges of approximately $1,500 per month. The lease terminates September 30, 2020.2020 and has been extended for a further three years to August 31, 2023. The Company’s subsidiariessubsidiary in Germany and the UK occupy propertiesoccupied premises on a short-term lease agreements.agreement of EUR 1,650 per month (approximately $1,820) for the period January to July 2020.
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of the date of this Annual Report, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
Beginning on July 20, 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 for fiscal years 2016 and 2017. 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 | ||||||
| January 1, 2016-March 31, 2016 | $ | 0.94 | $ | 0.53 | ||||
| April 1, 2016-June 30, 2016 | $ | 0.70 | $ | 0.36 | ||||
| July 1, 2016-September 30, 2016 | $ | 0.59 | $ | 0.26 | ||||
| October 1, 2016-December 31, 2016 | $ | 0.45 | $ | 0.24 | ||||
| January 1, 2017-March 31, 2017 | $ | 0.34 | $ | 0.12 | ||||
| April 1, 2017-June 30, 2017 | $ | 0.30 | $ | 0.12 | ||||
| July 1, 2017-September 30, 2017 | $ | 0.35 | $ | 0.15 | ||||
| October 1, 2017-December 31, 2017 | $ | 0.60 | $ | 0.19 | ||||
The market price of our common stock, like that of other early stage medical device companies, is highly volatile and is subject illiquidity and 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 March 23, 201830, 2021 and March 30, 2020 there were 20,071,98828,001,534 and 27,898,200 shares of common stock issued and outstanding, respectively, and approximately 154150 stockholders of record.
Transfer Agent and Registrar
Our transfer agent is Corporate Stock Transfer,EQ by Equiniti, 3200 Cherry Creek Dr. South Suite 430 Denver, CO 80209; telephone (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 Company’s Series D Convertible Preferred Stock bears a 7%12% per annum dividend payable in cash or Series D Preferred Stock at the option of the Company.
RECENT SALES OF UNREGISTERED SECURITIES
Below is a list of securities sold by us from January 1, 20172020 through March 23, 201830, 2021 which were not registered under the Securities Act
Common Stock:
| Issuance Type | Security | Shares | ||||||
| FHC Management Fees | Common | |||||||
| Common | ||||||||
The securities issued in the above mentioned 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 6. SELECTED FINANCIAL DATA
Not applicable
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 20172020 to the Year Ended December 31, 20162019
Revenue and Gross Margin:
Vycor Medical recorded revenue of $1,178,063$1,039,562 from the sale of its products for the year ended December 31, 2017,2020, a decrease of $82,886 or 7%$260,268 (or 20%) over 2016. Vycor has2019. Sales of VBAS devices have been significantly disrupted during 2020 in the process, during 2017,US and internationally by COVID-19. Although neurosurgery is not considered an elective procedure, general hospital dislocation and diversion of modifying its existing VBAS product suite to make it easier to integrate with Imaging Guided Systems. The Company experienced manufacturing delays in connection with this re-engineeringresources away from non-emergency surgeries, or surgeries that can be postponed for a short period without harm, has impacted our revenues during the first halfyear ended December 31, 2020. In addition, sales and marketing efforts by Vycor’s representatives have been disrupted or curtailed due to lockdown and social distancing, and this has hindered the recovery of 2017 and as a result was unable to fulfill shipments of certain models, particularly for some large international orders. These delays were resolved and back orders were filled during the third and fourth quarters.revenues.
Gross margin of 85%88% was recorded for the year ended December 31, 20172020 compared to 87%90% in 2016. Following the release of the enhanced VBAS model at the end of September, Vycor took the decision in February 2018, based on surgeon feedback, to accelerate the roll-out of the enhanced model and cease shipment of the previous model. As a result, the Company took a special provision against obsolete inventory of $39,675, in addition to the monthly provision totaling $5,088, for theyear ended December 31, 2017. Excluding this provision, gross margin would have been 86% for the year2019.
NovaVision recorded revenues of $206,908$102,483 for the year ended December 31, 2017,2020, an increase of $15,143$9,413 from 2016,2019, and gross margin of 89%94%, compared to 91%93% for 2016.
Research and Development Expense:
Research and development expenses were $3,015 in 2017 compared to $4,739 for 2016. Capitalized software development costs in NovaVision2019. New patient starts increased by 20% for the year ended December 31, 2017 and 2016 were $2,745 and $12,679, respectively.2020 compared to 2019.
Selling, General and Administrative Expenses:
Selling, General and administrativeAdministrative expenses decreased by $405,117$119,200 to $2,191,969$1,680,447 in 20172020 from $2,597,086$1,799,647 in 2016.2019. Included within Selling, 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 charge for 20172020 was $559,972,$520,000, a decrease of $169,637$14,940 from $729,609$534,940 in 2016, primarily as a result2019, following the departure from the Board of the changed compensation structure for management and Fountainhead.Oscar Bronsther from July 1, 2020. Also included within Selling, General and Administrative Expenses are Sales Commissions, which increaseddecreased by $892$58,753 to $196,332. $203,707 reflecting the reduced level of sales in the US due to COVID-19.
The remaining Selling, General and Administrative expenses decreased by $235,480$45,507 from $1,672,038$1,002,247 to $1,436,558. $956,740. Regulatory fees reduced by $53,311 reflecting the completion of the transition to a new EU Notified Body for Vycor; patent fees reduced by $31,107 reflecting the level of patent filing and prosecution activity in 2019; the professional fees related to the closure of NovaVision Germany and the license agreement resulted accounting and legal fees increasing by $22,123.
An analysis of the change in cash and non-cash G&A is shown in the table below:
| Cash G&A | Non-Cash G&A | Cash G&A | Non-Cash G&A | |||||||||||||
| Legal, patent, audit/accounting | (10,994 | ) | - | |||||||||||||
| Regulatory | (53,311 | ) | ||||||||||||||
| Board, financial and scientific advisory | (2,974 | ) | (14,000 | ) | ||||||||||||
| Sales, marketing and travel | (7,039 | ) | - | |||||||||||||
| Payroll | (122,653 | ) | (3,288 | ) | 6,744 | (940 | ) | |||||||||
| Other (travel/regulatory/premises) | (54,454 | ) | - | |||||||||||||
| Investor relations and road show costs | (50,437 | ) | (40,700 | ) | ||||||||||||
| Legal, professional and other consulting | (28,446 | ) | - | |||||||||||||
| Commission expense | 892 | - | ||||||||||||||
| Sales, marketing and travel | 8,059 | - | ||||||||||||||
| Board, financial and scientific advisory | 11,559 | (125,649 | ) | |||||||||||||
| Other (travel/insurance/premises) | 22,067 | - | ||||||||||||||
| Commissions | (58,753 | ) | - | |||||||||||||
| Total change | (235,480 | ) | (169,637 | ) | (104,260 | ) | (14,940 | ) | ||||||||
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Interest Expense:
Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for 2017 decreased2020 increased $9,035 following the conversionissuance of Related Party debt into the Offering in January 2017.related party notes during 2019 and 2020 to $29,682 from $20,647 for 2019. Other Interest expense for 20172020 increased by $96 to $48,132 from $48,036 for 2019.
Operating loss from Discontinued Operations:
Operating loss from Discontinued Operations decreased by $362$71,567 to $48,523$52,169 in 2020 from $48,885 for 2016.$123,736 in 2019, primarily due to a reduction in Selling, general and administrative expenses as a result of the wind-down of the discontinued operations in Germany.
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for the periodsyears ended December 31, 20172020 and December 31, 2016:2019:
| December 31, 2017 | December 31, 2016 | $ Change | ||||||||||
| Cash | $ | 206,213 | $ | 56,859 | $ | 149,354 | ||||||
| Accounts receivable, inventory and other current assets | $ | 402,295 | $ | 480,230 | $ | (77,935 | ) | |||||
| Total current liabilities | $ | (1,368,015 | ) | $ | (1,511,688 | ) | $ | 143,673 | ||||
| Working capital | $ | (759,507 | ) | $ | (974,599 | ) | $ | 215,092 | ||||
| Cash provided by financing activities | $ | 863,851 | $ | 266,710 | $ | 597,141 | ||||||
Private Placement.
On January 11, and February 23, 2017 (the “Closings”) the Company completed the sale of $1,274,717 in shares of Common Stock and Warrants to accredited investors. Included in these gross proceeds is the conversion of $248,000 of debt on the balance sheet at December 31, 2016, so that proceeds net of debt conversion were $1,026,717. The Closings raised net cash proceeds, after debt conversion and expenses, of $943,873, of which $842,873 was received during 2017.
| December 31, 2020 | December 31, 2019 | $ Change | ||||||||||
| Cash | $ | 46,002 | $ | 60,717 | $ | (14,715 | ) | |||||
| Accounts receivable, inventory and other current assets | $ | 417,899 | $ | 595,715 | $ | (177,816 | ) | |||||
| Total current liabilities | $ | (2,740,828 | ) | $ | (2,446,406 | ) | $ | (294,422 | ) | |||
| Working capital | $ | (2,276,927 | ) | $ | (1,789,974 | ) | $ | (486,953 | ) | |||
| Cash provided by financing activities | $ | 286,552 | $ | 40,091 | $ | 246,461 | ||||||
Operating Activities. Cash used in operating activities comprises net loss adjusted for non-cash items and the effect of changes in working capital and other activities. The net repayment of normal insurance financing should also be taken into account when considering cash used in operating activities.
The following table shows the principal components of cash used in operating activities during the yearyears ended December 31, 20172020 and 2016,2019, with a commentary of changes during the periodsyears and known or anticipated changes:
| December 31, 2017 | December 31, 2016 | $ Change | December 31, 2020 | December 31, 2019 | $ Change | |||||||||||||||||||
| Net loss | $ | (1,477,045 | ) | $ | (1,652,280 | ) | $ | 175,235 | $ | (822,482 | ) | $ | (796,202 | ) | $ | (26,280 | ) | |||||||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||||||||||||||||||
| Amortization and depreciation of assets | $ | 289,975 | $ | 267,496 | $ | 22,479 | $ | 57,895 | $ | 61,638 | $ | (3,743 | ) | |||||||||||
| Share based compensation | $ | 334,972 | $ | 482,110 | $ | (147,138 | ) | |||||||||||||||||
| Accrued share based compensation | $ | 225,000 | $ | 247,500 | $ | (22,500 | ) | |||||||||||||||||
| Warrant issuance expense | $ | 120,788 | - | $ | 120,788 | |||||||||||||||||||
| Gain or loss on foreign exchange | $ | (1,477 | ) | $ | 144 | $ | (1,621 | ) | ||||||||||||||||
| Stock based compensation | $ | 520,000 | $ | 534,940 | $ | (14,940 | ) | |||||||||||||||||
| Other | $ | 44,760 | $ | 10,174 | $ | 34,586 | $ | 12,558 | $ | 12,558 | $ | 0 | ||||||||||||
| $ | 1,014,018 | $ | 1,007,424 | $ | 6,594 | $ | 590,453 | $ | 609,136 | $ | (18,683 | ) | ||||||||||||
| Net loss adjusted for non-cash items | $ | (463,027 | ) | $ | (644,856 | ) | $ | 181,829 | $ | (232,029 | ) | $ | (187,066 | ) | $ | (44,963 | ) | |||||||
| Changes in working capital | ||||||||||||||||||||||||
| Accounts receivable, accounts payable and accrued liabilities | $ | (108,397 | ) | $ | (65,664 | ) | $ | (42,733 | ) | |||||||||||||||
| Accounts receivable | $ | 115,313 | $ | (19,237 | ) | $ | 134,550 | |||||||||||||||||
| Accounts payable and accrued liabilities | $ | (182,319 | ) | $ | 162,395 | $ | (344,714 | ) | ||||||||||||||||
| Inventory | $ | (54,573 | ) | $ | 78,292 | $ | (132,865 | ) | $ | 14,699 | $ | (21,654 | ) | $ | 36,353 | |||||||||
| Prepaid expenses and net insurance financing repayments | $ | 18,162 | $ | (13,939 | ) | $ | 32,101 | $ | 14,754 | $ | (13,271 | ) | $ | 28,025 | ||||||||||
| Accrued interest (not paid in cash) | $ | 48,680 | $ | 60,293 | $ | (11,613 | ) | $ | 77,814 | $ | 68,647 | $ | 9,167 | |||||||||||
| Other | $ | 33,254 | $ | 6,666 | $ | 26,588 | ||||||||||||||||||
| Changes in discontinued operations, net | $ | (59,071 | ) | $ | 6,384 | $ | (65,455 | ) | ||||||||||||||||
| $ | (62,874 | ) | $ | 65,648 | $ | (128,522 | ) | $ | (18,810 | ) | $ | 183,264 | $ | (202,074 | ) | |||||||||
| Cash used in operating activities, adjusted for net insurance repayments | $ | (525,901 | ) | $ | (579,208 | ) | $ | 53,307 | ||||||||||||||||
| Cash (used in) provided by operating activities, adjusted for net insurance repayments | $ | (250,839 | ) | $ | 3,802 | $ | (247,037 | ) | ||||||||||||||||
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The adjustments to reconcile net loss to cash used of $1,014,018$590,453 in the periodyear have no impact on Liquidity. The reductionchange in netNet loss (as adjusted for non-cash items) by $181,829 to $463,027items of ($44,963) was primarily due to athe impact of COVID-19 on the Vycor division sales, offset by reduced expenses, primarily regulatory and patent fees. The reduced Vycor division sales also accounts for the reduction in cash operating expenses during the period. The net change in accounts receivable of $115,313. At December 31, 2019 there was an increase in accounts payable and accrued liabilities is primarilymainly due to expenditure on regulatory for the result oftransition to a new EU Notified Body, and regulatory and testing for the paymentVBAS development occurring during the first quarter of $69,314 offourth quarter. The reduction in accounts payable deferred atand accrued liabilities of $182,319 was mainly due to the endsettlement of December 2016,these accounts during the year. The net change of $59,071 in discontinued operations comprised: a reduction of $78,611 in liabilities being transferred to the license partner, or to NovaVision, Inc. or eliminated; offset by collectionsa $19,540 reduction in assets being transferred to the license partner, or to NovaVision, Inc. or written off.
