The advertising of our products will also be subject to regulation by the Federal Trade Commission, under the Federal Trade Commission Act (“FTC Act”). The FTC Act prohibits unfair methods of competition and unfair or deceptive acts in or affecting commerce. Violations of the FTC Act, such as failure to have substantiation for product claims, would subject us to a variety of enforcement actions, including compulsory process, cease and desist orders, and injunctions. Federal Trade Commission enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, and restitution. Violations of Federal Trade Commission enforcement orders can result in substantial fines or other penalties.
Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the Quality System Regulation, or QSR, for the manufacture of our products which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval. The FDA enforces the GMP and QSR through unannounced inspections. We and our third party manufacturers and suppliers will have to successfully complete such inspections. Failure by us or one of our suppliers, to comply with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following enforcement actions:
· |
| warning letters or untitled letters; | ||
· | fines and civil penalties; | |
· | unanticipated expenditures; | |
· | withdrawal or suspension of approval by the FDA or other regulatory bodies; | |
· | product recall or seizure; | |
· | orders for physician notification or device repair, replacement or refund; | |
· | interruption of production; | |
· | operating restrictions; | |
· | injunctions; and | |
· | criminal prosecution. |
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If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.
If the FDA determines that our promotional materials, training or other activities constitutes promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
Moreover, any modification to a device that has received FDA approval that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new approval from the FDA. If the FDA disagrees with any determination by us that new approval is not required, we may be required to cease marketing or to recall the modified product until we obtain approval. In addition, we could also be subject to significant regulatory fines or penalties.
In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or GMP, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.
Further, healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory environment may change in a way that restricts our operations.
Europe - Before we can sell a medical device within Europe, we must place a CE Mark (CE Marking) on our product or label. It is a legally binding statement by the manufacturer that their product has met all of the requirements of the Medical Devices Directive (MDD 93/42/EEC). The term initially used was "EC Mark" and it was officially replaced by "CE marking" in the Directive 93/68/EEC in 1993. "CE marking" (not CE mark) is the official term now used in all new EC directives. By affixing the CE marking, the manufacturer, its authorized representative, or person placing the product on the market or putting it into service (the distributor of our devices) asserts that the item meets all the essential requirements of the relevant European Directive(s). The CE marking is a mandatory European marking for certain product groups to indicate conformity with the essential health and safety requirements set out in European Directives.
The Medical Devices Directives state that companies must do the following before they can apply the CE Mark to their medical device:
| · | Compile a CE Marking Technical File (or Design Dossier for Class III) with evidence of compliance to the Medical Devices Directive (or the IVD/AIMD Directives). |
| · | Receive a CE Mark certificate from a Notified Body if Class I with Measuring or Sterile function, Class IIa, IIb, or III. |
| · | Appoint a European Authorized Representative if a manufacturer has no physical location in Europe. |
| · | Register medical devices with the EU Competent Authorities, where applicable. |
Only after these CE compliance requirements are satisfied, are we allowed to place the CE Mark on our devices.
Canada - A manufacturer must be in compliance with Canadian Medical Device Regulatory requirements in quality system and have medical device licenses for all class 2, 3, and 4 medical devices. Further, a manufacturer is required to have establishment licenses if class 1 devices are distributed and have distribution agreements with Canadian distributors. Notification of adverse events (mandatory reports) and recalls must be reported to Health Canada. Licenses must be renewed annually and existing licenses must be amended or new licenses submitted for new products/models.
Our History
We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical LLC”. On August 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.”
Our Corporate Information
We maintain our corporate offices at 80 Orville Drive, Suite 100, Bohemia, NY 11716. Our telephone number is (631) 244 1435 and our facsimile number is (631) 244 1436. We also have a website at www.vycormedical.com ..
THE OFFERING
The Offering
This prospectus relates to (i) 2,000,000 shares of common stock and (ii) 100,000 shares of common stock underlying certain Convertible Securities.
| Common stock outstanding prior to offering | 25,463,455 | |
| Common stock offered by Company | 0 | |
| Total shares of common stock offered by selling stockholders | 2,100,000 (including up to 100,000 shares of common stock underlying certain Convertible Securities) | |
| Common stock to be outstanding after the offering (assuming all the Convertible Securities have been either exercised or converted) | 25,563,275 | |
| Use of proceeds of sale | We will not receive any of the proceeds of sale of the shares of common stock by the selling stockholders. However, we will receive proceeds from any exercise or conversion of the Convertible Securities into up to 100,000 of our shares of common stock, which are presently offered under this prospectus. We intend to use any proceeds received from the exercise or conversion, as the case may be, for working capital and other general corporate purposes. We, however, cannot assure you that any of the Convertible Securities will be exercised or converted. | |
| Risk Factors | See “Risk Factors” beginning on page 7 and other information included in this prospectus for a discussion of factors you should consider before deciding to invest in shares of our common stock. |
Background
On February 15, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $500,000 each. On April 22, 2008 Regent Private Capital assigned $250,000 of the principal amount of the Convertible Debentures representing the first tranche to Derek Johannson and $100,000 of the principal amount of the Convertible Debentures to Altcar Investments Ltd. On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company.
Pursuant to the Convertible Debenture Purchase Agreement between Regent Private Capital, LLC and ourselves dated February 15, 2008, we had agreed to file a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”). On February 15, 2008, we entered into a transaction with Fountainhead Capital Partners Limited, whereby Fountainhead Capital Partners Limited agreed to invest $300,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $150,000 each. Subsequently, on April 15, 2008, Fountainhead Capital Partners Limited assigned its entire interest to Fountainhead Capital Management Limited
Pursuant to the Convertible Debenture Purchase Agreement between Fountainhead Capital Partners Limited and ourselves dated February 15, 2008, we had similarly agreed to file a registration statement on Form S-1 with the SEC, to register for sale all common stock which may be issuable upon conversion of the Fountainhead Debentures.
As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been funded and completed.
Subsequent to the dates of these transactions, both Fountainhead Capital Partners Limited and Regent Private Capital, LLC agreed to allow us to register less than all of the shares of common stock issuable under the Regent Debenture and the Fountainhead Debenture. Instead, we have agreed to provide Regent Private Capital, LLC and Fountainhead Capital Partners Limited with certain demand and “piggy-back” registration rights covering the remainder of the common stock issuable under such Debentures.
Additionally, we are seeking to register some of our issued and outstanding shares of common stock as well as some of the shares of common stock issuable under the Convertible Securities.
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Plan of Distribution
This offering is not being underwritten. The selling stockholders may sell or distribute the shares, from time to time, depending on market conditions and other factors, through underwriters, dealers, brokers or other agents, or directly to one or more purchasers. The price of $.19 is a fixed price at which the selling security holders may sell their shares until our common stock is quoted on the OTC Bulletin Board or on any stock exchange whereupon, the selling stockholders directly, through agents designated by them from time to time or through brokers or dealers also to be designated, may sell their shares from time to time, in or through privately negotiated transactions, or in one or more transactions, including block transactions, on the OTC Bulletin Board or on any stock exchange on which the shares may be listed in the future pursuant to and in accordance with the applicable rules of such exchange or otherwise. The selling price of the shares may then be at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices after the shares are quoted on the OTC Bulletin Board. To the extent required, the specific shares to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any such agent, broker or dealer and any applicable commission or discounts with respect to a particular offer will be described in an accompanying prospectus. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.
We will not receive any proceeds from sales of shares by the selling stockholders. However, if any of the selling stockholders decide to exercise or convert their convertible security, we will receive the net proceeds of the exercise or conversion of such security held by the selling stockholders. We intend to use any proceeds we receive from the exercise or conversion of convertible securities for working capital and other general corporate purposes. We cannot assure you that any of the Convertible Securities ever be exercised or converted.
We will pay all expenses of registration incurred in connection with this offering (estimated to be $107,016), but the selling stockholders will pay all of the selling commissions, brokerage fees and related expenses.
The selling stockholders and any broker-dealers or agents that participate with the selling stockholders in the distribution of any of the shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commissions received by them and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this prospectus before deciding to invest in our common stock.
Risks Related to Our Financials
We are a recently formed development stage company that has not achieved profitable operations. If our business plan fails, you may lose your entire investment.
Our independent auditors, Paritz & Company, certified public accountants, have expressed substantial doubt concerning our ability to continue as a going concern.
We have incurred losses since our inception, including a net loss of $593,995 for the year ended December 31, 2007 and a net loss of $1,716,684 for the nine months ended September 30, 2008, and we expect to incur substantial additional losses, including additional development costs, costs related to clinical trials and manufacturing expenses. We have incurred negative cash flows from operations since inception. As of December 31, 2007 and September 30, 2008, we had a stockholders’ deficiencies of $593,827 and $858,007, respectively, and a cash and cash equivalents balance of $15,739 at December 31, 2007 and $313,478 at September 30, 2008. Since we have no record of profitable operations, there is high a possibility that you may suffer a complete loss of your investment.
We were formed on June 17, 2005 and have a limited operating history and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objectives.
We are a development stage company with limited operating results to date. Since we do not have an established operating history or regular sales yet, you will have no basis upon which to evaluate our ability to achieve our business objectives.
The absence of any significant operating history for us makes forecasting our revenue and expenses difficult, and we may be unable to adjust our spending in a timely manner to compensate for unexpected revenue shortfalls or unexpected expenses.
As a result of the absence of any operating history for us, it is difficult to accurately forecast our future revenue. In addition, we have limited meaningful historical financial data upon which to base planned operating expenses. Current and future expense levels are based on our operating plans and estimates of future revenue. Revenue and operating results are difficult to forecast because they generally depend on our ability to promote and sell our products. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would result in further substantial losses. We may also be unable to expand our operations in a timely manner to adequately meet demand to the extent it exceeds expectations.
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Our limited operating history does not afford investors a sufficient history on which to base an investment decision.
We were formed on June 17, 2005 and are currently developing and introducing new products. There can be no assurance that at this time we will operate profitably or that we will have adequate working capital to meet our obligations as they become due.
Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:
| · | competition; |
| · | need for acceptance of products — there can be no assured market for our products and there is no guarantee of orders or surgeon acceptance; |
| · | ability to continue to develop and extend brand identity; |
| · | ability to anticipate and adapt to a competitive market; |
| · | ability to effectively manage rapidly expanding operations; |
| · | amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and |
| · | dependence upon key personnel to market and sell our products and the loss of one of our key managers may adversely affect the marketing of our products. |
We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to continue as a going concern and our ability to obtain future financing.
In their report dated February 7, 2008, our independent auditors stated that our financial statements for the period ended December 31, 2007 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations and cash flow deficiencies since our inception. We continue to experience net losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. If we are unable to continue as a going concern, you may lose your entire investment.
Our revenue will be dependent upon acceptance of our products by the market. The failure of such acceptance will cause us to curtail or cease operations.
We believe that virtually all of our revenue will come from the sale of our products. As a result, we will continue to incur substantial operating losses until such time as we are able to generate revenue from the sale of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for our products. In the event that we are not able to significantly increase the number of customers that purchase our products, or if we are unable to charge the necessary prices fees, our financial condition and results of operations will be materially and adversely affected.
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Risks Related to Our Business
We cannot be certain that we will obtain patents for our devices or that such patents will protect us from competitors
We believe that our success and competitive position will depend in large part on our ability to obtain and maintain patents for our devices. We have filed patent applications for both the design of our Brain Access System and Cervical Access System and the method of performing surgery with our devices. The U.S. Patent and Trademark Office typically requires 12-24 months or more to process a patent application. There can be no assurance that our patent applications will be approved. However we do not intend to wait for the approval of the patent applications before launching our devices. There can be no assurance regarding how long it will take the U.S. Patent and Trademark Office to decide whether to approve our patent applications or how long it will take foreign patent offices to grant us patents. There can be no assurance that any patent issued or licensed to us will provide us with protection against competitive products or otherwise protect our commercial viability, or that challenges will not be instituted against the validity or enforceability of any of our patents or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity of a patent and enforce it against infringement can be substantial. Even issued patents may later be modified or revoked by the Patent and Trademark Office or in legal proceedings. Patent applications in the United States are maintained in secrecy until the patent issues and, since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries, we cannot be certain that we were the first creator of the inventions covered by our pending patent applications or the first to file patent applications on such inventions.
We are dependent on two key vendors to manufacture our products.
We are dependent on Lacey Manufacturing Company (“Lacey”) of Bridgeport, Connecticut to provide a full range of engineering, contract manufacturing and logistical support to manufacture our products. The Company has now executed an agreement with Lacey to provide manufacturing, engineering and design services, a copy of which is attached as an exhibit. We are dependent upon their commencing manufacture of our products in accordance with our specifications and delivering them on a timely basis in order to realize our business plan. As of December 31, 2008 Lacey has delivered all products due to Vycor. They can however no assurances that this will be the case in the future. As of December 31, 2007, the amount payable to Lacey was $207,245. We have agreed to a payment plan with Lacey for this amount, with no interests on the outstanding amount. Pursuant to that payment plan, as of December 15, 2008, this past amount was paid down completely.
We recently engaged C&J Industries, Meadville PA, to design certain models of the Brain Access System in addition to Lacey. We are dependent upon their commencing manufacture of our products in accordance with our specifications and delivering them on a timely basis in order to realize our business plan. As of December 31,2008 C&J manufacturing delivered all the products due to Vycor. They can however no assurances that this will be the case in the future
If either supplier fails to manufacture and/or deliver our products as specified, we may need to locate another manufacturer. We can offer no assurances that we will be successful in finding an alternate manufacturer and negotiating acceptable terms with them on a timely basis without impact on our manufacturing and delivery schedule.
Both manufactures are subject to regulatory requirements and certifications. Loss of certification would affect our supply.
We will need distribution and marketing partners to help us market our products.
We do not have established distribution and marketing channels. We will need to find means of letting our potential users know about our products and find means of distributing our products to them. We have contracted with independent medical device distributors and representatives that collectively have approximately 70 field salespeople who call on neurosurgery departments. We are in also in discussions with other potential medical device distributors and sales agents. There is no assurance that the contracted distributors or potential new distributors will be successful in promoting and selling our products.
We will need to raise substantial additional funds to bring any products to market and operate.
Our current funds are not sufficient to allow us to successfully launch and market our products. We will require substantial additional funds in order to bring our products to market. Sufficient funds on terms acceptable to us may not be available or may be available only on terms that are dilutive to investors in this offering. Our inability to obtain additional funds might prevent us from launching the products and continuing operations.
We may not be successful in capturing desired market share if products are not compatible with navigational systems.
We believe that using our products with existing navigation systems will be important in gaining market acceptance and making our pre-market evaluations. We have had discussions with BrainLAB and Medtronic about integrating our products with their navigation systems by making an adaptor to allow our products to work with their navigation systems. We can offer no assurances that we will be able to conclude a formal agreement of terms with these manufacturers, and also find another manufacturer of a navigation system willing to integrate our products with their system, or what the terms for integration will be. Further, if we were to grant an exclusive to one manufacturer of navigation systems, we may have precluded from selling our products to customers who do not use that particular navigation system.
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Our development activities may be more expensive than anticipated and that we may not have sufficient resources to realize our business plan.
There is a possibility that the money and time required to obtain permits, to enter into arrangements with manufacturers and distributors etc. may be excessive and more than what we had anticipated. We may conclude that the expenses will make the launch uneconomical. Therefore there is a risk that funds that we may not be able to complete the development of and sale of our products.
Sales may not produce profits.
We may be forced to sell our products at a lower price than anticipated due to a variety of reasons, including without limitation selling prices of comparable products by our competitors and budget constraints of our customers. Further, we may sell fewer products than anticipated, and the costs associated with each unit, including costs of manufacturing and commissions, may be greater than anticipated. As a result, there is a risk that the cost of the launch may be greater than we anticipated and that the sale of devices may fail to yield profitability.
Our products may not be accepted in the marketplace.
Uncertainty exists as to whether our products, once completely developed and available for commercialization, will be accepted by the market without clinical evaluations. A number of factors may limit the market acceptance of our products, including the timing of regulatory approvals and market entry relative to competitive products, the availability of alternative products and the price of the our products relative to alternative products. There is a risk that surgeons will be encouraged to use multiple use devices, such as retractors, instead of our single use devices. Our device is designed to be used once and then discarded. Our competitors market multiple use devices such as retractors. The multiple use devices are not appreciably more expensive than our single use devices and therefore they are significantly less expensive on a per use basis. We are assuming that notwithstanding the difference in price that surgeons will elect to use our devices because of their perception that our devices will permit safer and less invasive surgery. However, hospitals, medical insurance providers, health maintenance organizations and others approving surgical costs may decide that the cost outweighs the benefit. In addition, surgeons may opt to use other devices.
Even if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the Quality System Regulation, or QSR, for the manufacture of our products which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval. The FDA enforces the GMP and QSR through unannounced inspections. We and our third party manufacturers and suppliers will have to successfully complete such inspections. Failure by us or one of our suppliers, with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following enforcement actions:
| · | warning letters or untitled letters; |
| · | fines and civil penalties; |
| · | unanticipated expenditures; |
| · | withdrawal or suspension of approval by the FDA or other regulatory bodies; |
| · | product recall or seizure; |
| · | orders for physician notification or device repair, replacement or refund; |
| · | interruption of production; |
| · | operating restrictions; |
| · | injunctions; and |
| · | criminal prosecution. |
If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.
If the FDA determines that our promotional materials, training or other activities constitutes promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
Moreover, any modification to a device that has received FDA approval that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new approval from the FDA. If the FDA disagrees with any determination by us that new approval is not required, we may be required to cease marketing or to recall the modified product until we obtain approval. In addition, we could also be subject to significant regulatory fines or penalties.
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In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or GMP, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.
Further, healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory environment may change in a way that restricts our operations.
Similarly, in Canada , Health Canada could place a hold on imports from us and could revoke any licenses held for violations of its rules and regulations. Health Canada could issue a warning the first time around and we would be obligated to fix the problem and follow up with Health Canada.
In Europe, the relevant European authorities could hold imports from us and remove CE marking for violating their rules and regulations. We could get a warning from a European Competent Authority or its Notified Body and we would be obligated to fix the problem and follow up with either the Notified Body or Competent Authorities.
Because product liability is inherent in the medical devices industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.
Our business exposes us to potential product liability risks, which are inherent in the manufacturing, marketing and sale of medical devices. While we will take precautions we deem to be appropriate to avoid product liability suits against us, there can be no assurance that we will be able to avoid significant product liability exposure. Product liability insurance for the medical products industry is generally expensive, to the extent it is available at all. While we may obtain such coverage, there can be no assurance that we will be able to obtain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against potential claims. A successful product liability claim brought against us may exceed any insurance coverage secured by us and could have a material adverse effect on our results or ability to continue marketing our products.
Because the healthcare industry is subject to changing policies and procedures, we may find it difficult to continue to compete in an uncertain environment.
The health care industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare industry participants. During the past several years government regulation of the healthcare industry has changed significantly in several countries. Healthcare industry participants may react to new policies by curtailing or deferring use of new treatments for disease, including treatments that would use our devices. This could substantially impair our ability to successfully marker our products, which would have a material adverse effect on our performance.
The market success of our product candidates will be dependent in part upon third-party reimbursement policies that are often subject to change.
Our ability to successfully penetrate the market for our products may depend significantly on the availability of reimbursement to hospitals for our productsneurosurgical procedures from third-party payers, such as governmental programs, private insurance and private health plans. While our products are currently reimbursed under applicable Medicare policies and many third-party payers,plans, there is no guarantee that this will not change in the future or that applicable levels of reimbursement for our products,to hospitals, if any, will be high enough to allow us to charge a reasonable profit margin. Our products are not specifically reimbursed by third party payors, they are part of the overall procedure cost. If levels of reimbursement are decreased in the future, the demand for our products could diminish or our ability to sell our products on a profitable basis could be adversely affected.
Some of our competitors are more established and better capitalized than we are and we may be unable to establish market share.
Some of our competitors are well-known, more established and better capitalized than we are. As such, they may have at their disposal greater marketing strength and economies of scale. They may also have more resources to expend on research and development to create more innovative products in competition with ours. Accordingly, we may not be successful in competing with them for market share.
We will need to increase the size of our organization, and may experience difficulties in managing growth.
We are a small company with minimal employees. We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future growth effectively.
We are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.
We have offered and sold our common stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.
If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes under the National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.
The availability of a large number of authorized but unissued shares of common stock may, upon their issuance, lead to dilution of existing stockholders.
We are authorized to issue 100,000,000 shares of common stock, $0.001 par value per share, of which, as of November 1, 2008, 22,562,332January 15, 2009 25,463,455 shares of common stock were issued and outstanding. These shares may be issued by our board of directors without further stockholder approval. The issuance of large numbers of shares, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances of large numbers of shares may adversely affect the market price of our common stock.
Further, our Certificate of Incorporation authorizes 10,000,000 shares of preferred stock, $.001$1 par value per share. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which convert into large numbers of shares of common stock and consequently lead to further dilution of other shareholders.
We may need additional capital that could dilute the ownership interest of investors.
We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these securities may have rights, preferences or privileges senior to those of the rights of holders of our common stock and they may experience additional dilution. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations in the future. The issuance of additional common stock by our management, may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.
We rely on Mr. Kenneth T. Coviello, our Chief Executive Officer and Ms. Heather Jensen, our President, for the management of our business, and the loss of their services may significantly harm our business and prospects.
We depend, to a large extent, on the abilities and participation of our current management team, but have a particular reliance upon Mr. Kenneth Coviello, our Chief Executive Officer and Ms. Heather Jensen, our President for the direction of our business. The loss of the services of either Mr. Coviello or Ms. Jensen, for any reason, may have a material adverse effect on our business and prospects. We cannot assure you that the services of Mr. Coviello or Ms. Jensen will continue to be available to us, or that we will be able to find a suitable replacement for either of them. We do not have key man insurance on Mr. Coviello or Ms. Jensen. If either or both of them were to die and we are unable to replace either or both of them for a prolonged period of time, we may be unable to carry out our long term business plan and our future prospect for growth, and our business, may be harmed.
We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire such personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.
Our future success depends heavily upon the continuing services of the members of our senior management team, in particular our Chief Executive Officer, Mr. Kenneth Coviello and our President, Ms. Heather Jensen. If one or more of our senior executives or other key personnel is/are unable or unwilling to continue in his/her/their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and personnel is intense, the pool of qualified candidates in the medical device field is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could materially and adversely affect our future growth and financial condition.
We may not have adequate internal accounting controls. While we have certain internal procedures in our budgeting, forecasting and in the management and allocation of funds, our internal controls may not be adequate.
We are constantly striving to improve our internal accounting controls. We do not have a dedicated Chief Financial Officer. We hope to develop an adequate internal accounting control to budget, forecast, manage and allocate our funds and account for them. There is no guarantee that such improvements will be adequate or successful or that such improvements will be carried out on a timely basis. If we do not have adequate internal accounting controls, we may not be able to appropriately budget, forecast and manage our funds, we may also be unable to prepare accurate accounts on a timely basis to meet our continuing financial reporting obligations and we may not be able to satisfy our obligations under US securities laws.
We have inadequate insurance coverage
We only have Directors and Officers Liability Insurance and Product Liability insurance at present. We have exposure in the event of loss or damage to our propertiesproperties. We are seeking quotations for property and other necessary insurances.
We cannot assure you that we would not face liability in the event of the failure of any of our products. This is particularly true given our plan to significantly expand our sales into international markets, like Europe, where product liability claims are more prevalent. Moreover, our insurance may not be adequate to cover any such product liability damages.
We do not maintain a reserve fund for warranty or defective products claims. Our costs could substantially increase if we experience a significant number of warranty claims. We have not established any reserve funds for potential warranty claims. If we experience an increase in warranty claims or if our repair and replacement costs associated with warranty claims increase significantly, it would have a material adverse effect on our financial condition and results of operations.
Rule 415
We may not be able to register all of the shares (and the shares underlying the convertible securities). This may require us to pay the investors damages.
Reference is made to “Selling Stockholders — Background” in this prospectus for disclosure relating to our obligation to register the shares (and the shares underlying certain Convertible Securities) and the circumstances in which we may be liable for damages for failing to comply with our obligations set forth therein.
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Risks Related to an Investment in Our Common Stock
Our Chief Executive Officer and President control us through their position and stock ownership and their interests may differ from other stockholders
Our Chief Executive Officer and President beneficially own, in the aggregate, approximately 45.68%40.2% of our common stock. As a result, while they individually are not holders of a majority of the outstanding shares, collectively, they may be able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions, including business combinations. Their interests may differ from other stockholders.
We do not intend to pay cash dividends in the foreseeable future
We currently intend to retain all future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.
There is currently no market for our securities and there can be no assurance that any market will ever develop or that our common stock will be listed for trading.
Prior to the date of this prospectus, there has not been any established trading market for our common stock and there is currently no market for our securities. We will seek to have a market maker file an application with the NASD on our behalf to list the shares of our common stock on the NASD OTC Bulletin Board (“OTCBB”) or similar quotation service when we have a sufficient number of shareholders, if ever. There can be no assurance as to whether such market makers application will be accepted or, if accepted, the prices at which our common stock will trade if a trading market develops, of which there can be no assurance. We are not permitted to file such application on our own behalf. Until our common stock is fully distributed and an orderly market develops, (if ever) in our common stock, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of us and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock. Owing to the anticipated low price of the securities, many brokerage firms may not be willing to effect transactions in the securities.
Our common stock is subject to the Penny Stock Regulations
Our common stock and will likely be subject to the SEC's “penny stock” rules to the extent that the price remains less than $5.00.$5. Those rules, which require delivery of a schedule explaining the penny stock market and the associated risks before any sale, may further limit your ability to sell your shares.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00$5 per share. Our common stock, when and if a trading market develops, may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the `penny stock` rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.
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Our common stock is illiquid and subject to price volatility unrelated to our operations
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Also, as a result of the exercise or conversion of certain convertible securities by the selling stockholders, there may be a significant number of new shares of common stock on the market in addition to the current public float. Sales of substantial amounts of common stock, or the perception that such sales could occur, and the existence of convertible securities to purchase shares of common stock at prices that may be below the then current market price of the common stock, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.
Our securities are not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
We have not registered our securities pursuant to Section 12 of the Securities Exchange Act, as amended, which means we are considered a “voluntary filer” under SEC regulations. We may register our securities pursuant to Section 12 of the Securities Exchange Act in the future although we currently do not have any plans to do so. In the meantime, we are, therefore, not currently obligated to file any periodic reports under the Securities Exchange Act, to follow the SEC’s proxy rules or to distribute an annual report, containing audited financial reports to our securities holders, although we may voluntarily file annual, quarterly and special reports, and other information with the SEC. If we are not required to deliver an annual report to security holders, we do not intend to voluntarily deliver annual reports to security holders containing audited financial statements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
This prospectus 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 prospectus 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 prospectus 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.
USE OF PROCEEDS
We will not receive any of the proceeds from any sales of the shares offered for sale and sold under this prospectus by the selling stockholders. We will receive proceeds from the issuance of shares of our common stock on the exercise or conversion, if any, of the Convertible Securities issued to the selling stockholders.
We will receive proceeds of conversion or exercise if the Convertible Securities are exercised or converted. We intend to use the proceeds from the exercise or conversion of the Convertible Securities, if any, for working capital and other general corporate purposes. We cannot assure you that any of the Convertible Securities will ever be exercised or exercised for cash, if at all.
Since our shares are not listed or quoted on any exchange or quotation system, the offering price of the shares of common stock was arbitrarily determined. The offering price was determined by the price shares were sold to our shareholders in our last private placement which was completed in April 15, 2008 pursuant to an exemption under Rule 506 of Regulation D.
The offering price of the shares of our common stock has been determined arbitrarily by us and does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. Although our common stock is not listed on a public exchange, we will be filing to obtain a listing on the Over The Counter Bulletin Board (OTCBB) concurrently with or shortly after the filing of this prospectus. In order to be quoted on the Bulletin Board, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with the National Association of Securities Dealers, which operates the OTC Electronic Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
In addition, there is no assurance that our common stock will trade at market prices in excess of the initial public offering price as prices for the common stock in any public market which may develop will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.
The common stock to be sold by the selling shareholders is common stock that is currently issued or will be issued to our shareholders upon conversion or exercise of certain Convertible Securities. Accordingly, there will be no dilution to our existing shareholders.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data contains consolidated statement of operations data and consolidated balance sheet for the fiscal years period ended December 31, 2007 and December 31, 2006. The consolidated statement of operations data and balance sheet data were derived from the audited consolidated financial statements. Such financial data should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements starting on page F-1 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of December 31, 2007 | As of December 31, 2006 | ||||||
| Balance Sheet Data: | |||||||
| Assets | $ | 47,077 | $ | 141,614 | |||
| Liabilities | $ | 773,410 | $ | 469,095 | |||
| Total Stockholders’ Deficiency | $ | (726,333 | ) | $ | (327,481 | ) | |
| Statement of Operations Data | |||||||
| Revenue | $ | 2,565 | $ | - | |||
| Operating Expenses | $ | 495,563 | $ | 492,200 | |||
| Other Expenses | $ | 46,652 | $ | 878 | |||
| Net Loss | $ | (539,650 | ) | $ | (493,078 | ) | |
| Basis and Diluted Loss Per Share | $ | (0.03 | ) | n/a | |||
| Weighted Average Number of Shares Outstanding | 18,197,352 | n/a | |||||
As of December 31, 2007 | As of December 31, 2006 | |||||||
| Balance Sheet Data: | ||||||||
| Assets | $ | 47,077 | $ | 141,614 | ||||
| Liabilities | $ | 640,904 | $ | 299,525 | ||||
| Total Stockholders’ Deficiency | $ | (593,827 | ) | $ | (157,911 | ) | ||
| Statement of Operations Data | ||||||||
| Revenue | $ | 2,565 | $ | - | ||||
| Operating Expenses | $ | 475,626 | $ | 568,255 | ||||
| Other Expenses | $ | 120,934 | $ | 3,807 | ||||
| Net Loss | $ | (593,998 | ) | $ | (572,062 | ) | ||
| Basis and Diluted Loss Per Share | $ | (0.03 | ) | (0.03 | ) | |||
| Weighted Average Number of Shares Outstanding | 18,010,459 | 17,328,133 | ||||||
The following selected data contains statement of operations data and balance sheet for the sixnine months ended JuneSeptember 30, 2008 and JuneSeptember 30 , 2007. The statement of operations data and balance sheet data were derived from the financial statements for the periods. Such financial data should be read in conjunction with the unaudited financial statements and the notes to the financial statements for said periods starting on page F-15 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of June 30, 2008 | As of June 30, 2007 | ||||||
| Balance Sheet Data: | |||||||
| Assets | $ | 824,220 | — | ||||
| Liabilities | $ | 1,761,768 | — | ||||
| Total Stockholders’ Deficiency | $ | (937,548 | ) | — | |||
| Statement of Operations Data | |||||||
| Revenue | — | — | |||||
| Operating Expenses | $ | 895,955 | $ | 56,348 | |||
| Other (Income) Expenses | $ | 66,551 | $ | 21,498 | |||
| Net Loss | $ | (962,506 | ) | $ | (78,167 | ) | |
| Basis and Diluted Loss Per Share | $ | (0.05 | ) | n/a | |||
| Weighted Average Number of Shares Outstanding | 21,082,020 | n/a | |||||
As of September 30, 2008 | As of September 30, 2007 | |||||||
| Balance Sheet Data: | ||||||||
| Assets | $ | 559,251 | 105,041 | |||||
| Liabilities | $ | 1,417,258 | 623,135 | |||||
| Total Stockholders’ Deficiency | $ | (858,007 | ) | (518,094 | ) | |||
| Statement of Operations Data | ||||||||
| Revenue | 3,342 | — | ||||||
| Operating Expenses | $ | 1,200,999 | $ | 346,215 | ||||
| Other (Income) Expenses | $ | 519,027 | $ | 79,787 | ||||
| Net Loss | $ | (1,716,684 | ) | $ | (426,002 | ) | ||
| Basis and Diluted Loss Per Share | $ | (0.08 | ) | (0.02 | ) | |||
| Weighted Average Number of Shares Outstanding | 21,526,747 | 17,940,612 | ||||||
Going Concern
Our independent auditors have added an explanatory paragraph to their audit issued in connection with the financial statements for the period ended December 31, 2007, relative to our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an ongoing business for the next 12 months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business. The Company has suffered net losses and as of December 31, 2007, its total liabilities exceeded its total assets by $593,827. We had an accumulated deficit of $1,354,010 incurred through such date and recorded a loss of $593,995 for the fiscal year ended December 31, 2007. Because our auditors have issued a going concern opinion, there is substantial uncertainty we will continue operations in which case you could lose your investment.
Because our auditors have issued a going concern opinion, there is substantial uncertainty we will continue operations in which case you could lose your investment. Following the end of the fiscal year ended December 31, 2007, we received approximately $1,565,000 cash through the sale of Convertible Debentures and equity through January 9, 2009 (see Liquidity, above). Based upon our operating budgets, we believe that these additional infusions of cash will enable us to fund our operations through May 2009. We will need to raise additional investment capital to fund our operations beyond that date and until we can operate on a cash flow positive basis. There is no guarantee that we will be able to obtain such additional funding or that any funding will be offered on terms and conditions which are acceptable to us.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”
Overview
We are a developer of neurological medical devicesdevices. We have been conducting research, developing, prototyping, and producing mold development work for the Brain Access System. This product is designed to assist the neurosurgeon with brain surgery. It allows the surgeon to gain access to various regions in the brain through a working channel.
We are in the process of introducingmarketing our first series of products to the marketplace.
Our first product line that we plan to introduceintroduced to the market is a new type of self retaining brain retractor we callcalled the ViewSite Brain Access System.
We are in the process of conducting research, development, prototyping, and production mold development work for our first product series,started marketing the Brain Access System.System in September of 2008 and started shipping all sizes in November of 2008. The product line consists of various port sizes and lengths to allow the surgeon to use the device for various regions of the brain and different procedures.
For the initial launch we are planning to offeroffered approximately 1012 sizes of the Brain Access System. Due to funding constraints, three sizes were designed and molds produced in 2007. The remaining sizes have been designed and molds have been ordered. We have subcontracted the molds and production to two ISO Certified FDA registered medical device manufacturers. The qualifying of the molds and the production is in process. ProductsFirst production run products have topassed sterilization validation and final inspections. Future production also must pass sterilization validation and final inspections.
The second product in our pipeline is the Cervical Access System, which, pending receipt of additional funding and successful market testing, is planned for launch during 2010. Like the Brain Access System, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.
Accessories are still to be designed. We are planning to launchlaunched the Brain Access System product in September 2008 at the fourth quarterCongress of Neurosurgeons and we began shipping all 12 models in November 2008. The second product in our pipeline is the Cervical Access System, which is scheduled for launch during late 20092010 pending additional funding and satisfactory field testing.
There are still design and manufacturing milestones and hurdles that must be passed prior to selling our products:
· | Additional sizes of the Brain Access System must be produced to offer a wider choice for the surgeons; | |
· | When the designs have been completed, we have to qualify molds with our subcontractors; | |
· | The products must pass packaging processing validations, sterilization validations, and quality inspections; and | |
· | Appropriate storage or warehousing must be secured. |
In addition, besides manufacturing and design, we must:
· | Establish a sales force-through independent distributors and representatives; | |
· | Secure additional financing for continued operations; | |
· | Add additional management; | |
· | Finish and produce certain accessories to our devices; | |
· | Maintain good standing with the regulatory agencies; | |
· | Achieve favorable acceptance by the surgeons and hospitals of our devices. |
We have received FDA 510k510(k) clearance for both our Brain Access System and Cervical Access System products. Section 510(k) of the United States Food, Drug and Cosmetic Act requires medical device manufacturers to register with the U.S. Food and Drug Administration of their intent to market a medical device at least 90 days in advance. The 510(k) submission allows the U.S. Food and Drug Administration to determine whether a device is generally equivalent to similar one already on the market. With the FDA 510k510(k) clearance, we are authorized to take our products to market in the U.S. without further approvals.
We have also received CE Marking for our products and are able to sell them in member countries of the European Union. The European Medical Device Directive makes it mandatory to fulfill CE certification requirements in order to export medical devices, of Class I, IIa, IIb, and III to any country within the European community.
Revenue
We are currently in the development stage and have yet to recognize meaningful revenues. We expect to ultimately receive revenues through the sale of our medical devices to medical care providers and potential license fees related to the sale of our products in other areas other than neurosurgery. Primary revenues will be derived from hospitals and distributors in the US and international distributors.
Research and Development Expenses
Research and development expenses consist primarily of:
· | Design costs; | |
· | Development expenses; | |
· | Production of prototypes |
General and Administrative Expenses
General and administrative expenses consist primarily of:
· | Office rental expense; | |
· | Salaries and benefits; | |
· | Travel Expenses; | |
· | Professional fees — accounting, audit, consulting, legal, industry and medical advisors; | |
· | Marketing |
Critical Accounting Policies and Estimates
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Currently, the Company estimates depreciation, amortization of intangible assets, and the fair values of options and warrants.
We have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since itsour inception, including a net loss of $539,650$593,995 for the year ended December 31, 2007 and a net loss of $1,716,684 for the Company expectsnine months ended September 30, 2008, and we expect to incur substantial additional losses, including additional development costs, costs related to clinical trials and manufacturing expenses. The Company hasWe have incurred negative cash flows from operations since inception. As of December 31, 2007 the Companyand September 30, 2008, we had a stockholders’ deficiencydeficiencies of $614,328$593827 and $858,007, respectively, and a cash and cash equivalents balance of $15,739.$15,739 at December 31, 2007 and $313,478 at September 30, 2008. Since we have no record of profitable operations, there is high a possibility that you may suffer a complete loss of your investment. In these circumstances the Company believes it may not have enough cash to meet its various cash needs for the year ended 2008 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. 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.
Research and Development
The Company expenses all research and development costs as incurred. For the years ended December 31, 2007 and 2006, the amounts charged to research and development expenses were $5,885$6,969 and $158,823, respectively.
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Cash and cash equivalents
The Company considers all highly liquid debt investments with original maturities of three months or less when purchased to be cash equivalents. The carrying amounts approximate fair market value because of the short maturity. The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company's accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Fair Values of Financial Instruments
At December 31, 2007 and 2006, fair values of cash and cash equivalents, accounts payable, convertible promissory notes, and options and warrants approximate their carrying amount due to the short period of time to maturity and various fair value model calculations.
Property and equipment
The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and seven years.
Income taxes
The Company accounts for income taxes in accordance with SFAS 109, Accounting Forfor Income Taxes. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
Patents
The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or process are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.
The Company reviews existing patents as well as those in the approval process for impairment on an annual basis using a present value, cash flow method pursuant to Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets. Since the Company’s patents are either very new or still in the process of approval, the Company does not believe that any impairment of these amounts exists.