Additional inventory of accounts receivable. The Company is in$78,076 was purchased during the processyear ended December 31, 2020 as part of modifying the VBAS product suite to make it easier to integrate with IGS. During the periodnormal production, and the Company completed the first phase of this project and as a result purchased VBAS inventory for $85,748 and will beanticipates purchasing additional inventory in the first quarter of 2018 of approximately $11,000. The Company anticipates completing the second phase of this project during 2018 and as a result will purchase additional new inventory of approximately $45,000.$125,000 during the next twelve months for VBAS and VBAS AC. In January 2020 the Company received FDA 510(k) clearance for its new VBAS AC model range, and is in the technical review stage for EU clearance. The VBAS AC provides significantly greater integration with IGS by enabling an IGS pointer to be held securely within the device.
Investing Activities.Cash used in investing activities of continuing operations for the year ended December 31, 20172020 was $183,258, of$62,052, which $166,154primarily reflected expenditure on the first phase of modifying the VBAS product suite to make it easier to integrate with IGS.AC. The Company anticipates expenditureadditional expenditures for the second phase of this project during 2018VBAS AC, including work to obtain regulatory clearances and approvals and bringing the model into service, of approximately $100,000.$30,000. The $9,574 change in investing activities of discontinued operations was due the writing off of long term assets.
Financing Activities.On January 11, and February 23, 2017During the year ended December 31, 2020 the Company completed the salereceived funds of $1,274,717$80,000 in sharesrespect of Common Stock and Warrants to accredited investors (the “Private Placement”). Included in these gross proceeds is the conversionloans from Fountainhead. The Company also received a loan of $248,000 of debt on the balance sheet at December 31, 2016, so that proceeds net of debt conversion were $1,026,717. The Private Placement raised net cash proceeds, after debt conversion and expenses, of $943,873. $101,000 of these proceeds were reflected in the in the balance sheet at December 31, 2016 and so the net increase in liquidity$58,600 during the periodyear, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, and a $150,000 loan from the Private Placement was $842,873.Small Business Administration (“SBA”) EIDL program. The Company received an additional PPP loan of $58,600 in January 2021.
Liquidity and Plan of Operations, Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $1,477,045$822,482 and $1,652,280$796,202 for the years ending December 31, 20172020 and 20162019 respectively and has not generated sufficient cash flows from operations. As at December 31, 20172020 the Company had stockholder’s equity of $81,442,cash of $206,213 and a working capital deficiency of $197,297,$593,971, excluding related party liabilitiesof $562,210.$1,682,956. As a result these conditions, among others, raise substantial doubt regarding our ability to continue as a going concern.
The consolidated 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
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As described earlier in this ITEM 21 “Our Growth Strategy”, the Company is executingcontinuing to execute on a plan to achieve revenue growth in revenues for both the Vycor Medical and NovaVision divisions as well asa reduction in costs, thereby further reducing its cash operating usage.losses2. For Vycor Medical this includes in particular:plan includes: increasing market penetration in the US market through targeted marketingUS; increasing international growth in territories where we are not represented or under represented and a potential new medical education program; increased international market growth; andcontinued new product development centered arounddevelopment. In the US the Company is focused on increasing market penetration through targeting neurosurgeons systematically, both through its distribution network and also directly by leveraging existing KOL neurosurgeon VBAS supporters to access new neurosurgeon users. The Company continues to target key international territories including Europe where it intends to drive adoption of its VBAS product through selected key KOL neurosurgeon VBAS users to identify both new potential users and also high quality distribution partners to bolster our existing network. The Company has for some time been working to better integrate its VBAS with neuronavigation. The first phase of the modification of itsthe existing VBAS product range to make it more easy to use with the most common IGS systems, the first phase of which was completed in September 2017.2017 and has been well received by surgeons. The second phase involves the introduction of an optional Alignment Clip accessory that will snap onto the VBAS and allow for a neuronavigation pointer to be fully integrated with the VBAS. This VBAS AC model range has received FDA 510(k) clearance and is in the final review stage for EU clearance; it is envisaged that it will be available by the summer of 2021. The Company will continue to work with neuronavigation companies to seek ways to further integrate the VBAS with neuronavigation and with other companies with complementary technologies used in neurosurgery. We will also be exploring with surgeons and focus groups additional selected development work targeted at increasing the ease and applicability of our products to additional common procedures. For NovaVision, after a prolonged and now complete period of re-development, the Company is focusing its resources on direct-to-patient marketing through a website lead-driven inbound and outbound marketing strategy. Givengiven the company’s resources, and the large size and diversity of its end markets, we believe that the professional market, NovaVision believesmost efficient way to tackle the best route to thedistribution of its broad range of patient and professional market for its products is by partnering with entities who alreadyin selected geographies that have established distribution channelseither direct access to the end users or a desire and expertise infinancial wherewithal to leverage the various professional target markets. TheNovaVision therapy platform. As a result, the Company is identifyinghas now closed the NovaVision German office and entered into a license agreement with HelferApp, a cognitive therapy specialist, for Germany, Austria and Switzerland, and is seeking similar partnerships in dialogueother territories with such qualified entities; theregional companies able to leverage NovaVision’s clinically supported vision therapies. Management is also open to a broad range of alternatives for NovaVision as a whole, which could comprise distribution and marketing partnerships, licensing, merger sale and/or restructuring of its activities.sale.
However, the Company believes it may not have sufficient cash to meet its various cash needs through March 31, 20192021 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. Included within the working capital deficiency above is a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”), together with accrued interest of $328,897, which has a maturity date of June 30, 2021, having been extended on a number of occasions from its initial due date of June 11, 2011. At this time it is not known whether any further extension of the note beyond June 30, 2021 will be available. Fountainhead, the Company’s largest shareholder, is currently providinghas provided working capital funding to the Company on an as-needed basis, although there is no guarantee that this will continue to be the case. The Company may consider seeking additional equity or debt funding, although there is no assurance that this would be available on acceptable terms or at all. If adequate funds are not available, the Company may have to delay or curtail development or commercialization of products, or cease some of its operations. These conditions raise substantial doubt about
Vycor Medical experienced a reduction in demand during the Company’syear ended December 31, 2020 in the US and Europe, particularly in the second quarter, with some recovery in the third and fourth quarters. Although neurosurgery is not considered an elective procedure, general hospital dislocation and diversion of resources away from non-emergency surgeries, or surgeries that can be postponed for a short period without harm, has impacted our revenues during the year ended December 31, 2020 and could continue to do so. In addition, sales and marketing efforts by Vycor’s representatives have been disrupted or curtailed due to lockdown and social distancing, and this has and may continue to hinder the recovery of revenues. While our operations are principally located in the United States, and our sub-contract manufacturers are located in the United States, we participate in a global supply chain, and COVID-19 may impact our ability to continue as a going concern. The financial statements do notconduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from supplier staff absences due to COVID-19 illness or isolation requirements, the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, or restrictions on the shipment of our or our suppliers’ or customers’ products, any adjustments to reflect the possible futureof which could have adverse ripple effects on our manufacturing output and delivery schedule. Although we have implemented business continuity plans for our offices and personnel to enable continuity of service remotely, if a critical number of our employees become too ill to work, or we are not able to access a sufficient quantity of our inventory for shipment due to enforced office closures, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the recoverabilitycountries and classificationlocalities in which we or our suppliers and customers operate. Any of assetsthese uncertainties could have a material adverse effect on our business, financial condition or the amounts and classificationresults of liabilities that may result from the outcome of this uncertainty.operations.
2 Operating Loss or Profit before Depreciation, Amortization and non-cash Stock Compensation
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Off-Balance Sheet Arrangements
As of December 31, 2017,2020, 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.
Critical Accounting Policies and Estimates
Accounting for forgivable loan received under the Small Business Administration Paycheck Protection Program
During the year ended December 31, 2020 the Company received a loan of $58,600 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act. Under the terms of the PPP, the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company’s use of the Loan qualifies and the Company intends to apply during 2021.
The Company accounts for the loan as a financial liability in accordance with FASB ASC 470 and accrues interest in accordance with the interest method under FASB ASC 835-30. For purposes of derecognition of the liability, FASB ASC 470-50-15-4 refers to guidance in FASB ASC 405-20. Based on this guidance, the proceeds of the loan will remain recorded as a liability until either (1) the loan is, in part or wholly, forgiven and the Company has been “legally released”, or (2) the Company pays off the loan. Once the loan is, in part or wholly, forgiven and legal release is received, the Company will reduce the liability by the amount forgiven and record a gain on the extinguishment.
The Company received an additional PPP loan of $58,600 in January 2021.
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 management’s 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 management’s estimate of the allowance for uncollectible accounts receivable, amortizationprovision for inventory obsolescence, useful life of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and sharestock based compensation.
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. Included within cash are deposits paid by patients, held by the Company until the patient returns the VRT device or chinrest at the end of therapy. At December 31, 20172020 and 20162019 patient deposits amounted to $41,172$28,704 and $33,351,$24,601, respectively, and are included in other current liabilities.Accrued Liabilities.
Fixed assets
The Company records fixed assets 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.
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Leases
The Company has one leased building in Boca Raton, Florida that is classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet as per ASC 842. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.
The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated statements of comprehensive loss. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.
Income taxes
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
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 in accordance with the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative guidance.
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 Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line method over the estimated life of five years.
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Revenue Recognition
On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers and all the related amendments (new revenue standard) to all contracts. The adoption of the new accounting standard had no impact on company’s consolidated financial statements.
Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue from product sales when obligations under the terms of a completed contract forwith customers are satisfied. Generally, this occurs with the sale exists,transfer of control of the product is invoiced and shippedgoods to the customer.customers. Vycor Medical does not provide for product returns or warranty costs.
Vycor determines revenue recognition through the following steps:
| ● | Identification of the contract, or contracts, with a customer | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract | |
| ● | Recognition of revenue when Vycor satisfy a performance obligation |
NovaVision generates revenues from various programs, therapy services and other sources such as software license sales. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, eye movement training software, diagnostic software, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy program consists of NeuroEyeCoach, performed over 2-4 weeks, and six modules of Vision Restoration Therapy, performed on average over 6 months in the U.S. and U.K. and 10 months in Germany.months. A patient contract comprises 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. NovaVision’s saccadic training software is generally completed within 2-4 weeks and revenue is therefore recognized fully at commencement.
Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly for 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.
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The Company determines itsamounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance by considering a number of factors, includingas necessary. Direct write-offs are taken in the length of time accounts receivable are past due,period when we have exhausted our efforts to collect overdue and the customer’s ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.
| 14 |
Inventory
Inventories are stated at the weighted average cost method. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product. If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. The provision for inventory for the years ended December 31, 20172020 and 20162019 was $44,760 and $10,174, respectively, of which $39,672 is a special provision related to the introduction of the enhanced VBAS discussed above.$12,558, respectively. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales.
Discontinued Operations
In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations (which we presented as operations to be disposed and operations disposed), less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.
Foreign Currency
The Euro is the local currency of the country in which the discontinued operations of NovaVision GmbH conductsconducted its operations and is considered the functional currency of this entity; the GB Pound is the local currency of the country in which Sight Science Limited 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)stockholders’ deficiency in the accompanying Consolidated Balance Sheet.Sheets.
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.
Stock Compensation
The Company recognizes the cost of all stock-based payments under the relevant authoritative accounting guidance. Stock-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For stock-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”. Stock-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.
Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 begins on the following page.
| 15 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors andStockholders of
Vycor Medical, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vycor Medical, Inc (the Company)Inc. (“the Company”) as of December 31, 20172020 and 2016,2019, and the related consolidated statements of comprehensive loss, stockholders’ equity (deficiency),deficiency, and cash flows for each of the years in the two-year period ended December 31, 2017,2020 and 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017,2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred net losses since inception, including a net loss of $822,482 and $796,202 for the years ended December 31, 2020 and 2019 respectively, and has not generated cash flows from its operations. As of December 31, 2020, the Company had working capital deficiency of $593,970, excluding related party liabilities of $1,682,956. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are described in Note 1 to the financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The accompanyingcritical audit matters communicated below are matters arising from the current period audit of the financial statements have been prepared assuming that were communicated or required to be communicated to the Company will continue as a going concern. As discussed in note 2audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the Company has incurredconsolidated financial statements, taken as a netwhole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Net operating loss since inception, including a net loss of $1,477,045carryforward and $1,652,280valuation allowance for deferred tax assets
As discussed in Note 12 to the year ended December 31, 2017consolidated financial statements, the company is subject to taxation and 2016, respectively,files income tax returns in the U.S. and has not generated cash flows from operations.foreign jurisdictions. As of December 31, 2017,2020, the Company had working capital deficiencytotal amount of $197,297, excluding related party liabilitiesnet operating loss carryforward in the U.S. and foreign jurisdictions was approximately $20.8 million. The company recorded a deferred tax asset from net operating loss carryforward of $562,210. These factors, among others, raise substantial doubt regardingapproximately $4.5 million. Management determined that it is more likely than not that all of the Company’s abilitydeferred tax assets will not be realized and a full valuation allowance of approximately $4.5 million was recorded on December 31, 2020.
Auditing management’s evaluation of whether a deferred tax asset is more likely than not to continue as a going concern. Management’s plansbe used and the measurement of the benefit of various tax jurisdictions can be complex, involves significant judgment, and is based on interpretations of tax laws and legal rulings in regards to these matters are describeddifferent jurisdictions.
Addressing the matter involved performing procedures and evaluating audit evidence in Note 1 toconnection with forming our overall opinion on the financial statements. The accompanying financial statements do not include any adjustments that might result fromThese procedures included 1) testing the outcometax reconciliation to the annual corporate tax filings, 2) evaluating the appropriateness and consistency of this uncertaintymanagement’s methods and assumptions used in identification, recognition, measurement and disclosure of the income tax, deferred asset and valuation allowance and 3) evaluating the reasonableness of management’s estimates by considering how tax law, including statutes and regulations impacted management’s judgement.
| /s/ Prager Metis CPAs, LLC |
We have served as the Company’sCompany's auditor since 20072018.
Hackensack, New Jersey
March 29, 201831, 2021
| 16 |
Consolidated Balance Sheets
| December 31, | December 31, | |||||||||||||||
| December 31, 2017 | December 31, 2016 | 2020 | 2019 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets | ||||||||||||||||
| Cash | $ | 206,213 | $ | 56,859 | $ | 46,002 | $ | 60,717 | ||||||||
| Trade accounts receivable | 110,422 | 148,784 | 159,238 | 274,551 | ||||||||||||
| Inventory | 213,883 | 204,071 | 181,096 | 208,353 | ||||||||||||
| Prepaid expenses and other current assets | 77,990 | 127,375 | 76,988 | 92,694 | ||||||||||||
| Current assets of discontinued operations | 577 | 20,117 | ||||||||||||||
| Total Current Assets | 608,508 | 537,089 | 463,901 | 656,432 | ||||||||||||
| Fixed assets, net | 489,170 | 401,051 | 381,087 | 364,953 | ||||||||||||
| Intangible and Other assets: | ||||||||||||||||
| Trademarks | 251,157 | 251,157 | ||||||||||||||
| Patents, net of accumulated amortization | 81,064 | 238,571 | 11,349 | 23,326 | ||||||||||||
| Website, net of accumulated amortization | 10,389 | 14,958 | ||||||||||||||
| Security deposits | 9,169 | 42,424 | 6,000 | 6,000 | ||||||||||||
| Operating lease - right of use assets | 124,183 | 31,658 | ||||||||||||||
| Long term assets of discontinued operations | - | 9,574 | ||||||||||||||
| Total Intangible and Other assets | 351,779 | 547,110 | 141,532 | 70,558 | ||||||||||||
| TOTAL ASSETS | $ | 1,449,457 | $ | 1,485,250 | $ | 986,520 | $ | 1,091,943 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||||||||||
| LIABILITIES AND STOCKHOLDERS DEFICIENCY | ||||||||||||||||
| Current Liabilities | ||||||||||||||||
| Accounts payable | $ | 141,319 | $ | 249,949 | $ | 179,110 | $ | 245,412 | ||||||||
| Accrued interest: Other | 184,765 | 136,765 | 328,897 | 280,765 | ||||||||||||
| Accrued interest: Related party | 12,840 | 12,161 | 74,603 | 44,921 | ||||||||||||
| Accrued liabilities - Other | 161,328 | 199,457 | 117,050 | 233,067 | ||||||||||||
| Accrued liabilities - Related Party | 549,370 | 247,500 | 1,297,480 | 973,110 | ||||||||||||
| Monies in Escrow Related Party - Offering | - | 101,000 | ||||||||||||||
| Notes payable: Other | 384,587 | 328,032 | ||||||||||||||
| Notes payable: Related Party | - | 248,000 | 310,873 | 230,873 | ||||||||||||
| Notes payable: Other | 318,393 | 316,856 | ||||||||||||||
| Current operating lease liabilities | 44,623 | 28,010 | ||||||||||||||
| Current liabilities of discontinued operations | 3,605 | 82,216 | ||||||||||||||
| Total Current Liabilities | 1,368,015 | 1,511,688 | 2,740,828 | 2,446,406 | ||||||||||||
| STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||||||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 270,306 and 270,306 issued and outstanding as at December 31, 2017 and December 31, 2016 respectively | $ | 27 | $ | 27 | ||||||||||||
| Common Stock, $0.0001 par value, 25,000,000 shares authorized at December 31, 2017 and 2016, 19,925,322 and 11,439,357 shares issued and 19,821,988 and 11,336,023 outstanding at December 31, 2017 and 2016 respectively | 1,993 | 1,144 | ||||||||||||||
| Loan Payable - SBA EIDL | 150,000 | - | ||||||||||||||
| Operating lease liability - Long term | 77,008 | - | ||||||||||||||
| Total Long-term Liabilities | 227,008 | - | ||||||||||||||
| STOCKHOLDERS’ DEFICIENCY | ||||||||||||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 270,307 and 270,307 issued and outstanding as at December 31, 2020 and December 31, 2019 respectively | 27 | 27 | ||||||||||||||
| Common Stock, $0.0001 par value, 55,000,000 shares authorized at December 31, 2020 and December 31, 2019, 27,534,740 and 25,391,884 shares issued and 27,431,406 and 25,288,550 outstanding at December. 31, 2020 and December 31, 2019 respectively | 2,753 | 2,539 | ||||||||||||||
| Additional Paid-in Capital | 26,921,574 | 25,007,850 | 28,826,378 | 28,306,592 | ||||||||||||
| Treasury Stock (103,334 shares of Common Stock as at December 31, 2017 and 2016 respectively, at cost) | (1,033 | ) | (1,033 | ) | ||||||||||||
| Treasury Stock (103,334 shares of Common Stock as at December 31, 2020 and December 31, 2019 respectively, at cost) | (1,033 | ) | (1,033 | ) | ||||||||||||
| Accumulated Deficit | (26,965,960 | ) | (25,164,545 | ) | (30,937,110 | ) | (29,790,258 | ) | ||||||||
| Accumulated Other Comprehensive Income | 124,841 | 130,119 | ||||||||||||||
| Total Stockholders’ Equity (Deficiency) | 81,442 | (26,438 | ) | |||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | $ | 1,449,457 | $ | 1,485,250 | ||||||||||||
| Accumulated Other Comprehensive Income (Loss) | 127,669 | 127,670 | ||||||||||||||
| Total Stockholders’ Deficiency | (1,981,316 | ) | (1,354,463 | ) | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | $ | 986,520 | $ | 1,091,943 | ||||||||||||
See accompanying notes to consolidated financial statements
| 17 |
Consolidated StatementStatements of Comprehensive Loss
| For the year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Revenue | $ | 1,384,971 | $ | 1,452,714 | ||||
| Cost of Goods Sold | 227,134 | 184,685 | ||||||
| Gross Profit | 1,157,837 | 1,268,029 | ||||||
| Operating expenses: | ||||||||
| Research and development | 3,015 | 4,739 | ||||||
| Depreciation and Amortization | 275,416 | 257,582 | ||||||
| Selling, general and administrative | 2,191,969 | 2,597,086 | ||||||
| Total Operating expenses | 2,470,400 | 2,859,407 | ||||||
| Operating loss | (1,312,563 | ) | (1,591,378 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense: Other | (48,522 | ) | (48,885 | ) | ||||
| Interest expense: Related Party | (680 | ) | (12,161 | ) | ||||
| Gain (loss) on foreign currency exchange | 1,477 | 144 | ||||||
Otherincome and expense | 4,031 | - | ||||||
| Warrant issuance expense | (120,788 | ) | - | |||||
| Total Other Income (expense) | (164,482 | ) | (60,902 | ) | ||||
| Loss Before Credit for Income Taxes | (1,477,045 | ) | (1,652,280 | ) | ||||
| Credit for income taxes | - | - | ||||||
| Net Loss | (1,477,045 | ) | (1,652,280 | ) | ||||
| Preferred stock dividends | (324,370 | ) | (179,727 | ) | ||||
Net Loss available to common stockholders | (1,801,415 | ) | (1,832,007 | ) | ||||
| Comprehensive Loss | ||||||||
| Foreign Currency Translation Adjustment | 5,278 | 1,989 | ||||||
| Comprehensive Loss | (1,471,766 | ) | (1,650,291 | ) | ||||
| Net Loss Per Share | ||||||||
| Basic and diluted | $ | (0.10 | ) | $ | (0.17 | ) | ||
| Weighted Average Number of Shares Outstanding – Basic and Diluted | 18,373,355 | 11,066,217 | ||||||
See accompanying notes to consolidated financial statements
VYCOR MEDICAL, INC.
Consolidated Statement of Stockholders’ Equity (Deficiency)
| Common Stock | Preferred C | Preferred D | Treasury Stock | Additional Paid-in | Accumulated | Accum OCI | ||||||||||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | Number | Amount | Capital | Deficit | (Loss) | Total | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2015 | 11,032,560 | $ | 1,103 | 1 | $ | 0 | 252,336 | $ | 25 | (103,334 | ) | $ | (1,033 | ) | $ | 24,346,057 | $ | (23,332,538 | ) | $ | 132,108 | $ | 1,145,722 | |||||||||||||||||||||||||
| Issuance of stock for board and consulting fees | 291,393 | 29 | - | - | - | - | - | - | 156,847 | - | - | 156,876 | ||||||||||||||||||||||||||||||||||||
| Share-based compensation for consulting service | 115,404 | 12 | - | - | - | - | - | - | 49,022 | - | - | 49,034 | ||||||||||||||||||||||||||||||||||||
| Deferred compensation for board | 78,000 | 78,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation issued to management/employees | - | - | - | - | - | - | 198,200 | - | - | 198,200 | ||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | 17,970 | 2 | 179,724 | - | - | 179,726 | ||||||||||||||||||||||||||||||||||||||||
| Accumulated Comprehensive Loss | - | - | - | - | - | - | - | - | - | - | (1,989 | ) | (1,989 | ) | ||||||||||||||||||||||||||||||||||
| Net loss for year ended December 31, 2016 | (1,832,007 | ) | (1,832,007 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2016 | 11,439,357 | $ | 1,144 | 1 | $ | 0 | 270,306 | $ | 27 | (103,334 | ) | $ | (1,033 | ) | $ | 25,007,850 | $ | (25,164,545 | ) | $ | 130,119 | $ | (26,438 | ) | ||||||||||||||||||||||||
| Issuance of stock for board and consulting fees | 2,343,885 | 235 | 496,637 | 496,872 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants related to 2014 Debt Preferred exchange agreement | - | - | 120,788 | 120,788 | ||||||||||||||||||||||||||||||||||||||||||||
| Directors deferred compensation granted | 84,000 | 84,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation issued to management/employees | 1,609 | 1,609 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares and warrants pursuant to offering, net | 6,070,078 | 607 | 1,191,256 | 1,191,863 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to exercise of warrants | 72,002 | 7 | 19,434 | 19,441 | ||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Comprehensive Loss | (5,278 | ) | (5,278 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for year ended December 31, 2017 | (1,801,415 | ) | (1,801,415 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2017 | 19,925,322 | $ | 1,993 | 1 | $ | 0 | 270,306 | $ | 27 | (103,334 | ) | $ | (1,033 | ) | $ | 26,921,574 | $ | (26,965,960 | ) | $ | 124,841 | $ | 81,442 | |||||||||||||||||||||||||
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 1,142,045 | $ | 1,392,900 | ||||
| Cost of Goods Sold | 132,463 | 134,770 | ||||||
| Gross Profit | 1,009,582 | 1,258,130 | ||||||
| Operating Expenses: | ||||||||
| Depreciation and amortization | 56,529 | 59,876 | ||||||
| Selling, general and administrative | 1,680,447 | 1,799,647 | ||||||
| Total Operating Expenses | 1,736,976 | 1,859,523 | ||||||
| Operating loss | (727,394 | ) | (601,393 | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense: Related Party | (29,682 | ) | (20,647 | ) | ||||
| Interest expense: Other | (48,132 | ) | (48,036 | ) | ||||
| Loss on foreign currency exchange | (1,102 | ) | (110 | ) | ||||
| Grant income - SBA | 6,000 | - | ||||||
| Total Other Income (Expense) | (72,916 | ) | (68,793 | ) | ||||
| Loss Before Credit for Income Taxes | (800,310 | ) | (670,186 | ) | ||||
| Credit for income taxes | - | - | ||||||
| Net loss from continuing operations | (800,310 | ) | (670,186 | ) | ||||
| Loss from discontinued operations, net of tax | (22,172 | ) | (126,016 | ) | ||||
| Net Loss | (822,482 | ) | (796,202 | ) | ||||
| Preferred stock dividends | (324,370 | ) | (324,370 | ) | ||||
| Net Loss Available to Common Stockholders | $ | (1,146,852 | ) | $ | (1,120,572 | ) | ||
| Other Comprehensive Loss | ||||||||
| Foreign Currency Translation Adjustment | (1 | ) | 3 | |||||
| Comprehensive Loss | (822,483 | ) | (796,199 | ) | ||||
| Net Loss Per Share – basic and diluted | ||||||||
| Loss from continuing operations | $ | (0.03 | ) | $ | (0.03 | ) | ||
| Loss from discontinued operations | $ | (0.00 | ) | $ | (0.01 | ) | ||
| Net loss available to common stockholders | $ | (0.04 | ) | $ | (0.05 | ) | ||
| Weighted Average Number of Shares Outstanding – Basic and Diluted | 26,100,903 | 23,958,999 | ||||||
See accompanying notes to consolidated financial statements
| 18 |
Consolidated Statement of Cash FlowsStockholders’ Deficiency
| For the year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,477,045 | ) | $ | (1,652,280 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortization of intangible assets | 162,076 | 89,157 | ||||||
| Depreciation of fixed assets | 127,899 | 178,339 | ||||||
| Inventory provision and write-off | 44,760 | 10,174 | ||||||
| Share based compensation | 334,972 | 482,110 | ||||||
| (Gain) loss on foreign exchange | (1,477 | ) | 144 | |||||
| Warrant issuance expense | 120,788 | - | ||||||
| Accrued liabilities - Related party | 225,000 | 247,500 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 38,362 | (42,445 | ) | |||||
| Inventory | (54,573 | ) | 78,292 | |||||
| Prepaid expenses | 16,625 | 68,351 | ||||||
| Accrued interest to related party | 680 | 12,161 | ||||||
| Accrued interest other | 48,000 | 48,132 | ||||||
| Accounts payable | (108,630 | ) | (418 | ) | ||||
Accrued liabilities – Other | (38,129 | ) | (22,801 | ) | ||||
| Security Deposit | 33,254 | 6,666 | ||||||
| Cash used in operating activities | (527,438 | ) | (496,918 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | (183,258 | ) | (57,451 | ) | ||||
| Cash used in investing activities | (183,258 | ) | (57,451 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common stock, net | 842,873 | - | ||||||
| Issuance of shares pursuant to exercise of warrants | 19,441 | - | ||||||
| Proceeds from issuance of Notes Payable: Related Party | - | 248,000 | ||||||
| Monies in Escrow Related Party - Offering | - | 101,000 | ||||||
| Proceeds, net of repayment of Notes Payable - Other | 1,537 | (82,290 | ) | |||||
| Cash provided by financing activities | 863,851 | (266,710 | ) | |||||
| Effect of exchange rate changes on cash | (3,801 | ) | (2,959 | ) | ||||
| Net decrease in cash | 149,354 | (290,618 | ) | |||||
| Cash at beginning of year | 56,859 | 347,477 | ||||||
| Cash at end of year | $ | 206,213 | $ | 56,859 | ||||
| Supplemental Disclosures of Cash Flow information: | ||||||||
| Non-Cash Transactions: | ||||||||
| Preferred stock dividends satisfied in new preferred stock | $ | - | $ | 179,727 | ||||
| Conversion into Common Stock of Notes Payable: Related Party | $ | (248,000 | ) | $ | - | |||
| Proceeds from monies in Escrow Related Party - Offering | $ | (101,000 | ) | $ | - | |||
| Additional | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred C | Preferred D | Treasury Stock | Paid-in | Accumulated | Accum OCI | ||||||||||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | Number | Amount | Capital | Deficit | (Loss) | Total | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 23,244,028 | $ | 2,324 | 1 | $ | 0 | 270,306 | $ | 27 | (103,334 | ) | $ | (1,033 | ) | $ | 27,771,868 | $ | (28,669,686 | ) | $ | 127,673 | $ | (768,827 | ) | ||||||||||||||||||||||||
| Issuance of stock for board and consulting fees | 2,147,856 | 215 | 450,724 | 450,939 | ||||||||||||||||||||||||||||||||||||||||||||
| Directors deferred compensation granted | - | 84,000 | 84,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Comprehensive Loss | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for period ended December 31, 2019 | (1,120,572 | ) | (1,120,572 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 25,391,884 | $ | 2,539 | 1 | $ | 0 | 270,306 | $ | 27 | (103,334 | ) | $ | (1,033 | ) | $ | 28,306,592 | $ | (29,790,258 | ) | $ | 127,670 | $ | (1,354,463 | ) | ||||||||||||||||||||||||
| Issuance of stock for board and consulting fees | 2,142,856 | 214 | 449,786 | 450,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Directors deferred compensation granted | - | 70,000 | 70,000 | |||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Comprehensive Loss | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for period ended December 31, 2020 | (1,146,852 | ) | (1,146,852 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 27,534,740 | $ | 2,753 | 1 | $ | 0 | 270,306 | $ | 27 | (103,334 | ) | $ | (1,033 | ) | $ | 28,826,378 | $ | (30,937,110 | ) | $ | 127,669 | $ | (1,981,316 | ) | ||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
| 19 |
Consolidated Statements of Cash Flows
| For the years ended | ||||||||
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (822,482 | ) | $ | (796,202 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortization of intangible assets | 11,977 | 12,164 | ||||||
| Depreciation of fixed assets | 45,918 | 49,474 | ||||||
| Inventory provision | 12,558 | 12,558 | ||||||
| Stock based compensation | 520,000 | 534,940 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 115,313 | (19,237 | ) | |||||
| Inventory | 14,699 | (21,654 | ) | |||||
| Prepaid expenses | 16,802 | (15,489 | ) | |||||
| Accrued interest - Related Party | 29,682 | 20,647 | ||||||
| Accrued interest – Other | 48,132 | 48,000 | ||||||
| Accounts payable | (66,302 | ) | 159,249 | |||||
| Accrued liabilities – Other | (116,017 | ) | 3,146 | |||||
| Changes in discontinued operations, net | (59,071 | ) | 6,384 | |||||
| Cash used in operating activities | (248,791 | ) | (6,020 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | (62,052 | ) | (52,904 | ) | ||||
| Changes in investing activities of discontinued operations, net | 9,574 | 2,456 | ||||||
| Cash used in investing activities | (52,478 | ) | (50,448 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from Notes Payable - Related Party | 80,000 | 37,873 | ||||||
| Proceeds from Paycheck Protection Program and EIDL | 208,600 | - | ||||||
| Proceeds net of repayments Notes Payable - Other | (2,048 | ) | 2,218 | |||||
| Cash provided by financing activities | 286,552 | 40,091 | ||||||
| Effect of exchange rate changes on cash | 2 | (917 | ) | |||||
| Net decrease in cash | (14,715 | ) | (17,294 | ) | ||||
| Cash at beginning of year | 60,717 | 78,011 | ||||||
| Cash at end of year | $ | 46,002 | $ | 60,717 | ||||
| Supplemental Disclosures of Cash Flow information: | ||||||||
| Cash paid for interest | $ | 0 | $ | 0 | ||||
| Cash paid for income tax | $ | 0 | $ | 0 | ||||
See accompanying notes to consolidated financial statements
| 20 |
Notes to Consolidated Financial Statements
1. BUSINESS OF THE COMPANY AND GOING CONCERN
Business Description
Vycor Medical, Inc. (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 resulting from neurological damage.