Revenue Recognition
To date, the Company has had virtually no revenue. Upon the planned development and sale of their products, the Company will record revenue at the time, pursuant to Staff Accounting Bulletin Topic 13(a) that a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company intends to sell a surgical access system that the FDAwhich has already cleared the firm’sU.S. FDA 510(k), review process. It has been granted a 510(k) number to market to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warrantee costs but will review such potential costs after the commencement of sales.
Educational and marketing expenses
The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will expense such costs as a component of selling, general and administrative costs as such costs are incurred.
Website Costs
The Company capitalizes the costs associated with the acquisition of hardware and development tools as well as the creation of database tools in connection with the Company’s website pursuant to Statement of Position 98-1 and Emerging Issues Task Force 00-20. Other costs including the development of functionality and identification of software tools are expensed as incurred.
Contractual Obligations
The following table sets forth information, as of October 1, 2008,January 14, 2009, , with respect to our known contractual obligations as of such date:
| (i) | The outstanding Bridge Loan Debenture dated December 14, 2006 in the original principal amount of $172,500 with Fountainhead Capital Partners Limited, which may be converted into approximately 1,876,300 shares of common stock. | |
| (ii) | A Warrant issued to Fountainhead Capital Partners Limited to Purchase 50.22 Membership Units of the Company (now 805,931 shares of our common stock) dated December 15, 2006 at $.50 per share. |
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement and warrant. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
| (iii) | The investment opportunity granted under the Option Agreement with Fountainhead Capital Partners Limited dated December 14, 2006 granting |
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement and warrant. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
| (iv) | Dr. Ezriel E. Kornel entered into a consulting agreement with us on January 10, 2006. Pursuant to the consulting agreement, in consideration for acting as our consultant, Dr. Kornel received options to acquire 240,720 shares of our common stock at a price of |
| (v) | Dr. David Langer entered into an amended and restated consulting agreement with the Company on December 11, 2006. Pursuant to the agreement, Dr. Langer agreed to provide us certain consulting services, which include the role of our Chief Medical Advisor, assistance in the analysis, preparation, submission, publication and presentation of scientific data in relation to our research efforts and sales and marketing efforts. | |
| (vi) | Dr. Donald O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was granted an option to purchase 50,000 shares of the Company’s common stock at $.50 per share. |
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| (vii) | GC Advisors LLC is the holder of | |
| (viii) | George Kivotidis is a holder of a warrant to purchase up to 4,000 shares of our common stock at $.50 per share. The warrant is valid from November 6, 2007 for a period of three years. | |
| (ix) | Martin Magida is a holder of a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. | |
| (x) | Robert Guinta is a holder of a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. | |
| (xi) | Each of Kenneth Coviello and Heather Jensen | |
| (xii) | On April,13, 2007 and May 31, 2007, we entered into 6 month promissory notes with Optimus Services, each having a principal amount of $50,000 | |
| (xiii) | On January 9, 2007, we entered into a promissory note with GC Advisors, which had a principal amount of $17,000, and matures on January 9, 2009. | |
| (xiv) | On February 15, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $500,000 each. In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the Regent Private Capital, LLC investments. These Convertible Debentures have a term of one year and are convertible into shares of our common stock at a price of approximately $.123 per share. If fully converted, the Convertible Debentures would result in the issuance of 5,652,954 shares to Regent Private Capital, LLC and 3,017,409 shares to Fountainhead Capital Partners Limited. | |
| Subsequently, Fountainhead Capital Partners Limited assigned its entire interest to Fountainhead Capital Management Limited and on April 22, 2008 Regent Private Capital assigned $250,000 of the principal amount of the Convertible Debentures representing the first tranche to Derek Johannson and $100,000 of the principal amount of the Convertible Debentures to Altcar Investments Ltd. On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company. |
As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been completed.
| (xv) | On September 1, 2008, Dr. Konstantin Slavin entered into a consulting agreement with the Company. Pursuant to the agreement, Dr. Slavin agreed to provide us certain consulting services. In consideration of such consulting services, Dr. Slavin received a one-time retainer of $5,000, which the Company has paid by the issuance of 26,000 shares of the Company’s common stock to Dr. Slavin. On October 21, 2008, Dr Slavin was issued an additional 21,875 shares of the Company’s common stock in lieu of services valued at approximately | |
| (xvi) | On July 14, 2008 Theo Novak, Director of Engineering and on December 2, 2008 Steven Tobias our Director of Marketing was each granted employee stock options for 25,000 shares at .19 per share. The options shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire July 14, 2018 and December 2, 2018 respectfully | |
| (xvii) | On November 20, 2008 the company granted William Roberts a warrant to purchase 657.894 shares at .30 per share. The warrant expires 2 years from the grant date . The Company also granted William Roberts an option to invest up to $125,000 at $0.19 per share, this expired on January 9, 2009. |
Changes in Connection with Becoming a Public Company
As a public company, we expect that we will incur significant additional operating expenses such as increased audit fees, Sarbanes-Oxley compliance preparation fees, professional fees, directors’ and officers’ insurance costs, compensation for our board of directors, and expenses related to hiring additional personnel and expanding our administrative functions. Many of these expenses were not incurred or were incurred at a lower level by us as a private company and are not included in our prior results of operations. We began to incur certain of these expenses during fiscal 2007, and we expect that these expenses will continue to increase.
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Lease Obligation
We rent office space on a short term basis at a rate of $2,350 per month which can be renewed on a minimum of 4-month3-month term. Our present lease expires December 31, 2008.March 31,2009. We have an option to extend to March 31,June 30, 2009. It is expected that we will renew the present space when our current lease ends and take out additional office space, which will add an approximate $1,700 a month to our lease expenses or move to another site
Year Ending December 31, | Amount | |||
| 2008 | $ | 20,000 | ||
| 2009 | — | |||
| 2010 | — | |||
| 2011 | — | |||
| 2012 | — | |||
| Thereafter | — | |||
| $ | 20,000 | |||
Rent expense charged to operations under these operating lease aggregated $13,900$13,847 and $2,872 for the years ended December 31, 2007, and 2006, respectively. Rent expense charged to operations for the period from June 17, 2005 (Date of Inception) to December 31, 2007 was $16,772.$16,719.
We have filed the following patent applications:
Filing Date | Application No. | Country | Title | Status | ||||
| June 22, 2005 | 60/692,959 | US — provisional | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery (Cervical) | Converted to PCT | ||||
| June 22, 2006 | PCT/US06/24243 | PCT | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery (Cervical) | Entered National Phase | ||||
| June 22, 2005 | 11/155,175 | US — utility | Surgical Access Instruments for Use with Delicate Tissues (Brain) | Pending | ||||
| November 27, 2006 | PCT/US06/61246 | PCT | Surgical Access Instruments for Use with Delicate Tissues (Brain) | Pending — National Phase Entry on May 27, 2009 | ||||
| June 22, 2006 | Canada | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| June 22, 2006 | 06785312.7 | Europe | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | ||||
| June 22, 2006 | India | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| June 22, 2006 | Israel | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| June 22, 2006 | Japan | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| December 20, 2007 | 11/993,280 | US | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending |
Trademarks
VYCOR MEDICAL is s registered trademark and VYCOR VIEWSITE is pending registration with the United States Patent Office.
21
Employment Agreements
We have entered into employment agreements with each of Heather N. Jensen, our President, and Kenneth T. Coviello, our Chief Executive Officer. Each of these agreements is dated as of January 1, 2008 and provides for an initial term of one year and renew annually unless terminated by either party. Such agreements provide for minimum salary levels as well as for equity incentives, fringe benefits, automobile allowance and incentive bonuses that are payable if specified management goals are attained.
The following table presents the dollar amount and percentage of changes from period to period of the line-items included in our Statements of Operations for the years ended December 31, 2007 and 2006:
Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
2007 | 2006 | Increase/(Decrease) | % Change | 2007 | 2006 (2) | Increase/(Decrease) | % Change | ||||||||||||||||||||||
| Revenue | $ | 2,565 | — | $ | 2,565 | — | |||||||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Sales | $ | 2,565 | — | 2,565 | 100 | ||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development | $ | 5,885 | $ | 158,823 | $ | (152,938 | ) | (96.29 | ) | $ | 6,969 | $ | 158,823 | (151,854 | ) | $ | 95.61 | ||||||||||||
| Compensatory element of stock | $ | 20,839 | $ | 6,314 | $ | 14,525 | 130.00 | ||||||||||||||||||||||
| General and administrative | $ | 468,839 | $ | 327,063 | $ | 141,776 | 43.35 | $ | 468,657 | $ | 409,432 | 59,225 | $ | 14.47 | |||||||||||||||
| Operating loss | $ | (473,061 | ) | $ | (568,255 | ) | (95,194 | ) | $ | (16.75 | ) | ||||||||||||||||||
| Other Expenses | $ | 46,652 | $ | - | $ | 46,652 | 100.00 | $ | 120,934 | $ | 3,807 | 117,127 | $ | 3,076.62 | |||||||||||||||
| Total Expenses | $ | 539.650 | $ | 493,078 | $ | 46,572 | 9.44 | $ | 596,560 | $ | 572,062 | 24,498 | $ | 4.28 | |||||||||||||||
| Operating loss | $ | (539,650 | ) | $ | (493,078 | ) | $ | 46,572 | 9.44 | ||||||||||||||||||||
| Net loss | $ | (593,995 | ) | $ | (572,062 | ) | 21,933 | $ | 3.83 | ||||||||||||||||||||
Comparison of the Year Ended December 31, 2007 to the Year Ended December 31, 2006
Revenue:
We recorded nominal revenue from the sale of our products in the year ended December 31, 2007 of $2,565. These are the first revenues recorded by us since our inception. The products sold were the Brain Access System products (product model number TC211505 and TC171105) which were sold to Cooper University Hospital on October 31, 2007. To date, we have not had sufficient inventory to commence a meaningful product launch.
Research and Development Expenses:
Research and development expenses decreased by 96.29%95.61%, or $152,938$151,854 from $158,823 for the fiscal year ended December 31, 2006 to $5,885$6,969 for the fiscal year ended December 31, 2007. During 2007 the decrease was primarily attributed to lower engineering costs and less emphasis needed on product design.
General and Administrative Expenses:
General and administrative expenses increased by 43.35%14.47%, or $141,776$59,225 from $327,063$409,432 for the fiscal year ended December 31, 2006 to $468,839$468,657 for the fiscal year ended December 31, 2007. The increase was attributable to increased costs relating to raising additional capital, increase in salaries, rent and auto expenses. In addition we recorded $20,869 and $6,314 of compensatory element of stock for the years ended December 31, 2007 and 2006 respectively. This expense is directly related to option and warrants issued to consultants and employees.
Other Income (Expense):
We recorded interest expense of $46,652$120,934 and $878$3,807 for years ended December 31, 2007 and 2006, respectively. The increase is due to the company entering into convertible debt agreements. InterestFor the years ended December 31, 2007 and 2006, interest expense was offset with interest income of $900.$901 and $0, respectively.
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The following table sets forth our results of operations for the fiscal years ended December 31, 2007 and 2006 and for the period from the date of inception (June 17, 2005) through December 31, 2005:
Year Ended December 31, | ||||||||||
2007 | 2006 (2) | 2005 (1) (2) | ||||||||
| Revenue: | ||||||||||
| Sales | $ | 2,565 | — | — | ||||||
| Operating expenses: | ||||||||||
| Research and development | $ | 5,885 | $ | 158,823 | $ | 103,122 | ||||
| General and administrative | $ | 468,839 | $ | 327,063 | $ | 84,831 | ||||
| Compensatory element of stock | $ | 20,839 | $ | 6,314 | $ | 27,153 | ||||
| Other Expenses | $ | 46,652 | $ | 878 | $ | — | ||||
| Total Operating Expenses | $ | 495,563 | $ | 492,200 | $ | 187,953 | ||||
| Operating loss | $ | (539,650 | ) | $ | (493,078 | ) | $ | (187,953 | ) | |
| Loss per common share - basic and diluted | $ | (0.03 | ) | n/a | n/a | |||||
| Weighted average shares outstanding | 18,197,352 | n/a | n/a | |||||||
| Year Ended December 31, | ||||||||||||
| 2007 | 2006 (2) | 2005 (1) (2) | ||||||||||
| Revenue: | ||||||||||||
| Sales | $ | 2,565 | — | — | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 6,969 | $ | 158,823 | $ | 103,122 | ||||||
| General and administrative | $ | 468,657 | $ | 409,432 | $ | 84,831 | ||||||
| Operating loss | $ | (473,061 | ) | $ | (568,255 | ) | $ | (187,953 | ) | |||
| Other Expenses | $ | 120,934 | $ | 3,807 | $ | — | ||||||
| Total Expenses | $ | 596,560 | $ | 572,062 | $ | 187,953 | ||||||
| Net loss | $ | (593,995 | ) | $ | (572,062 | ) | $ | (187,953 | ) | |||
| Loss per common share - basic and diluted | $ | (0.03 | ) | (0.03 | ) | (0.01 | ) | |||||
| Weighted average shares outstanding | 18,010,459 | 17,328,133 | 15,614,806 | |||||||||
| (1) | period from the date of inception (June 17, 2005) through December 31, 2005 |
| (2) | In 2006 and 2005 the Company operated as a limited liability company |
Comparison of the SixNine Months Ended JuneSeptember 30, 2008 to the SixNine Months Ended JuneSeptember 30, 2007
Revenue:
We recorded no revenue of $3,342 and $0 in either the sixnine months ended JuneSeptember 30, 2008 or the six months ended June 30, 2007.and 2007, respectively.
Research and Development Expenses:
Research and development expenses increased by $11,438$16,021 from $4,123$5,885 for the sixnine months ended JuneSeptember 30, 2007 to $15,561$21,906 for the sixnine months ended JuneSeptember 30, 2008. This was due to expansion of the product line.
General and Administrative Expenses:
General and administrative expenses for the sixnine months ended JuneSeptember 30, 2008 increased to $871,036$1,179,093 from $49,317$340,330 in the sixnine months ended JuneSeptember 30, 2007. This increase was largely attributable to an increase in payroll, an increase in professional fees and the fair value of options and warrants issued in exchange for services. In addition we recorded $3,784 and $2,908 of compensatory element of stock for the six months ended June 30, 2008 and 2007 respectively. This expense is directly related to option and warrants issued to consultants and employees.
Other Income (Expense):
We recorded interest expense of $70,782$519,027 and $21,819$79,787 for sixnine months ended JuneSeptember 30, 2008 and 2007, respectively. The increase is due to the company entering into additional convertible debt agreements. This expense is directly related to option and warrants issued to consultants and employees.
Additionally, we recorded interest income earned during the sixnine months ended JuneSeptember 30, 2008 and June 30, 2007 of $4,231$6,008 and $321,$589, respectively.
The following table sets forth our results of operations for the sixnine months ended June 30, 2008 and 2007:
Six Months Ended June 30 | |||||||
2008 | 2007 | ||||||
| Revenue: | |||||||
| Sales | $ | — | — | ||||
| Operating expenses: | |||||||
| Research and development | $ | 15,561 | $ | 4,123 | |||
| General and administrative | $ | 871,036 | $ | 49,317 | |||
| Depreciation and amortization | $ | 5,574 | $ | — | |||
| Compensatory element of stock | $ | 3,784 | $ | 2,908 | |||
| Other (Income) Expenses | $ | 66,551 | $ | 21,498 | |||
| Total Operating Expenses | $ | 895,955 | $ | 56,348 | |||
| Operating loss | $ | (962,506 | ) | $ | (78,167 | ) | |
| Loss per common share - basic and diluted | $ | (0.05 | ) | n/a | |||
| Weighted average shares outstanding | 21,082,020 | n/a | |||||
| Nine Months Ended September 30 | ||||||||
| 2008 | 2007 | |||||||
| Revenue: | ||||||||
| Sales | $ | 3,342 | — | |||||
| Operating expenses: | ||||||||
| Research and development | $ | 21,906 | $ | 5,885 | ||||
| General and administrative | $ | 1,179,093 | $ | 340,330 | ||||
| Total operating expenses | $ | 1,200,999 | $ | 346,215 | ||||
| Operating loss | $ | (1,197,657 | ) | $ | (346,215 | |||
| Other (income) expenses | $ | 519,027 | $ | 79,787 | ||||
| Total expenses | $ | 1,720,026 | $ | 426,002 | ||||
| Net loss | $ | (1,716,684 | ) | $ | (426,002 | |||
| Loss per common share - basic and diluted | $ | (0.08 | ) | $ | (0.02 | |||
| Weighted average shares outstanding | 21,526,747 | 17,940,612 | ||||||
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Liquidity
On December 14, 2006, we entered into Bridge Loan Facility (the “Bridge Loan Facility”) with Fountainhead Capital Partners Limited. Pursuant to the terms of the Bridge Loan Facility, Fountainhead Capital Partners Limited invested in the purchase of $172,500 of Convertible Debentures. The Convertible Debentures bear interest at the “Applicable Federal Rate” as defined in section 1274(d) of the Internal Revenue Code and are convertible into a number of shares of the Company’s common stock equal to ten percent (10%) of our issued and outstanding shares of common stock based upon a post-money valuation of $1,500,000. The Conversion Price is subject to adjustment based upon certain events which would result in a dilution of the holder’s interest. The maturity date of the convertible debentures has been extended to December 31, 2008. In connection with the issuance of the Convertible Debentures, we issued a Warrant to Fountainhead Capital Partners Limited to purchase 1,876,300 shares at $.50 per share and entered into an Option Agreement whereby Fountainhead Capital Partners Limited was given the option to purchase an additional 5,652,952 shares at approximately $.33 per shares together with Warrants to purchase an additional 1,320,000 shares at approximately $.44 per share. In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights Under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited ’s rights, title and interest in the abovementioned Option Agreement, the Warrant to purchase 1,876,300 shares at $.50 per share and Warrants to purchase an additional 1,320,0003,017,409 shares at approximately $.44 per share. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
On August 28, 2007, we entered into a Subscription and Investment Agreement with David Salomon (“Salomon”). Under the terms of the Subscription and Investment Agreement, in exchange for a loan of $150,000 from Salomon, we issued a Convertible Promissory Note for $150,000, being the principal amount of the loan, and 150,000 shares of our common stock. The Convertible Promissory Note was due and payable twelve (12) months from the date of the note. On February 15, 2008, Salomon agreed to convert the Convertible Promissory Note to shares of the Company’s common stock at a conversion rate of $.135 per share. In order to further induce Salomon into such conversion, we also issued Salomon an additional 100,000 shares of our common stock at the time of the conversion.
On April 13, 2007 and May 31, 2007, we entered into 6 month promissory notes with Optimus Services, each having a principal amount of $50,000, On January 9, 2007, we entered into a promissory note with GC Advisors which has a principal amount of $17,000 and matures on January 9, 2009.
On January 23, 2008, we sold 263,158 shares of common stock to Christopher Vinas at $0.19 per share or a total aggregate purchase price of $50,000.
On February 15, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $500,000 each. In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the Regent Private Capital, LLC investments. These Convertible Debentures have a term of one year and are convertible into shares of our common stock at a price of approximately $.123 per share. If fully converted, the Convertible Debentures would result in the issuance of 5,652,954 shares to Regent Private Capital, LLC and 3,017,409 shares to Fountainhead Capital Partners Limited. As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been completed.
At the same time, approximately 20 smaller investors agreed to invest an additional approximately $140,000 in the purchase of shares of the Company’s common stock at approximately $.19 per share. The Bridge Loan Facility and the Regent and subsequent Fountainhead Convertible Debentures are all secured by a first security interest in all of the assets of the Company.
In connection with the recent investments by Regent Private Capital, LLC, Fountainhead Capital Partners Limited and consultancy services provided by the Concordia Financial Group and Sichenzia Ross Friedman and Ference, LLP, we issued a total of 1,047,494 shares of our common stock to The Concordia Financial Group and 523,747 shares of our common stock to Sichenzia, Ross Friedman and Ference, LLP.
On March 10, 2008, we sold 263,158 shares of common stock to George Kivotidis at $0.19 per share or a total aggregate purchase price of $50,000.
On September 26, 2008, we sold 131,578 shares of common stock to Arthur Shaw at $0.19 per share or a total aggregate purchase price of $25,000.
On November 20, 2008, we sold 657,895 shares of common stock to William Roberts at $0.19 per share or a total aggregate purchase price of $125,000.
On November 20, 2008, we sold 131,578 shares of common stock to The Armentarium at $0.19 per share or a total aggregate purchase price of $25,000.
On November 30, 2008, we sold 52,632 shares of common stock to Troy Leight at $0.19 per share or a total aggregate purchase price of $25,000.
We believe that our existing cash, cash equivalents and available borrowings will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for approximately 2 months. We cannot assure you that this will be the case or that our assumptions regarding sales and expenses underlying this belief will be accurate. We will need to seek additional funding through public or private financings or other arrangements during this period and thereafter. Adequate funds may not be available when needed or may not be available on terms favorable to us. If additional funds are raised by issuing equity securities, dilution to existing stockholders may result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
Going Concern
Our independent auditors have added an explanatory paragraph to their audit issued in connection with the financial statements for the period ended December 31, 2007, relative to our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an ongoing business for the next 12 months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business. The Company has sufferedWe have incurred losses since our inception, including a net loss of $593,995 for the year ended December 31, 2007 and a net loss of $1,716,684 for the nine months ended September 30, 2008, and we expect to incur substantial additional losses, including additional development costs, costs related to clinical trials and asmanufacturing expenses. We have incurred negative cash flows from operations since inception. As of December 31, 2007 its total liabilities exceeded its total assets by $726,333. Weand September 30, 2008, we had an accumulated deficita stockholders’ deficiencies of $1,220,681 incurred through such date$593827 and recorded$858,007, respectively, and a cash and cash equivalents balance of $15,739 at December 31, 2007 and $313,478 at September 30, 2008. Since we have no record of profitable operations, there is high a possibility that you may suffer a complete loss of $539,650 for the fiscal year ended December 31, 2007.your investment. Because our auditors have issued a going concern opinion, there is substantial uncertainty we will continue operations in which case you could lose your investment.
Because our auditors have issued a going concern opinion, there is substantial uncertainty we will continue operations in which case you could lose your investment. Following the end of the fiscal year ended December 31, 2007, we received approximately $1,565,000 cash through the sale of Convertible Debentures and equity through October 31, 2008 (see LiquidityLiquidity, above). Based upon our operating budgets, we believe that these additional infusions of cash will enable us to fund our operations through JanuaryMay 2009. We will need to raise additional investment capital to fund our operations beyond that date and until we can operate on a cash flow positive basis. There is no guarantee that we will be able to obtain such additional funding or that any funding will be offered on terms and conditions which are acceptable to us.
Off-Balance Sheet Arrangements
As of the end of fiscal 2007, we had no off-balance sheet arrangements, other than operating leases reported above under “Contractual Obligations” and “Lease Obligation”.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate risks primarily through cash which we have on deposit from time to time. We currently do not hedge against interest rate risk.
Business Overview
We are a developer of neurological medical devicesdevices. We have been conducting research, developing, prototyping, and areproducing mold development work for the Brain Access System. This product is designed to assist the neurosurgeon with brain surgery. It allows the surgeon to gain access to various regions in the process of introducing our first series of products to the marketplace.brain through a working channel.
We are in the process of conducting research, development, prototyping, and engineering work and produced three sizes formarketing our first series of products to the marketplace. Our first product series,line that we introduced to the market is a new type of self retaining brain retractor called the ViewSite Brain Access System. We are planning to launchstarted marketing the Brain Access System product in the fourth quarterSeptember of 2008 and started shipping all sizes in November of 2008. The product line consists of various port sizes and lengths to allow the surgeon to use the device for various regions of the brain and different procedures.
The second product in our pipeline is the Cervical Access System, , which, pending receipt of additional funding and successful market testing, is scheduledplanned for launch byduring 2010. Like the end of 2009.Brain Access System, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.
We have received FDA 510k510(k) clearance for both our Brain Access System and Cervical Access System products. Section 510(k) of the United States Food, Drug and Cosmetic Act requires medical device manufacturers to register with the U.S. Food and Drug Administration of their intent to market a medical device at least 90 days in advance. The 510(k) submission allows the U.S. Food and Drug Administration to determine whether a device is generally equivalent to similar one already on the market. With the FDA 510k510(k) clearance, we are authorized to take our products to market in the U.S. without further approvals.
We have also received CE Marking for our products in September 2006 and are able to sell them in member countries of the European Union. The European Medical Device Directive makes it mandatory to fulfill CE certification requirements in order to export medical devices, of Class I, IIa, IIb, and III to any country within the European community.
We believe that our Brain Access System and Cervical Access System products will replace standard retraction devices to establish a new standard of care in neurosurgery, leading to a broad and rapid adoption of its products.
Corporate History
We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical LLC.” (“NY LLC”). On August 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.” (“Delaware Corporation”). Our sole reason for conversion to the Delaware Corporation was to facilitate the raising of additional capital, as prospective investors had expressed resistance to investing in the Company as the NY LLC. At August 14, 2007, we had approximately 1,115 membership units of the NY LLC issued and outstanding. The managing members of the NY LLC determined, in their reasonable business judgment, that such units, in the aggregate, should convert to an aggregate of 17,999,999 shares of common stock of the Delaware Corporation. On this basis, we adopted a conversion ratio of 16,138 shares of common stock of the Delaware Corporation for each former unit of the NY LLC. Likewise, all conversion rights, options, warrants and any other rights to acquire units of the NY LLC (including but not limited to units issuable pursuant to the terms of the Fountainhead Bridge Loan Debenture, Fountainhead Warrant to purchase 50.22 units of the NY LLC, the Company’s Option Agreement with Fountainhead dated December 14, 2006), were converted to conversion rights, options, warrants and rights to acquire common shares of the Delaware Corporation, based on the same conversion ratio, The action authorizing the conversion was adopted by the unanimous consent of the Managing Members of the NY LLC pursuant to the terms of the NY LLC Operating Agreement.
Our Medical and Strategic Advisors
In order to assist us with the development of our plans, strategy and products, we have solicited the assistance of a few of our nation’s leading neurological surgeons as our medical advisors, namely:
· | Dr. Ezriel E. Kornel. Dr. Kornel is President of the New York State Neurosurgical Society and a New York State Neurosurgical Society delegate to the Congress of State Neurosurgical Societies. Dr. Kornel serves on the Board of Directors of Medical Liability Mutual Insurance Company (MLMIC). He is Director of the Institute for Neuroscience at Northern Westchester Hospital, Mount Kisco, NY and a partner in the group practice, Neurosurgeons of New York in White Plains, NY. | |
· | Dr. David Langer. Dr. Langer is the Director for Cerebrovascular Neurosurgery at St. Luke’s Roosevelt Hospital and is also the Assistant Professor of Neurological Surgery, Albert Einstein College of Medicine. Dr. David Langer is a graduate of the University of Pennsylvania and its medical school. He remained at Penn for his neurosurgical training, which he practiced under the direction of Eugene Flamm until 1998. Upon the completion of his residency he joined Dr. Flamm as his first neurovascular fellow at Beth Israel Medical Center and the Institute for Neurology and Neurosurgery (INN). Dr. Langer’s clinical interests include neurovascular surgery including arteriovenous malformations, aneurysms and carotid artery disease as well as complex spinal disorders and brain tumors. Dr. Langer is the author of many papers and chapters in and has lectured nationally and internationally on a number of topics in neurosurgery. | |
· | Dr. Donald O’Rourke. Dr. O’Rourke is a renowned expert in the clinical management of patients with primary and metastatic brain tumors. He is currently an associate professor at the Hospital of the University of Pennsylvania and was the former chief of neurosurgery of the Penn-affiliated Philadelphia Veterans Hospital. In addition, Dr. O'Rourke is Principal Investigator of an independent research laboratory that is funded by The National Institutes of Health and is dedicated to the development of genetic and biological treatments for brain tumors that would complement surgical resection. Dr. O'Rourke received his undergraduate degree from Harvard University and his medical degree and neurosurgical training at the University of Pennsylvania School of Medicine. | |
· | Dr. Konstantin |
We have also appointed Mr. Martin D. Magida and Mr. Robert Guinta as strategic business advisors.
Mr. Magida is the Managing Director of TenwithTrenwith Group, LLC. He joined Trenwith in July 2006 from Sandhurst Capital, a merchant bank he founded in 2003. Prior to founding Sandhurst, he served as a Director in the Technology, Media and Telecommunications Investment Banking Group at Investec, Inc. after having been an Executive Director at UBS Warburg LLC and was responsible for that firm's Enterprise Hardware practice and East Coast semiconductor effort. Mr. Magida joined UBS Warburg in 2000 from Paine Webber's Investment Banking Division, where he was a Director in the Technology Group. From 1996 until January 1999, he was a Vice President at C.E. Unterberg, Towbin, an investment banking boutique specializing in technology and business services. Previously, he was a Vice President of Investment Banking at Josephthal & Company and a Senior Corporate Finance Analyst at BDO Seidman. He began his career in the securities industry at Drexel Burnham Lambert in 1983 and has served on the board of Misonix, Inc., a publicly traded medical device company. Mr. Magida was a co-founder of the Sandhurst Collateralized Return Fund, renamed Whitecap Advisors, general partner to a hedge fund specializing in collateralized debt instruments. Mr. Magida holds a BA in Political Science from Union College and an MBA from New York University.
Dr. Kornel entered into a consulting agreement with us on January 10, 2006. Pursuant to the consulting agreement, Dr. Kornel would, in consideration for acting as our consultant, be entitled to (i) receive clinical samples of our Brain Access System and Cervical Access System products with a valued list price of $44,000 each, (ii) receive the first production piece at no charge of every new product he assists in development from feasibility to production release, (iii) have the option to have an idea processed through our “New Invention” procedure with no research and development expenses, (iv) have the potential to earn a 20% royalty for each part of a new product developed exclusively by him and launched for sale in the worldwide market upon meeting certain mutually agreed sales objectives and (v) be considered to provide to us special consulting or advisement services for certain projects for a mutually agreed upon fee. The term of the agreement is for three years. In further consideration for acting as our consultant, Dr. Kornel received options to acquire 240,720 shares of our common stock at a price of $.25$.24 per share. The term of the agreement is for three years.
Dr. Langer entered into an amended and restated consulting agreement with us on December 11, 2006. Pursuant to the agreement, Dr. Langer agreed to provide us certain consulting services, which include the role of our Chief Medical Advisor, assistance in the analysis, preparation, submission, publication and presentation of scientific data in relation to our research efforts and sales and marketing efforts. In consideration of such consulting services, Dr. Langer will, (i) receive a compensation fee of $2,000 per month once we are fully-funded, (ii)i) options to acquire 320,960 shares of our common stock at a price of $.25$.24 per share and further options in each calendar year to be determined by us, (iii)(ii) receive clinical samples of our Brain Access System and Cervical Access System products with a valued list price ofup to f $44,000 each, (iv)(iii) receive the first production piece at no charge of every new product he assists in development from feasibility to production release, (v)(iv) have the option to have an idea processed through our “New Invention” procedure with no research and development expenses, (vi)(v) have the potential to earn a 20% royalty for each part of a new product developed exclusively by him and launched for sale in the worldwide market upon meeting certain mutually agreed sales objectives and (vii) be considered to provide to us special consulting or advisement services for certain projects for a mutually agreed upon fee. The agreement will terminate April 15, 2009.
Dr. O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was granted an option to purchase 50,000 shares of our common stock at $.50 per share.
Dr. Slavin entered into a consulting agreement with us on September 1, 2008. Pursuant to the agreement, Dr. Slavin agreed to provide us certain consulting services, Dr. Slavin will participate in the analysis, preparation, submission, publication and presentation of scientific data relating to the companiescompany’s research efforts, assist in the preparation of sales and marketing materials that contain clinical information for the products he has been involved in, evaluate new products in a clinical setting for Vycor Medical while allowing Vycor Medical employees to observe these clinical tests and review new product ideas that Vycor Medical presents. Slavin will provide an open and honest product feedback to Vycor Medical including but not limited to practical usage of the new product, its estimated annual need and/or consumption for the specific application, and its feasibility to the field of use. Dr. Slavin will also refer new products to his colleagues who are also specialists in certain fields for their respective opinions. In consideration of such consulting services, Dr. Slavin will (i) receive a one-time retainer of $5,000, which the Company has paid by the issuance of 26,000 shares of the Company’s common stock to Dr. Slavin and (ii) receive payment for additional services approved by us at a rate of $3,500 per day. On October 21, 2008, the Company issued an additional 21,875 shares of its common stock to Dr. Slavin in lieu of an invoice for $4,156 additional services. The agreement will terminate August 31, 2009.
Below is a summary of our various advisors, their services, consideration and whether they have executed a consulting agreement with us:
| Name | Role | Duties | Consideration | Agreement | ||||
| Martin Magida | Strategic Advisor | 1. To help our managers make better business decisions. 2. To put us in contact with various representatives of the investment community. 3. To advise us on our strategy for financial funding. | Warrants 160,480 $ | None. Verbal. | ||||
| Robert Guinta | Strategic Advisor | 1. To help our managers make better business decisions. 2. To put us in contact with various representatives of the investment community. 3. To advise us on our strategy for financial funding. | Warrants 160,480 $ | None. Verbal. | ||||
| Dr. David Langer | Medical Advisor | 1. Publications and presentations. 2. Sales & Marketing Support. 3. Clinical evaluations/observations. 4. Product Feedback/Colleague Opinion. 5. Laboratory Use. | Warrants 320,960 $ | Yes. Attached. | ||||
| Dr. Ezriel Kornel | Medical Advisor | 1. Publications and presentations. 2. Sales & Marketing Support. 3. Clinical evaluations/observations. 4. Product Feedback/Colleague Opinion. 5. Laboratory Use. | Warrants 240,720 $ | Yes. Attached. | ||||
| Dr. Donald O’Rourke | Medical Advisor | 1. Publications and presentations. 2. Sales & Marketing Support. 3. Clinical evaluations/observations. 4. Product Feedback/Colleague Opinion. 5. Laboratory Use. | Warrants 50,000 $.50/share | Yes. Attached. | ||||
| Dr. Konstantin Slavin | Medical Advisor | 1. Publications and presentations. 2. Sales & Marketing Support. 3. Clinical evaluations/observations. 4. Product Feedback/Colleague Opinion. 5. Laboratory Use. | 25,000 shares of Common Stock | Yes. Attached. |
Our Products
Our initial product applications for the retractor technology will be in neurological surgeries involving brain and spinal access.
· | gently separate delicate tissue; | ||
· | improve surgical outcomes (reducing potential surgeon and hospital liability), for example, decreased insertion tissue trauma, less need for readjustment during surgery and minimum interface surface pressures; | ||
| · | increase surgical site access; | ||
| · | provide superior field of vision and lighting; | ||
| · | minimal invasive surgery; | ||
The Brain Access System and Cervical Access System were invented by Dr. John Mangiardi. Dr. Mangiardi assigned the rights to the Brain Access System and Cervical Access System to Sawmill Trust on September 17, 2005 pursuant to an assignment agreement on the same date. Sawmill Trust then, in turn, assigned the same rights to us on September 17, 2005 pursuant to another assignment agreement dated the same date.
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Brain Access System Products
The Brain Access System series of disposable products are used by the neurological surgeon to access the surgical site. This is done by inserting the Brain Access System through the brain tissue and then removing the Brain Access System introducer, leaving the remaining hollow working channel in place to provide the surgeon with access to the precise location desired for surgery.
The Brain Access System is available in multiple sizes and is a single-use product. We have designed multiple sizes and intend to add additional sizes in the future. During our design process we listed what product benefits would be of value to the neurosurgeons when using a retractor system. We then designed our product with the following intent:
To minimize brain disruption during surgery by utilizing a tapered forward edge;
To minimize venous pressure in the brain;
To reduce “target shift” to allow the surgeon to reach the site accurately;
To minimize off site healthy tissue damage;
To allow for accurate neuronavigational image guidance systems (“IGS”) performance;
To integrate with the leading surgical IGS systems such as Medtronics® and BrainLab®;
To allow for easier positioning during surgery;
To reduce damage to healthy brain tissue leading to shorter post-op recovery and reduced hospital stay;
To allow direct surgical visualization of brain tissue via optically transparent construction; and
The extent to which we are successful in achieving the above objectives will be judged by the acceptance of the devices in the market.
The Brain Access System products have the potential to significantly reduce brain tissue trauma resulting from the currently used retractors and standard access procedures. First, the unique design of the product minimizes the size of the brain entry access necessary for surgical procedures, and in turn the amount of brain tissue exposed. For instance, a typical brain procedure involving the removal of a 7cm cystic astrocyctoma would result in an access site (corticotomy) of approximately 20mm. However, the same procedure that was performed utilizing the Company’s Brain Access System product required a corticotomy of only 2mm.
Furthermore, retractors that are metallic and non-transpaarentnon-transparent currently in use require the surgical team to maintain the retracted surface typically by packing gauze around the access edges increasing movement and pressures over a greater portion of the brain and extending overall elapsed surgery times. We believe that the Brain Access System product eliminates this process, while providing better visibility for the surgeon and lower pressures on the retracted brain tissue.
Because our products have not been brought to market yet, there is no guarantee that any of the abovementioned features would prove effective and be welcomed by the consumer.
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Product shortcomings
Our products have a few shortcomings:
• | One of the shortcomings of our products as compared to existing blade retractors is that our device diameter is fixed as opposed to variable which would give the surgeon less flexibility once he is at the location unless he knows where he needs to go in the brain first. | |
• | Another shortcoming is that the diameters and lengths of our devices are set to specific measurements, which limits the surgeon to these specific sizes. | |
• | Depending on the case, usage of a disposable product may be viewed as costing more over time and may not be accepted by our potential customers. |
IGS Opportunity for theBrain Access System
The VBAS product has the potential to significantly improve surgical acceptance and use of IGS (Image Guidance Systems) used in many surgeries, by addressing the two substantial IGS-related problems of target shifting and the lack of real-time retractor positioning data during procedures:
Target Shifting |
The normal surgical procedure utilizing standard retractors in brain surgery require pulling away the healthy tissue to expose the targeted region of the brain located underneath. However, in many cases, the amount of pulling required causes the targeted area to shift away from what is shown on the IGS system. This target shifting then requires the surgeon to cause additional trauma to healthy tissue and spend additional time as the shifted target area is located and the retractor is repositioned. The VBAS system is designed to minimize or eliminate target shift, as the elliptical shape of the product distributes relatively uniform pressure on the surrounding brain tissue.
Real-Time Retractor Positioning Data
Current retractor technology (commonly known as ribbon or blade retractors) is not well integrated with IGS systems. During insertion, the surgeon typically does not have real-time data to allow visualization of retractor insertion on the IGS monitor. The VBAS product line has been designed to adapt entirely to IGS systems, such that the use of a Brain Access System unit will allow the surgeon to see on the surgical monitor, in real-time, exactly where the retractor is in relation to critical brain structures and underlying pathologies. With the IGS enabled unit, the tip of the introducer is literally the “pointer” on the IGS system.
We plan on offering a version of all Brain Access System models that are IGS-enabled.
Brain Access System Product Models
The Brain Access System products consists of two models initially, namely, TC-VBAS and EC-VBAS and any additional models in the future, each designed to allow the surgeon the choice for specific brain surgeries for various procedures. Each of these models will be manufactured in various lengths to accommodate different depths for surgical access.
TC-VBAS |
The series consist of eighttwelve disposable products, offered in four different port diameters of 17mm and 21mm, 12mm and 28 mm and a choice of three lengths for each of 3, 5, and 7cm.
EC-VBAS |
At present, this is available only in one size – 5cm.
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Cervical Access Products
The Cervical Access System products are to be used by the neurological surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck). This type of surgery is near very critical and delicate structures such as the larynx, esophagus and carotid artery. The shape of the Cervical Access System with the introducer lets the surgeon carefully place the device and the unique anchor screws then safely hold the access channel in place during the procedure. The clear body of the retractor allows the surgeon to see the entire field both during the insertion process as well as throughout the surgical procedure.
We have designed the Cervical Access System to:
reduce the possibility of surrounding anatomic tissue damage, which include the trachea, esophagus, carotid artery, recurrent laryngeal and sympathetic nerve;
minimize skin disruption with the utilization of tapered outward edges;
eliminate retractor induced electrocautery burn injuries because it is made with surgical grade plastic materials;
enable stable fixation (directly to the spinal column) in order to avoid accidental displacement and surrounding “tissue creep”; and
allow for direct visualization of underlying anatomic structures using optically clear plastic.
Because our products have not been brought to market yet, there is no guarantee that any of the abovementioned features would prove effective and even so, be welcomed by the consumer.
Cervical Access System Product Models
The plan for the Cervical Access System series will consist of disposable products. The widths are able to accommodate from one to three levels of the cervical spine, from 26mm to 54mm. We are also evaluating a telescoping design that would reduce the number of sizes necessary and a version that incorporates a distractor. Further research and development is needed for a market-ready product.
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New Products
Brain Retractors
Future plans include developing our second generation Brain Access System retractors. We anticipate research and developing work starting in 2009 and estimate an initial research and development budget of $1,500,000 for 2009.
The new products will feature certain adjustable segments and will supplement, not replace, the existing product line. Other brain retractor development efforts include non-disposable versions as well as a custom order capability to accommodate special size or shape requests by surgeons.
Our plans are to eventually include retractor lines that are designed for the requirements of specific surgical applications like aneurisms, tumors and endoscopic work.
Cervical Spinal Retractors
We are evaluating a series of products that will be sized for specific manufacturers’ plates and sold to them on an Original Equipment Manufacturing (“OEM”) or co-branded basis. The product will also incorporate an expandable diameter to allow for use in a greater variety of surgical cases.
Additional Applications of Brain Access Systemand Cervical Access System Technology
We believe that our Brain Access System and Cervical Access System technology can be easily adapted to advance retractor systems for use in other areas of the body. The key cross-applicable benefits of our technology are:
Promotes minimally invasive procedures from smallest possible entry incision
Uniform pressure distribution minimizes collateral tissue damage due to stress points
Eliminates “tissue creep” into the surgical field
Reduces the number of hand/instruments in the surgical field
The first two applications beyond neurosurgery that we intend to pursue are breast surgery and abdominal surgery retractors. We believe that key characteristics of the technology, visibility and minimal insertion trauma are significant advantages to the current applications in these surgical practices. The potential of these applications are compelling considering breast procedures alone, amounted to over 330,000 surgeries in 2004 (source: National Clearinghouse of Plastic Surgery Statistics through the American Society for Plastic Surgeons website, www.plasticsurgery.orgwww.plasticsurgery.org ).
Sales and Marketing
Education
We plan to implement a two-prong grass-roots educational and marketing strategy throughout the neurosurgeon community to accelerate product penetration and brand awareness.
The first is an individual outreach program targeting “thought leaders” surgeons by visiting with them at their practices and during conferences and trade shows.
The second involves targeted neurological “reference hospitals”.
Distribution Partners
Domestic Sales
For distribution in the United States, we are currently pursuing two possible parallel distribution models:
the direct sales model (utilizing a combination of an in-house sales force in conjunction with independent sales agents/distributors on a non-exclusive basis); and
the use of a large exclusive distribution partner.
We believe that the direct sales model in the United States would ultimately be more profitable allowing for higher margins for each device sold. We would also have direct access to a sales force that is already calling on the neurosurgical markets. However, it would require a somewhat greater amount of capital during the initial stages to help finance receivables, inventory levels, and collections. We have entered into several serious discussions with leading independent companies that would serve as the distributor and sales arm for the Brain Access System devices.
International Sales
We believe that our international sales will be optimized by using various distribution partners due to logistics and local variables. We have contacts abroad that represent some of the leading medical device distributors in the neurosurgical arenas. We intend to work out a mutually beneficial distribution agreement that covers the main points for distribution that include but are not limited to sales and marketing in respective territories, regulatory compliance, shipping, and guaranteed annual minimums. Our primary target markets are Europe and Canada for fiscal year 2008. During fiscal 2009, we intend to commence the regulatory approval process in the Japanese and Chinese markets as it is a lengthy process.
Reference Hospitals Program
As we continue to generate grass-root support among key neurosurgeon thought leaders, we will concurrently implement our Reference Hospital program.
We plan to initially work with three major national neurological surgical centers where management and consulting physicians will provide free samples initially and training sessions to help the surgeons learn about our products and become comfortable using them. These centers will provide surgeons with the opportunity to use our products in actual surgery and to observe others doing so.
The three neurological centers and their respective neurosurgeons are:
University of Pennsylvania School of Medicine — Dr. Donald O’Rourke, Associate Professor at the Hospital of the University of Pennsylvania
St. Luke’s Roosevelt Hospital — Dr. David Langer, Director of Cerebrovascular Neurosurgery
Northern Westchester Hospital — Dr. Ezriel Kornel, Director of the Institute for Neuroscience
Drs. Langer and Kornel are each head of neurosurgery at their respective institutions and have agreed to serve as our scientific consultants and sit on our Medical Advisory Board.
On September 15, 2006, we and St. Luke’s Roosevelt Hospital issued a joint press release announcing that St. Luke’s would serve as the our “teaching institute” Reference Hospital for our products. The initial surgeries using the Brain Access System products are currently in the process of being scheduled.
Each of our initial reference hospitals has dozens of affiliated neurosurgeons who perform thousands procedures each year. For example, we understand that surgeons affiliated with St. Luke’s Roosevelt Hospital perform approximately 1,500 operations each year in the hospital’s four dedicated neuro-operatories. In effect, the references hospitals, and later the IGS reference hospitals as described below, should provide a significant pool of surgeons from which we can further expand our reach to.
We believe that these centers will allow us to:
build market demand with multi-institution exposure
document independent surgical experiences that will help secure superior terms from distribution partners
provide product exposure for practitioners in actual surgeries
provide data that will be used to establish product superiority claims for marketing
help finance our growth through enhanced sales
Image-Guided Surgery (IGS) Reference Hospitals
Following the establishment of the initial Reference Hospitals, we will expand the Reference Hospital Program to include additional hospitals with a focus on the integration between our Brain Access System products and IGS systems.
In addition to the objectives of the initial reference hospitals, this effort will attempt to document how the Brain Access System can provide superior results in combination with IGS during neurosurgical procedures.
Similar to the reference hospitals described above, at each of the IGS reference hospitals, management and consulting physicians will provide samples and training sessions to help the surgeons learn about our products and become comfortable using them with a particular emphasis on IGS applications.
We plan to leverage our relationships at each of these institutions to support the growth of products in the development pipelines, as well as a nexus for the creation of additional growth initiatives.
Individual Outreach
We will also reach out to individual neurosurgeons both through conferences/trade events and by visiting surgeons, particularly influential leaders within various geographies, directly at their practices.
At the conferences and trade events, our plan will be to present reference hospital data to distributors and neurosurgeons, and recruit additional facilities to serve as future reference hospitals and IGS centers.
Manufacture
We have executed an agreement with Lacey Manufacturing Company of Bridgeport, Connecticut (“Lacey”) to provide a full range of engineering, contract manufacturing and logistical support for our products (please see attached exhibit).
As of December 31, 2007,the amount payable to Lacey was $207,245. We have agreed to a payment plan with Lacey, with no interests on the outstanding amount. Pursuant to that payment plan, as of December 15, 2008, this past amount was paid down completely. Pursuant to that payment plan, as of November 1, 2008, the amount payable to Lacey for this amount had been reduced to approximately $34,578.
We have also contracted with C&J Industries, Meadville PA through purchase orders to produce additional sizes of the Brain Access System.
Lacey and C& J Industries are recognized leaders in the medical contract manufacturing sector, providing vertically integrated full services. They are U.S. Food and Drug Administration registered and meet ISO standards and certifications. We have placed inventory orders with both manufacturers.
Lacey has completed the design, fabrication and testing of three sizes of the Brain Access System in 2007 and has produced a total of 150 retractors for use in our reference hospitals. Only three sizes were produced due to funding constraints.constraints in 2007. . Lacey is in the process of completingcompleted an additional 4 sizes, which aresizes. As of December 31, 2008 Lacey has delivered all products due for completion in October 2008. to Vycor.
C&J Industries have completed the design, and is in the process of completing molds and production of 6 additionalsix sizes. As of December 31, 2008 Lacey has delivered all products due to Vycor at the end of the year.
There may be certain limitations and risks to manufacturing:
• | Both Lacey and C&J Industries are responsible for sourcing and procuring raw materials to manufacture our products. We believe that there will not have any difficulty in sourcing for raw materials to manufacture our products because they are readily available from variety of sources in the medical devices marketplace; | |
• | There can be no assurances that future product pricing will be as favorable as we anticipate; | |
• | Continued source of supply maybe limited if we do not raise additional capital; | |
• | If either supplier was to not deliver or choose not to do business with us, we could incur serious delays and increased costs. We would have to find alternate qualified suppliers. | |
• | We are dependent upon their commencing manufacture of our products in accordance with our specifications and delivering them on a timely basis in order to realize our business plan. They can however no assurances that this will be the case. |
(See “Risk Factors — “We are dependent on two key vendors to manufacture our products”)
Market Analysis
The market for our Brain Access System and Cervical Access System product lines will be the neurosurgical community.
According to the World Health Organization’s 2004 Neurology Atlas, there are approximately 33,193 practicing neurological surgeons worldwide as follows:
World Neurosurgeons
As practicing neurosurgeons become familiar with the benefits of our brain and anterior cervical products, we believe that we will gain market share as these surgeons utilize the Brain Access System and Cervical Access System products in their surgeries ..
According to the American Association of Neurological Surgeons, in 1999 there were approximately 175,428 cranial procedures performed in the United States of America.
According to the CDC, approximately 225,000 anterior cervical procedures were performed in 1999. We conservatively estimate the procedure growth rate to track the year-over-year increase in population of approximately 3%. It would however be reasonable to assume that with the ageing baby boomer population cohort, the growth rate in surgeries utilizing Cervical Access System would grow at a much higher rate.
To be conservative, we have estimated that the addressable international market over the next five years will be from 20% to 25% larger than the corresponding U.S. market.
Competition
Based on our internal research, web scans, and observance at trade shows The current major manufacturers of brain retractors, and accordingly, some of our competitors are:
Cardinal Health (V. Meuller line),
Aesculap,
Integra Life Science, Codman (Div of J&J).
Brain Retractors
We believe that the current standard of care in brain retractors has not changed much since their fundamental design from the 1920’s since ribbon type blades are still used today.
Our internal research shows that most of the more recent advancements have focused on adding technology to this type of retractor such as pressure monitoring devices and various types of plastic or silicone coating so that retraction injury might be limited. Other advancements have included variations in the metals of the retractors, some of these being relatively soft as compared to previous iterations, in an attempt to limit retraction injury.
We believe that the Vycor Brain Access System products represent an improvement over existing products. Case experience, evaluations and independent clinical studies may be necessary for wide adoption of our devices. Moreover such evaluations and independent clinical studies will have to be made to prove the efficacy of our beliefs about the features of our devices.
With the Vycor Brain Access System, the edges found on standard retractors have been eliminated, the local surface pressure minimized due to the increased surface area of the elliptical surfaces, and the need to pull in any single direction has been removed. The plastic material is optically clear, allowing the surgeon to see the retracted brain tissue. Finally, the Brain Access System is multifunctional, as it is capable of becoming the “pointer” for use with a computerized neuro-navigational “IGS” system. However, the computerized neuronaviagational image-guided surgery systems is not completed yet. This is work is planned for 2009.2009 pending additional funding.
The current major manufacturers of brain retractors, and accordingly, our competitors are:
Cardinal Health (V. Mueller line)
Aesculap
Integra Life Science
Codman (Division of Johnson & Johnson)
Our assessment of who will be our competitors is based upon our assumption that we are and will be competing in the “retraction” technology market. The above list of competitors is derived from our research over the internet and information from the websites of our competitors like Cardinal Healthy V. Mueller (www.cardinal.com) and Integra Life Science (www.integra-ls.com).
Cervical Retractors
The Cervical Access System is designed to provide superior visibility and we believe, reduced chance for complications during surgery by eliminating the sharp edges found in traditional retractors that often move inadvertently during surgery. While there has been greater advancement in cervical retractor technology compared to brain retractors, we believe that our Cervical Access System products offer superior performance compared to our competitors.
Our main competitors are Medtronic’s MetRx system, Asculap/B. Braun and Cloward Instruments’ Small and Large Cervical Retractor Systems. In addition to the standard “blade retractors” distributed by the companies listed above, Medtronic distributes the MetRx dilating retractor system for use in lower spinal surgery.
In addition companies such as Endius and EBI have announced cervical retractor systems.
Major Customers
We are pursuing a parallel path for distribution opportunitieshave started shipments in November of our products. We have been looking into a direct sales model, a direct U.S. with an independent distribution model on an international basis, and a global distribution model. We do not have any major customers yet as we have not started our formal launch.2008. Our customers will be hospitals that perform neurosurgery, independent distributors and distributors in different countries.
Presently, we are leaning towardsusing a direct sales model which will use approximately 15 independent companies in the U.S. that are each specialized in neurosurgery and that would handle the direct distribution of our Brain Access System through their own sales representatives. We anticipate that our customersrepresentatives which number approximately 70. Some of these distributors will be stocking distributors, buying product from Vycor and selling it to hospitals and some will be paid a commission and Vycor will be shipping and billing the customers of these sales representatives.hospitals,
Intellectual Property
Patent Applications
Below is a table setting out the status and particulars of our patent applications:
Filing Date | Application No. | Country | Title | Status | ||||
| June 22, 2005 | 60/692,959 | US — provisional | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery (Cervical) | Converted to PCT | ||||
| June 22, 2006 | PCT/US06/24243 | PCT | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery (Cervical) | Entered National Phase | ||||
| June 22, 2005 | 11/155,175 | US — utility | Surgical Access Instruments for Use with Delicate Tissues (Brain) | Pending | ||||
| November 27, 2006 | PCT/US06/61246 | PCT | Surgical Access Instruments for Use with Delicate Tissues (Brain) | Pending — National Phase Entry on May 27, 2009 | ||||
| June 22, 2006 | Canada | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| June 22, 2006 | 06785312.7 | Europe | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | ||||
| June 22, 2006 | India | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| June 22, 2006 | Israel | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| June 22, 2006 | Japan | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending | |||||
| December 20, 2007 | 11/993,280 | US | Surgical Access Instruments for Use with Spinal or Orthopedic Surgery | Pending |
The above-indicated patent applications were invented by Dr. John Mangiardi, who assigned the rights to the Sawmill Trust on September 17, 2005 under the terms of an assignment agreement between the parties. The Sawmill Trust then, in turn, assigned the same rights to us on September 17, 2005 pursuant to an assignment agreement between the Sawmill Trust and the Company dated the same date. The consideration for such assignment was the issuance of one-third of the initial equity of our predecessor (Vycor Medical, LLC) and the inclusion of certain rights in favor or the Sawmill Trust, including but not limited to certain supermajority voting rights and the right to appoint members of the board of managers, which were incorporated in the Operating Agreement of such entity. Dr. Mangiardi’s wife, Pascale Mangiardi, who is a director of the Company, was the Settlor of the Sawmill Trust and Dr and Mrs. Mangiardi are both beneficiaries of the Sawmilll Trust. The Sawmill Trust is an irrevocable trust and A. Mitchell Green is the sole Trustee and has sole voting power and investment power with respect to the assets of the trust.
Trademarks
VYCOR MEDICAL is a registered trademark and VYCOR VIEWSITE is both pending registration as a trademark with the United States Patent Office.
Insurance
We presently have Directors’ and Officers’ Liability Insurance and Product Liability insurance..insurance.
Government Regulations
We are committed to an integrated total quality management system. We have completed the necessary procedures and are certified to the ISO standards expected of medical device manufacturers as follows:
ISO 13485:2003 Medical Devices — Quality Management Systems
The certification of a quality management system to ISO 13485, specifically for medical devices, is advantageous and often essential for medical companies to export their products to the global market, as well as maintain and enter into certain agreements and business growth opportunities within the U.S. For example, Canada requires that medical device manufacturers marketing their products in Canada must have a quality system certified to ISO 13485:2003. The certification is also required for placement of branded devices into the European Union.
We have successfully passed our annual surveillance audit by Intertek and now possess the following ISO certifications, which allow for regulatory entry of our products into the US, Canada, the European Union and other international markets:
MDD ANNEX V/ISO CMDCAS 13485:2003, CERTIFICATION AUDIT, MDD CERTIFICATION AUDIT.
MDD ANNEX V/ ISO 13485:2003 CERTIFICATION
CMDCAS CERTIFICATION for Canada
EN ISO 13485:2003 for the European Union
Intertek is the leading international provider of quality and safety services to a wide range of global and local industries.
Continuing Regulatory Requirements
Governmental regulation in the United States and other countries is a significant factor affecting the research and development, manufacture and marketing of medical devices, including our products. In the United States, the FDA has broad authority under the Federal Food, Drug and Cosmetic Act (the FD&C Act) to regulate the development, distribution, manufacture, marketing and sale of medical devices. Foreign sales of medical devices are subject to foreign governmental regulation and restrictions that vary from country to country.
Medical devices intended for human use in the United States are classified into one of three categories, depending upon the degree of regulatory control to which they will be subject. Such devices are classified by regulation into either Class I general controls, Class II special standards or Class III pre-market approval (PMA), depending upon the level of regulatory control required to provide reasonable assurance of the safety and effectiveness of the device.
Our products have been cleared for marketing through the 510(k) process.
We can provide no assurance that we will be able to obtain clearances or approvals needed to introduce new products and technologies. After a device is placed on the market, numerous regulatory requirements apply.
These include:
| • | quality system regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process; | |
| • | labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and | |
| • | medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur. |
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
| • | fines, injunctions, and civil penalties; | |
| • | recall or seizure of our products; | |
| • | operating restrictions, partial suspension or total shutdown of production; | |
| • | refusing our request for 510(k) clearance or premarket approval of new products; | |
| • | withdrawing 510(k) clearance or premarket approvals that are already granted; and | |
| • | criminal prosecution. |
Medical device laws are also in effect in many of the countries outside of the United States in which we will do business. These laws range from comprehensive device approval and quality system requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. In June 1998, the European Union Medical Device Directive became effective, and all medical devices must meet the Medical Device Directive standards and receive CE mark certification. CE mark certification involves a comprehensive Quality System program, and submission of data on a product to the Notified Body in Europe.
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Health Care Regulatory Issues
The health care industry is highly regulated and the regulatory environment in which we operate may change significantly in the future. In general, regulation of health care-related companies is increasing. We anticipate that Congress and state legislatures will continue to review and assess alternative health care delivery and payment systems. We cannot predict what impact the adoption of any federal or state health care reform measures may have on our business.
We regularly monitor developments in statutes and regulations relating to our business. We may be required to modify our agreements, operations, marketing and expansion strategies from time to time in response to changes in the statutory and regulatory environment. We plan to structure all of our agreements, operations, marketing and strategies in accordance with applicable law, although we can provide no assurance that our arrangements will not be challenged successfully or that required changes may not have a material adverse effect on our business, financial condition, results of operations and cash flows.
We believe that the discussion above summarizes all of the material health care regulatory requirements to which we currently are subject. Complying with these regulatory requirements may involve expense to us, delay in our operations and/or restructuring of our business relationships. Violations could potentially result in the imposition of civil and/or criminal penalties.
Employees
We are located at 80 Orville Dr., Suite 100, Bohemia, NY 11716. We occupy approximately 400700 square ft. in a well maintained 2 story office building. The space is leased on a short term arrangement for a 43 month period, which expires DecemberMarch 31, 2008.2009. We have an option to extend through June 30,2009. We can arrange for a longer term lease if desired. The office management company, Regus HQ Global Workplace, provides a receptionist and conference room on a shared basis with other tenants in the building. The monthly cost of the current space is approximately $2,750 plus administrative fees.
Over the next six12 months, as we grow and add personnel, the current space will not be adequate and we will have to arrange for additional space in the same building or another. It is anticipated that we will lease approximately 1,5002,000 square feet in the near future and vacate the current office. Monthly lease expenses are then expected to be approximately $3,500 per$4,000per month.
Currently, we own 25 personal computers, a copier and 2 laptops which are used in the office or for business travel. We have molds, tools and dies to produce three12 sizes of our Brain Access System. All molds, tools, dies, stamping equipment are maintained at the Lacey or C&J facilities. This equipment is less than 2 years old and in good condition.
We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.
We plan to contact a market maker immediately following the completion of the offering and apply to have the shares quoted on the OTC Electronic Bulletin Board (OTCBB). The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter (OTC) securities. The OTCBB is not an issuer listing service, market or exchange. Although the OTCBB does not have any listing requirements per se, to be eligible for quotation on the OTCBB, issuers must remain current in their filings with the SEC or applicable regulatory authority. Market Makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement. Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 or 60 day grace period if they do not make their required filing during that time. We cannot guarantee that our application will be accepted or approved and our stock listed and quoted for sale. As of the date of this filing, there have been no discussions or understandings between us or anyone acting on our behalf with any market maker regarding participation in a future trading market for our securities.
As of the date of this filing, there is no public market for our securities. There has been no public trading of our securities, and, therefore, no high and low bid pricing.
Holders of Our Common Stock
As of the date of this prospectus we have 5055 shareholders of record.
Since our incorporation, no dividends have been paid on our common stock. We intend to retain any earnings for use in our business activities, so it is not expected that any dividends on our common stock will be declared and paid in the foreseeable future.
Debentures
On December 14, 2006, we issued to Fountainhead Capital Partners Limited a Bridge Loan Debenture for the original principal amount of $172,500, which may be converted, at the option of Fountainhead Capital Partners Limited to 1,876,300 shares of our common stock. The Bridge Loan Debenture has a maturity date of February 15, 2009. . On April 15, 2008, Fountainhead Capital Partners Limited assigned its interest in such investment to Fountainhead Capital Management Limited.
On February 14, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $500,000 each.
In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the Regent investments. . On April 15, 2008, Fountainhead Capital Partners Limited assigned its interest in such investment to Fountainhead Capital Management Limited.
These investments are evidenced by Convertible Debentures with a term of one year and are convertible into shares of our common stock at a price of approximately $.123 per share. If fully converted, the Convertible Debentures would result in the issuance of 8,129,529 shares to Regent Private Capital, LLC and 2,438,859 shares to Fountainhead Capital Partners Limited.
As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been completed.
Subsequently, Fountainhead Capital Partners Limited assigned its entire interest to Fountainhead Capital Management Limited and on April 22, 2008 Regent Private Capital assigned $250,000 of the principal amount of the Convertible Debentures representing the first tranche to Derek Johannson and $100,000 of the principal amount of the Convertible Debentures to Altcar Investments Ltd. On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company.
We issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (now 805,931 shares of our shares of common stock) dated December 15, 2006 at $.50 per share.
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights Under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement, warrant to purchase shares at $.50 per share and the warrant under the Option Agreement. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant to acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited ’s rights, title and interest in the abovementioned Option Agreement, the warrant to purchase shares at $.50 per share and the warrant under the Option Agreement. By reason of this assignment, Fountainhead assigned to Regent Private Capital, LLC the rights under the warrant to acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
In consideration for providing consulting services to us, we granted to GC Advisors LLC twothree warrants to purchase an aggregatea total of 192,576577,728 shares of our common stock, each for a purchase price of $.135 per share. One warrant for 192,576 shares expires on January 9, 2009 and the other2010, one warrant for 192,576 expired on January 9, 2010.2008 and a second warrant to purchase 192,576 shares expired on January 9, 2009.
In consideration for being our strategic business advisor, we issued to Martin Magida a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.
In consideration for purchasing our stock of common shares, we issued to George Kivotidis a warrant to purchase up to 4,000 shares of our common stock at $.50 per share. The warrant is valid from November 6, 2007 for a period of three years.
In consideration for advisory services, we issued to Robert Guinta is a holder of a warrant to purchase up to 160,480 shares of the Company’s common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.
On November 20, 2008 the company granted William Roberts a warrant to purchase 657.894 shares at .30 per share with his purchase of 657,894 shares of common stock at $0.19 per share. The warrant expires two years from the grant date.
Options
On December 14, 2006, we entered into an Option Agreement with Fountainhead Capital Partners Limited which granted to Fountainhead Capital Partners Limited an option to invest up to $1,850,000 within three years from December 14, 2006 in exchange for up to 5,652,954 shares of our common stock and warrants to convert to 3,017,409 shares of our common stock.
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights Under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement, warrant to purchase shares at $.50 per share and the warrant under the Option Agreement. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant to acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company. On April 15, 2008, Fountainhead Capital Partners Limited assigned warrants to purchase 60,445 shares of our common stock to La Pergola Investments Limited.
Each of Kenneth Coviello and Heather Jensen entered into a stock option agreement with the Company dated February 15, 2008. Pursuant to the said stock option agreements, each of Kenneth Coviello and Heather Jensen was granted an option to purchase 500,000 shares of common stock of the Company at an exercise price of $.135 per share. The option shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire February 12, 2018.
Dr. Ezriel E. Kornel entered into a consulting agreement with us on January 10, 2006. Pursuant to the consulting agreement, in consideration for acting as our consultant, Dr. Kornel received options to acquire 240,720 shares of our common stock at a price of $.25$.24 per share. The term of the agreement is for three years.
Dr. David Langer entered into an amended and restated consulting agreement with the Company on December 11, 2006. Pursuant to the agreement, Dr. Langer agreed to provide us certain consulting services, which include the role of our Chief Medical Advisor, assistance in the analysis, preparation, submission, publication and presentation of scientific data in relation to our research efforts and sales and marketing efforts. In consideration of such consulting services, Dr. Langer received options to acquire 320,960 shares of the Company’s common stock at a price of $.25$.24 per share. The agreement will terminate April 15, 2009.
Dr. Donald O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was granted an option to purchase 50,000 shares of the Company’s common stock at $.50 per share.
On July 14, 2008 Theo Novak, Director of Engineering and on December 2,2008 Steven Tobias our Director of Marketing was each granted employee stock option for 25,000 shares at .19 per share. The options shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire July 14, 2018 and December 2, 2018 respectfully
On November 20, 2008 the Company granted William Roberts an option to invest up to $125,000 at $.19 per share, this expired January 9, 2009.
Registration Rights
On February 14, 2008, we entered into a Convertible Debenture Purchase Agreement with Regent Private Capital, LLC , whereby Regent Private Capital, LLC agreed to invest a total of $1,000,000 in the purchase of our Convertible Debentures—such investment to be made in two tranches of $500,000 each. Also on February 15, 2008, we entered into a Convertible Debenture Purchase Agreement with Fountainhead Capital Partners Limited, whereby Fountainhead Capital Partners Limited agreed to invest a total of $300,000 in the purchase of our Convertible Debentures - such investment to be made in two tranches of $150,000 each. As of the date of this Registration Statement, both Regent Private Capital, LLC and Fountainhead Capital Partners Limited had invested $1,000,000 and $300,000 respectively pursuant to the said Convertible Debenture Purchase Agreements.
Pursuant to the said agreements, we agreed to file a registration statement on Form S-1, SB-2, or other applicable form (“Registration Statement”), with the SEC, which Registration Statement shall register for sale all common stock which may be issuable upon conversion of the Regent and Fountainhead debentures. We will thereafter use our commercially reasonable efforts to have such registration statement declared effective by the SEC within one hundred eighty (180) days from the date thereof. For purposes thereof, we will be deemed to be using our “commercially reasonable efforts”, provided we fully and appropriately respond to all comments from the SEC within ten (10) business days of receipt thereof without any undue hardship or unreasonable expenses, and diligently continue to seek effectiveness of such registration statement. Further, we shall take such action to have the Registration Statement declared effective by the SEC within three (3) business days following written confirmation from the SEC that it either will not review the Registration Statement or that it has no further comment on the Registration Statement. We shall not be in breach of our obligation to file and render effective the Registration Statement for any delay arising from (i) issues raised by the SEC relating to Rule 415 of the Securities Act, as amended, or to the structure of the sale and resale of the shares, (ii) information required from person or entities other than the Company, or (iii) issues resulting from or relating to acts or omissions of persons or entities other than the Company.
Subsequent to the dates of these transactions, both Fountainhead Capital Partners Limited and Regent Private Capital, LLC agreed to allow us to register less than all of the shares of common stock issuable under the Regent Debenture and the Fountainhead Debenture. Instead, we have agreed to provide Regent Private Capital, LLC and Fountainhead Capital Partners Limited with certain demand and “piggy-back” registration rights covering the remainder of the common stock issuable under such Debentures. We shall file the relevant registration rights agreements with Regent Private Capital, LLC and Fountainhead Capital Partners Limited once they have been negotiated and entered into.
Rule 144 Shares
After February 15, 2008, a person who has beneficially owned shares of a company’s common stock for at least six months is entitled to sell within any three month period a number of shares that does not exceed 1% of the number of shares of our common stock then outstanding which, in our case, would equal approximately 223,829 shares of our common stock as of the date of this prospectus.
Consequently, as of October 15, 2008 there are approximately 17,999,998 shares of our common stock held by 25 shareholders of record which are currently available for resale to the public and in accordance with the volume and trading limitations of Rule 144 of the Act.
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company. Under Rule 144(b), a person who is not one of the company’s affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least one year, is entitled to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Penny Stock Rules
The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00$5 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
A purchaser is purchasing penny stock which limits the ability to sell the stock. The shares offered by this prospectus constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which:
contains a description of the nature and level of risk in the market for penny stock in both public offerings and secondary trading;
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act of 1934, as amended;
contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” price for the penny stock and the significance of the spread between the bid and ask price;
contains a toll-free telephone number for inquiries on disciplinary actions;
defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
the bid and offer quotations for the penny stock;
the compensation of the broker-dealer and its salesperson in the transaction;
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
monthly account statements showing the market value of each penny stock held in the customer's account.
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In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
Reports
We will become subject to certain filing requirements and will furnish annual financial reports to our stockholders, certified by our independent accountant, and will furnish un-audited quarterly financial reports in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website, www.sec.govwww.sec.gov .
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 November 1, 20082008. Unless noted, the address for the following beneficial owners and management is 80 Orville Drive, Suite 100, Bohemia, New York 11716.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner (1) | Percent of Class (2) | |||||||
| Common Stock | Kenneth Coviello 80 Orville Drive, Suite 100 Bohemia, New York 11716 | 5,117,921 | 22.683 | % | ||||||
| Common Stock | Heather N. Jensen 80 Orville Drive, Suite 100 Bohemia, New York 11716 | 5,117,921 | 22.683 | % | ||||||
| Common Stock | David Salomon 15400 Knoll Trail, Suite 350 Dallas, TX 75248 | 1,361,111 | 6.033 | % | ||||||
| Common Stock | Pascale Mangiardi 80 Orville Drive, Suite 100 Bohemia, New York 11716 | — | — | |||||||
| Common Stock | Robert Diener80 Orville Drive, Suite 100 Bohemia, New York 11716 | — | — | |||||||
| Common Stock | Sawmill Trust c/o Mitchell Greene Robinson Brog Greene 1345 Avenue of the Americas New York, NY 10105( | 5,117,921 | 22.683 | % | ||||||
| Common Stock | All executive officers and directors as a group | 10,235,842 | 45.367 | % | ||||||
| Common Stock | Regent Private Capital, LLC 152 West 57 th Street, 9 th Floor, New York, NY 10019 | 10,022,341 | (3) | 28.990 | % | |||||
| Common Stock | Fountainhead Capital Management Limited Portman House Hue Street, St,Helier, Jersey JB4 5RP | 9,053,306 | (3) | 28.579 | % | |||||
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner (1) | Percent of Class (2) | |||||||
| Common Stock | Kenneth Coviello (4) | 5,284,587 | 20.6 | % | ||||||
| Common Stock | Heather N. Jensen (4) | 5,284,587 | 20.6 | % | ||||||
| Common Stock | Pascale Mangiardi | — | * | |||||||
| Common Stock | Steven Girgenti | 26,316 | * | |||||||
| Common Stock | All executive officers and directors as a group | 10,262,158 | 41.1 | % | ||||||
| Common Stock | Regent Private Capital, LLC 152 West 57 th Street, 9 th Floor, New York, NY 10019 | 10,022,341 | (3) | 28.24 | % | |||||
| Common Stock | Fountainhead Capital Management Limited Portman House Hue Street, St,Helier, Jersey JB4 5RP | 9,053,306 | (3) | 26.23 | % | |||||
| Common Stock | Sawmill Trust c/o Mitchell Greene Robinson Brog Greene 1345 Avenue of the Americas New York, NY 10105( | 5,117,921 | 20.10 | % | ||||||
| Common Stock | David Salomon 15400 Knoll Trail, Suite 350 Dallas, TX 75248 | 1,361,111 | 5.35 | % | ||||||
| Common Stock | Derek Johannson | 2,032,520 | 7.98 | % |
* Less than 1%
| (1) | In determining beneficial ownership of our common stock, the number of shares shown includes shares which the beneficial owner may acquire upon exercise of debentures, warrants and options which may be acquired within 60 days. In determining the percent of common stock owned by a person or entity on |
| (2) | In addition, in determining the percent of common stock owned by a person or entity on |
| (3) | The following table shows the calculation of the beneficial ownership of Regent Private Capital, LLC and Fountainhead Capital Management Limited: | |
| (4) | Includes stock option to purchase 166,666 shares at $0.135. |
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| Fountainhead Bridge Loan Conversion | 1,876,300 | ||||||
| Fountainhead Bridge Loan Warrants | 402,966 | ||||||
| Option Agreement: | |||||||
| Shares | 5,652,954 | ||||||
| Warrants | 3,017,409 | ||||||
| (less transferred to Regent) | -4,335,182 | ||||||
| Net | 4,335,182 | ||||||
| Fountainhead Convertible Debenture | |||||||
| Tranche #1 | 1,219,430 | ||||||
| Tranche #2 | 1,219,430 | ||||||
| Total | 9,053,306 | ||||||
| Calculation of Regent Private Capital, LLC Holdings | |||||||
| 1/2 of Fountainhead Bridge Loan Warrants | 402,966 | ||||||
| Option Agreement: | |||||||
| Shares | 5,652,954 | ||||||
| Warrants | 3,017,409 | ||||||
| (less retained by Fountainhead) | -4,335,182 | ||||||
| Net | 4,335,182 | ||||||
| Regent Convertible Debenture | |||||||
| Tranche #1 | 1,219,430 | ||||||
| Tranche #2 | 4,064,765 | ||||||
| Total | 10,022,341 |
The individuals who have voting and/or investment power in Sawmill Trust, Regent Private Capital, LLC and Fountainhead Capital Management are set forth below:
| Sawmill Trust | A. Mitchell Green, Trustee, Robinson, Brog, Leinwand, Green, Genovese & Gluck, P.C., 1345 Avenue of the Americas, New York, NY 10105 |
| Regent Private Capital, LLC | Lawrence Field, 152 West 57 th Street, 9 th Floor, New York, NY 10019 |
| Fountainhead Capital Management Limited | Directors : Gisele Le Miere, Carole Dodge and Eileen O'Shea, Portman House, Hue Street, St. Helier, Jersey (C.I.) JE4 5RP |
The abovementioned individuals disclaim beneficial ownership in the shares.
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 | ||
| Kenneth T. Coviello | Chief Executive Officer and a director | 57 | ||
| Heather N. Jensen | President and a director | 29 | ||
| Pascale Mangiardi | Director | 36 | ||
| Director |
Kenneth Coviello, 57, is our Chief Executive Officer and a director and will oversee strategic planning as well as directing manufacturing, marketing and product development. Mr. Coviello has more than 25 years of experience in successfully developing, selling and marketing medical devices and managing medical device and healthcare product companies. Mr. Coviello has held positions of Vice President, Senior Vice President and President of medical device companies, including Lumex and Graham Field. From 2000-2005, he was Senior Vice President at Misonix Inc., a public NASDAQ-listed medical device company that specializes in the design, manufacture and sale of ultrasonic surgical devices for orthopedic, neurosurgical, wound and urological applications. Mr. Coviello was responsible for Misonix medical device revenues and profitability, distribution partner contracts and factory operations in Farmingdale, NY. During his association with Misonix, Inc., Misonix increased its medical devices line from a single product to nine, grew medical device revenue, acquired and developed medical technology. While he was with Misonix, Inc, he was also appointed by Misonix, Inc. to the position of Chief Executive Officer of Hearing Innovations, Inc., a major funding entity and senior debt holder of Misonix, Inc. from August 2002 – November 2005. Mr. Coviello joined us on January 1, 2006 after leaving Misonix, Inc. in November 2005. Previous associations were:
1999-2000 FNC Medical- manufacturer and distributor of diabetic skin care supplies,
1992-1998 Graham Field- manufacturer and distributor of Medical devices, equipment and supplies
1972-1991 Lumex Inc. - manufacturer of medical devices and healthcare products
Heather N. Jensen, 29, is our founder, our President and a director and is involved in the strategic planning as well as directing Global Business Development and Sales. Ms. Jensen has more than 10 years experience in the medical profession ranging from hospitals to medical device manufacturing. Ms. Jensen joined us in November 2005. Ms. Jensen’s most recent position from 2001-2005 was as Director of Sales at Misonix, Inc., a public NASDAQ-listed medical device company that specializes in ultrasonic surgical devices for orthopedic, neurosurgical, wound and urological applications. Ms. Jensen’s responsibilities included international and domestic business development, knowledge and certification in export compliance, regulatory approval process and high-level executive contact and negotiations at some of the largest device companies in the world such as Tyco, Mentor, Aesculap, Richard Wolf and ACMI. She was also responsible for both domestic and international sales development. Ms. Jensen belongs to the Brain Injury Association, American Brain Tumor Association, and the National Association for Female Executives. She holds an Associates Degree in Business with a focus on Human Sciences and has additional credits in business administration from Katharine Gibbs College.