Ability to continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $1,477,045$822,482 and $1,652,280$796,202 for the years ending December 31, 20172020 and 20162019, respectively, and has not generated sufficient cash flows from operations. As at December 31, 20172020 the Company had a working capital deficiency of $197,297,$593,971, excluding related party liabilities of $562,210. As a result, these$1,682,956. These conditions, among others, raise substantial doubt regarding our ability to continue as a going concern. The consolidated 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.
The Company is executing on a plan to achieve growtha reduction in revenuescash operating losses for both the Vycor Medical and NovaVision divisions as well asdivisions. Included within the working capital deficiency above is a reduction in costs, thereby reducingterm note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”), together with accrued interest of $328,897, which has a maturity date of June 30, 2021, having been extended on a number of occasions from its cash operating usage.initial due date of June 11, 2011. At this time, it is not known whether any further extension of the note beyond June 30, 2021 will be available. However, the Company believes it may not have sufficient cash to meet its various cash needs through March 31, 20192021 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. Fountainhead, the Company’s largest shareholder, is currently providinghas provided working capital funding to the Company on an as-needed basis, although there is no guarantee that this will continue to be the case. The Company may consider seeking additional equity or debt funding, although there is no assurance that this would be available on acceptable terms or at all. If adequate funds are not available, the Company may have to delay or curtail development or commercialization of products, or cease some of its operations. These conditions raise substantial doubt about the Company’s 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.
operations
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation), NovaVision GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions, and balances have been eliminated in consolidation. Certain reclassifications and format changesFollowing the decision in April 2020 to close the German office of NovaVision, the activities of NovaVision GmbH have been made to prior year amounts to conform to the current year presentation.accounted for as discontinued operations.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers and all the related amendments (new revenue standard) to all contracts. The adoption of the new accounting standard had no impact on company’s consolidated financial statements.
Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue from product sales when obligations under the terms of a completed contract forwith customers are satisfied. Generally, this occurs with the sale exists, price is fixed or determinable,transfer of control of the product is invoiced and shippedgoods to the customer and collectability is reasonably assured.customers. Vycor Medical does not provide for product returns or warranty costs.
Vycor determines revenue recognition through the following steps:
| ● | Identification of the contract, or contracts, with a customer | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract | |
| ● | Recognition of revenue when Vycor satisfy a performance obligation |
NovaVision generates revenues from various programs, therapy services and other sources such as software license sales. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, eye movement training software, diagnostic software, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy program consists of NeuroEyeCoach, performed over 2-4 weeks, and six modules of Vision Restoration Therapy, performed on average over 6 months in the U.S. and U.K. and 10 months in Germany.months. A patient contract comprises 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. NovaVision’s saccadic training software is generally completed within 2-4 weeks and revenue is therefore recognized fully at commencement.
Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.
As part of the adoption of ASC 606, see Note 7 to the Consolidated Financial Statements for further disaggregation of revenue.
Cash and cash equivalents
The Company maintains cash balances at various financial institutions. Accounts at each institution in the U.S. 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. Included within cash are deposits paid by patients, held by the Company until the patient returns the VRT device or chinrest at the end of therapy. At December 31, 20172020 and 20162019 patient deposits amounted to $41,172$28,704 and $33,351,$24,601, respectively, and are included in Accrued Liabilities.
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Accounts Receivable and Allowance for Doubtful Accounts Receivable
The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly for 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 therapy period. The outstanding balances are stated net of an allowance for doubtful accounts.
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.
Inventories
Inventories consist of raw materials, work in process and finished goods that are stated at the lower of cost determined using the weighted average cost method, or market.net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product. If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. The provision for inventory obsolescence for the years ended December 31, 20172020 and 20162019 was $44,760 and $10,174, respectively, of which $39,672 is a special provision related to the introduction of the enhanced VBAS.$12,558, respectively. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s consolidated statements of comprehensive loss.
Leases
The Company has one leased building in Boca Raton, Florida that is classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet as per ASC 842. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.
The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated statements of comprehensive loss. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.
Discontinued Operations
In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations (which we presented as operations to be disposed and operations disposed), less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.
Foreign Currency
The Euro is the local currency of the country in which the discontinued operations of NovaVision GmbH conducts its operations and is considered the functional currency of this entity; the GB Pound is the local currency of the country in which Sight Science Limited 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 stockholders’ equitydeficiency in the accompanying Consolidated Balance Sheet.Sheets.
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.
Income taxes
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
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Accounting for forgivable loan received under the Small Business Administration Paycheck Protection Program
During the year ended December 31, 2020 the Company received a loan of $58,600 during the year, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act. Under the terms of the PPP, the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company’s use of the Loan qualifies and the Company intends to apply during 2021.
The Company accounts for the loan as a financial liability in accordance with FASB ASC 470 and accrues interest in accordance with the interest method under FASB ASC 835-30. For purposes of derecognition of the liability, FASB ASC 470-50-15-4 refers to guidance in FASB ASC 405-20. Based on this guidance, the proceeds of the loan will remain recorded as a liability until either (1) the loan is, in part or wholly, forgiven and the Company has been “legally released”, or (2) the Company pays off the loan. Once the loan is, in part or wholly, forgiven and legal release is received, the Company will reduce the liability by the amount forgiven and record a gain on the extinguishment.
The Company received an additional PPP loan of $58,600 in January 2021.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.
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 in accordance with the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative guidance.
Impairment of long-lived assets
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Research and Development
The Company expenses all research and development costs as incurred. For the years ended December 31, 20172020 and 2016,2019, the amounts charged to research and development expenses were $3,015 and $4,739,$0 for both years, respectively.
Software Development Costs
The Company accounts for software development costs in accordance with ASC 350-40, whereby all costs incurred during the preliminary stage of a development project should be charged to expense as incurred. Capitalization of costs begins after the preliminary stage has been completed, management commits to funding the project, it is probable that the project will be completed, and the software will be used for its intended function. All post-implementation costs are charged to expense as incurred. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line method of the estimated life of five years. ForThere was no capitalized for software development during the years ended December 31, 20172020 and 2016, the amounts capitalized for software development were $2,745 and $12,679 respectively, for the Company’s VRT 7.0 and NeuroEyeCoach programs.2019.
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 management’s 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 management’s estimate of the allowance for uncollectible accounts receivable, provision for inventory obsolescence, useful life of intangible assets, and the fair values of options and warrants included in the determination of debt discounts and sharestock-based compensation.
Stock Option Plan
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 compensation.on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis.
Stock Compensation
The Company recognizes the cost of all share-basedstock -based payments under the relevant authoritative accounting guidance. Share-basedStock-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-basedstock-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”. Share-basedStock-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.
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Convertible Instruments
We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standingfree-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The embedded conversion option in connection with our convertible debt could not be exercised unless and until we completed a Qualifying Financing transaction. Accordingly, we determined based on authoritative guidance that the embedded conversion option is deemed to be a contingent conversion rather than active conversion option that did not require accounting recognition at the commitment dates of the issuances of the Notes.
Common Stock Purchase Warrants and Other Derivative Financial Instruments
We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
Fair Value Measurements
We adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines 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. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company has no Financial instruments measured at Fair value on a recurring basis.
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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:
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Stock options outstanding | 725,557 | 705,557 | 680,000 | 700,000 | ||||||||||||
| Warrants to purchase common stock | 6,929,386 | 6,007,048 | - | 3,717,826 | ||||||||||||
| Debentures convertible into common stock | 2,308,405 | 242,647 | 2,994,746 | 2,765,548 | ||||||||||||
| Preferred shares convertible into common stock | 1,272,052 | 1,272,052 | 1,272,052 | 1,272,052 | ||||||||||||
| Directors Deferred Compensation Plan | 510,527 | 176,479 | 1,509,237 | 1,175,907 | ||||||||||||
| Total | 11,745,927 | 8,403,783 | 6,456,035 | 9,631,333 | ||||||||||||
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15 —Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued and if management’s plans will alleviate that doubt. Management will be required to make this evaluation for both annual and interim reporting periods. The Company adopted this guidance for the fiscal year ended December 31, 2017. This adoption did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU supersedes most of the existing guidance on revenue recognition in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition and establishes a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. The FASB has subsequently issued additional ASUs to clarify certain elements of the new revenue recognition guidance. The guidance is effective for fiscal years beginning after December 15, 2017, and is to be applied retrospectively using one of two transition methods at the entity's election. The full retrospective method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the modified retrospective method, companies would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application. Early adoption is permitted for fiscal years beginning after December 15, 2016.
In May 2016, FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients". The update is to address certain issues identified by the FASB/IASB Joint Transition Resource Group for Revenue Recognition (TRG) in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, the Board decided to add a project to its technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1) The potential for diversity in practice at initial application 2) The cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity's ordinary activities) in exchange for consideration. The amendments to the recognition and measurement provisions of Topic 606 also affect entities with transactions included within the scope of Topic 610, Other Income. The amendments in this Update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.
In December 2017, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (the “Bulletin”), which provides accounting guidance regarding accounting for income taxes for the reporting period that includes the enactment of the Tax Act. The Bulletin provides guidance in those situations where the accounting for certain income tax effects of the Tax Act will be incomplete by the time financial statements are issued for the reporting period that includes the enactment date. For those elements of the Tax Act that cannot be reasonably estimated, no effect will be recorded.
The SEC has provided in the Bulletin that in situations where the accounting is incomplete for certain effects of the Tax Act, a measurement period which begins in the reporting period that includes the enactment of the Tax Act and ends when the entity has obtained, prepared and analyzed the information is needed in order to complete the accounting requirements. The measurement period shall not exceed one year from enactment.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This guidance is effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.
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 Company’s accounting and reporting. The Company believes that suchother 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.
3. DISCONTINUED OPERATIONS
In April 2020, the board of Vycor took the decision to close the German operations of NovaVision, including the German office and NovaVision GmbH, and instead migrate to a licensed business model; in June 2020 Vycor announced that it would be entering into a license agreement and transition agreement (the “Agreements”) with HelferApp GmbH, a cognitive therapy specialist. Under the Agreements, HelferApp is licensed to provide NovaVision’s products and therapies in Germany, Austria and Switzerland to patients and professionals; and has assumed responsibility for the current patients of NovaVision in the territory. The NovaVision German office was closed effective June 30, 2020. The Company will continue to fund the remaining expenses of the German operations, which are non-material, until such a time as NovaVision GmbH will be formally wound up.