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Pascale Mangiardi , 36, has been our director since October 30, 2007. She is presently the founder and President of Rougemont Management Services LLC and Chief Financial Officer of Optimus Services, LLC. From 2002-2006, she was a financial officer for John R. Mangiardi, MD, PC and from 2001 - 2002, she was the Assistant CEO at Hirslanden-Group Management AG, Zurich. Ms. Mangiardi holds a Diploma from the Swiss Business Administration School.
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.
Except for Mr. Coviello, our directors and executive officers have not 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.
Mr. Coviello was Senior Vice President of Misonix Inc., a major funding entity and senior debt holder for Hearing Innovations Inc. Mr. Coviello was appointed Chief Executive Officer and an officer of Hearing Innovations after a resignation of senior management at Hearing Innovations. He was Chief Executive Officer from August 2002 – November 2005.
On July 14, 2004, Hearing Innovations Inc. sent all shareholders and creditors a plan for reorganization and disclosure statement. Misonix Inc. was committed to fund Hearing Innovations Inc. up to $150,000 for the reorganization plan. Hearing Innovations Inc. filed for relief under Chapter 11 of the U.S. Bankruptcy Code in September 2004. The Plan of Reorganization of Hearing Innovations Inc. was confirmed by the court on January 13, 2005. Based upon the final decree, and the approval by the court of the Bankruptcy Plan, Misonix Inc. became the sole shareholder of Hearing Innovations Inc.
51
The following is a summary of the compensation we paid for each of the last two years ended December 31, 2007 and 2006, respectively (i) to the persons who acted as our principal executive officer during our fiscal year ended December 31, 2007 and (ii) to the person who acted as our next most highly compensated executive officer other than our principal executive officer who was serving as our executive officer as of the end of our last fiscal year.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings ($) | All other Compensation ($) | Total ($) | |||||||||||||||||||
Kenneth T. Coviello (Chief Executive Officer) | 2007 | $ | 137,433 | — | — | — | — | — | $ | 17,301.80 | $ | 154,734.80 | ||||||||||||||||
| 2006 | $ | 76,363.64 | — | — | — | — | — | $ | 8,767.50 | $ | 85,131.29 | |||||||||||||||||
Heather Jensen (President) | 2007 | $ | 117,000 | — | — | — | — | — | $ | 17,301.80 | $ | 134,301.80 | ||||||||||||||||
| 2006 | $ | 89,843.11 | — | — | — | — | — | $ | 10,276.47 | $ | 100,119.58 | |||||||||||||||||
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 ($) | ||||||||||||||
| Kenneth T. Coviello | 2008 | $ | 190,000 | — | — | 29,212 | — | — | $ | 18,150 | $ | 237,362 | |||||||||||
| (Chief Executive Officer) | 2007 | $ | 137,433 | — | — | — | — | — | $ | 17,302 | $ | 154,735 | |||||||||||
| 2006 | $ | 76,364 | — | — | — | — | — | $ | 8,768 | $ | 85,132 | ||||||||||||
| Heather N. Jensen | 2008 | $ | 190,000 | — | — | 29,212 | — | — | $ | 19,204 | $ | 238,416 | |||||||||||
| (President) | 2007 | $ | 117,000 | — | — | — | — | — | $ | 17,302 | $ | 134,302 | |||||||||||
| 2006 | $ | 89,843 | — | — | — | — | — | $ | 10,276 | $ | 100,120 | ||||||||||||
OUTSTANDING EQUITY AWARDS
| Option Awards | |||||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) | Option Exercise Price ($) | Option Expiration Date | |||||||||||||
| Kenneth T. Coviello | 2/15/2008 | - | - | 500,000 | $ | 0.135 | 2/12/2018 | ||||||||||||
| Heather N. Jensen | 2/15/2008 | - | - | 500,000 | $ | 0.135 | 2/12/2018 | ||||||||||||
Grants of Plan-Based Awards in Fiscal 2007
aggregate. There were no option exercises by or stock vested in fiscal 2007 to benefit of the named executive officers named in the Summary Compensation Table.or 2008.
| Equity Compensation Plan Information | |||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
Equity compensation plans approved by security holders | 1,000,000 | $ | 0.135 | 2,651,345 | |||||
Equity compensation plans not approved by security holders | 50,000 | 0.19 | – | ||||||
Total | 1,050,000 | $ | 0.138 | 2,651,345 | |||||
52
Employment Agreements
We have employment agreements with our Chief Executive Officer, Mr. Kenneth Coviello and with our President, Ms. Heather Jensen.
We had previously entered into an employment agreement with Mr. Kenneth Coviello on January 1, 2006. Pursuant to the agreement, Mr. Coviello was employed to be our Chief Executive Officer for an annual salary of $190,000. In addition, Mr. Coviello was entitled to monthly car allowances of $600, $750, $900 and $1,150 for his first, second, third and fourth and fifth years with us respectively. Mr. Coviello is entitled to an annual bonus upon achieving certain milestones and a commission every quarter from our gross profits for that period. The employment agreement is for a five-year term, automatically renewable for successive one year terms unless either party elects not to do so.
Despite the employment agreement, Mr. Coviello only received a base salary of $137,433 and $76,363.64 and car allowances and health insurance coverage of $17,301.80 and $8,767.50 for fiscal 2007 and 2006 respectively. We did not accrue or defer the differences in actual amounts paid against the amounts provided for in the employment contract and Mr. Coviello has agreed to waive such amounts.
On January 1, 2008, Mr. Coviello entered into a new employment agreement. Pursuant to the new employment agreement, Mr. Coviello was employed as our Chief Executive Officer for an annual salary of $190,000. He will also be paid a monthly automobile allowance of $700 and be eligible to receive annual bonuses of 20% of his base salary for calendar year 2008 and 40% of his base salary for calendar year 2009, payable in cash or in stock based upon the achievement of specific milestones to be determined by the Compensation Committee of our board of directors. For the purposes of calendar years 2008 and 2009, these milestones are defined as exceeding our budgeted income by an amount equal to the aggregate amount of all bonuses to be paid. The term of the agreement is for one year, and it will automatically be renewed for an additional one year term, unless either party gives written notice to the other of its intention to terminate the agreement at least 30 days prior to the automatic renewal date.
We entered previously into an employment agreement with Ms. Heather Jensen on October 31, 2005. Pursuant to the agreement, Ms. Jensen was employed to be our President for an annual salary of $190,000. In addition, Ms. Jensen was entitled to monthly car allowances and health insurance coverage of $600, $750, $900 and $1,150 for her first, second, third and fourth and fifth years with us respectively. Ms. Jensen is entitled to an annual bonus upon achieving certain milestones and a commission every quarter from our gross profits for that period. The employment agreement is for a five-year term, automatically renewable for successive one year terms unless either party elects not to do so.
Despite the employment agreement, Ms. Jensen only received a base salary of $117,000 and $89,843.11 and car allowances of $17,301.80 and $10,276.47 for fiscal 2007 and 2006 respectively. We did not accrue or defer the differences in actual amounts paid against the amounts provided for in the employment contract and Ms. Jensen has agreed to waive such amounts.
On January 1, 2008, Ms. Jensen entered into a new employment agreement. Pursuant to the new employment agreement, Ms. Jensen was employed as our President for an annual salary of $190,000. She will also be paid a monthly automobile allowance of $700 and be eligible to receive annual bonuses of 20% of her base salary for calendar year 2008 and 40% of her base salary for calendar year 2009, payable in cash or in stock based upon the achievement of specific milestones to be determined by the Compensation Committee of our board of directors. For the purposes of calendar years 2008 and 2009, these milestones are defined as exceeding our budgeted income by an amount equal to the aggregate amount of all bonuses to be paid. The term of the agreement is for one year, and it will automatically be renewed for an additional one year term, unless either party gives written notice to the other of its intention to terminate the agreement at least 30 days prior to the automatic renewal date.
Compensation of Directors
For the years ended December 31, 2007 and 2006, none of the members of our board of directors received compensation for his or her service as a director. In 2008, we granted Steven Girgenti 26,316 shares, equivalent to $5,000 for Mr. Girgenti’s service to the Board of Directors in 2008. In 2009, Mr. Girgenti will be entitled to receive $5,000 in cash or stock at the option of the company per quarter and $1,500 per board meeting.
53
FOR SECURITIES ACT LIABILITIES
Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to our company and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law, or any other applicable law. Our bylaws further provide that we may modify the extent of such indemnification by individual contracts with its directors and officers.
We shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding; provided, however, that if the Delaware General Corporation Law requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director and officers (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to us of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under the bylaws or otherwise.
We have been advised that in the opinion of the Securities and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities (other than the our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
We may enter into indemnification agreements with each of our directors and officers that are, in some cases, broader than the specific indemnification provisions permitted by Delaware law, and that may provide additional procedural protection. We have not entered into any indemnification agreements with our directors or officers, but may choose to do so in the future.
At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
On Nov 17, 2005, Mr. Coviello, our Chief Executive Officer and a director, made a non-interest-bearing loan to the Company in the amount of $10,000. Such loan was fully repaid as follows:
12//25/2006-Payment of $2,500
1/22/2007- Payment of $2,500
2/21/2007-Payment of $2,500
4/13/2007-Payment of $2,500
54
Additionally, on February 23, 2006, Mr. Coviello made a non-interest-bearing loan to the Company in the amount of $3,000, which was fully repaid as follows:
10/5/2007-Payment of $1,500
11/1/2007-Payment of $1,500
The securities being offered hereunder are being offered by the selling shareholders listed below or their respective transferees, pledgees, donees or successors. Each selling shareholder may from time to time offer and sell any or all of such selling shareholder’s shares that are registered under this prospectus. Because no selling shareholder is obligated to sell shares, and because the selling shareholders may also acquire publicly traded shares of our common stock, we cannot accurately estimate how many shares each selling shareholder will own after the offering.
All expenses incurred with respect to the registration of the common stock covered by this prospectus will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commissions or other expenses incurred by any selling shareholder in connection with the sale of shares.
The following table sets forth, with respect to the selling shareholders (i) the number of shares of common stock beneficially owned as of November 1, 2008 and prior to the offering contemplated hereby, (ii) the maximum number of shares of common stock which may be sold by the selling shareholders under this prospectus, and (iii) the number of shares of common stock which will be owned after the offering by the selling shareholders. All shareholders listed below are eligible to sell their shares. The percentage ownerships set forth below are based on 22,562,33225,463,455 shares outstanding as of the date of this prospectus.
The Company determined to register only 350,000100,000 of the shares underlying certain Convertible Debentures. In this regard, the Company undertook to register a number of shares which was less than 33 1/3% of the number of shares determined to be in the “float”. In this regard, the Company currently has 22,562,33225,463,455 shares issued and outstanding, of which 15,353,763 shares are held by the Company’s founders. The remaining shares in the “float” therefore number 7,208,569. 33 1/3% of this number of shares is 2,402,856 shares. The Company viewed that number of shares as the maximum number of shares it could register within the guidelines of Rule 415. The Company therefore determined to register 2,100,000 shares as this number was well within such guidelines. In this regard, the Company endeavored to register shares issued in connection with investments in the Company by various investors dating back to 2006 and obtained waivers from registration commitments it had with respect to shares of common stock underlying the Convertible Debentures held by Regent Private Capital LLC and Fountainhead Capital Partners Limited pursuant to Section 6.1 of the Convertible Debenture Purchase Agreements with them in return for certain demand and “piggy-back” registration rights covering any unregistered common stock issuable under such Convertible Debentures. Based on this analysis, the Company determined to register only 100,000 of the following shares underlying Convertible Debentures:Debentures owned by Altcar Investments Ltd.—100,000 shares and Derek Johannson—250,000 shares.
| Name of Stockholder | Total Number of Shares of | Number of Shares of Common Stock | Shares Beneficially | Number of Shares of | Shares Beneficially | Shares Beneficially | Acquisition Price | ||||||||||||||||
| Steven Thuilot | 534,939 | 35,000 | 2.10 | % | — | 499,939 | 1.96 | % | $ | 0.09 | |||||||||||||
| Dr. Michael Wayne | 100,301 | 35,000 | 0.39 | % | — | 65,301 | 0.26 | % | $ | 0.25 | |||||||||||||
| Ed and Joanne Minder | 267,469 | 35,000 | 1.05 | % | — | 232,469 | 0.91 | % | $ | 0.09 | |||||||||||||
| Larry Coviello | 281,859 | 35,000 | 1.11 | % | — | 246,859 | 0.97 | % | $ | 0.09 | |||||||||||||
| Robert Coviello | 228,365 | 35,000 | 0.90 | % | — | 193,365 | 0.76 | % | $ | 0.09 | |||||||||||||
| Neal Clay | 107,041 | 35,000 | 0.42 | % | — | 72,041 | 0.28 | % | $ | 0.09 | |||||||||||||
| Joan Pallateri | 107,041 | 35,000 | 0.42 | % | — | 72,041 | 0.28 | % | $ | 0.09 | |||||||||||||
| Edwin Tironi | 160,482 | 35,000 | 0.63 | % | — | 125,482 | 0.49 | % | $ | 0.09 | |||||||||||||
| Susan and Lambert Dahlin | 160,482 | 35,000 | 0.63 | % | — | 125,482 | 0.49 | % | $ | 0.09 | |||||||||||||
| Prateek Parekh | 40,120 | 35,000 | 0.16 | % | — | 5,120 | 0.02 | % | $ | 0.25 | |||||||||||||
| Goran Avdicevic | 100,301 | 35,000 | 0.39 | % | — | 65,301 | 0.26 | % | $ | 0.25 | |||||||||||||
| Harpreet Anand | 64,193 | 35,000 | 0.25 | % | — | 29,193 | 0.11 | % | $ | 0.25 | |||||||||||||
| Anirban Sen | 60,181 | 35,000 | 0.24 | % | — | 25,181 | 0.10 | % | $ | 0.25 | |||||||||||||
| Joel R. Smart Living Trust | 50,151 | 35,000 | 0.20 | % | — | 15,151 | 0.06 | % | $ | 0.25 | |||||||||||||
| Clarence A. Dahlin Living Trust | 50,151 | 35,000 | 0.20 | % | — | 15,151 | 0.06 | % | $ | 0.25 | |||||||||||||
| Joel R. Smart Living Trust and Clarence A. Dahlin Living Trust | 100,301 | 35,000 | 0.39 | % | — | 65,301 | 0.26 | % | $ | 0.25 | |||||||||||||
| Kenneth Olson | 100,301 | 35,000 | 0.39 | % | — | 65,301 | 0.26 | % | $ | 0.25 | |||||||||||||
| Feldstein Management | 12,197 | 2,500 | 0.05 | % | — | 9,697 | 0.0 | % | $ | 0.25 | |||||||||||||
| David Salomon | 1,361,111 | 129,447 | 5.35 | % | — | 1,231,664 | 4.84 | % | $ | 0.11 | |||||||||||||
| George Kivotidis | 363,158 | 263,158 | 1.43 | % | — | 100,000 | 0.39 | % | $ | 0.28 | |||||||||||||
| Sichenzia Ross Friedman Ference LLP | 523,747 | 23,049 | 2.06 | % | — | 500,698 | 1.97 | % | * | ||||||||||||||
| LFI Investments Ltd | 78,947 | 78,947 | 0.31 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Jay Berkow | 52,632 | 52,632 | 0.21 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Vivek Bhaman | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Robert Braumann | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| John A. Brown Jr. | 52,632 | 52,632 | 0.21 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Vincent P. Carroll | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Robert A. Frazier | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Martin Keating | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Vicor F. Keen | 78,947 | 78,947 | 0.31 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Robert M. Richards | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Joseph Roberts | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Thomas Romano | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Edward F. Sager, Jr. | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Mark Staples | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Neil Strauss | 52,632 | 52,632 | 0.21 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Terry Tyson | 52,632 | 52,632 | 0.21 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Geoffrey C Walker | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| James Ward | 26,316 | 26,316 | 0.10 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Jay S. Weiss | 52,632 | 52,632 | 0.21 | % | — | — | — | % | $ | 0.19 | |||||||||||||
| Derek Johannson** | 2,032,520 | 250,000 | 7.98 | % | 1,782,520 | 7.00 | % | — | |||||||||||||||
| Altcar Investments Ltd.** | 100,000 | — | — | — | |||||||||||||||||||
| Total | 7,543,257 | 2,000,000 | 29.61 | % | 100,000 | 5,543,257 | 21.77 | % | |||||||||||||||
Number of | ||||||||||||||||||||||
Shares of | ||||||||||||||||||||||
Shares | Common Stock | |||||||||||||||||||||
Number of Shares of | Beneficially | Underlying | Shares | Shares | ||||||||||||||||||
Total Number of | Common Stock | Owned | Convertible | Beneficially | Beneficially | |||||||||||||||||
Shares of | Held and Offered | Before | Securities Held and | Owned After | Owned After | Acquisition | ||||||||||||||||
Common Stock Held | Pursuant to this | Offering | Offered Pursuant to | the Offering | the Offering | Price | ||||||||||||||||
Name of Stockholder | Prior to Offering | Prospectus | (Percentage) | this Prospectus | (Number) | (Percentage) | Per Share | |||||||||||||||
| Steven Thuilot | 534,939 | 35,000 | 2.37 | % | — | 499,939 | 2.22 | % | $ | 0.09 | ||||||||||||
| Dr. Michael Wayne | 100,301 | 35,000 | 0.44 | % | — | 65,301 | 0.29 | % | $ | 0.25 | ||||||||||||
| Ed and Joanne Minder | 267,469 | 35,000 | 1.19 | % | — | 232,469 | 1.03 | % | $ | 0.09 | ||||||||||||
| Larry Coviello | 281,859 | 35,000 | 1.25 | % | — | 246,859 | 1.09 | % | $ | 0.09 | ||||||||||||
| Robert Coviello | 228,365 | 35,000 | 1.01 | % | — | 193,365 | 0.86 | % | $ | 0.09 | ||||||||||||
| Neal Clay | 107,041 | 35,000 | 0.47 | % | — | 72,041 | 0.32 | % | $ | 0.09 | ||||||||||||
| Joan Pallateri | 107,041 | 35,000 | 0.47 | % | — | 72,041 | 0.32 | % | $ | 0.09 | ||||||||||||
| Edwin Tironi | 160,482 | 35,000 | 0.71 | % | — | 125,482 | 0.56 | % | $ | 0.09 | ||||||||||||
| Susan and Lambert Dahlin | 160,482 | 35,000 | 0.71 | % | — | 125,482 | 0.56 | % | $ | 0.09 | ||||||||||||
| Prateek Parekh | 40,120 | 35,000 | 0.18 | % | — | 5,120 | 0.02 | % | $ | 0.25 | ||||||||||||
| Goran Avdicevic | 100,301 | 35,000 | 0.44 | % | — | 65,301 | 0.29 | % | $ | 0.25 | ||||||||||||
| Harpreet Anand | 64,193 | 35,000 | 0.28 | % | — | 29,193 | 0.13 | % | $ | 0.25 | ||||||||||||
| Anirban Sen | 60,181 | 35,000 | 0.27 | % | — | 25,181 | 0.11 | % | $ | 0.25 | ||||||||||||
| Joel R. Smart Living Trust | 50,151 | 35,000 | 0.22 | % | — | 15,151 | 0.07 | % | $ | 0.25 | ||||||||||||
| Clarence A. Dahlin Living Trust | 50,151 | 35,000 | 0.22 | % | — | 15,151 | 0.07 | % | $ | 0.25 | ||||||||||||
| Joel R. Smart Living Trust and Clarence A. Dahlin Living Trust | 100,301 | 35,000 | 0.44 | % | — | 65,301 | 0.29 | % | $ | 0.25 | ||||||||||||
| Kenneth Olson | 100,301 | 35,000 | 0.44 | % | — | 65,301 | 0.29 | % | $ | 0.25 | ||||||||||||
| Feldstein Management | 12,197 | 2,500 | 0.05 | % | — | 9,697 | 0.04 | % | $ | 0.25 | ||||||||||||
| David Salomon | 1,361,111 | 129,447 | 6.03 | % | — | 1,231,664 | 5.46 | % | $ | 0.11 | ||||||||||||
| George Kivotidis | 363,158 | 263,158 | 1.61 | % | — | 100,000 | 0.44 | % | $ | 0.28 | ||||||||||||
| Sichenzia Ross Friedman Ference LLP | 523,747 | 23,049 | 2.32 | % | — | 500,698 | 2.22 | % | * | |||||||||||||
| LFI Investments Ltd | 78,947 | 78,947 | 0.35 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Jay Berkow | 52,632 | 52,632 | 0.23 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Vivek Bhaman | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Robert Braumann | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| John A. Brown Jr. | 52,632 | 52,632 | 0.23 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Vincent P. Carroll | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Robert A. Frazier | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Martin Keating | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Vicor F. Keen | 78,947 | 78,947 | 0.35 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Robert M. Richards | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Joseph Roberts | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Thomas Romano | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Edward F. Sager, Jr. | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Mark Staples | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Neil Strauss | 52,632 | 52,632 | 0.23 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Terry Tyson | 52,632 | 52,632 | 0.23 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Geoffrey C Walker | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| James Ward | 26,316 | 26,316 | 0.12 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Jay S. Weiss | 52,632 | 52,632 | 0.23 | % | — | — | — | % | $ | 0.19 | ||||||||||||
| Altcar Investments Ltd.** | 100,000 | — | — | % | — | |||||||||||||||||
| Derek Johannson** | 250,000 | — | — | % | — | |||||||||||||||||
Total | 5,510,737 | 1,750,000 | 24.42 | % | 350,000 | 3,760,737 | 16.67 | % | ||||||||||||||
* In connection with the provision of legal services to the Company in connection with its securities offering and the preparation of this registration statement, the Company agreed to pay Sichenzia Ross Friedman Ference LLP a fee comprising $60,000 cash and 523,747 shares of the Company’s common stock.
** The total value of the securities underlying Convertible Debentures being registered calculated at $0.19 per share are $19,000 for Altcar Investments Ltd and $47,500 for Derek Johannson.Ltd.
Clarence Dahlin and Joel Smart are the beneficial owners of the Joel R. Smart Living Trust
Clarence Dahlin and Joel Smart are the beneficial owners of the Clarence A. Dahlin Living Trust
Lee Feldstein is the beneficial owner of the Feldstein Management
Gregory Sichenzia is the beneficial owner of Sichenzia Ross Friedman Ference, LLP
Michael Bailey is the beneficial owner of LFI Investments Limited
Moses Goldberg is the beneficial owner of Altcar Investments Ltd.
The abovementioned individuals have voting and investment power over the shares but each disclaims beneficial ownership over them.
56
We have the following relationships and arrangements with certain selling shareholders:
1. Sichenzia Ross Friedman FerrenceFerence LLP. We engaged Sichenzia Ross Friedman Ference LLP to provide legal services in connection with the transactions with Regent Private Capital and Fountainhead Capital Partners Limited and the filing of an S-1 registration statement with the SEC. Sichenzia received a total of 523,747 shares of our common stock as well as $60,000 cash for their services.
While the Company hopes to generate sufficient cash flow from the sale of its products in order to have the financial ability to make required payments on the overlying securities, there is clearly no guarantee that it will be in a position to do so. Nor does the Company have in place any commitments from any third parties to provide it with the funding required to make such payments in the event operating cash flow in not sufficient to do so. The Company’s ultimate goal is that it will be able to develop a liquid public market for its common stock such that the holders of the overlying securities will be incentivized to convert to common stock. The Company would also hope that such market would incentivize the holders of the Company’s options and warrant to exercise such warrants and options which will result in an additional source of cash to the Company. Obviously, there is no guarantee that this will occur. Absent any of these factors or generation of sufficient cash flow to fund such payments, the Company will not be in a position to make the required payments on the overlying securities.
The Company is not aware of any selling shareholder who maintains a short position in the Company’s common stock.
The following is a table showing total possible payments to all selling shareholders and any of their affiliates in the first year following the sale of the convertible notes:
Vycor Medical, Inc.
Convertible Notes Transaction
Payments to Selling Shareholders
| Sichenzia Ross Friedman & Ference Feb 15, 2008 | 523,747 Shares @ $.19 per share | $ | 99,512 | ||||
| Total | $ | 99,512 |
Other than the foregoing, as of September 1, 2008, there have been no amounts paid to any selling shareholder on account of interest or otherwise. At the February 15, 2009 maturity of the convertible notes held by Derek Johannson and Altcar Investments Limited, assuming that there will not be any conversion of such notes, there will be payable to such selling shareholders the principal amountsamount of $250,000 and $100,000 and accrued interest of $15,000 and $6,000, respectively.$6,000. No other amounts are anticipated to be paid to any other selling shareholder within the 12 month period following the sale of any securities held by such shareholders.
The following is a table showing the potential profit which could be recognized by the holders of certain convertible debt instruments issued by the Company:
Vycor Medical, Inc.
Convertible Notes
Analysis of Potential Profit on Conversion
Market Price | Total | Combined Market Price | Combined Conv. Price | Aggregate | ||||||||||||||||||
Instrument | Date | Date of Sale | Conversion Price | Possible Conv. Shares | of Conversion Shares | of Conversion Shares | Discount to Market Price | |||||||||||||||
| Fountainhead Capital Partners—$172,000 Debenture | Dec. 15, 2006 | $ | 0.19 | $ | 0.10 | 1,876,300 | $ | 356,497 | $ | 182,939 | $ | 173,558 | ||||||||||
| David Salomon—$150,000 Convertible Loan | Aug 28, 2007 | $ | 0.19 | $ | 0.14 | 1,211,111 | $ | 230,111 | $ | 169,556 | $ | 60,556 | ||||||||||
| Fountainhead Capital Partners—$300,000 Debenture | Feb. 15, 2008 | $ | 0.19 | $ | 0.12 | 2,438,859 | $ | 463,383 | $ | 299,980 | $ | 163,404 | ||||||||||
| Regent Capital Partners—$650,000 Debenture | Feb 15, 2008 | $ | 0.19 | $ | 0.12 | 5,416,667 | $ | 1,029,167 | $ | 650,000 | $ | 379,167 | ||||||||||
| Altcar Investments Ltd—$100,000 Debenture | Feb 15, 2008 | $ | 0.19 | $ | 0.12 | 833,333 | $ | 158,333 | $ | 100,000 | $ | 58,333 | ||||||||||
| Derek Johannson—$250,000 Debenture | Feb 15, 2008 | $ | 0.19 | $ | 0.12 | 2,083,333 | $ | 395,833 | $ | 250,000 | $ | 145,833 | ||||||||||
TOTAL | $ | 2,633,324 | $ | 1,652,475 | $ | 980,849 | ||||||||||||||||
| Instrument | Date | Market Price Dateof Sale | Conversion Price | Total PossibleConv. Shares | Combined Market Price ofConversion Shares | Combined Conv. Price ofConversion Shares | Aggregate Discountto Market Price | ||||||||||||||
| Fountainhead Capital Partners—$172,000 Debenture | Dec. 15, 2006 | $ | 0.19 | $ | 0.10 | 1,876,300 | $ | 356,497 | $ | 182,939 | $ | 173,558 | |||||||||
| David Salomon—$150,000 Convertible Loan | Aug 28, 2007 | $ | 0.19 | $ | 0.14 | 1,211,111 | $ | 230,111 | $ | 169,556 | $ | 60,556 | |||||||||
| Fountainhead Capital Partners—$300,000 Debenture | Feb. 15, 2008 | $ | 0.19 | $ | 0.123 | 2,438,859 | $ | 463,383 | $ | 299,980 | $ | 163,404 | |||||||||
| Regent Capital Partners—$650,000 Debenture | Feb 15, 2008 | $ | 0.19 | $ | 0.123 | 5,416,667 | $ | 1,029,167 | $ | 650,000 | $ | 379,167 | |||||||||
| Altcar Investments Ltd—$100,000 Debenture | Feb 15, 2008 | $ | 0.19 | $ | 0.123 | 833,333 | $ | 158,333 | $ | 100,000 | $ | 58,333 | |||||||||
| TOTAL | $ | 2,633,324 | $ | 1,652,475 | $ | 980,849 | |||||||||||||||
The following is a table showing the potential profit which could be recognized by the holders of certain options and warrants issued by the Company:
Vycor Medical, Inc.
Warrants and Options
Analysis of Potential Profit on Exercise
Market Price | Total | Combined Market | Combined Conv. | (Premium) Discount | ||||||||||||||||||
Instrument | Date | Date of Sale | Exercise Price | Possible Shares | Price of Shares | Price of Shares | to Market Price | |||||||||||||||
| Fountainhead Warrants (including warrants transferred to Regent | 12/4/2006 | $ | 0.14 | $ | 0.50 | 805,931 | $ | 112,830 | $ | 402,966 | $ | (290,135 | ) | |||||||||
| GC Advisors—Warrants | 1/9/2006 | $ | 0.14 | $ | 0.14 | 192,576 | $ | 26,961 | $ | 26,961 | $ | 0 | ||||||||||
| GC Advisors—Warrants | 1/9/2006 | $ | 0.14 | $ | 0.14 | 192,576 | $ | 26,961 | $ | 26,961 | $ | 0 | ||||||||||
| Martin Magida—Options | 9/1/2007 | $ | 0.24 | $ | 0.24 | 160,480 | $ | 38,515 | $ | 38,515 | $ | 0 | ||||||||||
| George Kivotidis—Options | 11/6/2007 | $ | 0.50 | $ | 0.50 | 4,000 | $ | 2,000 | $ | 2,000 | $ | 0 | ||||||||||
| Robert Guinta—Options | 9/1/2007 | $ | 0.24 | $ | 0.24 | 160,480 | $ | 38,515 | $ | 38,515 | $ | 0 | ||||||||||
| Ezriel Kornel—Options | 1/1/2006 | $ | 0.25 | $ | 0.25 | 240,720 | $ | 60,180 | $ | 60,180 | $ | 0 | ||||||||||
| David Langer—Options | 12/11/2006 | $ | 0.25 | $ | 0.25 | 320,960 | $ | 80,240 | $ | 80,240 | $ | 0 | ||||||||||
| Fountainhead Capital Option Agreement | ||||||||||||||||||||||
| Purchase Option | 12/14/2006 | $ | 0.25 | $ | 0.33 | 5,652,954 | $ | 1,413,239 | $ | 1,865,475 | $ | (452,236 | ) | |||||||||
| Warrants | 12/14/2006 | $ | 0.25 | $ | 0.34 | 3,017,409 | $ | 754,352 | $ | 1,025,919 | $ | (271,567 | ) | |||||||||
TOTAL | $ | 2,553,793 | $ | 3,567,731 | $ | (1,013,938 | ) | |||||||||||||||
| Instrument | Date | Market Price Date ofSale | Exercise Price | Total PossibleShares | Combined Market Price ofShares | Combined Conv. Price ofShares | (Premium) Discount to MarketPrice | ||||||||||||||
| Fountainhead Warrants (including warrants transferred to Regent | 12/4/2006 | $ | 0.14 | $ | 0.50 | 805,931 | $ | 112,830 | $ | 402,966 | $ | (290,135 | ) | ||||||||
| GC Advisors—Warrants | 1/9/2006 | $ | 0.14 | $ | 0.14 | 192,576 | $ | 26,961 | $ | 26,961 | $ | 0 | |||||||||
| Martin Magida—Options | 9/1/2007 | $ | 0.24 | $ | 0.24 | 160,480 | $ | 38,515 | $ | 38,515 | $ | 0 | |||||||||
| George Kivotidis—Options | 11/6/2007 | $ | 0.50 | $ | 0.50 | 4,000 | $ | 2,000 | $ | 2,000 | $ | 0 | |||||||||
| Robert Guinta—Options | 9/1/2007 | $ | 0.24 | $ | 0.24 | 160,480 | $ | 38,515 | $ | 38,515 | $ | 0 | |||||||||
| Ezriel Kornel—Options | 1/1/2006 | $ | 0.24 | $ | 0.24 | 240,720 | $ | 60,180 | $ | 60,180 | $ | 0 | |||||||||
| David Langer—Options | 12/11/2006 | $ | 0.24 | $ | 0.24 | 320,960 | $ | 80,240 | $ | 80,240 | $ | 0 | |||||||||
| Fountainhead Capital Option Agreement | |||||||||||||||||||||
| Purchase Option | 12/14/2006 | $ | 0.25 | $ | 0.33 | 5,652,954 | $ | 1,413,239 | $ | 1,865,475 | $ | (452,236 | ) | ||||||||
| Warrants | 12/14/2006 | $ | 0.25 | $ | 0.34 | 3,017,409 | $ | 754,352 | $ | 1,025,919 | $ | (271,567 | ) | ||||||||
| TOTAL | $ | 2,526,832 | $ | 3,540,771 | $ | (1,013,938 | ) | ||||||||||||||
The following is a table showing an analysis of gross vs. net proceeds on the issuance of certain convertible debentures by the Company:
Vycor Medical, Inc.
Convertible Notes Transaction
Analysis of Gross vs Net Proceeds
| Gross Proceeds of Convertible Notes Transaction | ||||
| Regent Private Capital | $ | 1,000,000 | ||
| Fountainhead Capital Partners Limited | $ | 300,000 | ||
| TOTAL | $ | 1,300,000 | ||
| Payment of Fees related to the Sale of Convertible Debentures | $ | (99,512 | ) | |
| Potential (Discounts) on Sale of Convertible Debentures, etc | $ | (980,849 | ) | |
| Potential Premium /(Discount) on Exercise of Options, Warrants, etc. | $ | 1,080,361 | ||
| Net Proceeds from Sale of Convertible Debentures | $ | 1,300,000 | ||
| Percentage of Fees/Premium/Discount to Gross Proceeds | 0.00 | % |
| Gross Proceeds of Convertible Notes Transaction | ||||
| Regent Private Capital | $ | 1,000,000 | ||
| Fountainhead Capital Partners Limited | $ | 300,000 | ||
| TOTAL | $ | 1,300,000 | ||
| Payment of Fees related to the Sale of Convertible Debentures | $ | (99,512 | ) | |
| Potential (Discounts) on Sale of Convertible Debentures, etc | $ | (980,849 | ) | |
| Potential Premium /(Discount) on Exercise of Options, Warrants, etc. | $ | 1,080,361 | ||
| Net Proceeds from Sale of Convertible Debentures | $ | 1,300,000 | ||
| Percentage of Fees/Premium/Discount to Gross Proceeds | 0 | % |
The following is an analysis of all prior securities transactions between the Company (or any of its predecessors) and the selling shareholders, any affiliates of the selling shareholders, or any person with whom any selling shareholder has a contractual relationship regarding the transaction (or any predecessors of those persons):
59
Vycor Medical, Inc.
Analysis of Prior Securities Transactions
Shs. of Class | Shares Sold | Prior | Curr. | |||||||||||||||||||||||||
Holder: | Date of Transaction | Security | Prev. Held (5) | In Transaction | % Prev. Iss. Shs. | Total Consid. | Price/Sh | Mkt. Price (3) | Mkt. Price (4) | |||||||||||||||||||
Robert Coviello | November 1, 2005 | Common | 0 | 110,733.00 | n/a | $ | 10,345 | $ | 0.09 | $ | 0.09 | $ | 0.19 | |||||||||||||||
Steven Thuilot | November 10, 2005 | Common | 110,733 | 267,467.00 | 241.54 | % | $ | 25,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Ed and Joanne Minder | November 10, 2005 | Common | 378,200 | 107,040.00 | 28.30 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Larry Coviello | November 10, 2005 | Common | 485,240 | 110,788.00 | 22.83 | % | $ | 10,345 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Dr. Michael Wayne | November 15, 2005 | Common | 596,028 | 100,301.00 | 16.83 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Ed and Joanne Minder | January 18, 2006 | Common | 696,329 | 53,389.00 | 7.67 | % | $ | 5,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Larry Coviello | January 18, 2006 | Common | 749,718 | 37,392.00 | 4.99 | % | $ | 3,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Robert Coviello | January 18, 2006 | Common | 787,110 | 37,392.00 | 4.75 | % | $ | 3,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Steven Thuilot | February 3, 2006 | Common | 824,502 | 64,144.00 | 7.78 | % | $ | 6,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Steven Thuilot | March 1, 2006 | Common | 888,646 | 107,041.00 | 12.05 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Neal Clay | March 14, 2006 | Common | 995,687 | 107,041.00 | 10.75 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Edwit Tironi | March 14, 2006 | Common | 1,102,728 | 160,482.00 | 14.55 | % | $ | 15,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Ed and Joanne Minder | March 15, 2006 | Common | 1,263,210 | 107,040.00 | 8.47 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Larry Coviello | March 19, 2006 | Common | 1,370,250 | 53,439.00 | 3.90 | % | $ | 5,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Larry Coviello | March 19, 2006 | Common | 1,423,689 | 80,240.00 | 5.64 | % | $ | 7,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Robert Coviello | March 19, 2006 | Common | 1,503,929 | 80,240.00 | 5.34 | % | $ | 7,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Susan and Lambert Dahlin | March 24, 2006 | Common | 1,584,169 | 160,482.00 | 10.13 | % | $ | 15,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Joan Pallateri | March 27, 2006 | Common | 1,744,651 | 107,041.00 | 6.14 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Prateek Parekh | April 10, 2006 | Common | 1,851,692 | 40,120.00 | 2.17 | % | $ | 10,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Goran Avdicevic | April 10, 2006 | Common | 1,891,812 | 100,301.00 | 5.30 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Harpreet Anand | April 10, 2006 | Common | 1,992,113 | 64,193.00 | 3.22 | % | $ | 16,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Anirban Sen | April 10, 2006 | Common | 2,056,306 | 60,181.00 | 2.93 | % | $ | 15,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Steven Thuilot | April 13, 2006 | Common | 2,116,487 | 96,288.00 | 4.55 | % | $ | 9,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||||||
Joel R. Smart Living Trust | July 7, 2006 | Common | 2,212,775 | 50,151.00 | 2.27 | % | $ | 12,500 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Clarence A. Dahlin Living Trust | July 7, 2006 | Common | 2,262,926 | 50,151.00 | 2.22 | % | $ | 12,500 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
GC Advisors | September 20, 2006 | Common | 2,313,077 | 48,145.00 | 2.08 | % | $ | 12,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Joel R. Smart Living Trust and Clarence A. Dahlin Living Trust | October 26, 2006 | Common | 2,361,222 | 100,301.00 | 4.25 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
GC Advisors | January 20, 2007 | Common | 2,461,523 | 32,096.00 | 1.30 | % | $ | 8,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Kenneth Olson | April 18, 2007 | Common | 2,493,619 | 100,301.00 | 4.02 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Feldstein Management | August 14, 2007 | Common | 2,593,920 | 12,196.00 | 0.47 | % | $ | 3,040 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Dr. David Langer | August 14, 2007 | Common | 2,606,116 | 24,072.00 | 0.92 | % | $ | 6,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||||||
Vinas & Company, Christopher A. Vinas | August 14, 2007 | Common | 2,630,188 | 16,048.00 | 0.61 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||||||
David Salomon | August 15, 2007 | Common | 2,646,236 | 150,000.00 | 5.67 | % | $ | 150,000 | $ | 1.00 | $ | 1.00 | $ | 0.19 | ||||||||||||||
MAC Strategic Advisors | November 15, 2007 | Common | 2,796,236 | 40,000.00 | 1.43 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||||||
George Kivotidis | November 15, 2007 | Common | 2,836,236 | 100,000.00 | 3.53 | % | $ | 50,000 | $ | 0.50 | $ | 0.50 | $ | 0.19 | ||||||||||||||
Christopher A. Vinas | January 23, 2008 | Common | 2,936,236 | 263,158.00 | 8.96 | % | $ | 50,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Concordia Financial Group | February 15, 2008 | Common | 3,199,394 | 523,747.00 | 16.37 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||||||
Sichenzia Ross Friedman Ference et al | February 15, 2008 | Common | 3,723,141 | 523,747.00 | 14.07 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||||||
RES Holdings | February 26, 2008 | Common | 4,246,888 | 23,683.00 | 0.56 | % | $ | 4,500 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Michael Bailey | February 26, 2008 | Common | 4,270,571 | 78,947.00 | 1.85 | % | $ | 15,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Jay Berkow | February 26, 2008 | Common | 4,349,518 | 52,632.00 | 1.21 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Vivek Bhaman | February 26, 2008 | Common | 4,402,150 | 26,316.00 | 0.60 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Robert Braumann | February 26, 2008 | Common | 4,428,466 | 26,316.00 | 0.59 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
John A Bown Jr. | February 26, 2008 | Common | 4,454,782 | 52,632.00 | 1.18 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Vincent P Carroll | February 26, 2008 | Common | 4,507,414 | 26,316.00 | 0.58 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Robert A Frazier | February 26, 2008 | Common | 4,533,730 | 26,316.00 | 0.58 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Martin Keating | February 26, 2008 | Common | 4,560,046 | 26,316.00 | 0.58 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Vicor F Keen | February 26, 2008 | Common | 4,586,362 | 78,947.00 | 1.72 | % | $ | 15,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Robert M Richards | February 26, 2008 | Common | 4,665,309 | 26,316.00 | 0.56 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Joseph Roberts | February 26, 2008 | Common | 4,691,625 | 26,316.00 | 0.56 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Thomas Romano | February 26, 2008 | Common | 4,717,941 | 26,316.00 | 0.56 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Edward F Sager, Jr. | February 26, 2008 | Common | 4,744,257 | 26,316.00 | 0.55 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Mark Staples | February 26, 2008 | Common | 4,770,573 | 26,316.00 | 0.55 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Neil Strauss | February 26, 2008 | Common | 4,796,889 | 52,632.00 | 1.10 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Terry Tyson | February 26, 2008 | Common | 4,849,521 | 52,632.00 | 1.09 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Geoffrey C Walker | February 26, 2008 | Common | 4,902,153 | 26,316.00 | 0.54 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
James Ward | February 26, 2008 | Common | 4,928,469 | 26,316.00 | 0.53 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Jay S Weiss | February 26, 2008 | Common | 4,954,785 | 52,632.00 | 1.06 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
David Salomon | February 14,2008 | Common | 5,007,417 | 1,211,111.00 | 24.19 | % | (2) | n/a | n/a | $ | 0.19 | |||||||||||||||||
George Kivotidis | March 10.2008 | Common | 6,218,528 | 263,158.00 | 4.23 | % | $ | 50,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Concordia Financial Group | April 15, 2008 | Common | 6,481,686 | 523,747.00 | 8.08 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||||||
RES Holdings | April 15, 2008 | Common | 7,005,433 | 23,683.00 | 0.34 | % | $ | 4,500 | (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||||
Dr. Konstantin Slavin | Sept. 1, 2008 | Common | 7,029,116 | 26,000.00 | 0.37 | % | $ | 5,000 | (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||||
Arthur Shaw | Sept. 26, 2008 | Common | 7,055,116 | 131,578.00 | 1.87 | % | $ | 25,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||||||
Dr. Konstantin Slavin | October 21, 2008 | Common | 7,186,694 | 21,875 | 0.30 | % | $ | 4,156.25 | (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||||
Shs. of Class | Shares Sold | Prior | Curr. | |||||||||||||||||||||
| Holder: | Date of Transaction | Security | Prev. Held (5) | In Transaction | % Prev. Iss. Shs. | Total Consid. | Price/Sh | Mkt. Price (3) | Mkt. Price (4) | |||||||||||||||
| Robert Coviello | November 1, 2005 | Common | 0 | 110,733 | n/a | $ | 10,345 | $ | 0.09 | $ | 0.09 | $ | 0.19 | |||||||||||
| Steven Thuilot | November 10, 2005 | Common | 110,733 | 267,467 | 241.54 | % | $ | 25,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Ed and Joanne Minder | November 10, 2005 | Common | 378,200 | 107,040 | 28.30 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Larry Coviello | November 10, 2005 | Common | 485,240 | 110,788 | 22.83 | % | $ | 10,345 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Dr. Michael Wayne | November 15, 2005 | Common | 596,028 | 100,301 | 16.83 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Ed and Joanne Minder | January 18, 2006 | Common | 696,329 | 53,389 | 7.67 | % | $ | 5,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Larry Coviello | January 18, 2006 | Common | 749,718 | 37,392 | 4.99 | % | $ | 3,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Robert Coviello | January 18, 2006 | Common | 787,110 | 37,392 | 4.75 | % | $ | 3,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Steven Thuilot | February 3, 2006 | Common | 824,502 | 64,144 | 7.78 | % | $ | 6,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Steven Thuilot | March 1, 2006 | Common | 888,646 | 107,041 | 12.05 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Neal Clay | March 14, 2006 | Common | 995,687 | 107,041 | 10.75 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Edwit Tironi | March 14, 2006 | Common | 1,102,728 | 160,482 | 14.55 | % | $ | 15,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Ed and Joanne Minder | March 15, 2006 | Common | 1,263,210 | 107,040 | 8.47 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Larry Coviello | March 19, 2006 | Common | 1,370,250 | 53,439 | 3.90 | % | $ | 5,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Larry Coviello | March 19, 2006 | Common | 1,423,689 | 80,240 | 5.64 | % | $ | 7,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Robert Coviello | March 19, 2006 | Common | 1,503,929 | 80,240 | 5.34 | % | $ | 7,500 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Susan and Lambert Dahlin | March 24, 2006 | Common | 1,584,169 | 160,482 | 10.13 | % | $ | 15,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Joan Pallateri | March 27, 2006 | Common | 1,744,651 | 107,041 | 6.14 | % | $ | 10,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Prateek Parekh | April 10, 2006 | Common | 1,851,692 | 40,120 | 2.17 | % | $ | 10,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Goran Avdicevic | April 10, 2006 | Common | 1,891,812 | 100,301 | 5.30 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Harpreet Anand | April 10, 2006 | Common | 1,992,113 | 64,193 | 3.22 | % | $ | 16,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Anirban Sen | April 10, 2006 | Common | 2,056,306 | 60,181 | 2.93 | % | $ | 15,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Steven Thuilot | April 13, 2006 | Common | 2,116,487 | 96,288 | 4.55 | % | $ | 9,000 | $ | 0.09 | $ | 0.09 | $ | 0.19 | ||||||||||
| Joel R. Smart Living Trust | July 7, 2006 | Common | 2,212,775 | 50,151 | 2.27 | % | $ | 12,500 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Clarence A. Dahlin Living Trust | July 7, 2006 | Common | 2,262,926 | 50,151 | 2.22 | % | $ | 12,500 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| GC Advisors | September 20, 2006 | Common | 2,313,077 | 48,145 | 2.08 | % | $ | 12,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Joel R. Smart Living Trust and Clarence A. Dahlin Living Trust | October 26, 2006 | Common | 2,361,222 | 100,301 | 4.25 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| GC Advisors | January 20, 2007 | Common | 2,461,523 | 32,096 | 1.30 | % | $ | 8,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Kenneth Olson | April 18, 2007 | Common | 2,493,619 | 100,301 | 4.02 | % | $ | 25,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Feldstein Management | August 14, 2007 | Common | 2,593,920 | 12,196 | 0.47 | % | $ | 3,040 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Dr. David Langer | August 14, 2007 | Common | 2,606,116 | 24,072 | 0.92 | % | $ | 6,000 | $ | 0.25 | $ | 0.25 | $ | 0.19 | ||||||||||
| Vinas & Company, Christopher A. Vinas | August 14, 2007 | Common | 2,630,188 | 16,048 | 0.61 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||
| David Salomon | August 15, 2007 | Common | 2,646,236 | 150,000 | 5.67 | % | $ | 150,000 | $ | 1 | $ | 1 | $ | 0.19 | ||||||||||
| MAC Strategic Advisors | November 15, 2007 | Common | 2,796,236 | 40,000 | 1.43 | % | (1) | n/a | n/a | $ | 0.19 | |||||||||||||
| George Kivotidis | November 15, 2007 | Common | 2,836,236 | 100,000 | 3.53 | % | $ | 50,000 | $ | 0.50 | $ | 0.50 | $ | 0.19 | ||||||||||
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Shs. of Class | Shares Sold | Prior | Curr. | ||||||||||||||||||||||
| Holder: | Date of Transaction | Security | Prev. Held (5) | In Transaction | % Prev. Iss. Shs. | Total Consid. | Price/Sh | Mkt. Price (3) | Mkt. Price (4) | ||||||||||||||||
| Christopher A. Vinas | January 23, 2008 | Common | 2,936,236 | 263,158 | 8.96 | % | $ | 50,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Concordia Financial Group | February 15, 2008 | Common | 3,199,394 | 523,747 | 16.37 | % | (1) | n/a | n/a | $ | 0.19 | ||||||||||||||
| Sichenzia Ross Friedman Ference et al | February 15, 2008 | Common | 3,723,141 | 523,747 | 14.07 | % | (1) | n/a | n/a | $ | 0.19 | ||||||||||||||
| RES Holdings | February 26, 2008 | Common | 4,246,888 | 23,683 | 0.56 | % | $ | 4,500 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Michael Bailey | February 26, 2008 | Common | 4,270,571 | 78,947 | 1.85 | % | $ | 15,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Jay Berkow | February 26, 2008 | Common | 4,349,518 | 52,632 | 1.21 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Vivek Bhaman | February 26, 2008 | Common | 4,402,150 | 26,316 | 0.60 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Robert Braumann | February 26, 2008 | Common | 4,428,466 | 26,316 | 0.59 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| John A Bown Jr. | February 26, 2008 | Common | 4,454,782 | 52,632 | 1.18 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Vincent P Carroll | February 26, 2008 | Common | 4,507,414 | 26,316 | 0.58 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Robert A Frazier | February 26, 2008 | Common | 4,533,730 | 26,316 | 0.58 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Martin Keating | February 26, 2008 | Common | 4,560,046 | 26,316 | 0.58 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Vicor F Keen | February 26, 2008 | Common | 4,586,362 | 78,947 | 1.72 | % | $ | 15,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Robert M Richards | February 26, 2008 | Common | 4,665,309 | 26,316 | 0.56 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Joseph Roberts | February 26, 2008 | Common | 4,691,625 | 26,316 | 0.56 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Thomas Romano | February 26, 2008 | Common | 4,717,941 | 26,316 | 0.56 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Edward F Sager, Jr. | February 26, 2008 | Common | 4,744,257 | 26,316 | 0.55 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Mark Staples | February 26, 2008 | Common | 4,770,573 | 26,316 | 0.55 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Neil Strauss | February 26, 2008 | Common | 4,796,889 | 52,632 | 1.10 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Terry Tyson | February 26, 2008 | Common | 4,849,521 | 52,632 | 1.09 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Geoffrey C Walker | February 26, 2008 | Common | 4,902,153 | 26,316 | 0.54 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| James Ward | February 26, 2008 | Common | 4,928,469 | 26,316 | 0.53 | % | $ | 5,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Jay S Weiss | February 26, 2008 | Common | 4,954,785 | 52,632 | 1.06 | % | $ | 10,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| David Salomon | February 14,2008 | Common | 5,007,417 | 1,211,111 | 24.19 | % | (2) | n/a | n/a | $ | 0.19 | ||||||||||||||
| George Kivotidis | March 10.2008 | Common | 6,218,528 | 263,158 | 4.23 | % | $ | 50,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Concordia Financial Group | April 15, 2008 | Common | 6,481,686 | 523,747 | 8.08 | % | (1) | n/a | n/a | $ | 0.19 | ||||||||||||||
| RES Holdings | April 15, 2008 | Common | 7,005,433 | 23,683 | 0.34 | % | $ | 4,500 | (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||
| Dr. Konstantin Slavin | September 1, 2008 | Common | 7,029,116 | 26,000 | 0.37 | % | $ | 5,000 | (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||
| Arthur Shaw | September 26, 2008 | Common | 7,055,116 | 131,578 | 1.87 | % | $ | 25,000 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||
| Dr. Konstantin Slavin | October 21, 2008 | Common | 7,186,694 | 21,875 | 0.30 | % | $ | 4,156.25 | (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||||||
| Derek Johannson | December 2, 2008 | Common | 7,208,569 | 2,035,520 | 28.24 | % | $ | 250,000 | (2) | $ | 0.123 | $ | 0.19 | $ | 0.19 | ||||||||||
(1) Issued in consideration of services
(2) Issued on conversion of Debenture and as additional consideration to induce conversion
(3) No established market price at the time, therefore, sale is assumed to be at market
(4) No established market, therefore market price is assumed to be the price of the last share sale
(5) Excludes shares held by Kenneth Coviello, Heather Jensen and The Sawmill Trust
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Background
On February 15, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $500,000 each.
Pursuant to the Convertible Debenture Purchase Agreement with Regent Private Capital, LLC dated February 15, 2008, we agreed to file a registration statement on Form S-1 with the SEC, to register for sale all common stock which may be issuable upon conversion of the Regent Debentures.
On February 15, 2008, we entered into a transaction with Fountainhead Capital Partners Limited, whereby Fountainhead Capital Partners Limited agreed to invest $300,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $150,000 each. On April 15, 2008, Fountainhead Capital Partners Limited assigned its interest in such investment to Fountainhead Capital Management Limited.
As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been completed.
Pursuant to the Convertible Debenture Purchase Agreement with Fountainhead Capital Partners Limited dated February 15, 2008, we similarly agreed to file a registration statement on Form S-1 with the SEC, to register for sale all common stock which may be issuable upon conversion of the Fountainhead Debentures.
Subsequent to the dates of these transactions, both Fountainhead Capital Partners Limited and Regent Private Capital, LLC agreed to allow us to register less than all of the shares of common stock issuable under the Regent Debenture and the Fountainhead Debenture. Instead, we have agreed to provide Regent Private Capital, LLC and Fountainhead Capital Partners Limited with certain demand and “piggy-back” registration rights covering the remainder of the common stock issuable under such Debentures. We shall file the relevant registration rights agreements with Regent Private Capital, LLC and Fountainhead Capital Management Limited once they have been negotiated and entered into.
Additionally, we are seeking to register some of our issued and outstanding shares of common stock as well as some of the shares of common stock issuable under the Convertible Securities.
This offering is not being underwritten. The selling stockholders may only sell their shares at a fixedfixed price of $.19 until our common stock is quoted on the OTC Bulletin Board or on any stock exchange whereupon, the selling stockholders directly, through agents designated by them from time to time or through brokers or dealers also to be designated, may sell their shares from time to time, in or through privately negotiated transactions, or in one or more transactions, including block transactions, on the OTC Bulletin Board or on any stock exchange on which the shares may be listed in the future pursuant to and in accordance with the applicable rules of such exchange or otherwise. The selling price of the shares may then be at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices after the shares are quoted on the OTC Bulletin Board.
The selling stockholders may distribute the common stock in one or more of the following methods:
| • | ordinary brokers transactions, which may include long or short sales through the facilities of the Over-the-Counter Bulletin Board (if a market maker successfully applies for inclusion of our common stock in such market) or other market; | |
| • | privately negotiated transactions; | |
| • | transactions involving cross or block trades or otherwise on the open market; | |
| • | sales “at the market” to or through market makers or into an existing market for the common stock; |
| • | sales in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales made through agents; | |
| • | through transactions in puts, calls, options, swaps or other derivatives (whether exchange listed or otherwise); or | |
| • | any combination of the above, or by any other legally available means. |
62
In addition, the selling stockholders may enter into hedging transactions with broker-dealers who may engage in short sales of common stock, or options or other transactions that require delivery by broker-dealers of the common stock.
The selling stockholders and/or the purchasers of common stock may compensate brokers, dealers, underwriters or agents with discounts, concessions or commissions (compensation may be in excess of customary commissions). The selling stockholders and any broker dealers acting in connection with the sale of the shares being registered may be deemed to be underwriters within the meaning of Section 2(11) of the Securities Act, as amended, and any profit realized by them on the resale of shares as principals may be deemed underwriting compensation under the Securities Act. We do not know of any arrangements between the selling stockholders and any broker, dealer, or agent relating to the sale or distribution of the shares being registered.
We and the selling stockholders and any other persons participating in a distribution of our common stock will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which may restrict certain activities of, and limit the timing of purchases and sales of securities by, these parties and other persons participating in a distribution of securities. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions subject to specified exceptions or exemptions.
The selling stockholders may sell any securities that this prospectus covers under Rule 144 of the Securities Act rather than under this prospectus if they qualify.
We cannot assure you that the selling stockholders will sell any of their shares of common stock.
In order to comply with the securities laws of certain states, if applicable, the selling stockholders will sell the common stock in jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states, the selling stockholders may not sell or offer the common stock unless the holder registers the sale of the shares of common stock in the applicable state or the applicable state qualifies the common stock for sale in that state, or the applicable state exempts the common stock from the registration or qualification requirement.
We have agreed to pay all fees and expenses incident to the registration of the shares being offered under this prospectus (estimated to be $87,016)$107,016). However each selling stockholder is responsible for paying any discounts, commissions and similar selling expenses they incur.
We have agreed to indemnify the Selling Stockholders whose shares we are registering from all liability and losses resulting from any misrepresentations we make in connection with the registration statement.
The following is a summary of our capital stock and certain provisions of our Certificate of Incorporation and By-laws, as amended and by provisions of Delaware law.
General
We are authorized to issue 110,000,000 shares of stock, of which 100,000,000 shares, $.001$0.001 par value, are designated as common stock and 10,000,000 shares, $.001$0.001 par value, are designated as preferred stock.
The following is a summary of the material terms of the common stock and preferred stock as well as the outstanding warrants.
Common Stock
As of November 1, 2008January 12, 2009, there were 22,562,33225,463,455 shares of common stock issued and outstanding. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock into any other securities.
Preferred Stock
Our Certificate of Incorporation authorizes 10,000,000 shares of preferred stock, $.001$1 par value per share. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. As of November 1, 2008, we have no issued and outstanding shares of preferred stock.
63
Debentures
On December 14, 2006, we issued to Fountainhead Capital Partners Limited a Bridge Loan Debenture for the original principal amount of $172,500, which may be converted, at the option of Fountainhead Capital Partners Limited to 1,876,300 shares of our common stock. The Bridge Loan Debenture has a maturity date of February 15, 2009. On April 15, 2008, Fountainhead Capital Partners Limited assigned its interest in the Fountainhead Bridge Loan Debenture to Fountainhead Capital Management Limited.
On February 14, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures — such investment to be made in two tranches of $500,000 each.
In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the Regent investments. On April 15, 2008, Fountainhead Capital Partners Limited assigned its interest in the Fountainhead Bridge Loan Debenture to Fountainhead Capital Management Limited.
These investments are evidenced by Convertible Debentures with a term of one year and are convertible into shares of our common stock at a price of approximately $.123 per share. If fully converted, the Convertible Debentures would result in the issuance of 8,129,529 shares to Regent Private Capital, LLC and 2,438,853 shares to Fountainhead Capital Partners Limited.
Subsequently, Fountainhead Capital Partners Limited assigned its entire interest to Fountainhead Capital Management Limited and on April 22, 2008 Regent Private Capital assigned $250,000 of the principal amount of the Convertible Debentures representing the first tranche to Derek Johannson and $100,000 of the principal amount of the Convertible Debentures to Altcar Investments Ltd. On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company.
As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been completed.
Adoption of 2008 Stock Incentive Plan
On January 23, 2008, the Company established the Vycor Medical, Inc. 2008 Employee, Director and Consultant Stock Plan (“2008 Stock Plan”). The Board of Directors believes that the adoption and approval of a long-term stock incentive plan will facilitate the continued use of long-term equity-based incentives and rewards for the foreseeable future. Stockholder approval of the 2008 Stock Incentive Plan was obtained, among other reasons, to ensure the tax deductibility of awards under the 2008 Stock Incentive Plan for purposes of Section 162(m) of the Internal Revenue Code. The Plan permits the delivery of shares not to exceed a number equal to the sum of (a) 10% of the total number of shares of Stock outstanding, assuming for this purpose the conversion into stock of all outstanding securities that are convertible by their terms (directly or indirectly) into stock. As of January 1 of each calendar year commencing with the year 2009, the maximum number of shares of stock which may be delivered under the 2008 Stock Plan shall automatically increase by a number sufficient to cause the number of shares of Stock covered by the Plan to equal 10% of the total number of shares of stock then outstanding, assuming for this purpose the conversion into stock of all outstanding securities that are convertible by their terms (directly or indirectly) into stock.
Warrants
We issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (now 805,931 shares of our shares of common stock) dated December 15, 2006 at $.50 per share.
On December 14, 2006, we entered into an Option Agreement with Fountainhead Capital Partners Limited which granted to Fountainhead Capital Partners Limited an option to invest up to $1,850,000 within three years from December 14, 2006 in exchange for up to 5,652,954 shares of our common stock and warrants to convert to 3,017,409 shares of our common stock.
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement, the warrant to purchase shares at $.50 per share and the warrant under the Option Agreement. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant to acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company. On April 15, 2008, Fountainhead Capital Partners Limited assigned Warrants to purchase 60,445 shares of the Company’s common stock to La Pergola Investments Limited.
In consideration for providing consulting services to us, we granted to GC Advisors LLC twothree warrants to purchase an aggregatea total of 192,576577,728 shares of our common stock, each for a purchase price of $.135 per share. One warrant for 192,576 shares expires on January 9, 2009 and the other2010, one warrant for 192,576 expired on January 9, 2010.2008 and a second warrant to purchase 192,576 shares expired on January 9, 2009
In consideration for being our strategic business advisor, we issued to Martin Magida a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.
In consideration for purchasing our shares, we issued to George Kivotidis a warrant to purchase up to 4,000 shares of our common stock at $.50 per share. The warrant is valid from November 6, 2007 for a period of three years.
In consideration for providing advisory services, we issued to Robert Guinta is a holder of a warrant to purchase up to 160,480 shares of the Company’s common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.
Options
On December 14, 2006, we entered into an Option Agreement with Fountainhead Capital Partners Limited which granted to Fountainhead Capital Partners Limited an option to invest up to $1,850,000 within three years from December 14, 2006 in exchange for up to 5,652,954 shares of our common stock and warrants to convert to 3,017,409 shares of our common stock.
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement, the warrant to purchase shares at $.50 per share and the warrant under the Option Agreement. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
Each of Kenneth Coviello and Heather Jensen entered into a stock option agreement with the Company dated February 15, 2008. Pursuant to the said stock option agreements, each of Kenneth Coviello and Heather Jensen was granted an option to purchase 500,000 shares of common stock of the Company at an exercise price of $.135 per share. The option shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire February 12, 2018.
On July 14, 2008 Theo Novak, Director of Engineering and on December 2, 2008 Steven Tobias our Director of Marketing was each granted employee stock option for 25,000 shares at .19 per share. The options shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire July 14, 2018 and December 2, 2018 respectfully
On November 20, 2008 the company granted William Roberts a warrant to purchase 657.894 shares at .30 per share. The warrant expires two years from the grant date .
Dr. Ezriel E. Kornel entered into a consulting agreement with us on January 10, 2006. Pursuant to the consulting agreement, in consideration for acting as our consultant, Dr. Kornel received options to acquire 240,720 shares of our common stock at a price of $.25$.24 per share. The term of the agreement is for three years.
Dr. David Langer entered into an amended and restated consulting agreement with the Company on December 11, 2006. Pursuant to the agreement, Dr. Langer agreed to provide us certain consulting services, which include the role of our Chief Medical Advisor, assistance in the analysis, preparation, submission, publication and presentation of scientific data in relation to our research efforts and sales and marketing efforts. In consideration of such consulting services, Dr. Langer received options to acquire 320,960 shares of the Company’s common stock at a price of $.25$.24 per share. The agreement will terminate April 15, 2009.
65
Dr. Donald O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was granted an option to purchase 50,000 shares of the Company’s common stock at $.50 per share.
Anti-Takeover Provisions
As discussed above, our board of directors can issue up to 10,000,000 shares of preferred stock, with any rights or preferences, including the right to approve or not approve an acquisition or other change in control. The issuance of such preferred stock could be used to discourage a transaction involving an actual or potential change in control of us or our management, including a transaction in which our stockholders might otherwise receive a premium for their shares over then current prices.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, or DGCL, which regulates acquisitions of some Delaware corporations. In general, Section 203 prohibits, with some exceptions, a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date of the transaction in which the person became an interested stockholder, unless: (i) prior to the date a person becomes an interested stockholder, the board of directors of the corporation approved the business combination or the other transaction in which the person became an interested stockholder; (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors or officers of the corporation and issued under employee stock plans under which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to the date the person became an interested stockholder, the board of directors of the corporation approved the business combination and the stockholders of the corporation, other than the interested stockholder, authorized the transaction at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3 % of the outstanding stock of the corporation not owned by the interested stockholder.
Section 203 of the DGCL defines a “business combination” to include any of the following: (i) any merger or consolidation involving the corporation or any direct or indirect majority-owned subsidiary of the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the corporation's assets involving the interested stockholder; (iii) in general, any transaction that results in the issuance or transfer by the corporation of any of its stock of any class or series to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of its stock of any class or series owned by the interested stockholder; or the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges, or other financial benefits provided by or through the corporation.
In general, Section 203 defines an “interested stockholder” as: (i) any person who owns 15% or more of a corporation's outstanding voting stock; (ii) any person associated or affiliated with the corporation, who owns or within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporation's outstanding voting stock; or (iii) the affiliates and associates of any such person.
Section 203 of the DGCL could depress our stock price and delay, discourage or prohibit transactions not approved in advance by our board of directors, such as takeover attempts that might result in a premium over the market price of our common stock.
None.
Our legal counsel, Sichenzia Ross Friedman and Ference, LLP, located at 61 Broadway, New York, NY 10006, is passing on the validity of the issuance of the common stock offered under this prospectus.
Our financial statements as of and for the years ended December 31, 2007 and 2006 and from inception (June 5, 2005) to December 31, 2007, included in this prospectus, have been audited by Paritz & Company, independent registered public accountants, as stated in their report appearing herein and are so included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act of 1933 with the Securities and Exchange Commission with respect to the shares of our common stock offered through this prospectus. This prospectus is filed as a part of that registration statement and does not contain all of the information contained in the registration statement and exhibits. We refer you to our registration statement and each exhibit attached to it for a more complete description of matters involving us, and the statements we have made in this prospectus are qualified in their entirety by reference to these additional materials. You may inspect the registration statement and exhibits and schedules filed with the Securities and Exchange Commission at the Commission’s principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Securities and Exchange Commission, 100 F Street NE, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Securities and Exchange Commission also maintains a web site at http://www.sec.gov that contains reports, proxy statements and information regarding registrants that file electronically with the Commission. In addition, we will file electronic versions of our annual and quarterly reports on the Commission’s Electronic Data Gathering Analysis and Retrieval, or EDGAR System. Our registration statement and the referenced exhibits can also be found on this site as well as our quarterly and annual reports. We will not send the annual report to our shareholders unless requested by the individual shareholders.
FINANCIAL STATEMENTS
Index to Financial Statements
| Audited Financial Statements of Vycor Medical, Inc. as of December 31, 2007 and for the period from June 5, 2005 (date of inception) to December 31, 2007 | F-1 | |
| Unaudited Financial Statements of Vycor Medical, Inc. as of September 30, 2008 and for the period from June 5, 2005 (date of inception) to September 30, 2008 | F-24 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Vycor Medical, Inc.
(A Development Stage Company)
Bohemia, New York
We have audited the accompanying balance sheets of Vycor Medical, Inc. (a development stage company) as of December 31, 2007 and 2006 and the related statements of operations, (stockholders’) members’ deficiency and cash flows for the years ended December 31, 2007 and 2006 and the period from inception (June 5, 2005) to December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Company’s recurring losses from operations raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The 2007 and 2006 financial statements do not include any adjustments that might result from the outcome of this uncertainty
As described in Note 7, “Restatement of Financial Statements”, the Company has restated previously issued financial statements as of December 31, 2007 and 2006 and for the years then ended and from inception (June 5, 2005) through December 31, 2007.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vycor Medical, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended and the period from inception (June 5, 2005) to December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.
Paritz & Co., P.A.
/s/ Paritz & Co., P.A.
Hackensack, New Jersey
February 7, 2008 except for the restatement discussed in Note 710 to the financial statements as to which the date is October 31, 2008January 9, 2009
DECEMBER 31, | |||||||
2007 | 2006 | ||||||
ASSETS | |||||||
Current assets: | |||||||
| Cash and cash equivalents | $ | 15,739 | $ | 112,992 | |||
| Accounts receivable | 2,565 | - | |||||
Total current assets | 18,304 | 112,992 | |||||
Other assets: | |||||||
| Patents, net of accumulated amortization of $9,324 and $4,037 | 22,559 | 21,535 | |||||
| Website, net of accumulated amortization of $2,835 and $1,153 | 6,214 | 7,087 | |||||
Total other assets | 28,773 | 28,622 | |||||
Total assets | $ | 47,077 | $ | 141,614 | |||
LIABILITIES AND STOCKHOLDERS’ (MEMBERS’) DEFICIENCY | |||||||
Current liabilities: | |||||||
| Note payable- member | $ | - | $ | 10,500 | |||
| Accounts payable | 285,216 | 280,900 | |||||
| Accrued interest | 15,778 | - | |||||
| Accrued liabilities | 264 | 4,317 | |||||
| Derivative liability | 51,391 | 22,891 | |||||
| Current portion of long term debt | 248,261 | - | |||||
Total current liabilities | 600,910 | 318,608 | |||||
Long-term debt, net less current portion | 172,500 | 150,487 | |||||
Stockholders’ (members) deficiency: | |||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, None issued and outstanding | - | - | |||||
| Common stock, $0.001 par value, 100,000,000 shares authorized, 18,289,999 shares issued and outstanding at December 31, 2007 | 18,290 | - | |||||
| Additional paid-in capital | 485,580 | 373,675 | |||||
| Unearned compensation | (9,522 | ) | (20,125 | ) | |||
| Accumulated deficit | (1,220,681 | ) | (681,031 | ) | |||
Total Stockholders’ (members’ deficiency) | (726,333 | ) | ( 327,481 | ) | |||
Total liabilities and stockholders’ (members’) deficiency | $ | 47,077 | $ | 141,614 | |||
| VYCOR MEDICAL, INC. | |||||||
| (A Development Stage Company) | |||||||
| Balance Sheet | |||||||
| December 31, 2007 | |||||||
| Restated |
| December 31, | ||||||||
| ASSETS | ||||||||
| 2007 | 2006 | |||||||
| Current Assets | ||||||||
| Cash | $ | 15,739 | $ | 112,992 | ||||
| Accounts Receivable | 2,565 | $ | - | |||||
| 18,304 | $ | 112,992 | ||||||
| Other assets: | ||||||||
| Patents, net of accumulated amoritzation of $9,324 and $ 4,037 | 22,559 | 21,535 | ||||||
| Website, net of accumulated amortization of $2,835 and $ 1,153 | 6,214 | 7,087 | ||||||
| 28,773 | 28,622 | |||||||
| TOTAL ASSETS | $ | 47,077 | $ | 141,614 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Notes payable-officer/stockholer | $ | - | $ | 10,500 | ||||
| Accounts Payable | 285,215 | 280,900 | ||||||
| Accrued interest | 24,726 | - | ||||||
| Accrued liabilities | 264 | 4,675 | ||||||
| Current portion of long-term debt | 227,449 | - | ||||||
| 537,654 | 296,075 | |||||||
| Long-term debt less current portion | 103,250 | 3,450 | ||||||
| TOTAL LIABILITIES | 640,904 | 299,525 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, none | ||||||||
| issued and outstanding | - | - | ||||||
Common Stock, $0.001 par value, 100,000,000 shares authorized, | ||||||||
| 18,289,999 and 17,815,285 shares issued and outstanding | 18,290 | 17,815 | ||||||
| at December 31, 2007 and 2006, respectively | ||||||||
| Additional Paid-in Capital | 741,893 | 584,289 | ||||||
| Accumulated Deficit | (1,354,010 | ) | (760,015 | ) | ||||
| (593,827 | ) | $ | (157,911 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 47,077 | $ | 141,614 | ||||
Year Ended December 31, 2007 | Year Ended December 31, 2006 | From Inception (June 5, 2005) to December 31, 2007 | ||||||||
REVENUE | $ | 2,565 | $ | - | $ | 2,565 | ||||
Operating expenses: | ||||||||||
| Research and development | 5,885 | 158,823 | 267,830 | |||||||
| General and administrative | 468,839 | 327,063 | 880,733 | |||||||
| Compensatory element of stock | 20,839 | 6,314 | 27,153 | |||||||
Total operating expenses | 495,563 | 492,200 | 1,175,716 | |||||||
Operating loss | $ | (492,998 | ) | $ | (492,200 | ) | $ | (1,173,151 | ) | |
Other expenses: | ||||||||||
Interest expense, net | 46,652 | 878 | 47,530 | |||||||
Total other expenses | 46,652 | 878 | 47,530 | |||||||
Net Loss | (539,650 | ) | (493,078 | ) | (1,220,681 | ) | ||||
Basic and diluted loss per share | $ | (0.03 | ) | Note 5 | Note5 | |||||
Weighted average number of shares outstanding- basic and diluted | 18,197,352 | Note 5 | Note 5 | |||||||
See accompanying auditors’ report and notes to financial statements.statements
| VYCOR MEDICAL, INC. | ||||||||||||
| (A Development Stage Company) | ||||||||||||
| Statement of Operations | ||||||||||||
| Restated | ||||||||||||
| From Inception | ||||||||||||
| Year Ended | Year Ended | (June 5, 2005) to | ||||||||||
| December 31, 2007 | December 31, 2006 | December 31, 2007 | ||||||||||
| Revenue | $ | 2,565 | $ | - | $ | 2,565 | ||||||
| Operating expenses: | ||||||||||||
| Research and development | 6,969 | 158,823 | 268,913 | |||||||||
| General and administrative | 468,657 | 409,432 | 976,187 | |||||||||
| Total Operating expenses | 475,626 | 568,255 | 1,245,100 | |||||||||
| Operating loss | (473,061 | ) | (568,255 | ) | (1,242,535 | ) | ||||||
| Interest expense | 120,934 | 3,807 | 111,475 | |||||||||
| Loss Before Provision for | ||||||||||||
| Income Taxes | (593,995 | ) | (572,062 | ) | (1,354,010 | ) | ||||||
| Income Tax Expense | - | - | - | |||||||||
| Net Loss | $ | (593,995 | ) | $ | (572,062 | ) | $ | (1,354,010 | ) | |||
| Loss Per Share | ||||||||||||
| Basic and diluted | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.08 | ) | |||
| Weighted Average Number of Shares Outstanding | 18,010,459 | 17,328,133 | 17,101,623 | |||||||||
| Additional | ||||||||||||||||||||||
| Members’ | Common Stock | Paid in | Unearned | Accumulated | ||||||||||||||||||
| Capital | Shares | Amount | Capital | Compensation | Deficit | Total | ||||||||||||||||
| Balance June 5, 2005 | - | - | ||||||||||||||||||||
| Members contributions | 101,690 | 101,690 | ||||||||||||||||||||
| Net loss, inception (June 5, 2005) | ||||||||||||||||||||||
| To December 31, 2005 | (187,953 | ) | (187,953 | ) | ||||||||||||||||||
| Balance January 1, 2006 | $ | 101,690 | $ | (187,953 | ) | $ | (86,263 | ) | ||||||||||||||
| Options & warrants issued for services | (26,439 | ) | (26,439 | ) | ||||||||||||||||||
| Net loss, period ended Dec. 31, 2006 | (493,078 | ) | (493,078 | ) | ||||||||||||||||||
| Amortization of unearned equity compensation | 6,314 | 6,314 | ||||||||||||||||||||
| Members' contributions | 245,000 | 245,000 | ||||||||||||||||||||
| Value of rights, options and warrants | 26,985 | 26,985 | ||||||||||||||||||||
| Balance December 31, 2006 | 346,690 | 26,985 | (20,125 | ) | (681,031 | ) | $ | (327,481 | ) | |||||||||||||
| Members' contributions | 46,040 | 46,040 | ||||||||||||||||||||
| Conversion of members' interests to common stock | (392,730 | ) | 17,999,999 | 18,000 | 374,730 | - | ||||||||||||||||
| Options & warrants issued for services | (10,236 | ) | (10,236 | ) | ||||||||||||||||||
| Sale of common stock | 250,000 | 250 | 49,750 | 50,000 | ||||||||||||||||||
| Stock issued for services | 40,000 | 40 | 9,560 | 9,600 | ||||||||||||||||||
| Amortization of unearned equity compensation | 20,839 | 20,839 | ||||||||||||||||||||
| Value of rights, options and warrants | 24,555 | 24,555 | ||||||||||||||||||||
| Net loss, Dec. 31, 2007 | (539,650 | ) | (539,650 | ) | ||||||||||||||||||
| Balance December 31, 2007 | 18,289,999 | $ | 18,290 | $ | 485,580 | $ | (9,522 | ) | $ | (1,220,681 | ) | $ | (726,333 | ) | ||||||||
See accompanying auditors’ report and notes to financial statements.statements
| VYCOR MEDICAL, INC. | ||||||||||||||
| ( A Development Stage Company) | ||||||||||||||
| Statement of Stockholders Equity | ||||||||||||||
| For the period June 5, 2005 (date of inception) to December 31, 2007 | ||||||||||||||
| Restated |
| Additional | ||||||||||||||||||||
| Common | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Stock | Capital | Deficit | Total | ||||||||||||||||
| Purchases of equity during | ||||||||||||||||||||
| period ended December 31, 2005 | 16,049,878 | $ | 16,050 | $ | 85,640 | $ | - | $ | 101,690 | |||||||||||
| Net loss for period ended December 31, 2005 | - | - | - | $ | (187,953 | ) | (187,953 | ) | ||||||||||||
| Balance at December 31, 2005 | 16,049,878 | $ | 16,050 | $ | 85,640 | $ | (187,953 | ) | $ | (86,263 | ) | |||||||||
| Purchases of equity during | ||||||||||||||||||||
| year ended December 31, 2006 | 1,717,262 | 1,717 | 231,283 | 233,000 | ||||||||||||||||
| Share based compensation for consulting services | 82,914 | 82,914 | ||||||||||||||||||
| warrants and option issued pursant to | ||||||||||||||||||||
| Fountainhead note payable | 172,500 | 172,500 | ||||||||||||||||||
| Stock issued for consulting services | 48,145 | 48 | 11,952 | 12,000 | ||||||||||||||||
| Net loss for year ended December 31, 2006 | (572,062 | ) | (572,062 | ) | ||||||||||||||||
| Balance at December 31, 2006 | 17,815,285 | $ | 17,815 | $ | 584,289 | $ | (760,015 | ) | $ | (157,911 | ) | |||||||||
| Purchases of equity during | ||||||||||||||||||||
| year ended December 31, 2007 | 200,301 | 200 | 74,800 | 75,000 | ||||||||||||||||
| Common stock issued in conjunction with | ||||||||||||||||||||
| Salomon note payable | 150,000 | $ | 150 | 23,800 | 23,950 | |||||||||||||||
| Issuance of stock for .consulting fees | 124,413 | 125 | 30,515 | 30,640 | ||||||||||||||||
| Share base Compensation for consulting services. | 28,489 | 28,489 | ||||||||||||||||||
| Net loss for year ended December 31, 2007 | (593,995 | ) | (593,995 | ) | ||||||||||||||||
| Balance at December 31, 2007 | 18,289,999 | $ | 18,290 | $ | 741,893 | $ | (1,354,010 | ) | $ | (593,827 | ) | |||||||||
Year Ended December 31, 2007 | Year Ended December 31, 2006 | From Inception (June 5, 2005) to December 31, 2007 | ||||||||
| Operating activities: | ||||||||||
| Net loss | $ | (539,650 | ) | $ | ( 493,078 | ) | $ | (1,220,681 | ) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||
| Depreciation and amortization | 7,007 | 4,094 | 12,197 | |||||||
| Compensatory Element of stock | 20,839 | 6,314 | 27,153 | |||||||
| Non-cash compensation | 55,653 | 1,424 | 57,077 | |||||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts receivable | (2,565 | ) | - | (2,565 | ) | |||||
| Accounts payable | 4,318 | 187,966 | 285,218 | |||||||
| Accrued liabilities | 11,725 | 627 | 16,042 | |||||||
| Net cash used in operating activities | (442,673 | ) | (292,653 | ) | (825,559 | ) | ||||
| Investing activities: | ||||||||||
| Acquisition of patents | (6,311 | ) | (14,233 | ) | (31,883 | ) | ||||
| Acquisition of website | (809 | ) | (8,240 | ) | (9,049 | ) | ||||
| Net cash used in investing activities | (7,120 | ) | (22,473 | ) | (40,932 | ) | ||||
| Financing activities: | ||||||||||
| Repayment of stockholder (member) loan | (10,500 | ) | (10,500 | ) | ||||||
| Proceeds from stockholders’ (members’)capital contributions | 96,040 | 245,000 | 442,730 | |||||||
| Proceeds from issuance of long term debt | 267,000 | 173,000 | 450,000 | |||||||
| Net cash provided by financing activities | 352,540 | 418,000 | 882,230 | |||||||
| Net increase (decrease) in cash and cash equivalents | (97,253 | ) | 102,874 | 15,739 | ||||||
| Cash and cash equivalents-beginning of period | 112,992 | 10,118 | - | |||||||
| Cash and cash equivalents-end of period | $ | 15,739 | $ | 112,992 | $ | 15,739 | ||||
| Supplemental disclosures of cash flow information: | ||||||||||
| Cash paid during the year for interest | $ | - | $ | - | $ | - | ||||
See accompanying auditors’ report and notes to financial statements.