Reconciliation of the major line items from discontinued operations that are presented in the consolidated balance sheets and consolidated statements of comprehensive loss are as follows:
Major line items constituting assets and liabilities in the consolidated balance sheets
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 577 | $ | 11,521 | ||||
| Trade accounts receivable | - | 3,470 | ||||||
| Inventory | - | 2,175 | ||||||
| Prepaid expenses and other current assets | - | 2,951 | ||||||
| Total Current Assets | 577 | 20,117 | ||||||
| Fixed assets, net | - | 9,574 | ||||||
| TOTAL ASSETS | $ | 577 | $ | 29,691 | ||||
| LIABILITIES | ||||||||
| Current Liabilities | �� | |||||||
| Accounts payable | $ | 422 | $ | 6,515 | ||||
| Accrued liabilities - Other | 3,168 | 44,792 | ||||||
| Other current liabilities | 15 | 30,909 | ||||||
| Total Current Liabilities | $ | 3,605 | $ | 82,216 | ||||
Major line items constituting loss from discontinued operations
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 41,527 | $ | 88,851 | ||||
| Cost of Goods Sold | 4,986 | 11,886 | ||||||
| Gross Profit | 36,541 | 76,965 | ||||||
| Operating Expenses: | ||||||||
| Depreciation and Amortization | - | 157 | ||||||
| Selling, general and administrative | 88,711 | 200,544 | ||||||
| Total Operating Expenses | 88,711 | 200,701 | ||||||
| Operating Loss | (52,170 | ) | (123,736 | ) | ||||
| Other Income (Expense) | ||||||||
| Loss on foreign currency exchange | (3,209 | ) | (2,280 | ) | ||||
| Other income (loss) | 33,207 | |||||||
| Total Other Income (Expense) | 29,998 | (2,280 | ) | |||||
| Loss Before Credit for Income Taxes | (22,172 | ) | (126,016 | ) | ||||
| Credit for income taxes | - | - | ||||||
| Loss from discontinued operations, net of tax | $ | (22,172 | ) | $ | (126,016 | ) | ||
Other income comprises the net of non-cash adjustments made in connection with the Agreements with HelferApp and the closure of the German operation: adjustments for assets and liabilities transferred to HelferApp or NovaVision Inc. or otherwise written off - $10,907; elimination of historic balance for NovaVision GmbH legal expenses funded by NovaVision Inc. - $34,727; and certain accruals for employee costs – ($12,427).
| 25 |
3.4. INVENTORY
| December 31, 2017 | December 31, 2016 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Raw materials and work in process | 80,139 | 67,936 | $ | 65,192 | $ | 82,142 | ||||||||||
| Finished goods | 133,744 | 136,135 | 115,904 | 126,211 | ||||||||||||
| Total Inventory | 213,883 | 204,071 | $ | 181,096 | $ | 208,353 | ||||||||||
4.5. LEASE
The Company recognized the following related to a lease in its consolidated balance sheets:
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Operating Lease ROU Assets | $ | 124,183 | $ | 31,658 | ||||
| Operating Lease Liabilities | ||||||||
| Current portion | $ | 44,623 | $ | 28,010 | ||||
| Long-term portion | 77,008 | - | ||||||
| $ | 121,631 | $ | 28,010 | |||||
6. NOTES PAYABLE
OtherRelated Party Notes Payable consists of:
| December 31, 2020 | December 31, 2019 | |||||||
| On June 25, 2018 the Company issued promissory notes to Peter Zachariou for $30,000. The notes bear interest at 10% per annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the Payee. The note was extended for another twelve months on its due date to June 25, 2021 or on demand by the Payee. | $ | 30,000 | $ | 30,000 | ||||
| Between March 26, 2018 and April 24, 2020 the Company issued ten promissory notes to Fountainhead Capital Management Limited for $280,873. The notes bear interest at 10% per annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the Payee. Nine notes were extended on their due dates for another twelve months. The Notes will be due between April 2021 and March 2022 or on demand by the Payee. | 280,873 | 200,873 | ||||||
| Total Related Party Notes Payable | $ | 310,873 | $ | 230,873 | ||||
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Other Notes Payable consists of:
| December 31, 2017 | December 31, 2016 | |||||||
| 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, and has been extended on a number of occasions. On the note’s most recent due date, the note was amended and extended to December 31, 2018. See further note below. | 300,000 | 300,000 | ||||||
| Insurance policy finance agreements. | 18,393 | 16,856 | ||||||
| Total Other Notes Payable | $ | 318,393 | $ | 316,856 | ||||
| December 31, 2020 | December 31, 2019 | |||||||
| 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, and has been extended on a number of occasions. On the note’s most recent due date, the note was amended and extended to June 30, 2021. See further note below. | $ | 300,000 | $ | 300,000 | ||||
| On May 16, 2020, the Company was granted a loan from Citizens Bank N.A. in the aggregate amount of $58,600, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated May 16, 2020 issued by the Borrower, matures on May 16, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 16, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company’s use of the Loan qualifies and the Company intends to apply during 2021. | 58,600 | - | ||||||
| Insurance policy finance agreements. | 25,987 | 28,032 | ||||||
| Total Notes Payable: | $ | 384,587 | $ | 328,032 | ||||
Related PartyLong-Term Notes Payable consists of:
| December 31, 2017 | December 31, 2016 | |||||||
| The Company issued promissory notes to Fountainhead Capital Management Limited for $248,000. The notes bear interest at 10% per annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the Payee. The notes were converted into 1,180,953 shares of common stock and 1,180,953 warrants in connection with the Private Placement in January 2017. | - | 248,000 | ||||||
| Total Related Party Notes Payable | $ | - | $ | 248,000 | ||||
| December 31, 2020 | December 31, 2019 | |||||||
| On July 7, 2020, the Company was granted a $150,000 loan under the Economic Injury Disaster Loan Program pursuant to the Coronavirus Aid, Relief and Economic Security (CARES) Act by the Small Business Administration (SBA) (“SBA Loan”) . The SBA Loan, evidenced by a promissory note dated July 7, 2020, has a term of thirty (30) years, bears interest at a fixed rate of three and three-quarters percent (3.75%) per annum, with monthly payments in the amount of $731.00 per month commencing twelve (12) months from the date of the note and is secured by essentially all of the assets of the Company. The proceeds of the SBA Loan will be used for general working capital purposes to alleviate economic injury caused by disaster occurring in the month of January 2020 and continuing thereafter. | $ | 150,000 | $ | - | ||||
| Total Long-term Notes Payable: | $ | 150,000 | $ | - | ||||
On January 24, 2018 the Company entered into an amendment agreement (the “Amendment”) with EuroAmerican Investments (“EuroAmerican”) regarding its $300,000 loan note (the “Note”). Under the Amendment, the Note was extended until December 31, 2018 and the conversion terms of the Note reduced to $0.21, the same as the offering price of the 2018 Offering. Conversion of the Note and accrued interest would result in the issuance of 2,308,4052,994,746 shares of Common Stock. Notwithstanding, EuroAmerican agreed that the Note could not be converted without first offering the Company the right to redeem the Note at principal and accrued interest, and secondly Fountainhead the right to purchase the Note, which cannot be converted prior to such offer and the failure of the Company and Fountainhead to exercise such option in accordance with the amendment terms. In addition, the Company agreed to issue warrants to purchase the same number of shares of Common Stock at $0.27, the same terms as the 2018 Offering, exercisable for three years from January 1, 2018, if and when the conversion option is exercised. The amendment was recognized as a modification, based on the guidance in ASC 470-50.
The Company routinely finances all their insurance policies through a third party finance company which requires a down payment and subsequent monthly payments, the time periods vary from 10 months to 12 equal monthly payments.
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5.7. 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. Discontinued operations were part of NovaVision and revenues and assets were in Europe; see Note 3. Set out below are the revenues, gross profits and total assets for each segment.
| Twelve Months Ended December 31, | Years Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| Revenue: | ||||||||||||||||
| Vycor Medical | $ | 1,178,063 | $ | 1,260,949 | $ | 1,039,562 | $ | 1,299,830 | ||||||||
| NovaVision | $ | 206,908 | $ | 191,765 | $ | 102,483 | $ | 93,070 | ||||||||
| $ | 1,384,971 | $ | 1,452,714 | $ | 1,142,045 | $ | 1,392,900 | |||||||||
| Gross Profit | ||||||||||||||||
| Vycor Medical | $ | 973,883 | $ | 1,093,055 | $ | 913,245 | $ | 1,171,149 | ||||||||
| NovaVision | $ | 183,954 | $ | 174,974 | $ | 96,337 | $ | 86,981 | ||||||||
| $ | 1,157,837 | $ | 1,268,029 | $ | 1,009,582 | $ | 1,258,130 | |||||||||
| December 31, 2017 | December 31, 2016 | |||||||
| Total Assets: | ||||||||
| Vycor Medical | $ | 1,263,197 | $ | 805,716 | ||||
| NovaVision | 186,260 | 679,534 | ||||||
| Total Assets | $ | 1,449,457 | $ | 1,485,250 | ||||
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Total Assets: | ||||||||
| Vycor Medical | $ | 953,730 | $ | 1,036,857 | ||||
| NovaVision | 32,213 | 25,395 | ||||||
| Discontinued operations | 577 | 29,691 | ||||||
| Total Assets | $ | 986,520 | $ | 1,091,943 | ||||
(b) Geographic information. The Company operates in two geographic segments, the United States and Europe. Discontinued operations were part of NovaVision and revenues and assets were in Europe; see Note 3. Set out below are the revenues, gross profits and total assets for each segment.
| Twelve Months Ended December 31, | Years Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| Revenue: | ||||||||||||||||
| United States | $ | 1,282,527 | $ | 1,355,439 | $ | 1,125,226 | $ | 1,380,209 | ||||||||
| Europe | $ | 102,444 | $ | 97,275 | $ | 16,819 | $ | 12,691 | ||||||||
| $ | 1,384,971 | $ | 1,452,714 | $ | 1,142,045 | $ | 1,392,900 | |||||||||
| Gross Profit | ||||||||||||||||
| United States | $ | 1,067,243 | $ | 1,176,448 | $ | 992,785 | $ | 1,246,464 | ||||||||
| Europe | $ | 90,594 | $ | 91,581 | $ | 16,797 | $ | 11,666 | ||||||||
| $ | 1,157,837 | $ | 1,268,029 | $ | 1,009,582 | $ | 1,258,130 | |||||||||
| December 31, 2017 | December 31,2016 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Total Assets: | ||||||||||||||||
| United States | $ | 977,145 | $ | 1,258,624 | $ | 980,239 | $ | 1,055,312 | ||||||||
| Europe | 472,312 | 226,626 | 5,704 | 6,940 | ||||||||||||
| Discontinued operations | 577 | 29,691 | ||||||||||||||
| Total Assets | $ | 1,449,457 | $ | 1,485,250 | $ | 986,520 | $ | 1,091,943 | ||||||||
6.8. FIXED ASSETS
As of December 31, 2017 and 2016, Fixed Assets and the estimated lives used in the computation of depreciation are as follows:
| Estimated | December 31, | December 31, | ||||||||||||||||||
| Estimated Useful Lives | December 31, 2017 | December 31, 2016 | Useful Lives | 2019 | 2018 | |||||||||||||||
| Machinery and equipment | 3 years | $ | 138,258 | $ | 137,453 | 3 years | $ | 64,762 | $ | 64,762 | ||||||||||
| Leasehold Improvements | 3years | 8,881 | 6,206 | 3 years | 8,881 | 8881 | ||||||||||||||
| Purchased Software | 3 years | 27,706 | 27,706 | 3 years | 27,706 | 27,706 | ||||||||||||||
| Molds and Tooling | 5 years | 608,699 | 409,784 | 5 years | 775,090 | 715,463 | ||||||||||||||
| Furniture and fixtures | 7 years | 26,120 | 25,844 | 7 years | 11,152 | 11,152 | ||||||||||||||
| Therapy Devices | 3 years | 123,739 | 112,857 | 3 years | 96,993 | 94,568 | ||||||||||||||
| Internally Developed Software | 5 years | 1,190,336 | 1,187,591 | 5 years | 363,472 | 363,472 | ||||||||||||||
| 2,123,739 | 1,907,441 | 1,348,056 | 1,286,004 | |||||||||||||||||
| Less: Accumulated depreciation and amortization | (1,634,569 | ) | (1,506,390 | ) | (966,969 | ) | (921,051 | ) | ||||||||||||
| Property and Equipment, net | $ | 489,170 | $ | 401,051 | $ | 381,087 | $ | 364,953 | ||||||||||||
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Depreciation expense for the years ended December 31, 20172020 and 20162019 was $127,899$45,918 and $178,339$49,661 respectively, including $14,558$1,366 and $9,914$1,762 respectively for Therapy Devices which is allocated to Cost of Sales.
7.9. INTANGIBLE ASSETS
Intangible Assets consists of:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Amortized intangible assets: Patent (8 years useful life) | ||||||||
| Gross carrying Amount | $ | 865,639 | $ | 865,639 | ||||
| Accumulated Amortization | (784,575 | ) | (627,068 | ) | ||||
| $ | 81,064 | $ | 238,571 | |||||
| Amortized intangible assets: Website (5 years useful life) | ||||||||
| Gross carrying Amount | $ | 50,760 | $ | 50,760 | ||||
| Accumulated Amortization | (40,371 | ) | (35,802 | ) | ||||
| $ | 10,389 | $ | 14,958 | |||||
| Intangible assets not subject to amortization | ||||||||
| Trademarks | $ | 251,157 | $ | 251,157 | ||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Amortized intangible assets: Patent (8 years useful life) | ||||||||
| Gross carrying Amount | $ | 865,639 | $ | 865,639 | ||||
| Accumulated Amortization | (854,290 | ) | (842,313 | ) | ||||
| $ | 11,349 | $ | 23,326 | |||||
| Amortized intangible assets: Website (5 years useful life) | ||||||||
| Gross carrying Amount | $ | 20,382 | $ | 20,382 | ||||
| Accumulated Amortization | (20,382 | ) | (20,382 | ) | ||||
| $ | - | $ | - | |||||
Intangible asset amortization expense for the periods ended December 31, 20172020 and 20162019 was $162,076$11,977 and $89,157,$12,164, respectively.