statements
| VYCOR MEDICAL, INC. | ||||||||||||
| ( A Development Stage Company) | ||||||||||||
| Statement of Cash Flows | ||||||||||||
| Restated | ||||||||||||
| From Inception | ||||||||||||
| Year ended | Year ended | (June 5, 2005) to | ||||||||||
| December 31, 2007 | December 31, 2006 | December 31, 2007 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net Loss | $ | (593,995 | ) | $ | (572,062 | ) | $ | (1,354,010 | ) | |||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||||||
| Amortization of intangible assets | 6,969 | 4,094 | 12,159 | |||||||||
| Amortization of debt discount expense | 84,198 | 3,450 | 84,851 | |||||||||
| Share based compensation | 59,129 | 94,914 | 156,840 | |||||||||
| Changes in Assets and Liabilities: | ||||||||||||
| Accounts Receivable | (2,565 | ) | - | (2,565 | ) | |||||||
| Accounts Payable | 4,315 | 187,966 | 285,215 | |||||||||
| Accrued interest | 24,726 | 357 | 24,726 | |||||||||
| Accrued liabilities | (4,410 | ) | 1,128 | 264 | ||||||||
| Net Cash Used in Operating Activities | (421,633 | ) | (280,153 | ) | (792,520 | ) | ||||||
| Cash Flows used in Investing activities: | ||||||||||||
| Patents | (6,320 | ) | (14,233 | ) | (31,883 | ) | ||||||
| Website | (800 | ) | (8,240 | ) | (9,048 | ) | ||||||
| (7,120 | ) | (22,473 | ) | (40,931 | ) | |||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Proceeds from/Payment on Note Payable Officer | (10,500 | ) | - | |||||||||
| Proceeds from sale of equity | 75,000 | 233,000 | 409,690 | |||||||||
| Proceeds from Notes Payable-GC Advisors | 17,000 | 17,000 | ||||||||||
| Proceeds from Salomon Convertible Note Payable | 150,000 | 150,000 | ||||||||||
| Proceeds from Fountainhead Convertible Note Payable | 172,500 | 172,500 | ||||||||||
| Proceeds from Optimum Health Service Loan Payable | 100,000 | 100,000 | ||||||||||
| 331,500 | 405,500 | 849,190 | ||||||||||
| Net increase in cash | (97,253 | ) | 102,874 | 15,739 | ||||||||
| Cash at beginning of period | 112,992 | 10,118 | - | |||||||||
| Cash at end of period | $ | 15,739 | $ | 112,992 | $ | 15,739 | ||||||
| Supplemental Disclosures of Cash Flow information: | ||||||||||||
| Interest paid: | $ | - | $ | - | $ | - | ||||||
| Taxes paid | $ | - | $ | - | $ | - | ||||||
| Non-Cash Tranactions: | ||||||||||||
| Warrants, options and stock issued for debt financing | $ | 23,950 | $ | 172,500 | $ | 196,450 | ||||||
See accompanying notes to financial statements
F-5
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
Business description
Vycor Medical, LLC, (the “Company”) was formed in June 2005 under the laws of the State of New York. The Company converted its entity form on August 15, 2007 from a New York Limited Liability Company to a Delaware Corporation.Corporation with 16,045 of common stock exchange for each partnership unit with 1122 units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the year.earliest period presented; thus all are references to number of shares prior to the date of conversion are based upon the common stock equivalent of the units. The Company’s business plan is to develop and market a commercially feasible surgical access system for sale to hospitals and medical professionals.
Research and Development
The Company expenses all research and development costs as incurred. For the years ended December 31, 2007 and 2006, the amounts charged to research and development expenses were $5,885$6,969 and $158,823, respectively.
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company's accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Fair Values of Financial Instruments
At December 31, 2007 and 2006, fair values of cash, and cash equivalents,accounts receivable, accounts payable, convertibleand accrued expenses short term promissory notes, and options and warrants approximate their carrying amount due to the short period of time to maturity andmaturity. The fair value of the Company’s long term debt is based on the present value of using a discount rate comparable with borrowing rates available to the Company along with various fair value model calculations.calculations used to value certain debt related securities.
Property and equipment
The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and seven years.
Income taxes
The Company accounts for income taxes in accordance with SFAS 109, Accounting Forfor Income Taxes. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The Company has provided a full valuation allowance against the gross deferred tax asset as of December 31, 2007 and 2006.
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
2007 | 2006 | ||||||
| On January 9, 2007 the Company entered into a note payable to GC Advisors, with interest at 12%, due earlier of January 9, 2009, or five business days following the receipt of at least $500,000 in cash from any form of equity or debt financing. | $ | 17,000 | $ | 0 | |||
| On April 18, 2007 the Company entered into a $50,000 note payable to Optimus Service LLC. On May 31 2007 the note holder advanced an additional $50,000. The original loan was due six (6) months from the date of issuance. The Company has agreed to monthly payments of $20,500 beginning in March 2008 with interest at the Prime interest rate as reported in the Wall Street Journal | 100,000 | 0 | |||||
| On August 28, 2007 the Company sold 10 units of a combination of its common shares and a convertible promissory note David Salomon in the amount of $150,000. Each unit consists of a $15,000 convertible promissory note and 15,000 shares of the Company’s common stock. The Company allocated the proceeds of this investment between the relative fair values of the promissory note and common shares using a share value of $0.19 per share or $28,500. The balance, $121,500 was allocated to the debt. Additionally, the Company recorded a beneficial conversion feature of $28,500 which is being amortized over the expected life of the loan. The Company determined that the conversion feature of the assumed convertible debentures represents an embedded derivative convertible into a fixed maximum of 1,111,111 shares upon conversion and accordingly, did not require bifurcation of this obligation. The convertible debt is due and payable on August 28, 2008. The Company has computed a Derivative Liability of $28,500. The note holder has the right to convert all of the principal amount of this note, prior to the due date, into fully paid and non-assessable Common shares of the Company. This option was exercised on February 15, 2008. As of December 31, 2007, the note is reflected net of the unamortized loan discount. | 131,261 | 0 | |||||
| On December 14, 2006 the Company entered into a Convertible debenture, in the amount of $172,500 payable to Fountainhead Capital Partners Limited, with interest at the applicable Federal Rate as defined in sec. 1274 (d) of the Internal Revenue Code, due June 21, 2007. The convertible debentures is convertible into a fixed maximum of 1,876,300 common shares and does not require bifurcation. The Company has computed a Beneficial conversion feature $22,891 which is being amortized over the life of the loan. The due date of this debenture has been extended to February 15, 2009. | 172,500 | 150,487 | |||||
| Less current portion of debt | (248,261 | ) | - | ||||
| Long term portion of debt | $ | 172,500 | $ | 150,487 | |||
Year Ending December 31, | Amount | |||
| 2008 | $ | 248,261 | ||
| 2009 | 172,500 | |||
| 2010 | — | |||
| 2011 | — | |||
| 2012 | — | |||
| Thereafter | — | |||
| $ | 420,761 | |||
Conversion | Black- Scholes Value | |||||||||||||||||||||
Date of | Exercise | Value at | Per | Black-Scholes | ||||||||||||||||||
Holder's Name | Issuance | Shares | Price | Expiration | Grant | Share | Value | |||||||||||||||
2006: | ||||||||||||||||||||||
Convertible Debentures: | ||||||||||||||||||||||
| Fountainhead Capital Partners Ltd. | 12/14/2006 | 1,876,300 | $ | 0.10 | 12/31/2008 | $ | 0.10 | $ | 0.0122 | $ | 22,891 | |||||||||||
Warrants and Options: | ||||||||||||||||||||||
| Fountainhead Capital Partners Ltd. | 12/14/2006 | 805,931 | $ | 0.50 | 12/14/2011 | $ | 0.14 | $ | 0.0001 | 81 | ||||||||||||
| GC Advisors | 1/9/2006 | 192,576 | $ | 0.14 | 1/9/2009 | $ | 0.14 | $ | 0.0140 | 2,696 | ||||||||||||
| 1/9/2006 | 192,576 | $ | 0.14 | 1/9/2010 | $ | 0.14 | $ | 0.0175 | 3,370 | |||||||||||||
| Dr. Kornel | 1/10/2006 | 240,720 | $ | 0.25 | 1/10/2011 | $ | 0.25 | $ | 0.0361 | 8,690 | ||||||||||||
| Dr. Langer | 12/11/2006 | 320,960 | $ | 0.25 | 12/11/2011 | $ | 0.25 | $ | 0.0364 | 11,683 | ||||||||||||
Option Agreement: | ||||||||||||||||||||||
| Fountainhead Capital Partners Ltd.-option | 12/14/2006 | 5,652,954 | $ | 0.33 | 12/14/2009 | $ | 0.25 | $ | 0.0114 | 64,444 | ||||||||||||
| Fountainhead Capital Partners Ltd.-warrant | 12/14/2006 | 3,017,409 | $ | 0.44 | 12/14/2009 | $ | 0.25 | $ | 0.0012 | 3,621 | ||||||||||||
2006 Total | 12,299,426 | $ | 117,476 | |||||||||||||||||||
2007: | ||||||||||||||||||||||
Convertible Debentures: | ||||||||||||||||||||||
| David Salomon | 8/28/2007 | 1,111,111 | $ | 0.14 | 8/28/2008 | $ | 0.14 | $ | 0.0066 | 7,333 | ||||||||||||
David Salomon | 8/28/2007 | 150,000 | $ | 0.19 | 8/28/2008 | $ | 0.19 | $ | 0.19 | 28,500 | ||||||||||||
Warrants and Options: | ||||||||||||||||||||||
| Martin Magida | 9/1/2007 | 160,480 | $ | 0.24 | 9/1/2012 | $ | 0.24 | $ | 0.0313 | 5,023 | ||||||||||||
| George Kivotidis | 11/6/2007 | 4,000 | $ | 0.50 | 11/6/2010 | $ | 0.50 | $ | 0.0476 | 190 | ||||||||||||
| Robert Guinta | 9/1/2007 | 160,480 | $ | 0.24 | 9/1/2012 | $ | 0.24 | $ | 0.0313 | 5,023 | ||||||||||||
2007 Total | 1,586,071 | $ | 46,070 | |||||||||||||||||||
2006-2007 Total | 13,885,497 | $ | 163,545 | |||||||||||||||||||
Weighted Average | Weighted Average | Aggregate | |||||||||||
Shares | Exercise Price | Remaining Term | Intrinsic Value | ||||||||||
| Outstanding at December 31, 2007 | 0 | n/a | n/a | n/a | |||||||||
| Granted | 1,000,000 | $ | 0.135 | 410 days | $ | 80,100 | |||||||
| Exercised | 0 | n/a | n/a | n/a | |||||||||
| Forfeited or retired | 0 | n/a | n/a | n/a | |||||||||
| Outstanding at June 30, 2008 | 1,000,000 | $ | 0.135 | 410 days | $ | 80,100 | |||||||
| Exercisable at June 30, 2008 | 0 | n/a | n/a | n/a | |||||||||
As Reported | Adjustments | As Restated | |||||||||||
Assets: | |||||||||||||
| Current assets: | |||||||||||||
| Cash | $ | 15,739 | 0 | $ | 15,739 | ||||||||
| Accounts receivable | 2,565 | 0 | 2,565 | ||||||||||
| Total current assets | 18,304 | 0 | 18,304 | ||||||||||
| Other assets | 29,857 | (1,084 | ) | A | 28,773 | ||||||||
| Total assets | $ | 48,161 | $ | (1,084 | ) | $ | 47,077 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||
| Current liabilities: | |||||||||||||
| Derivative liability | — | 51,391 | B | 51,391 | |||||||||
| Accounts payable and accrued expenses | 301,258 | 0 | 301,258 | ||||||||||
| Current portion of debt | — | 248,261 | B | 248,261 | |||||||||
| Total current liabilities | 301,258 | 299,652 | 600,910 | ||||||||||
| Long term debt | 439,500 | (267,000 | ) | B | 172,500 | ||||||||
| Stockholders’ deficiency: | (692,597 | ) | (33,736 | ) | C | (726,333 | ) | ||||||
| Total liabilities and stockholders’ equity | $ | 48,161 | $ | (1,084 | ) | $ | 47,077 | ||||||
2006 As Reported | 2006 Adjustments | 2006 As Restated | |||||||||||
| Sales | $ | 0 | $ | 0 | $ | 0 | |||||||
| Costs and expenses | |||||||||||||
| Research and development | 158,823 | 0 | 158,823 | ||||||||||
| Selling General and administrative | 326,517 | 546 | A | 327,063 | |||||||||
| Compensatory element of stock | 0 | 6,314 | B | 6,314 | |||||||||
| Total cost and expenses | 485,340 | 6,860 | 492,200 | ||||||||||
| Operating Loss | $ | (485,340 | ) | $ | (6,860 | ) | $ | ( 492,200 | ) | ||||
| Other expense: | |||||||||||||
| Interest expense, net | 0 | 878 | 878 | ||||||||||
| Total other expenses | 0 | 878 | 878 | ||||||||||
| Net Loss | $ | (485,340 | ) | $ | (7,738 | ) | $ | (493,078 | ) | ||||
| Basic Loss per share | Note 5 | Note 5 | |||||||||||
| Weighted average number of outstanding shares | Note 5 | Note 5 | |||||||||||
| As Reported | Adjustments | As Restated | ||||||||
| Sales | $ | 2,565 | $ | 0 | 2,565 | |||||
| Costs and expenses | ||||||||||
| Research and development | 5,885 | 0 | 5,885 | |||||||
| Selling General and administrative | 454,071 | 14,768 A | 468,839 | |||||||
| Compensatory element of stock | 0 | 20,839B | 20,839 | |||||||
| Operating expenses | (457,391 | ) | 35,607 | (495,563 | ) | |||||
| Operating Loss | $ | (457,391 | ) | $ | (35,607 | ) | $ | ( 492,998 | ) | |
| Other expenses: | ||||||||||
| Interest expense, net | 14,879 | 31,773 | 46,652 | |||||||
| Total other expense | 14,879 | 31,773 | 46,652 | |||||||
| Net Loss | (472,270 | ) | 67,380 | (539,650 | ) | |||||
| Basic Loss per share | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) | ||
| Weighted average number of outstanding shares | 18,197,352 | — | 18,197,352 | |||||||
June 30, 2008 (unaudited) | Dec. 31, 2007 (audited) | ||||||
ASSETS | |||||||
Current assets: | |||||||
| Cash and cash equivalents | $ | 654,818 | $ | 15,739 | |||
| Accounts receivable | — | 2,565 | |||||
| Deposits | 107,478 | — | |||||
Total current assets | 762,296 | 18,304 | |||||
| Fixed assets, net | 8,399 | — | |||||
Other assets: | |||||||
| Patents, net of accumulated amortization of $13,684 and $9,324 at June 30, 2008 and December 31, 2007, respectively | 39,569 | 22,559 | |||||
| Website, net of accumulated amortization of $3,843 and $1,153 at June 30, 2008 and December 31, 2007, respectively | 11,714 | 6,214 | |||||
| Other assets | 2,242 | — | |||||
Total other assets | 53,525 | 28,773 | |||||
Total assets | $ | 824,220 | $ | 47,077 | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | |||||||
Current liabilities: | |||||||
| Accounts payable | $ | 125,137 | $ | 285,216 | |||
| Accrued expenses and other current liabilities | 101,226 | 16,042 | |||||
| Obligations under capital leases, current portion | 7,896 | — | |||||
| Derivative Liability | 109,105 | 51,391 | |||||
| Debt, current portion | 1,418,404 | 248,261 | |||||
Total current liabilities | 1,761,768 | 600,910 | |||||
Long-term liabilities | |||||||
| Debt, non-current portion, net of unamortized loan discount | - | 172,500 | |||||
Stockholders’ (members) deficiency: | |||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, None issued and outstanding | - | - | |||||
| Common stock, $0.001 par value, 100,000,000 shares authorized, 22,562,332 and 18,289,999 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively | 22,382 | 18,290 | |||||
| Additional paid-in capital | 1,234,942 | 485,580 | |||||
| Unearned compensation | (11,685 | ) | (9,522 | ) | |||
| Accumulated deficit | (2,183,187 | ) | (1,220,681 | ) | |||
Total Stockholders’ (members’ deficiency) | (937,548 | ) | (726,333 | ) | |||
Total liabilities and stockholders’ deficiency | $ | 824,220 | $ | 47,077 | |||
2008 | 2007 | From Inception (June 5, 2005) to June 30, 2008 | ||||||||
| (unaudited) | (unaudited) | |||||||||
REVENUE | $ | — | $ | — | 2,565 | |||||
Operating expenses: | ||||||||||
| Research and development | 15,561 | 4,123 | 283,391 | |||||||
| General and administrative | 871,036 | 49,317 | 1,763,745 | |||||||
| Compensatory element of stock | 3,784 | 2,908 | 30,937 | |||||||
| Depreciation and amortization | 5,574 | - | 17,771 | |||||||
Total operating expenses | 895,955 | 56,348 | 2,095,844 | |||||||
Operating loss | (895,955 | ) | (56,348 | ) | (2,093,279 | ) | ||||
| Other income and (expenses): | ||||||||||
| Interest expense, net | (70,782 | ) | (21,819 | ) | (93,479 | ) | ||||
| Interest income | 4,231 | 321 | 3,571 | |||||||
Total other income (expenses) | (66,551 | ) | (21,498 | ) | (89,908 | ) | ||||
Net Loss | (962,506 | ) | (78,167 | ) | (2,183,187 | ) | ||||
Basic and diluted loss per share | (.05 | ) | Note 6 | |||||||
Weighted average number of shares outstanding - basic and diluted | 21,082,020 | Note 6 | ||||||||
2008 | 2007 | ||||||
| (unaudited) | (unaudited) | ||||||
REVENUE | $ | — | $ | — | |||
Operating expenses: | |||||||
| Research and development | 9,228 | ||||||
| General and administrative | 372,764 | 21,960 | |||||
| Depreciation and amortization | 3,131 | - | |||||
| Compensatory element of stock | 1,892 | 1,454 | |||||
Total operating expenses | 387,015 | 23,414 | |||||
Operating loss | (387,015 | ) | (23,421 | ) | |||
| Other income and (expenses): | |||||||
| Interest expense, net | (52,456 | ) | (9,850 | ) | |||
| Interest income | 2,527 | 33 | |||||
Total other income and (expenses) | (49,929 | ) | (9,817 | ) | |||
Net Loss | (436,944 | ) | (33,231 | ) | |||
Basic and diluted loss per share | (.02 | ) | Note 6 | ||||
Weighted average number of shares outstanding – basic and diluted | 22,176,072 | Note 6 | |||||
June 30, | ||||||||||
2008 (unaudited) | 2007 (unaudited) | From Inception (June 5, 2005) to June 30, 2008 | ||||||||
Operating activities: | ||||||||||
| Net loss | $ | (962,506 | ) | $ | (67,317 | ) | $ | (2,183,187 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||||
| Non-cash Compensation expense | 387,166 | - | 441,718 | |||||||
| Depreciation expense | 5,574 | - | 17,733 | |||||||
| Compensatory elements of stock | 3,784 | 2,908 | 30,937 | |||||||
| Changes in operating assets and liabilities: | ||||||||||
| Prepaid expenses and other current assets | (82,818 | ) | - | (82,818 | ) | |||||
| Accounts payable, trade | (167,818 | ) | (18,381 | ) | 133,176 | |||||
| Accrued expenses and other current liabilities | 91,976 | - | 92,240 | |||||||
| Other assets | (26,902 | ) | (127,974 | ) | (26,902 | ) | ||||
| Accounts receivable | 2,565 | - | 2,565 | |||||||
Net cash used in operating activities | (748,979 | ) | (213,672 | ) | (1,574,538 | ) | ||||
Investing activities: | ||||||||||
| Acquisition of patents | (21,371 | ) | (55 | ) | (53,254 | ) | ||||
| Acquisition of Website | (6,500 | ) | - | (15,549 | ) | |||||
| Capital expenditures | (8,614 | ) | - | (8,614 | ) | |||||
Net cash used in investing activities | (36,485 | ) | (55 | ) | (77,417 | ) | ||||
Financial activities | ||||||||||
| Repayment of long-term debt | (115,457 | ) | - | (125,957 | ) | |||||
| Repayment of stock holder loan | - | (7,500 | ) | - | ||||||
| Proceeds from stockholders’ (members’) capital contributions | 240,000 | 50,000 | 682,730 | |||||||
| Proceeds from issuance of long-term debt | 1,300,000 | 100,000 | 1,750,000 | |||||||
Net cash provided by financing activities | 1,424,543 | 142,500 | 2,306,773 | |||||||
Net increase in cash and cash equivalents | 639,079 | (71,227 | ) | 654,818 | ||||||
Cash and cash equivalents-beginning of period | 15,739 | 112,992 | -0- | |||||||
Cash and cash equivalents-end of period | $ | 654,818 | $ | 41,764 | $ | 654,818 | ||||
Supplemental disclosures of cash flow information | ||||||||||
| Interest paid | $ | 3,043 | $ | — | $ | 3,043 | ||||
Income taxes paid | $ | 150 | $ | — | $ | 150 | ||||
| Obligations incurred under capital lease for equipment | $ | 8,614 | $ | — | $ | 8,614 | ||||
| Additional | ||||||||||||||||||||||
| Members’ | Common Stock | Paid in | Unearned | Accumulated | ||||||||||||||||||
| Capital | Shares | Amount | Capital | Compensation | Deficit | Total | ||||||||||||||||
| Balance January 1, 2006 | $ | 101,690 | $ | (187,953 | ) | $ | (86,263 | ) | ||||||||||||||
| Options & w arrants issued for services | (26,439 | ) | (26,439 | ) | ||||||||||||||||||
| Net loss, period ended Dec. 31, 2006 | -493,078 | (493,078 | ) | |||||||||||||||||||
| Amortization of unearned equity compensation | 6,314 | 6,314 | ||||||||||||||||||||
| Members' contributions | 245,000 | 245,000 | ||||||||||||||||||||
| Value of rights, options and warrants | 26,985 | 26,985 | ||||||||||||||||||||
| Balance December 31, 2006 | 346,690 | 26,985 | (20,125 | ) | (681,031 | ) | (327,481 | ) | ||||||||||||||
| Members' contributions | 46,040 | 46,040 | ||||||||||||||||||||
| Conversion of members' interests to common stock | (392,730 | ) | 17,999,999 | 18,000 | 374,730 | - | ||||||||||||||||
| Options & warrants issued for services | (10,236 | ) | (10,236 | ) | ||||||||||||||||||
| Sale of common stock | 250,000 | 250 | 49,750 | 50,000 | ||||||||||||||||||
| Stock issued for services | 40,000 | 40 | 9,560 | 9,600 | ||||||||||||||||||
| Amortization of unearned equity compensation | 20,839 | 20,839 | ||||||||||||||||||||
| Value of rights, options and warrants | 24,555 | 24,555 | ||||||||||||||||||||
| Net loss, December 31, 2007 | (539,650 | ) | (539,650 | ) | ||||||||||||||||||
| Balance December 31, 2007 | - | 18,289,999 | 18,290 | 485,580 | (9,522 | ) | (1,220,681 | ) | (726,333 | ) | ||||||||||||
| Options & warrants issued for services | (8,158 | ) | (8,158 | ) | ||||||||||||||||||
| Sale of common stock | 1,263,162 | 1,263 | 238,738 | 240,001 | ||||||||||||||||||
| Conversion of convertible debenture | 1,211,111 | 1,211 | 167,789 | 169,000 | ||||||||||||||||||
| Stock issued for services | 1,071,177 | 1,071 | 202,808 | 203,879 | ||||||||||||||||||
| Stock issued for services | 547,430 | 547 | 103,464 | 104,011 | ||||||||||||||||||
| Value of rights, options and warrants | 36,563 | 36,563 | ||||||||||||||||||||
| Amortization of unearned equity compensation | 5,995 | 5,995 | ||||||||||||||||||||
| Net loss, June 30, 2008 | (962,506 | ) | (962,506 | ) | ||||||||||||||||||
| Balance June 30, 2008 | $ | - | $ | 22,382,879 | $ | 22,382 | $ | 1,234,942 | $ | (11,685) | ) | $ | (2,183,187 | ) | $ | (937,548 | ) | |||||
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. . Currently, the CompanyCritical estimates include depreciation, amortization of intangible assets, and the fair valesvalues of options and warrants.warrant included in the determination of debt discounts and share based compensation.
Patents
The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.
The Company reviews existing patents as well as those in the approval process for impairment on an annual basis using ana present value, cash flow method pursuant to Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets. Since the Company’s patents are either very new or still in the process of approval, the Company does not believe that any impairment of these amounts exists.
Revenue Recognition
To date, the Company has had virtually no revenue. Upon the planned development and sale of their products, the Company will record revenue at the time, pursuant to Staff Accounting Bulletin Topic 13(a) that a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company intends to sell a surgical access system which has already approved bycleared the U.S. Food and Drug Administration,FDA 510(k) review process. It has been granted a 510(k) number for marketing the system to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warrantee costs but will review such potential costs after the commencement of sales.
Educational and marketing expenses
The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will expense such costs as a component of selling, general and administrative costs as such costs are incurred.
Website Costs
The Company capitalizes the costs associated with the acquisition of hardware and development tools as well as the creation of database tools in connection with the Company’s website pursuant to Statement of Position 98-1 and Emerging Issues Task Force 00-20. Other costs including the development of functionality and identification of software tools are expensed as incurred.
Issuee: | Date of Transaction | Security | Shares | Total Consideration | |||||||||
Christopher A. Vinas | January 23, 2008 | Common Stock | 263,158 | $ | 50,000 | ||||||||
Concordia Financial Group | February 15, 2008 | Common Stock | 523,747 | $ | 99,512 | (1) | |||||||
Sichenzia Ross Friedman Ference et al | February 15, 2008 | Common Stock | 523,747 | $ | 99,512 | (1) | |||||||
RES Holdings | February 26, 2008 | Common Stock | 23,683 | $ | 4,500 | ||||||||
Michael Bailey | February 26, 2008 | Common Stock | 78,947 | $ | 15,000 | ||||||||
Jay Berkow | February 26, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
Vivek Bhaman | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Robert Braumann | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
John A Bown Jr. | February 26, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
Vincent P Carroll | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Robert A Frazier | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Martin Keating | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Vicor F Keen | February 26, 2008 | Common Stock | 78,947 | $ | 15,000 | ||||||||
Robert M Richards | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Joseph Roberts | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Thomas Romano | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Edward F Sager, Jr. | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Mark Staples | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Neil Strauss | February 26, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
Terry Tyson | February 26, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
Geoffrey C Walker | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
James Ward | February 26, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
Jay S Weiss | February 26, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
David Salomon | February 14,2008 | Common Stock | 1,211,111 | $ | 150,000 | (2) | |||||||
George Kivotidis | March 10.2008 | Common Stock | 263,158 | $ | 50,000 | ||||||||
Concordia Financial Group | April 15, 2008 | Common Stock | 523,747 | $ | 99,512 | (1) | |||||||
RES Holdings | April 15, 2008 | Common Stock | 23,683 | $ | 4,500 | ||||||||
Total | 4,092,880 | $ | 697,536 | ||||||||||
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
2. ACCOUNTING POLICIES (continued)
Stock-Based Compensation
Prior to January 1, 2006, the Company accounted for Stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations, and followed the minimum value disclosure provisions of Statement of Financial Accounting Standards NO. 123 (SFAS 123), Accounting for Stock-Based Compensation. Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price. Stock-based compensation determined under APB 25 is recognized over the option vesting period.
Prior to the adoption of a stock option plan adopted on February 13, 2008, the Company only issued share based compensation to consultants for goods or services. The Company accounted for these transactions under guidance for Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under EITF 96-18, options, warrants, and stock are recorded at their fair value on the measurement date. The Company remeasured the fair value of such instruments granted at each reporting period until performance under the consulting arrangements were completed and the measurement date was reached. The Company records the expense of such services on the estimate fair value of the equity instrument using the Black-Sholes pricing model. The initial expense is recognized over the term of the service agreement.
For future awards to employees, the Company will adopt the fair value provisions of the Statement of Financial Accounting Standards No. 123(R) (SFAS 123R), Share-Based Payment, which supersedes its previous accounting under APB 25. SFAS 123(R) requires the recognition of compensation expense for future stock-based compensation awards to employees. Using a fair-value-based method, for costs related to all share-based payments including stock options. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants valued after January 1, 2006 will be expensed on a straight-line basis over the vesting period.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options, convertible notes payable and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.
The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:
| December 31, | ||||||||
2007 | 2006 | |||||||
| Stock options outstanding | - | - | ||||||
| Warrants to purchase common stock | 5,287,708 | 4,144,300 | ||||||
F-8
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (continued)
Recently Issued Accounting Standards
In June 2007, the FASB issued Emerging Issues Task Force No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. EITF 07-3 requires nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities to be deferred and capitalized. The expense should be recognized as the related goods are delivered or the related services are performed. The statement is effective prospectively for new contracts entered into during the fiscal year beginning after December 15, 2007.
In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (SAB 110). SAB 110 permits, under certain circumstances, the continued use of the “simplified” method in developing an estimate of the expected term “plain vanilla” share options in accordance with Statement of Financial Accounting Standards No. 123R, Shared-Based Payment, beyond December 31,2007. The Company currently uses the “simplified” method as there is not enough historical experience to provide a reasonable estimate of the expected term and will continue to do so until there is enough historical experience in accordance with SAB110. The Company does not expect SAB 110 to have a material impact on the consolidated financial statements.
Going Concern
The Company’s financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $593,995 for the year ended December 31, 2007, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs related to clinical trials and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of December 31, 2007, the Company had a stockholders’ deficiency of $593,827 and cash and cash equivalents balance of $15,739. In these circumstances the Company believes it may not have enough cash to meet its various cash needs into 2008 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize. 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.
3. NOTE PAYABLE- STOCKHOLDER
The note payable to stockholder in 2006 is non-interest bearing and due on demand.
F-9
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
4. LONG-TERM DEBT
As of December 31, 2007 and December 31, 2006, long-term debt consists of:
June 30, 2008 | December 31, 2007 | ||||||
| On January 9, 2006 the Company entered into a note payable to GC Advisors, with interest at 12%, due earlier of January 9, 2009, or five business days following the receipt of at least $500,000 in cash from any form of equity or debt financing. | -0- | $ | 17,000 | ||||
| On April 2007 the Company entered into a $50,000 note payable to Optimus Service LLC. On June 2007 the note holder advanced an additional $50,000. The Company agreed to monthly payments of $20,500 which began February 2008 with interest at the Prime interest rate as reported in the Wall Street Journal | -0- | 100,000 | |||||
| On August 28, 2007 the Company sold 10 units of a combination of its common shares and a convertible promissory note David Salomon in the amount of $150,000. Each unit consists of a $15,000 convertible promissory note and 15,000 shares of the Company���s common stock. The Company allocated the proceeds of this investment between the relative fair values of the promissory note and common shares using a share value of $0.19 per share or $28,500. The balance, $121,500 was allocated to the debt. Additionally, the Company recorded a beneficial conversion feature of $28,500 which is being amortized over the expected life of the loan. The Company determined that the conversion feature of the assumed convertible debentures represents an embedded derivative convertible into a fixed maximum of 1,111,111 shares upon conversion and accordingly, did not require bifurcation of this obligation. The convertible debt is due and payable on August 28, 2008. The Company has computed a Derivative Liability of $28,500. The note holder has the right to convert all of the principal amount of this note, prior to the due date, into fully paid and non-assessable Common shares of the Company. This option was exercised on February 15, 2008. As of December 31, 2007, the note is reflected net of the unamortized loan discount.. | -0- | 131,261 | |||||
| On December 14, 2006 the Company entered into a Convertible debenture, in the amount of $172,500 payable to Fountainhead Capital Partners Limited, with interest at the applicable Federal Rate as defined in sec. 1274 (d) of the Internal Revenue Code, due June 21, 2007. The convertible debentures is convertible into a fixed maximum of 1,876,300 common shares and does not require bifurcation. The Company has computed a Beneficial conversion feature $22,891 which is being amortized over the life of the loan. The due date of this debenture has been extended to February 15, 2009. | 172,500 | 172,500 | |||||
| On February 15, 2008 the Company entered into a Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due February 15, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature of $9,949 which is being amortized over the life of the loan. | 143,758 | -0- | |||||
| On February 15, 2008 the Company entered into a Convertible Debenture, payable to Regent Private Capital, LLC, with Interest at 6% per annum, due on or before February 15, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature of $33,163, which is being amortized over the life of the loan. | 479,194 | -0- | |||||
| On April 15, 2008 the Company entered into a Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due February 15, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature of $9,949 which is being amortized over the life of the loan. | 143,758 | -0- | |||||
| On April 22, 2008 the Company entered into a Convertible Debenture, payable to Regent Private Capital, LLC, with Interest at 6% per annum, due on or before April 22, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature of $33,163, which is being amortized over the life of the loan. Subsequently, Fountainhead assigned the principal amount of each note to Altcar Investments and D Johansen | 479,194 | -0- | |||||
| Less current portion of debt | 1,418,404 | 226,111 | |||||
| Long term portion of debt | $ | — | $ | 134,036 | |||
| 2007 | 2006 | |||||||
| On January 9, 2007 the Company entered into a note payable to GC Advisors, with interest at 12%, due earlier of January 9, 2009, or five business days following the receipt of at least $500,000 in cash from any form of equity or debt financing. | $ | 17,000 | $ | - | ||||
| On April 18, 2007 the Company entered into a $50,000 note payable to Optimus Service LLC. On May 31 2007 the note holder advanced an additional $50,000. The original loan was due six (6) months from the date of issuance. The Company has agreed to monthly payments of $20,500 beginning in March 2008 with interest at the Prime interest rate as reported in the Wall Street Journal | 100,000 | - | ||||||
| On August 28, 2007 the Company sold 10 units consisting of a combination of 150,000 shares of its common stock and a convertible promissory note to David Salomon in the amount of $150,000. The debt is due and payable on August 28, 2008 and is non interest bearing other than the stock unless the note is in default; the interest then accrues at 13% per annum. The Company allocated the proceeds of this investment between the relative fair values of the promissory note and common stock using a share value of $0.19 per share resulting in an allocation of $126,050 to the promissory note and $23,950 to additional paid in capital attributed to debt discount. The note agreement has a conversion price between $0.50 and $1.00 per common share. As a result there is no value attributable to any beneficial conversion feature, even using the “floor price” conversion price of $0.50 per share. The Company’s share price is based upon recent private placement of its common stock. The Company is using the effective interest method to allocate the debt discount over its term; as of December 31, 2007, the note is reflected net of the unamortized discount of $22,551. | 127,449 | - | ||||||
| On December 15, 2006 the Company entered into a Convertible debenture, in the amount of $172,500 payable to Fountainhead Capital Partners Limited (FCPL), with interest at the applicable Federal Rate as defined in sec. 1274 (d) of the Internal Revenue Code, due June 21, 2007. The convertible debenture is convertible into a fixed maximum of 1,876,300 common shares. The Company has computed a beneficial conversion feature of $22,891 which resulted in a debt discount of such amount which is being amortized over the life of the loan to interest expense. The due date of this debenture has been extended to February 15, 2009. The beneficial conversion feature is being amortized over the life of the loan. In conjunction with the convertible debenture the Company issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (805,931 shares of common stock) at $.50 per share for five years. The warrant’s fair value of $0.13 per share was calculated using the Black-Scholes Valuation Model, using the following assumptions: volatility of 99%, dividend rate of 0%, approximate risk free interest rate of 4.5% and a five year warrant life. The allocation relative fair value of the warrant was used to reduce the carrying value of the related debenture and the difference was recorded as a discount of $39,976 on the debenture. In conjunction with this debt the Company entered into an Option Agreement with Fountain Capital Partners Limited (FCPL) which granted to FCPL an option to invest up to $1,850,000 for three years in exchange for convertible debentures due two years from the re-issuance and warrant purchase up to 3,017,409 shares at a price of $0.44 per share. The debenture is convertible up to 5,652,954 shares of common stock. The fair value of the option is based upon the excess value of re-conversion feature and fair value embedded warrant in excess of the $1,850,000 option exercise price. The fair value of the warrant was calculated using the Black Scholes Valuation Model and the following assumptions: Volatility of 99%, dividend rate of 0%, risk free interest rate of 4.5% and a five year life. Fair value of the stock is $.19/share for all calculations based upon recent private placements of the company’s common stock. The interest rate on the convertible debenture is the same as the initial convertible note payable. Based upon the above the option resulted in an additional debt discount of $132,524 which is being amortized over the term of the original debenture. The note reflects an unamortized discount of $86,250 and $169,050 as of December 31, 2007 and 2006, respectively. | 86,250 | 3,450 | ||||||
| 330,699 | 3,450 | |||||||
| Less current portion of debt | 227,449 | - | ||||||
| Long term portion of debt | $ | 103,250 | $ | 3,450 | ||||
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
| Year Ending December 31, | Amount | |||
| 2008 | $ | 250,000 | ||
| 2009 | 189,500 | |||
| 2010 | - | |||
| 2011 | - | |||
| 2012 | - | |||
| Thereafter | - | |||
| Total | $ | 439,500 | ||
| Less debt discount | 108,801 | |||
| $ | 330,699 | |||
In consideration for purchasing 100,000 shares at $0.50 per share, we issued to George Kivotidis a warrant to purchase up to an additional 4,000 shares of our common stock at $.50 per share. The warrant is valid from November 6, 2007 for a period of three years. This warrant was fair valued under the Black-Scholes Model, using a volatility of 99% dividend rate of 0%, risk free interest rate of 4.5% and a three year life. The proceeds from the sale of stock issued to Mr. Kivotidis were apportioned between common stock and additional paid in capital due to the warrant.
During 2005, there were purchases of the Company’s equity of $101,690 representing common stock with prices ranging from $0.001 to $0.25 per share.
During 2006 there were purchases of the Company equity of $233,000 representing common stock with prices ranging from $0.09 to $0.25 per share.
During 2007, there were purchases of the Company’s stock of $75,000 representing common stock with prices ranging from $0.25 to $0.50 per share.
F-11
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
6. SHARE-BASED COMPENSATION
The Company accounts for the following transactions under the guidance of Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under EIFT 96-18, options are recorded at their fair value on the measurement date. The Company remeasured the fair value of the options or warrants granted at each reporting period until performance under the consulting agreement was completed and the measurement date was reached. The Company expensed the fair value of the instrument granted over the requisite service period which was the term of the consulting agreement, or one year.
The details of the outstanding rights, options and warrants and value of such rights, options and warrants are as follows:
| STOCK WARRANTS: | ||||||||
| Weighted average | ||||||||
| Number of shares | price per share | |||||||
| Balance, December 31, 2005 | - | $ | - | |||||
| Granted | 4,144,300 | 0.43 | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Outstanding at December 31, 2006 | 4,144,300 | 0.43 | ||||||
| Granted | 1,143,408 | 0.32 | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Balance at December 31, 2007 | 5,287,708 | 0.41 | ||||||
| STOCK OPTIONS: | ||||||||
| Weighted average | ||||||||
| Number of shares | exercise price per share | |||||||
| Balance, December 31, 2005 | - | $ | - | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Outstanding at December 31, 2006 | - | - | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Cancelled or expired | - | - | ||||||
| Balance at December 31, 2007 | - | $ | - | |||||
As of December 31, 2007, there were no non-vested shares.
In consideration for being our strategic business advisor, we issued in 2007 to Martin Magida a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. This warrant was fair valued under the Black-Scholes Model.
F-12
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
6. SHARE-BASED COMPENSATION (continued)
In consideration for providing advisory services in 2007, we issued to Robert Guinta a warrant to purchase up to 160,480 shares of the Company's common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. This warrant was fair valued under the Black-Scholes Model.
Dr. Ezriel E. Kornel received a warrant to acquire 240,720 shares of our common stock at a price of $.24 per share. This warrant was fair valued under the Black-Scholes Model and recognized as current compensation.
In 2006, Dr. David Langer received a warrant to acquire 320,960 shares of the Company's common stock at a price of $.24 per share. This warrant was fair valued under the Black-Scholes Model and recognized as current compensation. Additionally, on April 14, 2007 Dr. Langer received 24,072 commons shares valued at $6,000.
Share-based compensation expenses related to stock options and warrants granted to nonemployees is recognized as the awards are earned. The Company believes that the fair value of the awards are more reliably measured than the fair value of the services received. The fair value of the awards granted are calculated at each reporting date, using the Black-Scholes option-pricing model, until the award vests or there is substantial disincentive for the nonemployee not to perform the required services. The following assumptions were used in calculations of the Black Scholes option pricing model.
| 4 - 5 % | |||
| Expected life | 3 years | ||
| Expected dividends | 0% | ||
| Expected volatility | 99% |
Expected Life. The expected life is based on the “simplified” method described in the SEC Staff Accounting Bulletin, Topic 14: Share-Based Payment.
Volatility. Since the Company was a private entity for most of 2007 with no historical data regarding the volatility of its common stock, the expected volatility used for 2006 and 2007 is based on volatility of similar entities, referred to as “guideline” companies. In evaluation similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate. The risk-free rate is based on rates approximating U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation method.
Forfeitures. SFAS No. 123R also requires the Company to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data however limited to date to estimate pre-vesting options forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of awards, which are generally the vesting periods. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.
As of December 31, 2007 there was no unrecognized compensation costs related to the non-vested stock option awards.
At December 31, 2007, the weighted-average remaining contractual life of outstanding warrants and options is 2.4 and 4 years, respectively. All of the warrants and options outstanding are currently exercisable.
F-13
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
7. INCOME TAXES
The Company has incurred net operating losses (NOL) since inception. The Company has not recognized a taxreflected any benefit for these costs asof such net operations loss carry forward in the operations offinancial statements. Prior to August 15, 2007 the Company have yetwas a limited liability company and losses were flowed through to be profitable andthe individual members, therefore the Company only has potential tax benefits from the date it became a ‘C’ corporation.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that these benefitssome portion or all of the deferred tax assets will not be ablerealized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.
Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as of December 31, 2007 as follows:
| Gross deferred tax assets | $ | 72,261 | ||
| Valuation allowance | (72,261 | ) | ||
| Net deferred tax asset | $ | - |
As of December 31, 2007, the Company has U.S. federal net operating loss carryforwards of approximately $206,000. The federal net operating loss carryforwards expire in the year 2027.
Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carryforwards and research and development credits may be subject to the above limitations.
The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007. Implementation of FIN 48 resulted in no adjustments to the Company’s liability for unrecognized tax benefits. As of both the date of adoption and as of December 31, 2007 there were no unrecognizable tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits.
The Company is subject to federal and state examinations for the year 2006 forward. There are no tax examinations currently in progress.
F-14
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
8. COMMITMENTS AND CONTINGENCIES
Employee Agreements
We have employment agreements with our Chief Executive Officer, Mr. Kenneth Coviello and our President, Ms. Heather Jensen.
We had previously entered into an employment agreement with Mr. Kenneth Coviello on January 1, 2006. Pursuant to the agreement, Mr. Coviello was employed to be utilizedour Chief Executive Officer for an annual salary of $190,000. In addition, Mr. Coviello was entitled to monthly car allowances of $600, $750, $900, and $1,150 for his first, second, third, and fourth and fifth years with us respectively. Mr. Coviello was entitled to an annual bonus upon achieving certain milestones and a commission every quarter from our gross profits for that period. The employment agreement is for a five-year term, automatically renewable for successive one year terms unless either party elects not to do so. Despite the employment agreement Mr. Coviello only received a base salary of $137,433 and $76,363.64 and a car allowances and health insurance coverage of $17,301.80 and $8,767.50 for fiscal 2007 and 2006 respectively. We did not accrue or defer the differences in actual amounts paid against the amounts provided for in the employment contract and Mr. Coviello has agreed to waive such amounts.
We also entered previously into an employment agreement with Ms. Heather Jensen on October 31, 2005. Pursuant to the agreement, Ms. Jensen was employed to be our President for an annual salary of $190,000. In addition, Ms. Jensen was entitled to monthly car allowances and health insurance coverage of $600, $750, $900 and $1,150 for her first, second, third, fourth and fifth years with us respectively. Ms. Jensen was entitled to an annual bonus upon achieving certain milestones and a commission every quarter from our gross profits for that period. The employment agreement is for a five-year term, automatically renewable for successive one year terms unless either party elects not to do so. Despite the employment agreement, Ms. Jensen only received a base salary of $117,000 and $89,843.11 and car allowances of $17,301.80 and $10,276.47 for the fiscal 2007 and 2006 respectively. We did not accrue or defer the differences in actual amounts paid against the amounts provided for in the employment contract and Ms. Jensen has agreed to waive such amounts.
Consulting Agreements
Dr. Kornel entered into a consulting agreement with us on January 10, 2006. Pursuant to the consulting agreement, Dr. Kornel would, in consideration for acting as our consultant, be entitled to (i) receive clinical samples of our Brain Access System and Cervical Access System products with a valued list price of $44,000 each, (ii) receive the first production piece at no charge of every new product he assists in development from feasibility to production release, (iii) have the option to have an idea processed through our “New Invention” procedure with no research and development expenses, (iv) have the potential to earn a 20% royalty for each part of a new product developed exclusively by him and launched for sale in the Company.worldwide market upon meeting certain mutually agreed sales objectives and (v) be considered to provide to us special consulting or advisement services for certain projects for a mutually agreed upon fee. The term of the agreement is for three years.
Dr. Langer entered into an amended and restated consulting agreement with us on April 15, 2006. Pursuant to the agreement, Dr. Langer agreed to provide us certain consulting services, which include the role of our Chief Medical Advisor, assistance in the analysis, preparation, submission, publication and presentation of scientific data in relation to our research efforts and sales and marketing efforts. In consideration of such consulting services, Dr. Langer will (i) receive clinical samples of our Brain Access System and Cervical Access System products with a valued list price of $44,000 each, (ii) receive the first production piece at no charge of every new product he assists in development from feasibility to production release, (iii) have the option to have an idea processed through our “New Invention” procedure with no research or development expenses, (iv) have the potential to earn a 20% royalty for each part of a new product developed exclusively by him and launched for sale in the worldwide market upon meeting certain mutually agreed sales objectives and (v) be considered to provide to us special consulting or advisement services for certain projects for a mutually agreed upon fee. The agreement will terminate April 15, 2009.
Lease
The Plan, which was approvedCompany leases its office space on a month to month basis. Rental expense for the years ended December 31, 2007 and 2006 were $13,847 and $2,872, respectively.
F-15
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
9. SUBSEQUENT EVENTS
Notes Payable
a) Regent Private Capital, LLC
On February 15, 2008, we entered into a transaction with Regent Private Capital LLC, whereby Regent Private Capital LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures – such investment to be made in two tranches of $500,000 each. In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the BoardRegent Private Capital, LLC investments. These Convertible Debentures have a term of one year and are convertible into shares of our common stock at a price of approximately $.123 per share. If fully converted, the Convertible Debentures would result in the issuance of 5,652,954 shares to Regent Private Capital, LLC and 3,017,409 shares to Fountainhead Capital Partners Limited. Additionally in consideration of the Regent Private Capital, LLC agreeing to invest the $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the Option Agreement and warrant associated with the outstanding bridge loan. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regents Private Capital, LLC the rights under the warrant acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investments in the Company.
Subsequently, Fountainhead Capital Partners Limited assigned its entire interest to Fountainhead Capital Management Limited. On April 22, 2008 Regent Private Capital assigned $250,000 of the principal amount of the Convertible Debentures representing the first tranche to Derek Johannson and $100,000 of the principle amount of the Convertible Debentures to Altcar Investments Ltd. On December 2, 2008 Derek Johannson converted his note into 2,032,520 shares of common stock at $0.123 per share.
b) Salomon Note Payable
On February 15, 2008, the holders of this note agreed to convert the convertible promissory note to 1,111,111 shares of the Company stock at a conversion rate of $.135 per share. In order to further induce Salomon into such conversion the Company also issued Salomon 100,000 shares of common stock.
Stock Option Plan
In January 23,of 2008, permits the delivery of shares not to exceedCompany adopted a number equalstock option plan covering employees, directors, and consultants providing services to the sum of (a) 10% ofcompany. Under the total number of shares of Stock outstanding immediately following the Effective Time, assuming for this purpose the conversion into Stock of all outstanding securities that are convertible by their terms (directly or indirectly) into Stock and (b) the shares included in initial grants to Kenneth T. Coviello and Heather N. Jensen of options to purchase 1,000,000 shares in the aggregate. As of January 1 of each calendar year commencing with the year 2009, the maximum number of shares of Stock which may be delivered under the Plan shall automatically increase by a number sufficient to cause the number of shares of Stock covered by the Plan to equal 10% of the total number of shares of Stock then outstanding, assuming for this purpose the conversion into Stock of all outstanding securities that are convertible by their terms (directly or indirectly) into Stock.
Consulting Agreements
Dr. Donald O'RourkeO’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O'RourkeO’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O'RourkeO’Rourke was also granted a warrant to purchase 50,000 shares of the Company’s common stock at $.50 per share.
On September 1, 2008 Dr. Konstantin Slavin entered into a consulting agreement with the Company. Pursuant to the agreement, Dr. Slavin agreed to provide us certain consulting services. In consideration of such consulting services, Dr. Slavin received a one-time retainer of $5,000, which the Company has paid by the issuance of 26,000 shares of the Company’s common stock to Dr. Slavin. On October 21, 2008, Dr. Slavin is issued an additional 21,875 shares of the Company’s stock in lieu of services valued at approximately $4,156.
F-16
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
9. SUBSEQUENT EVENTS (continued)
Employment Agreements
On January 1, 2008 Ms. Jensen entered into a new employment agreement. Pursuant to the new employment agreement, Ms. Jensen was employed as our President for an annual salary of $190,000. She will be paid a monthly automobile allowance of $700 and be eligible to receive annual bonuses of 20% of her base salary for the calendar year 2008 and 40% of her base salary for calendar year 2009, payable in cash or in stock based upon the achievement of specific milestones to be determined by the Compensation Committee of our board of directors. For the purposes of calendar years 2008 and 2009, these milestones are defined as exceeding our budgeted income by an amount equal to the aggregate amount of all bonuses to be paid. The term of the agreement is for one year, and it will automatically be renewed for an additional one year term, unless either party gives written notice to the other of its intention to terminate the agreement at least 30 days prior to the automatic renewal date.
On January 1, 2008 Mr. Coviello entered into a new employment agreement. Pursuant to the new employment agreement, Mr. Coviello was employed as our Chief Executive Officer for an annual salary of $190,000. He will be paid a monthly automobile allowance of $700 and be eligible to receive annual bonuses of 20% of his base salary for the calendar year 2008 and 40% of his base salary for calendar year 2009, payable in cash or in stock based upon the achievement of specific milestones to be determined by the Compensation Committee of our board of directors. For the purposes of calendar years 2008 and 2009, these milestones are defined as exceeding our budgeted income by an amount equal to the aggregate amount of all bonuses to be paid. The term of the agreement is for one year, and it will automatically be renewed for an additional one year term, unless either party gives written notice to the other of its intention to terminate the agreement at least 30 days prior to the automatic renewal date.
Certain Equity Transactions
In connection with the recent investments by Regent Private Capital, LLC Fountainhead Capital Partners Limited and consultancy services provided by the Concordia Financial Group and Sichenzia Ross Friedman and Ference, LLP (attorneys for the Company), we issued a total of 1,047,494 shares of our common stock to The Concordia Financial Group and 523,747 shares of common stock to Sichenzia Ross Friedman and Ference, LLP(attorneys for the company).
Between March 2008 and January 2009, we sold 1,263,159 of common stock at $0.19 per share or a total aggregate purchase price of $240,000. During the same period 47,875 shares of common stock valued at $0.19 per share were issued for services at an aggregated value of $9,096.
10. RESTATEMENT OF FINANCIAL DATA AS OF DECEMBER 31, 2007
The financial data as of December 31, 2007 and 2006 and for the years then ended as presented in the accompanying financial statements have been restated and corrected for errors relating to the following: (a) capitalization of certain costs associated with the organizing of the Corporation; (b) recording certain additional compensation expense and (c) recording certain expenses associated with the value of certain debenture conversion rights. These amounts have been included in selling, general and administrative expenses in the accompanying financial statements.
The following table presents the impact of the additional stock-based compensation expense-related adjustments on our previously reported balance sheet as of December 31, 2007:
F-17
| RECONCILIATION OF BALANCE SHEET, DECEMBER 31, 2006 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Assets: | |||||||||||||||
| Current assets: | |||||||||||||||
| Cash | $ | 112,992 | - | $ | 112,992 | ||||||||||
| Accounts receviable | - | - | - | ||||||||||||
| Total current assets | 112,992 | - | 112,992 | ||||||||||||
| Other assets | 28,622 | - | 28,622 | ||||||||||||
| Total assets | $ | 141,614 | - | $ | 141,614 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||
| Current liabilities: | |||||||||||||||
| Derivative liability | $ | 22,891 | (22,891 | ) | B | $ | - | ||||||||
| Accounts payable and accrued expenses | 285,217 | 358 | A | 285,575 | |||||||||||
| Current portion of debt | 10,500 | - | 10,500 | ||||||||||||
| Total current liabilities | 318,608 | (22,533 | ) | 296,075 | |||||||||||
| Long term debt | 150,487 | (147,037 | ) | B | 3,450 | ||||||||||
| Stockholders' deficiency: | (327,481 | ) | 169,570 | C | (157,911 | ) | |||||||||
| Total liabilities and stockholders' equity | $ | 141,614 | - | $ | 141,614 | ||||||||||
| A - Accrued interest on Fountainhead note payable | |||||||||||||||
| B - Reclassification of fair value of warrants, options - Fountainhead | |||||||||||||||
| C - Income statement effect of A + B above | |||||||||||||||
| RECONCILIATION OF BALANCE SHEET, DECEMBER 31, 2007 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Assets: | |||||||||||||||
| Current assets: | |||||||||||||||
| Cash | $ | 15,739 | - | $ | 15,739 | ||||||||||
| Accounts receviable | 2,565 | - | 2,565 | ||||||||||||
| Total current assets | 18,304 | - | 18,304 | ||||||||||||
| Other assets | 28,773 | - | 28,773 | ||||||||||||
| Total assets | $ | 47,077 | - | $ | 47,077 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||
| Current liabilities: | |||||||||||||||
| Derivative liability | $ | 51,391 | (51,391 | ) | B | $ | - | ||||||||
| Accounts payable and accrued expenses | 301,258 | 8,947 | A | 310,205 | |||||||||||
| Current portion of debt | 248,261 | (20,812 | ) | B | 227,449 | ||||||||||
| Total current liabilities | 600,910 | (63,256 | ) | 537,654 | |||||||||||
| Long term debt | 172,500 | (69,250 | ) | B | 103,250 | ||||||||||
| Stockholders' deficiency: | (726,333 | ) | 132,506 | C | (593,827 | ) | |||||||||
| Total liabilities and stockholders' equity | $ | 47,077 | - | $ | 47,077 | ||||||||||
| A - Accrued interest on Fountainhead note payable | |||||||||||||||
| B - Reclassification of fair value of warrants, options, - Salomon and Fountainhead | |||||||||||||||
| C - Income statement effect of A + B above | |||||||||||||||
F-18
| RECONCILIATION OF STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Sales | $ | - | - | $ | - | ||||||||||
| Costs and expenses: | |||||||||||||||
| Research and development | 158,823 | - | 158,823 | ||||||||||||
| Selling, general, and administrative | 327,063 | 82,369 | A,E | 409,432 | |||||||||||
| Compensatory element of stock | 6,314 | (6,314 | ) | B | - | ||||||||||
| Total costs and expenses | 492,200 | 76,055 | 568,255 | ||||||||||||
| Operating loss | (492,200 | ) | (76,055 | ) | (568,255 | ) | |||||||||
| Other expense: | |||||||||||||||
| Interest expense, net | 878 | 2,929 | C,D | 3,807 | |||||||||||
| Total other expenses | 878 | 2,929 | 3,807 | ||||||||||||
| Net Loss | $ | (493,078 | ) | (78,984 | ) | $ | (572,062 | ) | |||||||
| A - To recognize compensation expenses attributable to warrants issued to Drs. Kornel and Langer | |||||||||||||||
| B - To correct treatment of warrants and options | |||||||||||||||
| C - To recognize unamortized discount on Fountainhead note | |||||||||||||||
| D - To accrue interest on Fountainhead note | |||||||||||||||
| E - To correct previous write-off of capitalization costs | |||||||||||||||
| RECONCILIATION OF STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 | ||||||||||||||||
| As previously restated | Adjustments | As restated | ||||||||||||||
| Sales | $ | 2,565 | - | $ | 2,565 | |||||||||||
| Costs and expenses: | ||||||||||||||||
| Research and development | 5,885 | 1,084 | A | 6,969 | ||||||||||||
| Selling, general, and administrative | 468,839 | (182 | ) | A,D | 468,657 | |||||||||||
| Compensatory element of stock | 20,839 | (20,839 | ) | A | - | |||||||||||
| Total costs and expenses | 495,563 | (19,937 | ) | 475,626 | ||||||||||||
| Operating loss | (492,998 | ) | 19,937 | (473,061 | ) | |||||||||||
| Other expense: | ||||||||||||||||
| Interest expense, net | 46,652 | 74,282 | A,B,C | 120,934 | ||||||||||||
| Total other expenses | 46,652 | 74,282 | 120,934 | |||||||||||||
| Net Loss | $ | (539,650 | ) | (54,345 | ) | $ | (593,995 | ) | ||||||||
| A - To correct treatment of warrants and options | ||||||||||||||||
| B - To recognize unamortized discount on Fountainhead note | ||||||||||||||||
| C - To accrue interest on Fountainhead note | ||||||||||||||||
| D - To correct previous write-off of organizational expenses | ||||||||||||||||
F-19
| RECONCILIATION OF STATEMENT OF OPERATIONS FOR INCEPTION (JUNE 5, 2005) TO DECEMBER 31, 2007 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Sales | $ | 2,565 | - | $ | 2,565 | ||||||||||
| Costs and expenses: | |||||||||||||||
| Research and development | 267,830 | 1,083 | A | 268,913 | |||||||||||
| Selling, general, and administrative | 880,733 | 95,454 | A,D | 976,187 | |||||||||||
| Compensatory element of stock | 27,153 | (27,153 | ) | A | - | ||||||||||
| Total costs and expenses | 1,175,716 | 69,384 | 1,245,100 | ||||||||||||
| Operating loss | (1,173,151 | ) | (69,384 | ) | (1,242,535 | ) | |||||||||
| Other expense: | |||||||||||||||
| Interest expense, net | 47,530 | 63,945 | A,B,C | 111,475 | |||||||||||
| Total other expenses | 47,530 | 63,945 | 111,475 | ||||||||||||
| Net Loss | $ | (1,220,681 | ) | (133,329 | ) | $ | (1,354,010 | ) | |||||||
| A - To correct treatment of warrants and options | |||||||||||||||
| B - To recognize unamortized discount on Fountainhead note | |||||||||||||||
| C - To accrue interest on Fountainhead note | |||||||||||||||
| D - To correct previous write-off of organizational expenses | |||||||||||||||
F-20
| RECONCILIATION OF STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2007 | ||||||||||||||
| As previously | ||||||||||||||
| restated | Adjustments | As restated | ||||||||||||
| Cash Flows Used in Operating Activities | $ | (442,673 | ) | $ | (21,040 | ) | A | $ | (421,633 | ) | ||||
| Cash Flows used in Investing activities: | (7,120 | ) | - | (7,120 | ) | |||||||||
| Cash Flows from Financing Activities: | 352,540 | 21,040 | A | 331,500 | ||||||||||
| Net increase in cash | (97,253 | ) | - | (97,253 | ) | |||||||||
| Cash at beginning of period | 112,992 | - | 112,992 | |||||||||||
| Cash at end of period | $ | 15,739 | $ | - | $ | 15,739 | ||||||||
| A - To correct treatment of warrants and options | ||||||||||||||
| RECONCILIATION OF STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2006 | ||||||||||||||
| As previously | ||||||||||||||
| restated | Adjustments | As restated | ||||||||||||
| Cash Flows Used in Operating Activities | (292,653 | ) | (12,500 | ) | A | (280,153 | ) | |||||||
| Cash Flows used in Investing activities: | (22,473 | ) | - | (22,473 | ) | |||||||||
| Cash Flows from Financing Activities: | 418,000 | 12,500 | A | 405,500 | ||||||||||
| Net increase in cash | 102,874 | - | 102,874 | |||||||||||
| Cash at beginning of period | 10,118 | 10,118 | ||||||||||||
| Cash at end of period | $ | 112,992 | $ | - | $ | 112,992 | ||||||||
| A - To correct treatment of warrants and options | ||||||||||||||
F-21
RECONCILIATION OF STATEMENT OF CASH FLOWS FOR INCEPTION (JUNE 5, 2005) THROUGH DECEMBER 31, 2007 | ||||||||||||||
| As previously | ||||||||||||||
| restated | Adjustments | As restated | ||||||||||||
| Cash Flows Used in Operating Activities | (825,559 | ) | (33,039 | ) | A | (792,520 | ) | |||||||
| Cash Flows used in Investing activities: | (40,932 | ) | (1 | ) | (40,931 | ) | ||||||||
| Cash Flows from Financing Activities: | 882,230 | 33,040 | A | 849,190 | ||||||||||
| Net increase in cash | 15,739 | - | 15,739 | |||||||||||
| Cash at beginning of period | - | - | - | |||||||||||
| Cash at end of period | $ | 15,739 | $ | - | $ | 15,739 | ||||||||
| A - To correct treatment of warrants and options | ||||||||||||||
F-22
| RECONCILIATION OF SHAREHOLDERS' DEFICIT, DECEMBER 31, 2005 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Common stock | - | 16,050 | A | 16,050 | |||||||||||
| Members/Additional paid-in capital | 101,690 | (16,050 | ) | A | 85,640 | ||||||||||
| Accumulated deficit | (187,953 | ) | - | (187,953 | ) | ||||||||||
| Total shareholders' deficit | (86,263 | ) | - | (86,263 | ) | ||||||||||
| A - To present as if reorganization from LLC to corporation took place at the earliest period presented | |||||||||||||||
| RECONCILIATION OF SHAREHOLDERS' DEFICIT, DECEMBER 31, 2006 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Common stock | - | 17,815 | A | 17,815 | |||||||||||
| Members/Additional paid-in capital | 373,675 | 210,614 | A,B | 584,289 | |||||||||||
| Unearned compensation | (20,125 | ) | 20,125 | B | - | ||||||||||
| Accumulated deficit | (681,031 | ) | (78,984 | ) | C | (760,015 | ) | ||||||||
| Total shareholders' deficit | (327,481 | ) | 169,570 | (157,911 | ) | ||||||||||
| A - To present as if reorganization from LLC to corporation took place at the earliest period presented | |||||||||||||||
| B - Reclassification of fair value of warrants, options - Fountainhead | |||||||||||||||
| C - Income statement effect of "B" above | |||||||||||||||
| RECONCILIATION OF SHAREHOLDERS' DEFICIT, DECEMBER 31, 2007 | |||||||||||||||
| As previously restated | Adjustments | As restated | |||||||||||||
| Common stock | 18,290 | - | 18,290 | ||||||||||||
| Additional paid-in capital | 485,580 | 256,313 | A | 741,893 | |||||||||||
| Unearned compensation | (9,522 | ) | 9,522 | A | |||||||||||
| Accumulated deficit | (1,220,681 | ) | (133,329 | ) | B | (1,354,010 | ) | ||||||||
| Total shareholders' deficit | (726,333 | ) | 132,506 | (593,827 | ) | ||||||||||
| A - Reclassification of fair value of warrants, options - Salomon and Fountainhead | |||||||||||||||
| B - Income statement effect of "A" above | |||||||||||||||
F-23
| VYCOR MEDICAL, INC. | |||||||||||
| (A Development Stage Company) | |||||||||||
| Balance Sheet | |||||||||||
| September 30, 2008 | |||||||||||
| September 30, | December 31, | ||||||||||
| 2008 | 2007 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash | $ | 313,478 | $ | 15,739 | |||||||
| Accounts Receivable | 3,322 | 2,565 | |||||||||
| Inventory | 26,351 | - | |||||||||
| Prepaid expenses | 134,226 | - | |||||||||
| 477,377 | 18,304 | ||||||||||
| Fixed assets, net | 26,505 | - | |||||||||
| Other assets: | |||||||||||
| Patents, net of accumulated amoritzation | 42,090 | 22,559 | |||||||||
| Website, net of accumulated amortization | 10,929 | 6,214 | |||||||||
| Security deposits | 2,350 | - | |||||||||
| 55,369 | 28,773 | ||||||||||
| TOTAL ASSETS | $ | 559,251 | $ | 47,077 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Notes payable-officer/stockholer | $ | - | $ | - | |||||||
| Accounts Payable | 155,293 | 285,215 | |||||||||
| Accrued interest | 89,986 | 24,726 | |||||||||
| Accrued liabilities | 54,444 | 264 | |||||||||
| Current portion of long-term debt | 1,117,535 | 227,449 | |||||||||
| 1,417,258 | 537,654 | ||||||||||
| Long-term debt less current portion | - | 103,250 | |||||||||
| TOTAL LIABILITIES | 1,417,258 | 640,904 | |||||||||
| STOCKHOLDERS' DEFICIT | |||||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, none | |||||||||||
| issued and outstanding | - | - | |||||||||
| Common Stock, $0.001 par value, 100,000,000 shares authorized, | |||||||||||
| 22,539,458 and 18,289,999 shares issued and outstanding | 22,539 | 18,290 | |||||||||
| at September 30, 2008 and December 31, 2007, respectively | |||||||||||
| Additional Paid-in Capital | 2,190,148 | 741,893 | |||||||||
| Accumulated Deficit | (3,070,694 | ) | (1,354,010 | ) | |||||||
| (858,007 | ) | (593,827 | ) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 559,251 | $ | 47,077 | |||||||
See accompanying notes to financial statements
F-24
| VYCOR MEDICAL, INC. | |||||||||
| (A Development Stage Company) | |||||||||
| Statement of Operations |
| From Inception | ||||||||||||
| For the 9 months ended September 30, | (June 5, 2005 to | |||||||||||
2008 | 2007 | September 30, 2008) | ||||||||||
| Revenue | $ | 3,342 | $ | - | $ | 5,907 | ||||||
| Operating expenses: | ||||||||||||
| Research and development | 21,906 | 5,885 | 290,819 | |||||||||
| General and administrative | 1,179,093 | 340,330 | 2,155,280 | |||||||||
| Total Operating expenses | 1,200,999 | 346,215 | 2,446,099 | |||||||||
| Operating loss | (1,197,657 | ) | (346,215 | ) | (2,440,192 | ) | ||||||
| Interest expense | 519,027 | 79,787 | 630,502 | |||||||||
| Loss Before Provision for | ||||||||||||
| Income Taxes | (1,716,684 | ) | (426,002 | ) | (3,070,694 | ) | ||||||
| Income Tax Expense | - | - | - | |||||||||
| Net Loss | $ | (1,716,684 | ) | $ | (426,002 | ) | $ | (3,070,694 | ) | |||
| Loss Per Share | ||||||||||||
| Basic and diluted | $ | (0.08 | ) | $ | (0.02 | ) | $ | (0.17 | ) | |||
| Weighted Average Number of Shares Outstanding | 21,526,747 | 17,940,612 | 18,178,005 |
See accompanying notes to financial statements
F-25
| VYCOR MEDICAL, INC. | ||||||||||||||
| (A Development Stage Company) | ||||||||||||||
| Statement of Stockholders Equity | ||||||||||||||
| For the period June 5, 2005 (date of inception) to September 30, 2008 |
| Additional | ||||||||||||||||||||
| Common | Paid-in | Accumulated | ||||||||||||||||||
| Shares | Stock | Capital | Deficit | Total | ||||||||||||||||
| Purchases of equity during | ||||||||||||||||||||
| period ended December 31, 2005 | 16,049,878 | $ | 16,050 | $ | 85,640 | $ | - | $ | 101,690 | |||||||||||
| Net loss for period ended December 31, 2005 | - | - | - | $ | (187,953 | ) | (187,953 | ) | ||||||||||||
| Balance at December 31, 2005 | 16,049,878 | $ | 16,050 | $ | 85,640 | $ | (187,953 | ) | $ | (86,263 | ) | |||||||||
| Purchases of equity during | ||||||||||||||||||||
| year ended December 31, 2006 | 1,717,262 | 1,717 | 231,283 | 233,000 | ||||||||||||||||
| Share based compensation for consulting services | 82,914 | 82,914 | ||||||||||||||||||
| warrants and option issued pursant to | ||||||||||||||||||||
| Fountainhead note payable | 172,500 | 172,500 | ||||||||||||||||||
| Stock issued for consulting services | 48,145 | 48 | 11,952 | 12,000 | ||||||||||||||||
| Net loss for year ended December 31, 2006 | (572,062 | ) | (572,062 | ) | ||||||||||||||||
| Balance at December 31, 2006 | 17,815,285 | $ | 17,815 | $ | 584,289 | $ | (760,015 | ) | $ | (157,911 | ) | |||||||||
| Purchases of equity during | ||||||||||||||||||||
| year ended December 31, 2007 | 200,301 | 200 | 74,800 | 75,000 | ||||||||||||||||
| Common stock issued in conjunction with | ||||||||||||||||||||
| Salomon note payable | 150,000 | $ | 150 | 23,800 | 23,950 | |||||||||||||||
| Issuance of stock for .consulting fees | 124,413 | 125 | 30,515 | 30,640 | ||||||||||||||||
| Share base Compensation for consulting services | 28,489 | 28,489 | ||||||||||||||||||
| Net loss for year ended December 31, 2007 | (593,995 | ) | (593,995 | ) | ||||||||||||||||
| Balance at December 31, 2007 | 18,289,999 | $ | 18,290 | $ | 741,893 | $ | (1,354,010 | ) | $ | (593,827 | ) | |||||||||
| Purchases of equity during | ||||||||||||||||||||
| period ended September 30, 2008 | 1,394,741 | 1,395 | 263,605 | 265,000 | ||||||||||||||||
| Common stock issued in conjunction with | ||||||||||||||||||||
| Salomon note payable | 1,211,111 | $ | 1,211 | 148,789 | 150,000 | |||||||||||||||
| Issuance of stock for .consulting fees | 1,643,607 | 1,644 | 310,639 | 312,283 | ||||||||||||||||
| Share base Compensation for consulting services. | 25,969 | 25,969 | ||||||||||||||||||
| Beneficial conversion feature on Fountainhead and Regent debt | 699,252 | 699,252 | ||||||||||||||||||
| Net loss for year ended September 30, 2008 | (1,716,684 | ) | (1,716,684 | ) | ||||||||||||||||
| Balance at September 30, 2008 | 22,539,458 | $ | 22,539 | $ | 2,190,148 | $ | (3,070,694 | ) | $ | (858,007 | ) | |||||||||
See accompanying notes to financial statements
F-26
| VYCOR MEDICAL, INC. | ||||||||||
| (A Development Stage Company) | ||||||||||
| Statement of Cash Flows |
| From Inception | ||||||||||||
| Nine months ended | Nine months ended | (June 5, 2005) to | ||||||||||
| September 30, 2008 | September 30, 2007 | September 30, 2008 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net Loss | (1,716,684 | ) | $ | (426,002 | ) | $ | (3,070,694 | ) | ||||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||||||
| Amortization of intangible assets | 8,451 | 5,072 | 20,610 | |||||||||
| Depreciation of fixed assets | 670 | 670 | ||||||||||
| Amortization of debt discount expense | 453,088 | 62,100 | 537,939 | |||||||||
| Share based compensation | 25,969 | 19,777 | 182,809 | |||||||||
| Shares issued for consulting services | 312,283 | 21,040 | 312,283 | |||||||||
| Changes in Assets and Liabilities: | ||||||||||||
| Accounts Receivable | (757 | ) | (3,322 | ) | ||||||||
| Inventory | (26,351 | ) | (26,351 | ) | ||||||||
| Prepaid expenses | (134,226 | ) | (134,226 | ) | ||||||||
| Security deposit | (2,350 | ) | (2,350 | ) | ||||||||
| Accounts Payable | (129,922 | ) | (16,356 | ) | 155,293 | |||||||
| Accrued interest | 65,260 | 18,634 | 89,986 | |||||||||
| Accrued liabilities | 54,180 | (266 | ) | 54,444 | ||||||||
| Net Cash Used in Operating Activities | (1,090,389 | ) | (316,001 | ) | (1,882,909 | ) | ||||||
| Cash Flows used in Investing activities: | ||||||||||||
| Fixed Assets | (27,175 | ) | (27,175 | ) | ||||||||
| Patents | (26,198 | ) | (1,991 | ) | (58,081 | ) | ||||||
| Website | (6,499 | ) | (15,547 | ) | ||||||||
| (59,872 | ) | (1,991 | ) | (100,803 | ) | |||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Proceeds from/Payment on Note Payable Officer | (7,500 | ) | - | |||||||||
| Proceeds from sale of equity | 265,000 | 25,000 | 674,690 | |||||||||
| Proceeds from Notes Payable-GC Advisors | (17,000 | ) | 17,000 | - | ||||||||
| Proceeds from Salomon Convertible Note Payable | 150,000 | 150,000 | ||||||||||
| Proceeds from Fountainhead Convertible Note Payable | 300,000 | 472,500 | ||||||||||
| Proceeds from Fountainhead Convertible Note Payable | 1,000,000 | 1,000,000 | ||||||||||
| Proceeds from Optimum Health Service Loan Payable | (100,000 | ) | 100,000 | - | ||||||||
| 1,448,000 | 284,500 | 2,297,190 | ||||||||||
| Net increase in cash | 297,739 | (33,492 | ) | 313,478 | ||||||||
| Cash at beginning of period | 15,739 | 112,992 | - | |||||||||
| Cash at end of period | $ | 313,478 | $ | 79,500 | $ | 313,478 | ||||||
| Supplemental Disclosures of Cash Flow information: | ||||||||||||
| Interest paid: | $ | 5,935 | $ | - | $ | 5,935 | ||||||
| Taxes paid | $ | - | $ | - | $ | - | ||||||
| Non-Cash Tranactions: | ||||||||||||
| Warrants, options and stock issued for debt financing | - | 23,950 | 196,450 | |||||||||
See accompanying notes to financial statements
F-27
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2007.