8.10. EQUITY
Equity Transactions
From January toDuring the years ended December 2017,2020 and 2019, the Company granted 334,048333,330 and 399,996 shares, respectively of Common Stock (valued at $84,000)$70,000 and $84,000 respectively) to non-employee Directors. Under the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until January 15th of the year following termination of their services as a director. As of December 31, 20172020 these shares have yet to be issued.
From JanuaryDuring each of the years ended December 31, 2020 and 2019, under the terms of the Consultancy Agreement referred to December 2017,in Note 14, the Company issued 106,4512,142,856 shares of Common Stock (valued at $25,314) to membersFountainhead for fees of the NovaVision, Inc. Scientific Advisory Board as compensation for their services.$450,000.
From January to December 2017,On April 4, 2019 the Company issued 644,2865,000 shares of Common Stock (valued at $135,300) to Fountainhead under the terms ofRobert Anderson, a Consulting Agreement and 1,571,429 shares of Common Stock (valued at $330,000) to Fountainhead following the achievement of certain enumerated milestones.
From January to December 2017, the Company issued 21,718 shares of Common Stock (valued at $6,251) to Techmed, Inc.consultant, in accordance with the terms of a consulting agreement.
During January to December 2016, the Company granted 176,479 shares of Common Stock (valued at $78,000) to non-employee Directors. Under the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until the January 15th following the termination of their services as a director. As of December 30, 2016 these shares have yet to be issued.
During January to December 2016, the Company issued 78,915 shares of Common Stock (valued at $36,875) to members of the NovaVision, Inc. Scientific Advisory Board in respect of their services.
During January to December 2016, the Company issued 212,478 shares of Common Stock (valued at $120,000) to Fountainhead in accordance with the terms of a Consulting Agreement.
During April to December 2016, the Company issued 15,404 shares of Common Stock (valued at $8,334) to Techmed, Inc. in accordance with the terms of a consulting agreement.
During May to December 2016, the Company issued 100,000 share of Common Stock (valued at $40,700) to Valeo Consulting in accordance with the terms of a consulting agreement.
During January to December 31, 2016, the Company paid an aggregate of 17,971 shares of Preferred D Stock, valued at $179,727, representing preferred stock dividends. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 83,586 shares. An aggregate of 17,142 shares of Preferred D Stock dividends were in respect of related parties.
| 29 |
From January to December the Company issued 72,002 shares of common stock (valued at $19,441) pursuant to exercise of warrants related to the offering in 2017.
Private Placement.
On January 11 and February 23, 2017, the Company completed the sale of $1,274,717 in shares of Vycor Common Stock (each a “Share”) and Warrants (together with the Shares, the “Securities”) to accredited investors (the “Investors”). The Shares were issued in a private placement (the “Private Placement”) pursuant to the terms of Stock Purchase Agreements between the Company and each of the Investors, and was limited to current shareholders of the Company as of November 9, 2016 (the “Record Date”).
Included in these gross proceeds is the conversion of $248,000 of debt on the balance sheet at December 31, 2016 and $101,000 funds held in escrow on the balance sheet at December 31, 2016. The Private Placement raised net cash proceeds, after debt conversion and expenses, of $943,207, of which $842,207 was received during the period.
The Securities comprised one Share at a purchase price $0.21 per share and a Warrant to purchase one Share at an exercise price of $0.27, exercisable over a period of three (3) years. A total of 6,070,078 Shares and Warrants to purchase 6,070,078 Shares were issued in the Private Placement.
Warrants and Options
In August 2014, Fountainhead, Peter Zachariou (“the Related Party Noteholders”) and Craig Kirsch (collectively, the “Noteholders”) agreed, pursuant to a Securities Exchange Agreement (“Exchange Agreement”), to exchange their outstanding debt from the Company into shares of Company Series D Convertible Preferred Stock. Pursuant to the Exchange Agreement, on August 5, 2017 (the 3rd anniversary of the exchange) the Noteholders were issued warrants exercisable into 628,619 shares of Common Stock, at a price of $0.30 per share, of which the Related Party Noteholders were issued warrants exercisable into 599,651 shares of Common Stock. The warrants expire on August 4, 2020 and were valued at $120,788 (of which $115,222 related to the Related Party Noteholders) and included in Other Income/Expense, Warrant Issuance Expense for the three months ending September 30, 2017.
The details of the outstanding rights, options and warrants and value of such rights, options and warrants are as follows:
STOCK WARRANTS:
| Weighted average | ||||||||
| exercise price | ||||||||
| Number of shares | per share | |||||||
| Outstanding at December 31, 2015 | 6,007,048 | $ | 2.57 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Outstanding at December 31, 2016 | 6,007,048 | $ | 2.57 | |||||
| Granted | 6,901,388 | $ | 0.27 | |||||
| Exercised | (72,002 | ) | $ | 0.27 | ||||
| Cancelled or expired | (5,907,048 | ) | $ | 1.88 | ||||
| Outstanding at December 31, 2017 | 6,929,386 | $ | 0.31 | |||||
| Weighted average | ||||||||
| exercise price | ||||||||
| Number of shares | per share | |||||||
| Outstanding at December 31, 2018 | 3,717,826 | $ | 0.27 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Outstanding at December 31, 2019 | 3,717,826 | $ | 0.27 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | (3,717,826) | 0.27 | ||||||
| Outstanding at December 31, 2020 | - | $ | - | |||||
STOCK OPTIONS:
| Weighted average | ||||||||
| exercise price | ||||||||
| Number of shares | per share | |||||||
| Outstanding at December 31, 2015 | 25,557 | $ | 20.25 | |||||
| Granted (see Note 9) | 680,000 | $ | 0.79 | |||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Outstanding at December 31, 2016 | 705,557 | $ | 0.97 | |||||
| Granted (see Note 9) | 20,000 | 0.27 | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Outstanding at December 31, 2017 | 725,557 | $ | 0.95 | |||||
| Weighted average | ||||||||
| exercise price | ||||||||
| Number of shares | per share | |||||||
| Outstanding at December 31, 2018 | 1,380,000 | $ | 0.53 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | (680,000 | ) | 0.79 | |||||
| Outstanding at December 31, 2019 | 700,000 | $ | 0.28 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | (20,000 | ) | 0.27 | |||||
| Outstanding at December 31, 2020 | 680,000 | $ | 0.28 | |||||
As of December 31, 2017,2020, the weighted-average remaining contractual life of outstanding warrants and options is 2.110 and 1.21.49 years, respectively. Options to purchase 5,557 shares of Company Common Stock expired on February 12, 2018.
9. SHARE-BASED11. STOCK-BASED COMPENSATION
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.model, or their contractual value if different in the case of common stock. 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.
Stock Option Plan
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.
For the years ended December 31, 2017 and 2016, the Company recognized share-based compensation of $1,609 and $198,200, respectively for the issuance of stock options to management and employees.
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, 2017 there were no awards of any stock appreciation rights.
Non-Employee Stock Compensation
Aggregate stock-based compensation expense charged to operations for shares of common stock and warrants granted to non-employees for the twelve monthsyears ended December 31, 20172020 and 20162019 was $558,363$520,000 and $531,409, respectively,$534,940. $450,000 was in respect of which $249,363the Fountainhead Consulting Agreement (see Notes 14 and $205,909, respectively, related to stock issued during the periods.15). The expense related to stock not issued during the periods comprise:years ended December 31, 2020 and 2019 comprise $70,000 and $84,000, respectively for the year ended 2020 and $78,000,2019, respectively, related to stock granted but not issued to directors under the Directors Deferred Compensation Plan; and $225,000 and $247,500, respectively of fees payable in stock to Fountainhead that were accrued but not issued during the period.Plan. As of December 31, 2017,2020, there was $0 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.
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During the twelve months ended December 31, 2017 options with a value of $86,754 were granted to Fountainhead with performance vesting conditions (see Note 12); the value of these options will not be recognized as share-based compensation unless or until the Company concludes that it is probable the performance conditions will be achieved.
Stock-based Compensation Valuation Methodology
Stock-based compensation resulting from the issuance of Common Stock is calculated by reference to the valuation of the Stock on the date of issuance, the expense being recognized as the compensation is earned. 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 stock compensation expensed during the year ended December 31, 2017 resulted from the issuance of Common Stock valued on the date of issuance and options. The following assumptions were used in calculations of the Black-Scholes option pricing model for option-based stock compensation in year ended December 31, 2016:
| Year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Risk-free interest rates | 1.50 | % | 0.91 | % | ||||
| Expected life | 1.5 – 3.0 years | 1.5 years | ||||||
| Expected dividends | 0 | % | 0 | % | ||||
| Expected volatility | 104 | % | 95 | % | ||||
| Vycor Common Stock fair value | $ | 0.20- .30 | $ | 0.71 | ||||
10.12. INCOME TAXES
Loss Before Taxes
| December 31, 2017 | December 31, 2016 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Domestic | $ | 1,304,136 | $ | 1,351,693 | $ | 801,346 | $ | 675,687 | ||||||||
| Foreign | 172,909 | 300,587 | 21,136 | 120,515 | ||||||||||||
| $ | 1,477,045 | $ | 1,652,280 | $ | 822,482 | $ | 796,202 | |||||||||
The reconciliation of income tax expense at the U.S. statutory rate of 35%21%, to the Company’s effective tax rate is as follows:
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| US statutory rate | $ | (516,966 | ) | $ | (578,298 | ) | ||
| Tax difference between foreign and U.S. | 10,248 | 25,275 | ||||||
| Change in Valuation Allowance | (506,718 | ) | (553,023 | ) | ||||
| Tax Provision | $ | - | $ | - | ||||
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| US statutory rate | $ | (172,721 | ) | $ | (167,235 | ) | ||
| Tax difference between foreign and U.S. | (2,349 | ) | (13,341 | ) | ||||
| Change in Valuation Allowance | (175,070 | ) | (180,576 | ) | ||||
| Tax Provision | $ | - | $ | - | ||||
Deferred Income Taxes
The Company has operations in the US, Germany and the UK and 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 CompanyCompany’s US operating entity 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.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company and its subsidiaries’ deferred tax assets at December 31, 20172020 and December 31, 20162019 are as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| Operating loss carry-forward | $ | 6,195,000 | $ | 6,050,000 | ||||
| Deferred tax asset before Valuation allowance | 6,195,000 | 6,050,000 | ||||||
| Valuation allowance | (6,195,000 | ) | (6,050,000 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
| December 31, 2020 | December 31, 2019 | |||||||
| Operating loss carry-forward - US | $ | 18,975,000 | $ | 18,600,000 | ||||
| Operating loss carry-forward - Foreign | $ | 1,796,000 | $ | 1,636,000 | ||||
| Deferred tax asset before Valuation allowance - US | 3,985,000 | 3,906,000 | ||||||
| Deferred tax asset before Valuation allowance - Foreign | 542,000 | 491,000 | ||||||
| Valuation allowance | (4,527,000 | ) | (4,397,000 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
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 reportedrecorded 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. Based on the level of historical taxable losses and projections of future taxable income (losses) over the periodsFurthermore, in circumstances in which management has determined that existing conditions or events raise substantial doubt about its ability to continue as a going concern the authoritative guidance requires that a valuation allowance should be recorded for all 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.assets. Accordingly, management has determined that a 100% valuation allowance is appropriate at December 31, 20172020 and December 31, 2016.2019.
The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. Due toSince the timing of the enactmentCompany’s foreign subsidiaries have not generated taxable income and the complexity involved in applying the provisions of the Tax Act,have no accumulated earnings, the Company has not recorded any adjustments according to Tax Act. As we collect and prepare necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects ofbelieves that the Tax Act will be completed in 2018.not have a significant impact on the Company’s consolidated financial statements.
Net Operating Loss Carry-Forwards
Under the Tax Act, net operating loss carryforwards generated for tax years beginning after December 31, 2018, will have an indefinite carryforward period.
As of December 31, 20172020 and 2016,2019, the Company had U.S. accumulated losses for tax purposes of approximately $17,700,000$18,975,000 and $17,300,000$18,600,000 respectively, which may be carried forward and offset against U.S. taxable income, and which expireincome. $18,430,000 expires during the tax years 20272029 through 2032.2039 and $545,000 can be carried forward indefinitely.
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Federal tax laws impose significant restrictions on the utilization of net operating loss carry-forwards and in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carry-forwards may be subject to the above limitations.
As of December 31, 20172020 and 2016,2019, the Company had German accumulated losses for tax purposes of approximately $1,633,000$1,595,000 and $1,012,000$1,436,000 respectively, which may be carried forward and offset against German taxable income subject to certain restrictions and limitations. Such carry-forwards are subject to certain restrictions and limitations in the event of changes in the NovaVision GmbH’s ownership. As disclosed in Note 3, the Company is in the process of winding down the entity, following which these tax losses will no longer be available.
As of December 31, 20172020 and 2016,2019, the Company had UK accumulated losses for tax purposes of approximately $249,000$201,000 and $198,000$200,000 respectively, which may be carried forward and offset against UK taxable income subject to certain restrictions and limitations.
Tax Rates
The applicable US income tax rate for the Company for both of the years ended December 31, 20172020 and 20162019 was 35%.21% and 21%, respectively. Non-US subsidiaries are taxed according to the tax laws in their respective country of residence. The German applicable rate for both of the years ended December 31, 20172020 and 20162019 was 31.58%; the UK applicable rate for both the years ended December 31, 20172020 and 20162019 was 20%19%.
US income taxes and foreign withholding taxes were not provided for on undistributed earnings of the Company’s foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If theseany earnings were distributed to US in the form of dividends or otherwise, after the repayment of intercompany debt, the Company would be subject to additional US income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.
Uncertain Tax Position
The Company has recorded no liability for income taxes associated with unrecognized tax benefits at the date of adoption and has not recorded any liability associated with unrecognized tax benefits during 20172020 and 2016.2019. Accordingly, the Company has not recorded any interest or penalty in regard to any unrecognized benefit.
11.13. COMMITMENTS AND CONTINGENCIES
Lease
The Company leased office space located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of approximately $14,260 plus sales tax per month. The term of the lease was 5 years and 6 months and terminated July 30, 2017. Effective August 1, 2017 the Company leased office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2L.P., for a gross rent of approximately $5,700$4,000 per month, plus sales taxother charges of approximately $1,500 per month. The lease terminateswas renewed in September 30, 2020. The Company’s subsidiary in Germany occupies premises on a short-term lease agreement.2020 for an additional 3 years. Rent expense for the year ended December 31, 20172020 and 20162019 was $158,278$77,357 and $212,054$76,464 respectively.
The table below provides the future lease payments each year until the lease expiration date:
Future Lease Payments
| Year | Liability | ||||
| 2021 | $ | 49,102 | |||
| 2022 | $ | 50,575 | |||
| 2023 | $ | 34,384 | |||
Potential German tax liability
In June 2012 the Company’s NovaVision German subsidiary received a preliminary assessment for Magdeburg City trade tax of approximately €75,000 (approximately $94,000)$82,000), with an additional interest charge of €12,000 (approximately $13,200). This assessment is for the 2010 fiscal year and relates to the Company’s acquisition of the assets of the former NovaVision, Inc. An initial assessment for corporate tax for the same period has beenwas preliminarily reduced to zero. The Company hasdid not acceptedaccept this trade tax assessment and is in discussion withappealed against it to the relevant tax authorities with a view to its reduction. The relevant tax authorities agreed to suspend the assessment pending the outcome of certain court hearings and proposed legal amendments,tax legislation, and the Company agreed to make limited monthly payments on account totaling €75,000 (approximately $82,000) which were completed in October 2016.2016 and fully expensed. At that time the Company appealed against the interest charge of €12,000 (approximately $13,200) which the tax authorities did not accept but also agreed to suspend pending the outcome of the hearings and proposed legislation outlined above. Accordingly, the Company has made no provision for this liability for yearsin the year ended December 31, 20172020 and 2016 respectively, other than recording2019 respectively. The Company is in the monthly paymentsprocess of winding down the entity, as an expense.disclosed in Note 3.
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12.14. CONSULTING AND OTHER AGREEMENTS
The following agreements were entered into oragreement remained in force during the year ended December 31, 2017:2020:
Consulting Agreement with Fountainhead
During the year ended December 31, 2017, following the achievement of certain milestones established in the March 2016 Compensation Plan, the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued during the year ended December 31, 2016, was paid to Fountainhead by the issuance of 1,571,429 shares of Common Stock (valued at $330,000) during the year ended December 31, 2017.
In March 2017 and effective April 1, 2017, as part of a streamlining of compensation arrangements with executive management, the Company established the March 2017 Compensation Plan. Under this Plan, the Company amended the Fountainhead Consulting Agreement (“the Amendment”Amended Agreement”) to increase. Under the annualAmended Agreement, fees of $450,000 are payable to Fountainhead, by $330,000 to a total of $37,500 per month. Concurrently, annual compensation payable to executive management under the March 2016 Compensation Plan was reduced by $330,000 to $0. These changes had no financial impact on the Company. The other terms of the Consulting Agreement remained the same, including the ability of Fountainhead at itswith an option to receive $5,000 per month in cash and the remainder payable in Company Common Stock issued at the higher of the Private Placement price ($0.21)$0.21 and the average price for the 30 days prior to issuance, and deliverable at the end of each fiscal quarter. The Consulting Agreement also contains provisions for Fountainhead to receive a higher proportion of its fees in cash subject to certain future liquidity events and Board approval. Under the Amendment, Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2008 Stock Option Plan, to purchase 660,000 shares of Company Common Stock at the same $0.27 exercise price as thatterms of the warrants issued inAmended Agreement, Fountainhead provides the Private Placement. Vestingexecutive management team of these options is subject to the achievement of certain milestones by March 31, 2018. In March 2018 the Company, extendedincluding the time period for the achievementpositions of these milestones to June 30, 2018. These options are consistentCEO, President and CFO, whose employment agreements with the options granted to executive management underCompany stipulate they receive no remuneration from the March 2016 Compensation Plan.
During the year ended December 31, 2017, under the terms of this amended Consulting Agreement, Fountainhead received total fees of $367,500, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock during the period, $7,200 was paid in cash and $225,000 was accrued and recorded as payable, of which $92,500 was paid after the year end through the issuance of 250,000 shares of Company Common Stock.
In March 2018 Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2018 Stock Option Plan, to purchase 660,000 shares of Company Common Stock at an exercise price of $0.46 (the average closing price for the 5 trading days before the grant). Vesting of these options is subject to the achievement of certain milestones by March 31, 2019.Company.
13.15. RELATED PARTY TRANSACTIONS AND BALANCES
Peter Zachariou and David Cantor, directors of the Company, are investment managers of Fountainhead which owned, at December 31, 2017, 46%2020, 60.5% of the Company’s Common Stock and 95%95.4% of the Company’s Series D Preferred D Stock. Adrian Liddell, Chairman is a consultant forto Fountainhead.
AsDuring January to December 2020 and 2019, under the terms of the Consultancy Agreement referred to in Note 4, on January 24, 201814, the Company entered into the Amendment with EuroAmerican. regarding its $300,000 Note. Under the Amendment, EuroAmerican granted a rightissued 2,142,856 shares, respectively, of first refusal prior to converting or selling or the Note a) first to Vycor to redeem the Note and accrued interest at face value and b) if not exercised secondCommon Stock to Fountainhead to purchase the Note and accrued interest at face value on the same terms.for fees of $450,000, respectively.
During the year ended December 31, 2017, following the achievement of certain milestones established in the March 2016 Compensation Plan, the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued during the year ended December 31, 2016, was paid to Fountainhead through the issuance 1,571,429 shares of Common Stock (valued at $330,000) during the period ended September 30, 2017.
During the year ended December 31, 2017, under the terms of this amended Consulting Agreement referred to in Note 12, Fountainhead received total fees of $367,500, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock, $7,200 was paid in cash and $225,000 was accrued but not yet paid.
On January 11, and February 23, 2017 the Company completed the sale of $1,274,717 in shares of Common Stock and Warrants to accredited investors (the “Private Placement”). Fountainhead purchased a total of $477,939 of shares in the Private Placement of which approximately $248,000 represented amounts that Fountainhead had already advanced to the Company and was held by the Company in the form of notes. As a result, Fountainhead was issued 2,275,901 shares of Common Stock and three-year Warrants to purchase 2,275,901 shares of Common Stock at an exercise price of $0.27.
During the year ended December 31, 2017 $225,000 of fees payable in stock were accrued; however these shares were not issued.
Pursuant to the Exchange Agreement, on August 5, 2017 (the 3rd anniversary of the exchange) the Related Party Noteholders were issued warrants exercisable into 599,651 shares of Common Stock, at a price of $0.30 per share. The warrants expire on August 2, 2020 and were valued at $115,222 (see Note 8).
During the year ended December 31, 2016, in accordance with the terms of the Consulting Agreement, the Company issued 212,478 shares of Common Stock (valued at $120,000) to Fountainhead.
During the year ended December 31, 2016, the Company paid an aggregate of 17,971 shares of Preferred D Stock, valued at $179,727, representing preferred stock dividends. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 83,586 shares. An aggregate of 17,142 shares of Preferred D Stock dividends were in respect of related parties.
During the year ended December 31, 2016, 2016,2019, respectively, the Company issued unsecured loan notes to Fountainhead for a total of $248,000.$80,000 and $37,873, respectively. The loan notes borebear interest at a rate of 10% and wereare due on demand or by their one-year anniversary. The notes were converted into Common Stock in the Offering during 2017.anniversary (see Note 6).
AtDuring each of the years ended December 31, 20162020 and 2019, the Company accrued an aggregate of $324,370 of Preferred D Stock dividends, of which $226,037 was holding $101,000 cash in escrow from Fountainhead in respect of the Private Placement Initial Closing that occurred on January 11, 2017.Fountainhead and $83,386 was in respect of Peter Zachariou.
There were no other related party transactions during the years ended December 31, 20172020 and 2016.2019.
14.16. CONCENTRATION
Vycor Medical sells its neurosurgical devices in the US primarily direct to hospitals, and internationally through distributors who in turn sell to hospitals. The sales to one international distributor represented 16% and 14%, respectively,
| Sales Concentration | Year ended December 31, | |||||||
| 2020 | 2019 | |||||||
| Number of customers over 10% | 1 | 1 | ||||||
| Percentage of sales | 12 | % | 10 | % | ||||
Accounts Receivable Concentration
| At December 31, | ||||||||
| 2020 | 2019 | |||||||
| Number of customers over 10% | 2 | 1 | ||||||
| Percentage of accounts receivable | 10 | % | 37 | % | ||||
We have three sub-contract manufacturers who each represent over 10% of total sales for the years ended December 31, 2017 and 2016.purchased on an annual basis.
15.17. SUBSEQUENT EVENTS
On February 09, 2018, the BoardIn January 2021 we issued 466,794 shares of Directorscommon stock to Oscar Bronsther in respect of the shares granted under the Directors’ Deferred Compensation plan, following his resignation from the board of directors effective July 1, 2020.
In January 2021 the Company unanimously adoptedalso received a resolution seeking stockholder approvalsecond draw PPP loan of $58,600 under Division A, Title I of the CARES Act.
On March 30, 2021, Vycor entered into a Consulting Agreement with Ricardo J. Komotar, M.D. (the “Agreement”) to (a) amendprovide certain specified services over the Company’s Certificatethree-year term of Incorporationthe Agreement. Under the Agreement, Dr. Komotar will provide general scientific advisory consultancy services, and will also provide scientific advisory services based around certain specific pre-determined milestones. In consideration of the Consultant’s services, the Company agreed to increase the number of authorized Company Common Shares from 25,000,000 to 55,000,000 and (b) to adopt the Company’s 2018 Stock Incentive Plan. Thereafter, on February 09, 2018, pursuantdeliver to the By-LawsConsultant over the course of the Company and applicable Delaware law, stockholders holding in excessthree-year term, a total of fifty percent (50%) of the votes entitled to be cast on the aforementioned two matters (identified in the section entitled “Voting Securities and Principal Holders Thereof”) adopted a resolution to authorize the Board of Directors, in its sole discretion, to increase the number of authorized304,989 shares of Company Common Stock from 25,000,000 to 55,000,000 and adopt the Company’s 2018 Stock Incentive Plan . Asin respect of the dategeneral consultancy, and up to 1,219,957 shares of this Report,Company Common Stock in respect of the increase in authorized capitalmilestones, the Company’s 2018actual number of shares to be delivered being determined by the achievement of the pre-determined milestones. On April 1, 2021 101,663 shares of Company Common Stock Incentive Plan have yet to become effective andwill be issued under the Company expects that they will become effective duringterms of the Company’s second fiscal quarter of 2018.
During March 2018 the Company issued unsecured loan notes to Fountainhead for a total of $30,000. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary.
Agreement.
Other than the foregoing,above stated Subsequent Events, the Company has evaluated the existence of events and transactions subsequent to the balance sheet date through the date the consolidated financial statements were issued and has determined that there were no significant subsequent events or transactions whichthat would require recognition or disclosure in the financial statements.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
a)Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 20172020 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 SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
b)Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We carried out an assessment, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2017.2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control — Integrated Framework (2013). Based on that assessment and on those criteria, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2017.2020.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the management’s report in this annual report.
c)Changes in Internal Controls
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company’s management, including the Company’s CEO and CFO, doesdo not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
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On February 09, 2018, the Board of Directors of the Company unanimously adopted a resolution seeking stockholder approval to (a) amend the Company’s Certificate of Incorporation to increase the number of authorized Company Common Shares from 25,000,000 to 55,000,000 and (b) to adopt the Company’s 2018 Stock Incentive Plan. Thereafter, on February 09, 2018, pursuant to the By-Laws of the Company and applicable Delaware law, stockholders holding in excess of fifty percent (50%) of the votes entitled to be cast on the aforementioned two matters (identified in the section entitled “Voting Securities and Principal Holders Thereof”) adopted a resolution to authorize the Board of Directors, in its sole discretion, to increase the number of authorized shares of Company Common Stock from 25,000,000 to 55,000,000 and adopt the Company’s 2018 Stock Incentive Plan . As of the date of this Report, the increase in authorized capital the Company’s 2018 Stock Incentive Plan have yet to become effective and the Company expects that they will become effective during the Company’s second fiscal quarter of 2018.None
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 | ||
| Peter C. Zachariou | Chief Executive Officer and a Director | |||
| David Marc Cantor | President and a Director | |||
| Adrian Christopher Liddell | Chairman of the Board, Chief Financial Officer and a Director | |||
| Steven Girgenti(1) | Director | |||
| Director |
On March 19, 2021, the Board of Directors accepted the resignations of Messrs. Girgenti and Rush, to be effective as of April 1, 2021. |
Peter C. Zachariou was appointed a Director of the Company in May 2010, Executive Vice President in September 2010 and Chief Executive Officer on January 2, 2014. 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. Zachariou’s 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.
David Marc Cantor 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 Group 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.
Adrian Christopher Liddell has been Chairman of the Board and a Director of the Company since January 2010, and serves as the Company’s CFO. He is also 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 over 3035 years of strategic, corporate and financial advisory and company investment experience. From 2003-2006,2003 to 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 in corporate finance and mergers & acquisitions at Lehman Brothers and Samuel Montagu & Co, and Lehman Brothers in London. Mr. Liddell qualified as a Chartered Accountant in 1984 and holds an MA, Hons. from Christ’s College, University of Cambridge.
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Steven Girgenti has been a Vycor Medical director since November 2008 and is Chairman of the Nominating and Governance Committee and of the Compensation Committee. He is presentlypresently: the Managing Partner of Medi-Pharm Consulting, LLC providing strategic services to a number of medical device, pharmaceutical and diagnostic businesses.businesses; Executive Chairman of BioAffinity Technologies, Inc; and a board member of TBT Pharma. Steve was formerly CEO and co-founder of DermWorx IncorporatedInc., a specialty pharmaceutical company dedicated to solutions for dermatological conditions. Steve was also the Worldwide Chairman and CEO 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 world’s leading healthcare companies. Mr. Girgenti founded Healthworld in 1986 and, under his leadership, the company made numerous acquisitions to expand and diversify the business. Healthworld went public in 1997. In 1998, and again in 1999, Business Week named Healthworld one of the “Best Small Corporations in America”. In 1999, Forbes listed Healthworld as one of the “200 Best Small Companies”. Mr. Girgenti was recognized as “Entrepreneur of the Year” by NASDAQ in 1999, and was named Med Ad News’ first “Medical Advertising Man of the Year” in 2000. In 2010 he was inducted into the Medical Advertising Hall of Fame. In addition, Mr. Girgenti is presently Executive Chairman of BioAffinity Technologies, Inc. and serves as a Director of Hancock Jaffe Laboratories, Inc. (NASDAQ:HJLI). 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.
Oscar Bronsther, M.D., F.A.C.S has been a director since November 2011. Dr. Bronsther is Chief Executive Officer of ERAD Therapeutics, LLC, a pre-clinical Orphan Drug company focusing on treating Cystic Fibrosis and Gaucher disease since 2016. He was formerly Chief Executive Officer of MetaStat, Inc. (OTCBB: MTST), a development stage life sciences company that develops and commercializes diagnostic products for the early and reliable prediction and treatment of systemic metastasisis. Dr Bronsther is also currently Clinical Professor at George Washington University, Washington, DC and has served in that capacity since 2002. He had previously served as an Associate Professor at the University of Rochester, Rochester, NY (1994-2001), University of Pittsburgh, Pittsburgh, PA (1989-1994) and University of California San Diego (1984), and Chairman, Section of General Surgery at Inova Fairfax Hospital. Since 2002, he has served as a Board Member, National Board Member and Director of Transplant Services of Kaiser Permanente Medical Group. Dr. Bronsther is a graduate of the University of Rochester (B.A. 1973) and Downstate Medical Center, Brooklyn, N.Y. (M.D. 1978). He did post-graduate work at Downstate Medical Center (Research Assistant 1975; Kidney Transplant Fellowship 1983-1984), Mount Sinai Medical Center, New York, N.Y (Residency 1978-1983) and Children’s Hospital Medical Center, Boston, MA (Research Fellowship 1980-1981). He resides in Potomac, MD.
Lowell Rush was appointed a Director in April 2013 and is Chairman of the Audit Committee. Mr. Rush has extensive experience in financial management and operational development, and since April 2017 has been Chief Financial Officer of Coral Gables - basedGables-based The Revenue Optimization Companies (T-ROC), a leading provider of retail services. Previously, he was Chief Financial Officer of Ft. Lauderdale-based Paybox Corp. (OTCQB:PBOX) (2013-2017), and held positions as: Chief Operating Officer of Miami-based Cosmetic Dermatology, Inc. , CFO of Bijoux Terner, LLC (2008-2010); CFO of Little Switzerland, Inc. (2006-2008); and VP Sales Operations of Rewards Network, Inc. Mr. Rush sits on the Board of the Florida Breast Cancer Foundation. He is a CPA with an MBA in International Business, who has also held financial management roles at multi-national companies Sunglass Hut International, Burger King Corporation and Knight-Ridder, Inc. He began his career with the accounting firms Ernst & Young and Deloitte & Touche.
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.
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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 Company has three committees of its Board of Directors—(a) a Nominating and Governance Committee (b) a Management Compensation Committee and (c) an Audit Committee. The Board of Directors has approved charters for each committee. Steven Girgenti is Chairman of the Nominating and Governance Committee and the Management Compensation Committee, and Lowell Rush is a member. Lowell Rush is Chairman of the Audit Committee and Steven Girgenti and Adrian Liddell are members. The Board has determined that Lowell Rush qualifies as an Audit Committee financial expert, as that term is defined in applicable regulations of the SEC. The Committees are intended to operate consistent with applicable NASDAQ governance requirements. The membership and operation of these committees will change following the departure from the board on April 1, 2021 of Messrs. Girgenti and Rush
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act and the rules thereunder, the Company’s executive officers and directors and persons who own more than 10% of a registered class of the Company’s equity securities are required to file with the SEC reports of their ownership of, and transactions in, the Company’s common stock.
ITEM 11. EXECUTIVE COMPENSATION.
The following is a summary of the compensation we paid for each of the last two years ended December 31, 20172020 and 2016,2019, respectively (i) to the persons who acted as our principal executive officer during our fiscal year ended December 31, 20172020 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 an executive officer as of the end of our last fiscal year.
| Name and Principal Position | Year | Salary($) | Bonus($) | Stock Awards($) | Option Awards($) | Non- Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings($) | All other Compensation($) | Total($) | |||||||||||||||||||||||||
| Peter Zachariou | 2016 | $ | — | — | — | $ | 64,435 | — | — | — | $ | 64,435 | ||||||||||||||||||||||
| CEO | 2017 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| David Cantor | 2016 | $ | — | — | — | $ | 64,435 | — | — | — | $ | 64,435 | ||||||||||||||||||||||
| President | 2017 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary($) | Bonus($) | Stock Awards($) | Option Awards($) | Non- Equity Incentive Plan Compensation | Non- Qualified Deferred Compensation Earnings ($) | All other Compensation($) | Total($) | |||||||||||||||||||||||||||
| Peter Zachariou | 2020 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| CEO | 2019 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| David Cantor | 2020 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| President | 2019 | $ | — | — | — | — | — | — | — | — |
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OUTSTANDING EQUITY AWARDS
Grants of Plan-Based Awards
| Option Awards | ||||||||||||||||
| Name | Grant Date | 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 | |||||||||||
| Adrian Liddell | 3/23/2016 | - | 220,000 | $ | 0.78 | 3/22/2019 | ||||||||||
| David Cantor | 3/23/2016 | - | 220,000 | $ | 0.78 | 3/22/2019 | ||||||||||
| Peter C. Zachariou | 3/23/2016 | - | 220,000 | $ | 0.78 | 3/22/2019 | ||||||||||
| Equity Compensation Plan Information | ||||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | 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 (1) | |||||||||
| Equity compensation plans approved by security holders | 3,090,000 | $ | 0.28 | 2,410,000 | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 3,090,000 | $ | 0.28 | 2,410,000 | ||||||||
| Equity Compensation Plan Information | ||||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | 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 (1) | |||||||||
| Equity compensation plans approved by security holders | 720,000 | $ | $0.81 | 1,978,532 | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 720,000 | $ | $0.81 | 1,978,532 | ||||||||
(1) As of December 31, 2017. Excludes 5,557 Options which expired February 13, 2018
| (1) | As of December 31, 2020. |
Warrants Issued to Management
| Name |
Date | Underlying Unexercised Exercisable Warrants | Number of Securities Underlying Unexercised Exercisable Warrants | Warrant Expiration Date | ||||||||||||||||||
| None | ||||||||||||||||||||||
| Total | - |
Employment Agreements
Effective September 30, 2010, the Company entered into virtually identical employment agreements with David Cantor to serve as the Company’s Interim President and Peter C. Zachariou to serve as the Company’s Interim Chief Executive Officer. Each employment agreement continued until August 30, 2011 and was then automatically extended unless terminated by either party, and provided that the executives receive no compensation for services rendered under the agreements.
Effective January 2, 2014, the Company entered into: amended employment agreements with Peter Zachariou and David Cantor to serve as the Company’s Chief Executive Officer and President respectively; and an employment agreement with Adrian Liddell to serve as the Company’s Chief Financial Officer. Each agreement continues for a period of twelve months and is then automatically extended unless terminated by either party. The agreements provided for no monthly compensation to be payable, but a deferred compensation payable of $110,000 for each individual, subject to certain conditions and milestones being met. The compensation was payable in cash or Restricted Shares of the Company’s Common Stock. In March 2017 the Company amended the employment agreement such that no compensation would be payable under the agreements. The same level of compensation would instead be payable to Fountainhead under an amended consulting agreement. These changes had no financial impact on the Company but streamlines the shareholding structure.
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In March 2016 the Board of Directors approved the issuance of options to purchase 220,000 shares of Company Common Stock pursuant to the Vycor Medical, Inc. 2008 Stock Option Plan to each of Peter C. Zachariou, David Cantor and Adrian Liddell, such options to vest immediately upon issuance. The options are exercisable for a period of three years from issuance at an exercise price of $0.78.
Compensation of Directors
During the period January 1, 20172020 through December 31, 2017,2020, we granted Steven Girgenti, Oscar Bronsther, M.D. and Lowell Rush a total of 112,878, 110,585133,333 each shares and 110,585we granted our former director Oscar Bronsther 66,667 shares of the Company’s Common Stock respectively for their service to the Board of Directors under the Company’s Deferred Compensation Plan. Under this Plan, the directors may defer their director’s compensation to the January 15th following the termination of their service as a director. All of the above-mentioned Stock was granted under the Plan. Each of Mr. Girgenti Dr. Bronsther and Mr. Rush are entitled to receive $7,000 in cash or stock at the option of the company per quarter. No other directors of the Company receive compensation for their service to the Company other than as disclosed underEmployment Agreementsabove.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
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 April 4, 2014.March 20, 2020. Unless noted, the address for the following beneficial owners and management is 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner (1) | Percent of Class (2) | |||||||
| Common Stock | Steven Girgenti | 232,186 | 1.15 | % | ||||||
| Common Stock | Oscar Bronsther, M.D | 213,685 | 1.06 | % | ||||||
| Common Stock | Lowell Rush | 201,722 | 1.00 | % | ||||||
| Common Stock | Adrian Christopher Liddell | 220,000 | 1.08 | % | ||||||
| Common Stock | Marc David Cantor | 220,000 | 1.08 | % | ||||||
| Common Stock | Peter C. Zachariou | 381,598 | 1.87 | % | ||||||
| Series D Preferred Stock | Peter C. Zachariou | 69,487 | 25.71 | % | ||||||
| Common Stock | All executive officers and directors as a group | 1,469,191 | 6.86 | % | ||||||
| Series D Preferred Stock | All executive officers and directors as a group | 69,487 | 25.71 | % | ||||||
| Common Stock | Fountainhead Capital Management Limited 17 Bond Street, St. Helier, Jersey JE2 3NP | 9,120,757 | 53.04 | % | ||||||
| Series D Preferred Stock | Fountainhead Capital Management Limited 17 Bond Street, St. Helier, Jersey JE2 3NP | 188,363 | 95.4 | % | ||||||
* Less than 1%
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner (1) | Percent of Class (2) | |||||||
| Common Stock | Steven Girgenti | 592,116 | 2.08 | % | ||||||
| Common Stock | Lowell Rush | 561,652 | 1.98 | % | ||||||
| Common Stock | Peter C. Zachariou | 48,856 | 0.18 | % | ||||||
| Series D Preferred Stock | Peter C. Zachariou | 69,487 | 25.71 | % | ||||||
| Common Stock | All executive officers and directors as a group | 1,202,624 | 4.15 | % | ||||||
| Series D Preferred Stock | All executive officers and directors as a group | 69,487 | 25.71 | % | ||||||
| Common Stock | Fountainhead Capital Management Limited 17 Bond Street, St. Helier, Jersey JE2 3NP | 17,250,522 | 60.4 | % | ||||||
| Series D Preferred Stock | Fountainhead Capital Management Limited 17 Bond Street, St. Helier, Jersey JE2 3NP | 188,363 | 69.7 | % | ||||||
(1) In determining beneficial ownership of our Common Stock and Series D Preferred 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 the case of directors, the number of shares includes shares granted but not issued under the director’s Deferred Compensation Plan. In determining the percent of Common Stock or Series D Preferred Stock owned by a person or entity on March 23, 2017,30, 2021, (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 the issuance of shares granted but not issued under the director’s Deferred Compensation Plan; and (b) the denominator is the sum of (i) the total shares of that class outstanding on March 23, 2017 (20,071,98830, 2021 (27,898,200 shares of Common Stock and 270,307270,306 shares of Series D Preferred Stock) and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the debentures, warrants and options or that can be issued under the director’s Deferred Compensation Plan. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Related Party Transactions
Please referPeter Zachariou and David Cantor, directors of the Company, are investment managers of Fountainhead which owned, at December 31, 2020, 60.5% of the Company’s Common Stock and 95.4% of the Company’s Series D Preferred Stock. Adrian Liddell, Chairman is a consultant to Financial Statement,Fountainhead.
During January to December 2020 and 2019, under the terms of the Consultancy Agreement referred to in Note 12,14, the Company issued 2,142,856 shares, respectively, of Common Stock to Fountainhead for fees of $450,000, respectively.
During the year ended December 31, 2020 and 2019, respectively, the Company issued unsecured loan notes to Fountainhead for a total of $80,000 and $37,873, respectively. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary (see Note 6).
During each of the years ended December 31, 2020 and 2019, the Company accrued an aggregate of $324,370 of Preferred D Stock dividends, of which is incorporated$226,037 was in its entirety by this reference.respect of Fountainhead and $83,386 was in respect of Peter Zachariou.
There were no other related party transactions during the years ended December 31, 2020 and 2019.
Director Independence
As of March 30, 2018,2021, of our six (6)five (5) directors, Steven Girgenti Oscar Bronsther and Lowell Rush are considered “independent” in accordance with Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The remaining three (3) directors are not considered “independent”.Following the departures of Messrs. Girgenti and Rush from the Board on April 1, 2021, there will be no directors considered to be “independent”.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 20172020 and December 31, 2016,2019, respectively, were approximately $49,500$56,250 and $48,500.$53,500.
Tax Fees
The fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 20172020 and 20162019 were $1,500$3,000 and $2,000$1,500 respectively.
All Other Fees
There were no fees billed for other products or services provided by our principal accountant for 20172020 or 2016.2019.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this 10-K:
1. FINANCIAL STATEMENTS
The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:
| 40 |
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
3. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference in this report.
| 41 |
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Vycor Medical, Inc. | ||
| (Registrant) | ||
| By: | /s/ Peter C. Zachariou | |
| Peter C. Zacharion | ||
| Chief Executive Officer and Director (Principal Executive Officer) | ||
| Date | March | |
| By: | /s/ Adrian Liddell | |
| Adrian Liddell | ||
| Chairman of the Board and Director | ||
| (Principal Financial and Accounting Officer) | ||
| Date | March | |
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/ Peter C. Zachariou | |
| Peter C. Zachariou | ||
| Chief Executive Officer and Director | ||
| Date | March | |
| By: | /s/ David Marc Cantor | |
| David Marc Cantor | ||
| President and Director (Principal Executive Officer) | ||
| Date | March |
| By: | /s/ Adrian Christopher Liddell | |
| Adrian Christopher Liddell | ||
| Chairman of the Board and Director (Principal Financial and Accounting Officer) | ||
| Date | March | |
| By: | /s/ Steven Girgenti | |
| Steven Girgenti | ||
| Director | ||
| Date | March | |
| By: | /s/ Lowell Rush | |
| Lowell Rush | ||
| Director | ||
| Date | March |
| 42 |