2. FORMATION AND BUSINESS OF THE COMPANY
Business description
Vycor Medical, LLC, (the “Company”) was formed in June 2005 under the laws of the State of New York. The Company converted its entity form on August 15, 2007 from a New York Limited Liability Company to a Delaware Corporation with 16,045 of common stock exchange for each partnership unit with 1122 units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the earliest period presented; thus all are references to number of shares prior to the date of conversion are based upon the common stock equivalent of the units. The Company’s business plan is to develop and market a commercially feasible surgical access system for sale to hospitals and medical professionals.
3. ACCOUNTING POLICIES
Research and Development
The Company expenses all research and development costs as incurred. For the nine months ended September 30, 2008 and 2007, the amounts charged to research and development expenses were $21,906 and $5,885, respectively.
Fair Values of Financial Instruments
At September 30, 2008 fair values of cash, accounts receivable, accounts payable, and accrued expenses short term promissory notes, approximate their carrying amount due to the short period of time to maturity. The fair value of the Company’s long term debt is based on the present value of the debt using a discount rate comparable with borrowing rates available to the Company along with various fair value model calculations used to value certain debt related securities.
Income taxes
The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes. This statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The Company has provided a full valuation allowance against the gross deferred tax asset as of September 30, 2008.
F-28
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
3. ACCOUNTING POLICIES (continued)
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Critical estimates include depreciation, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.
Patents
The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.
The Company reviews existing patents as well as those in the approval process for impairment on an annual basis using a present value, cash flow method pursuant to Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets. Since the Company’s patents are either very new or still in the process of approval, the Company does not believe that any impairment of these amounts exists.
Revenue Recognition
To date, the Company has had virtually no revenue. Upon the planned development and sale of their products, the Company will record revenue at the time, pursuant to Staff Accounting Bulletin Topic 13(a) that a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company intends to sell a surgical access system which has already cleared the U.S. FDA 510(k) review process. It has been granted a 510(k) number for marketing the system to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warrantee costs but will review such potential costs after the commencement of sales.
Educational and marketing expenses
The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will expense such costs as a component of selling, general and administrative costs as such costs are incurred.
Website Costs
The Company capitalizes the costs associated with the acquisition of hardware and development tools as well as the creation of database tools in connection with the Company’s website pursuant to Statement of Position 98-1 and Emerging Issues Task Force 00-20. Other costs including the development of functionality and identification of software tools are expensed as incurred.
F-29
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
3. ACCOUNTING POLICIES (continued)
Stock-Based Compensation
Prior to January 1, 2006, the Company accounted for Stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations, and followed the minimum value disclosure provisions of Statement of Financial Accounting Standards NO. 123 (SFAS 123), Accounting for Stock-Based Compensation. Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price. Stock-based compensation determined under APB 25 is recognized over the option vesting period.
Prior to the adoption of a stock option plan adopted on February 13, 2008, the Company only issued share based compensation to consultants for goods or services. The Company accounted for these transactions under guidance for Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under EITF 96-18, options, warrants, and stock are recorded at their fair value on the measurement date. The Company remeasured the fair value of such instruments granted at each reporting period until performance under the consulting arrangements were completed and the measurement date was reached. The Company records the expense of such services on the estimate fair value of the equity instrument using the Black-Sholes pricing model. The initial expense is recognized over the term of the service agreement.
For future awards to employees, the Company will adopt the fair value provisions of the Statement of Financial Accounting Standards No. 123(R) (SFAS 123R), Share-Based Payment, which supersedes its previous accounting under APB 25. SFAS 123(R) requires the recognition of compensation expense for future stock-based compensation awards to employees. Using a fair-value-based method, for costs related to all share-based payments including stock options. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants valued after January 1, 2006 will be expensed on a straight-line basis over the vesting period.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options, convertible notes payable and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.
The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of September 30, 2008 and 2007, respectively:
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| Stock options outstanding | 1,025,000 | - | ||||||
| Warrants to purchase common stock | 5,145,132 | 5,283,708 | ||||||
F-30
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
3. ACCOUNTING POLICIES (continued)
Recently Issued Accounting Standards
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. AFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company is currently evaluating the impact of SFAS 157.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The amendment to SFAS 115 applies to all entities with investments in available-for-sale or trading securities. The statement is effective for the fiscal year beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 159.
In June 2007, the FASB issued Emerging Issues Task Force No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. EITF 07-3 requires nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities to be deferred and capitalized. The expense should be recognized as the related goods are delivered or the related services are performed. The statement is effective prospectively for new contracts entered into during the fiscal year beginning after December 15, 2007.
In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (SAB 110). SAB 110 permits, under certain circumstances, the continued use of the “simplified” method in developing an estimate of the expected term “plain vanilla” share options in accordance with Statement of Financial Accounting Standards No. 123R, Shared-Based Payment, beyond December 31, 2007. The Company currently uses the “simplified” method as there is not enough historical experience to provide a reasonable estimate of the expected term and will continue to do so until there is enough historical experience in accordance with SAB110. The Company does not expect SAB 110 to have a material impact on the consolidated financial statements.
Going Concern
The Company’s financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $(1,716,684) for the nine months ended September 30, 2008, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs related to clinical trials and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of September 30, 2008, the Company had a stockholders’ deficiency of $858,007 and cash and cash equivalents balance of $313,478. In these circumstances the Company believes it may not have enough cash to meet its various cash needs into 2009 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize. 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.
F-31
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
As of September 30, 2008 and December 31, 2007, long-term debt consists of:
September 30, 2008 | December 31, 2007 | ||||||
| On January 9, 2007 the Company entered into a note payable to GC Advisors, with interest at 12%, due earlier of January 9, 2009, or five business days following the receipt of at least $500,000 in cash from any form of equity or debt financing. | $ | - | $ | 17,000 | |||
| On April 18, 2007 the Company entered into a $50,000 note payable to Optimus Service LLC. On May 31, 2007 the note holder advanced an additional $50,000. The original loan was due six (6) months from the date of issuance. The Company has agreed to monthly payments of $20,500 beginning in March 2008 with interest at the Prime interest rate as reported in the Wall Street Journal | - | 100,000 | |||||
| On August 28, 2007 the Company sold 10 units consisting of a combination of 150,000 shares of its common stock and a convertible promissory note to David Salomon in the amount of $150,000. The debt is due and payable on August 28, 2008 and is non interest bearing other than the stock unless the note is in default; the interest then accrues at 13% per annum. The Company allocated the proceeds of this investment between the relative fair values of the promissory note and common stock using a share value of $0.19 per share resulting in an allocation of $126,050 to the promissory note and $23,950 to additional paid in capital attributed to debt discount. The note agreement has a conversion price between $0.50 and $1.00 per common share. As a result there is no value attributable to any beneficial conversion feature, even using the “floor price” conversion price of $0.50 per share. The Company is using the interest method to allocate the debt discount over its term; as of December 31, 2007, the note is reflected net of the unamortized discount of $22,551. | - | 127,449 | |||||
| On December 15, 2006 the Company entered into a Convertible debenture, in the amount of $172,500 payable to Fountainhead Capital Partners Limited, with interest at the applicable Federal Rate as defined in sec. 1274 (d) of the Internal Revenue Code, due June 21, 2007. The convertible debenture is convertible into a fixed maximum of 1,876,300 common shares. The Company has computed a beneficial conversion feature of $22,891 which resulted in a debt discount of such amount which is being amortized over the life of the loan to interest expense. The due date of this debenture has been extended to February 15, 2009. The beneficial conversion feature is being amortized over the life of the loan. In conjunction with the convertible debenture the Company issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (805,931 shares of common stock) at $.50 per share for five years. This warrant fair value of $0.13 per share was calculated using the Black-Scholes Valuation Model, using the following assumptions: volatility of 99%, dividend rate of 0%, risk free interest rate of 0.0% and a five year warrant life. The allocation relative fair value of the warrant was used to reduce the carrying value of the related debenture and the difference was recorded as a discount of $39,976 on the debenture. In conjunction with this debt the Company entered into an Option Agreement with Fountain Capital Partners Limited (FCPL) which granted to FCPL an option to invest up to $1,850,000 for three years in exchange for convertible debentures due two years from the re-issuance and warrant purchase up 3,017,409 shares at a price $0.44 per share. The debenture is convertible upto 5,652,954 shares of common stock. The fair value of the option is based upon the excess value of re-conversion feature and fair value embedded warrant in excess of the $1,850,000 option exercise price. The fair value of the warrant was calculated using the Black Scholes Valuation Model and the following assumptions: Volatility of 99%, dividend rate of 0%, risk free interest rate of 0.0% and a five year life. Fair value of the stock is $.19/share for all calculations. The interest rate on the convertible debenture is the same as the initial convertible note payable. Based upon the above the option resulted in an additional debt discount of $132,524 which is being amortized over the term of the original debenture. The note reflects an unamortized discount of $24,150 and $86,250 as of September 30, 2008 and December 31, 2007, respectively. | 148,350 | 86,250 | |||||
| On February 15, 2008 the Company entered into a $150,000 Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due February 15, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature debt discount of $81,707, which is being amortized over the life of the loan. | 119,360 | - |
F-32
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
| On February 15, 2008 the Company entered into a $500,000 Convertible Debenture, payable to Regent Private Capital, LLC, with Interest at 6% per annum, due on or before February 15, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature debt discount of $272,358, which is being amortized over the life of the loan. | 397,865 | - |
| On April 15, 2008 the Company entered into a $150,000 Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due February 15, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature debt discount of $79,658 which is being amortized over the life of the loan | 106,852 | - | ||||||
| On April 22, 2008 the Company entered into a $500,000 Convertible Debenture, payable to Regent Private Capital, LLC, with interest at 6% per annum, due on or before April 22, 2009. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a Beneficial conversion feature debt discount of $265,529, which is being amortized over the life of the loan. Subsequently, Regent assigned the principal amount of each note to Altcar Investments and Derek Johansen. | 345,108 | - | ||||||
| 1,117,535 | 330,699 | |||||||
| Less current portion of debt | 1,117,535 | 227,449 | ||||||
| Long term portion of debt | $ | - | $ | 103,250 |
The following is a schedule of future minimum loan payments:
| Twelve months ending September 30, | Amount | |||
| 2009 | $ | 1,472,500 | ||
| 2010 | - | |||
| 2011 | - | |||
| 2012 | - | |||
| 2013 | - | |||
| Thereafter | - | |||
| Total | $ | 1,472,500 | ||
| Less debt discount | 354,965 | |||
| $ | 1,117,535 | |||
Certain Equity Transactions
In connection with the recent investments by Regent Private Capital, LLC Fountainhead Capital Partners Limited and consultancy services provided by the Concordia Financial Group and Sichenzia Ross Friedman and Ference, LLP (attorneys for the Company), we issued a total of 1,047,494 shares of our common stock to The Concordia Financial Group and 523,747 shares of common stock to Sichenzia Ross Friedman and Ference, LLP.
Between March 2008 and January 2009, we sold 1,236,843 of common stock at $0.19 per share or a total aggregate purchase price of $235,000. During the same period 97,874 shares of common stock valued at $0.19 per share for an aggregated purchase price of $18,596.
F-33
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
6. SHARE-BASED COMPENSATION
The Company accounts for the following transactions under the guidance of Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under EIFT 96-18, options are recorded at their fair value on the measurement date. The Company remeasured the fair value of the options or warrants granted at each reporting period until performance under the consulting agreement was completed and the measurement date was reached. The Company expensed the fair value of the instrument granted over the requisite service period which was the term of the consulting agreement, or one year.
For employee based awards which consist only of awards made under the “Stock Option Plan” described below, the company follows the provisions of Statement of Financial Accounting Standards No. 123R (SFAS 123 R), Share –Based Payment which requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. Under SFAS 123 R, 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. The weighted average estimated fair value of the employee stock options granted for the nine months ended September 30, 2008 was approximately $ 180,000.
Stock Option Plan
The Company has adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan as of February 13, 2008, that includes both incentive stock options and nonqualified stock options to be granted to employees, officers, and consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock options grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Company’s outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options expire on the date determined by the board of directors, but may not extend mare than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Company’s outstanding voting stock expire five years from the grant date. The vesting period for employees is generally over three years. The vesting Period for nonemployees is determined based on the services being provided.
Initial grants totaling 500,000 shares each were issued on February 13, 2008 to Kenneth J. Coviello, President and Heather Jensen at an exercise price of $.135 per share. The options vest 33 1/3 % on each of the first, second, and third anniversary of the grant and expire February 12, 2018.
The maximum number of shares of stock which maybe delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.
Stock appreciation rights may be granted either on a stand alone basis or in conjunction with all or part of any other stock options granted under the plan. As of September 30, 2008 there were no awards of any stock appreciation rights.
Consulting Agreements
Dr. Donald O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the agreement, Dr. O’Rourke will provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and /or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was also granted an option to purchase 50,000 shares of the Company'sCompany’s common stock at $.50 perpet share. This option was fair valued under
On September 1, 2008 Dr. Konstantin Slavin entered into a consulting agreement with the Black-Scholes Model. The fair value of the option is being amortized over the expected life of the option.
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
| STOCK WARRANTS: | ||||||||
| Weighted average | ||||||||
| Number of shares | price per share | |||||||
| Balance, December 31, 2005 | ||||||||
| Granted | 4,144,300 | $ | 0.43 | |||||
| Exercised | ||||||||
| Cancelled or expired | ||||||||
| Outstanding at December 31, 2006 | 4,144,300 | 0.43 | ||||||
| Granted | 1,143,408 | 0.32 | ||||||
| Exercised | ||||||||
| Cancelled or expired | ||||||||
| Outstanding at December 31, 2007 | 5,287,708 | 0.41 | ||||||
| Granted | 50,000 | 0.50 | ||||||
| Exercised | ||||||||
| Cancelled or expired | (192,576 | ) | 0.24 | |||||
| Balance at September 30, 2008 | 5,145,132 | $ | 0.42 | |||||
| STOCK OPTIONS: | ||||||||
| Weighted average | ||||||||
| Number of shares | exercise price per share | |||||||
| Balance, December 31, 2005 | ||||||||
| Granted | - | $ | - | |||||
| Exercised | ||||||||
| Cancelled or expired | ||||||||
| Outstanding at December 31, 2006 | - | - | ||||||
| Granted | ||||||||
| Exercised | ||||||||
| Cancelled or expired | ||||||||
| Outstanding at December 31, 2007 | - | - | ||||||
| Granted | 1,025,000 | 0.14 | ||||||
| Exercised | ||||||||
| Cancelled or expired | ||||||||
| Balance at September 30, 2008 | 1,025,000 | $ | 0.14 | |||||
F-35
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
As of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123(R))September 30, 2008, there was approximately $120,000 of total unrecognized compensation costs related to non-vested stock options awards, which replaces SFAS 123 and supersedes APB Opinion No. 25. Under the provisions of SFAS 123(R), companies are requiredexpected to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over thea weighted average period during which an employee is requiredof 2 years.
Stock-based compensation expenses related to provide service in exchange for the award, usually the vesting period. The statement is effective as of the beginning of the first annual reporting period that begins after June 15, 2005 and accordingly has been adopted by the Company in 2006. SFAS 123 (R) requires that compensation expense be recognized for the unvested portions of existing options granted prior to its effective date and the cost ofstock options granted to employees afternonemployees is recognized as the effective date based onstock options are earned. The Company believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of the stock options granted is calculated at grant date.each reporting date, using the Black-Scholes option-pricing model, until the award vests or there is substantial disincentive for the nonemployee not to perform the required services. The following assumptions were used in calculations of the Black Scholes option pricing model.
| 4 - 5 % | |||
| Expected life | 3 years | ||
| Expected dividends | 0% | ||
| Expected volatility | 99% |
Stock-based compensation expense charged to operations on options and warrants granted to the above non-employees for the nine months ended September 30, 2008 and 2007 is $25,969 and $19,777, respectively.
Expected Life. The expected life is based on the “simplified” method described in the SEC Staff Accounting Bulletin, Topic 14: Share-Based Payment.
Volatility. Since the Company was a private entity for most of 2007 with no historical data regarding the volatility of its common stock, the expected volatility used for 2006 and 2007 is based on volatility of similar entities, referred to as “guideline” companies. In evaluation similarity, the Company considered factors such as industry, stage of life cycle and size.
Risk-Free Interest Rate. The risk-free rate is based on rates approximating U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation method.
Forfeitures. SFAS No. 123R also requires the Company to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data however limited to date to estimate pre-vesting options forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of awards, which are generally the vesting periods. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.
The weighted-average remaining contractual life of outstanding warrants and options is two and two years, respectively. All of the warrants outstanding are currently exercisable.
F-36
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
8. INCOME TAXES
The Company has incurred net operating losses (NOL) since inception. The Company has not reflected any benefit of such net operations loss carry forward in the financial statements. Prior to August 15, 2007 the Company was a limited liability company and losses were flowed through to the individual members, therefore the Company only has potential tax benefits from the date it became a ‘C’ corporation.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.
Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as of December 31, 2007 as follows:
| Gross deferred tax assets | $ | 72,261 | ||
| Valuation allowance | (72,261 | ) | ||
| Net deferred tax asset | $ | - |
As of December 31, 2007, the Company has U.S. federal net operating loss carryforwards of approximately $206,000. The federal net operating loss carryforwards expire in the year 2027.
Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carryforwards and research and development credits may be subject to the above limitations.
The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007. Implementation of FIN 48 resulted in no adjustments to the Company’s liability for unrecognized tax benefits. As of both the date of adoption and as of December 31, 2007 there were no unrecognizable tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits.
The Company is subject to federal and state examinations for the year 2006 forward. There are no tax examinations currently in progress.
F-37
VYCOR MEDICAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
9. COMMITMENTS AND CONTINGENCIES
Employment Agreements
On January 1, 2008 Ms. Jensen entered into a new employment agreement. Pursuant to the new employment agreement, Ms. Jensen was employed as our President for an annual salary of $190,000. She will be paid a monthly automobile allowance of $700 and be eligible to receive annual bonuses of 20% of her base salary for the calendar year 2008 and 40% of her base salary for calendar year 2009, payable in cash or in stock based upon the achievement of specific milestones to be determined by the Compensation Committee of our board of directors. For the purposes of calendar years 2008 and 2009, these milestones are defined as exceeding our budgeted income by an amount equal to the aggregate amount of all bonuses to be paid. The term of the agreement is for one year, and it will automatically be renewed for an additional one year term, unless either party gives written notice to the other of its intention to terminate the agreement at least 30 days prior to the automatic renewal date.
On January 1, 2008 Mr. Coviello entered into a new employment agreement. Pursuant to the new employment agreement, Mr. Coviello was employed as out Chief Executive Officer for an annual salary of $190,000. He will be paid a monthly automobile allowance of $700 and be eligible to receive annual bonuses of 20% of his base salary for the calendar year 2008 and 40% of his base salary for calendar year 2009, payable in cash or in stock based upon the achievement of specific milestones to be determined by the Compensation Committee of our board of directors. For the purposes of calendar years 2008 and 2009, these milestones are defined as exceeding our budgeted income by an amount equal to the aggregate amount of all bonuses to be paid. The term of the agreement is for one year, and it will automatically be renewed for an additional one year term, unless either party gives written notice to the other of its intention to terminate the agreement at least 30 days prior to the automatic renewal date.
Lease
The Company leases its office space on a month-to-monthmonth to month basis. Rental expense for the threenine months ended JuneSeptember 30, 2008 and 2007 were $4,964$21,029 and $3,650, respectively. Rental expense for the six months ended June 30, 2008 and 2007 were $10,191 and $7,450,$11,296, respectively.
Item 13. Other Expenses and Issuance and Distribution
Although we will receive no proceeds from the sale of shares pursuant to this prospectus, we have agreed to bear the costs and expenses of the registration of the shares. Our expenses in connection with the issuance and distribution of the securities being registered are estimated as follows:
| SEC Registration Fee | $ | 16 | ||
| Printing Expenses | — | |||
| Legal Fees and Expenses | $ | 55,000 | ||
| Accountants’ Fees and Expenses | $ | 30,000 | ||
| Blue Sky Fees and Expenses | $ | 2,000 | ||
| Transfer Agent Fees | — | |||
| Miscellaneous Expenses | — | |||
| Total | $ | 87,016 |
| SEC Registration Fee | $ | 16 | ||
| Printing Expenses | — | |||
| Legal Fees and Expenses | $ | 55,000 | ||
| Accountants’ Fees and Expenses | $ | 50,000 | ||
| Blue Sky Fees and Expenses | $ | 2,000 | ||
| Transfer Agent Fees | — | |||
| Miscellaneous Expenses | — | |||
| Total | $ | 107,016 |
All amounts are estimates other than the Securities and Exchange Commission’s registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne by the selling shareholders. The selling shareholders, however, will pay any other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.
Item 14. Indemnification of Directors and Officers
Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors' fiduciary duty of care to our company and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law, or any other applicable law. Our bylaws further provide that we may modify the extent of such indemnification by individual contracts with its directors and officers.
We shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding; provided, however, that if the Delaware General Corporation Law requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director and officers (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to us of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under the bylaws or otherwise.
We have been advised that in the opinion of the Securities and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities (other than the our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
We may enter into indemnification agreements with each of our directors and officers that are, in some cases, broader than the specific indemnification provisions permitted by Delaware law, and that may provide additional procedural protection. We have not entered into any indemnification agreements with our directors or officers, but may choose to do so in the future.
At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
Item 15. Recent Sales of Unregistered Securities
Below is a list of securities sold by us within the past three years which were not registered under the Securities Act.
| Name of Purchaser (Selling Stockholder) | Date of Sale | Title of Security | Amount of Securities Sold | Consideration | ||||||
| Kenneth Coviello | September 5, 2005 | Common Stock | 5,117,922 | $ | 7,000 | |||||
| Heather N. Jensen | September 5, 2005 | Common Stock | 5,117,922 | $ | 7,000 | |||||
| Sawmill Trust c/o Mitchell Greene, Robinson Brog Greene | September 5, 2005 | Common Stock | 5,117,922 | $ | 7,000 | |||||
| Steven Thuilot | November 10, 2005 February 3, 2006 March 1, 2006 April 13, 2006 | Common Stock | 534,939 | $ | 50,000 | |||||
| Dr. Michael Wayne | November 15, 2005 | Common Stock | 100,301 | $ | 25,000 | |||||
| Ed and Joanne Minder | November 10, 2005 January 18, 2006 March 15, 2006 | Common Stock | 267,469 | $ | 25,000 | |||||
| Larry Coviello | November 10,2005 January 18, 2006 March 19, 2006 | Common Stock | 281,859 | $ | 26,345 | |||||
| Robert Coviello | November 1, 2005 January 18, 2006 March 19, 2006 | Common Stock | 228,365 | $ | 21,345 | |||||
| Neal Clay | March 14, 2006 | Common Stock | 107,041 | $ | 10,000 | |||||
| Joan Pallateri | March 27, 2006 | Common Stock | 107,041 | $ | 10,000 | |||||
| Edwin Tironi | March 14, 2006 | Common Stock | 160,482 | $ | 15,000 | |||||
| Susan and Lambert Dahlin | March 24, 2006 | Common Stock | 160,482 | $ | 15,000 | |||||
| Prateek Parekh | April 10, 2006 | Common Stock | 40,120 | $ | 10,000 | |||||
| Goran Avdicevic | April 10, 2006 | Common Stock | 100,301 | $ | 25,000 | |||||
| Harpreet Anand | April 10, 2006 | Common Stock | 64,193 | $ | 16,000 | |||||
| Anirban Sen | April 10, 2006 | Common Stock | 60,181 | $ | 15,000 | |||||
| Joel R. Smart Living Trust | July 7, 2006 | Common Stock | 50,151 | $ | 12,500 | |||||
| Clarence A. Dahlin Living Trust | July 7, 2006 | Common Stock | 50,151 | $ | 12,500 | |||||
| Joel R. Smart Living Trust and Clarence A. Dahlin Living Trust | October 26, 2006 | Common Stock | 100,301 | $ | 25,000 | |||||
| GC Advisors | September 20, 2006 January 20, 2007 | Common Stock | 80,241 | Professional Services | |||||||||
| Kenneth Olson | April 18, 2007 | Common Stock | 100,301 | $ | 25,000 | ||||||||
| Feldstein Management | August 14, 2007 | Common Stock | 12,197 | $ | 3,040 | ||||||||
| Dr. David Langer | August 14, 2007 | Common Stock | 24,072 | Professional Services | |||||||||
| Vinas & Company | August 14, 2007 | Common Stock | 16,048 | Professional Services | |||||||||
| David Salomon | August 15, 2007 February 13, 2008 | Common Stock | 150,000 1,211,111 | $ | 150,000 | ||||||||
| MAC Strategic Advisors | November 15, 2007 | Common Stock | 40,000 | Professional Services | |||||||||
| George Kivotidis | November 15, 2007 | Common Stock | 100,000 | $ | 50,000 | ||||||||
| March 10, 2008 | Common Stock | 263,158 | $ | 50,000 | |||||||||
| Christopher A. Vinas | January 23, 2008 February 26, 2008 | Common Stock | 263,158 | $ | 50,000 | ||||||||
| RES Holdings | February 26, 2008 | Common Stock | 23,683 | Professional Services | |||||||||
| April 15, 2008 | Common Stock | 23,683 | Professional Services | ||||||||||
| LFI Investments Ltd | February 20, 2008 | Common Stock | 78,947 | $ | 10,000 | ||||||||
| Jay Berkow | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
| Vivek Bhaman | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Robert Braumann | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| John A. Brown Jr. | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
| Vincent P. Carroll | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Robert A. Frazier | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Martin Keating | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Vicor F. Keen | February 20, 2008 | Common Stock | 78,947 | $ | 15,000 | ||||||||
| Robert M. Richards | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Joseph Roberts | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Thomas Romano | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Edward F. Sager, Jr. | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Mark Staples | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Neil Strauss | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
| Terry Tyson | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
| Geoffrey C Walker | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| James Ward | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||
| Jay S. Weiss | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||
| Concordia Financial Group | February 20, 2008 | Common Stock | 523,747 | Professional Services | |||||||||
| April 15, 2008 | Common Stock | 523,747 | Professional Services | ||||||||||
| Sichenzia Ross Friedman Ference, LLP | February 20, 2008 | Common Stock | 523,747 | Professional Services |
| GC Advisors | September 20, 2006 January 20, 2007 | Common Stock | 80,241 | Professional Services | |||||||||||||||||||
| Kenneth Olson | April 18, 2007 | Common Stock | 100,301 | $ | 25,000 | ||||||||||||||||||
| Feldstein Management | August 14, 2007 | Common Stock | 12,197 | $ | 3,040 | ||||||||||||||||||
| Dr. David Langer | August 14, 2007 | Common Stock | 24,072 | Professional Services | |||||||||||||||||||
| Vinas & Company | August 14, 2007 | Common Stock | 16,048 | Professional Services | |||||||||||||||||||
| David Salomon | August 15, 2007 February 13, 2008 | Common Stock | 150,000 1,211,111 | $ | 150,000 | ||||||||||||||||||
| MAC Strategic Advisors | November 15, 2007 | Common Stock | 40,000 | Professional Services | |||||||||||||||||||
| George Kivotidis | November 15, 2007 | Common Stock | 100,000 | $ | 50,000 | ||||||||||||||||||
| March 10, 2008 | Common Stock | 263,158 | $ | 50,000 | |||||||||||||||||||
| Christopher A. Vinas | January 23, 2008 February 26, 2008 | Common Stock | 263,158 | $ | 50,000 | ||||||||||||||||||
| RES Holdings | February 26, 2008 | Common Stock | 23,683 | Professional Services | |||||||||||||||||||
| April 15, 2008 | Common Stock | 23,683 | Professional Services | ||||||||||||||||||||
| LFI Investments Ltd | February 20, 2008 | Common Stock | 78,947 | $ | 10,000 | ||||||||||||||||||
| Jay Berkow | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||||||||||||
| Vivek Bhaman | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Robert Braumann | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| John A. Brown Jr. | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||||||||||||
| Vincent P. Carroll | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Robert A. Frazier | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Martin Keating | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Vicor F. Keen | February 20, 2008 | Common Stock | 78,947 | $ | 15,000 | ||||||||||||||||||
| Robert M. Richards | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Joseph Roberts | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Thomas Romano | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Edward F. Sager, Jr. | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Mark Staples | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Neil Strauss | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||||||||||||
| Terry Tyson | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||||||||||||
| Geoffrey C Walker | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| James Ward | February 20, 2008 | Common Stock | 26,316 | $ | 5,000 | ||||||||||||||||||
| Jay S. Weiss | February 20, 2008 | Common Stock | 52,632 | $ | 10,000 | ||||||||||||||||||
| Concordia Financial Group | February 20, 2008 | Common Stock | 523,747 | Professional Services | |||||||||||||||||||
| April 15, 2008 | Common Stock | 523,747 | Professional Services | ||||||||||||||||||||
| Sichenzia Ross Friedman Ference, LLP | February 20, 2008 | Common Stock | 523,747 | Professional Services | |||||||||||||||||||
| September 1, 2008 | Common Stock | 26,000 | Professional Services | ||||||||||||||||||||
| Arthur Shaw | September 26, 2008 | Common Stock | 131,578 | $ | 25,000 | ||||||||||||||||||
| Dr. Konstantin Slavin | October 21, 2008 | Common Stock | 21,875 | Professional Services | |||||||||||||||||||
| William Roberts | November 20, 2008 | Common Stock | 657,895 | 125,000 | |||||||||||||||||||
| The Armentarium | November 20, 2008 | Common Stock | 131,579 | 25,000 | |||||||||||||||||||
| Troy Leight | November 30, 2008 | Common Stock | 52,632 | 10,000 | |||||||||||||||||||
| Steve Girgenti | November 19, 2008 | Common Stock | 26,316 | Professional Services | |||||||||||||||||||
| Derek Johannson | December 2, 2008 | Common Stock | 2,032,520 | $ | *250,000 | ||||||||||||||||||
| Dr. Konstantin Slavin | Sept. 1, 2008 | Common Stock | 26,000 | Professional Services | |||||||||
| Arthur Shaw | Sept.26, 2008 | Common Stock | 131,578 | $ | 25,000 | ||||||||
| Dr. Konstantin Slavin | Oct. 21, 2008 | Common Stock | 21,875 | Professional Services |
Dr. Ezriel E. Kornel entered into a consulting agreement with us on January 10, 2006. Pursuant to the consulting agreement, in consideration for acting as our consultant, Dr. Kornel received options to acquire 240,720 shares of our common stock at a price of $.25$.24 per share. The term of the agreement is for three years.
Dr. David Langer entered into an amended and restated consulting agreement with the Company on December 11, 2006. Pursuant to the agreement, Dr. Langer agreed to provide us certain consulting services, which include the role of our Chief Medical Advisor, assistance in the analysis, preparation, submission, publication and presentation of scientific data in relation to our research efforts ands alesand sales and marketing efforts. In consideration of such consulting services, Dr. Langer received options to acquire 320,960 shares of the Company’s common stock at a price of $.25$.24 per share. The agreement will terminate April 15, 2009.
Dr. Donald O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was granted an option to purchase 50,000 shares of the Company’s common stock at $.50 per share.
II-3
Dr. Konstantin Slavin entered into a consulting agreement with us on September 1, 2008. Pursuant to the agreement, Dr. Slavin agreed to provide us certain consulting services. In consideration of such consulting services, Dr. Slavin received a one-time retainer of $5,000, which the Company has paid by the issuance of 26,000 shares of the Company’s common stock to Dr. Slavin. On October 21, 2008, Dr. Slavin was issued an additional 21,875 common shares in lieu of $4,156.25 worth of professional services.
In consideration for providing consulting services to us, we granted to GC Advisors LLC twothree warrants to purchase an aggregatea total of 192,576577,728 shares of our common stock, each for a purchase price of $.135 per share. One warrant for 192,576 shares expires on January 9, 2009 and the other2010, one warrant for 192,576 expired on January 9, 2010.2008 and a second warrant to purchase 192,576 shares expired on January 9, 2009
In consideration for being our strategic business advisor, we issued to Martin Magida a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.
In consideration for purchasing our stock of common shares, we issued to George Kivotidis a warrant to purchase up to 4,000 shares of our common stock at $.50 per share. The warrant is valid from November 6, 2007 for a period of three years.
* On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company.
In consideration for advisory services, we issued to Robert Guinta is a holder of a warrant to purchase up to 160,480 shares of the Company’s common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.
Each of Kenneth Coviello and Heather Jensen entered into a stock option agreement with us dated February 15, 2008. Pursuant to the said stock option agreements, each of Kenneth Coviello and Heather Jensen was granted an option to purchase 500,000 shares of common stock of the Company at an exercise price of $.135 per share. The option shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire February 12, 2018.
On December 14, 2006, we issued to Fountainhead Capital Partners Limited a Bridge Loan Debenture for the original principal amount of $172,500, which may be converted, at the option of Fountainhead Capital Partners Limited to 1,876,300 shares of our common stock. The Bridge Loan Debenture has a maturity date of February 15, 2009.
On February 15, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures—such investment to be made in two tranches of $500,000 each.
In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the Regent investments.
These Convertible Debentures have a term of one year and are convertible into shares of the our common stock at a price of approximately $.123 per share. If fully converted, the Convertible Debentures would result in the issuance of 8,129,529 shares to Regent Private Capital, LLC and 2,438,859 shares to Fountainhead Capital Partners Limited.
As of the date hereof, both tranches of investments by Regent Private Capital, LLC and Fountainhead Capital Partners Limited have been completed.
Subsequently, Fountainhead Capital Partners Limited assigned its entire interest to Fountainhead Capital Management Limited and on April 22, 2008 Regent Private Capital assigned $250,000 of the principal amount of the Convertible Debentures representing the first tranche to Derek Johannson and $100,000 of the principal amount of the Convertible Debentures to Altcar Investments Ltd. On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company.
At the same time, approximately twenty smaller investors agreed to invest an additional approximately $140,000 in the purchase of shares of our common stock at approximately $.19 per share. The investment closed on or about February 20, 2008.
In connection with the investments by Regent Private Capital, LLC, Fountainhead Capital Partners Limited and consultancy services provided, we issued a total of 1,047,494 shares of our common stock to The Concordia Financial Group and 523,747 shares of our common stock to Sichenzia, Ross Friedman and Ference, LLP.
We issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (now 805,931 shares of our shares of common stock) dated December 15, 2006 at $.50 per share.
On December 14, 2006, we entered into an Option Agreement with Fountainhead Capital Partners Limited which granted to Fountainhead Capital Partners Limited an option to invest up to $1,850,000 within three years from December 14, 2006 in exchange for up to 5,652,954 shares of our common stock and warrants to convert to 3,017,409 shares of our common stock.
In consideration of Regent Private Capital, LLC agreeing to invest $1,000,000 in the purchase of our Convertible Debentures, Fountainhead Capital Partners Limited executed an Assignment of Rights under Warrant and Under Option Agreement to assign to Regent Private Capital, LLC 50% interest in Fountainhead Capital Partners Limited’s rights, title and interest in the abovementioned Option Agreement, the warrant to purchase shares at $.50 per share and the warrant under the Option Agreement. By reason of this assignment, Fountainhead Capital Partners Limited assigned to Regent Private Capital, LLC the rights under the warrant to acquire 50% of the underlying securities issuable on exercise of the warrant and 50% of the rights to make future investment in the Company.
Item 16. Exhibits
Exhibit No. | Description | |||
| 3. | Certificate of Incorporation* | |||
| 3.2 | Bylaws* | |||
| 3.3 | 6% Convertible Debenture No. 1 to Regent Private Capital, LLC* | |||
| 3.4 | 6% Convertible Debenture to Fountainhead Capital Partners Limited* | |||
| 3.5 | Fountainhead Capital Partners Limited Warrant* | |||
| 3.6 | Fountainhead Capital Partners Limited Bridge Loan Debenture* | |||
| 3.7 | GC Advisors LLC Warrants* | |||
| 3.8 | George Kivotidis Warrant dated November 6, 2007* | |||
| 3.9 | Martin Magida Warrant dated September 1, 2007* | |||
| 3.10 | Robert Guinta Warrant dated September 1, 2007* | |||
| 5.1 | Opinion of Sichenzia Ross Friedman Ference LLC regarding legality of common stock being registered. | |||
| 10.1 | Fountainhead Capital Partners Limited Option Agreement* | |||
| 10.2 | Convertible Debenture Purchase Agreement between Vycor Medical, Inc. and Regent Private Capital, LLC dated February 14, 2008* | |||
| 10.3 | Convertible Debenture Purchase Agreement between Vycor Medical, Inc. and Fountainhead Capital Partners Limited* | |||
| 10.4 | Stock Option Agreement with Heather N. Jensen dated February 15, 2008* | |||
| 10.5 | Stock Option Agreement with Kenneth Coviello dated February 15, 2008* | |||
| 10.6 | Assignment of Rights Under Warrant and Under Option Agreement dated February 14, 2008 between Fountainhead Capital Partners Limited, Regent Private Capital LLC and Vycor Medical, Inc.* | |||
| 10.7 | Assignment Agreement between John R. Mangiardi and The Sawmill Trust dated September 17, 2005.* | |||
| 10.8 | Assignment Agreement between The Sawmill Trust and Vycor Medical LLC dated September 17, 2005.* | |||
| 10.9 | Lease Agreement dated July 26, 2008.** | |||
| 10.10 | Business Operating Agreement dated September 11, 2007 with Lacey Manufacturing Company*. | |||
| 10.11 | Consulting Agreement with Dr. Langer** | |||
| 10.12 | Consulting Agreement with Dr. Kornel** | |||
| 10.13 | Consulting Agreement with Dr. O’Rourke** | |||
| 10.14 | Retainer Agreement with Sichenzia Ross Friedman Ference LLP** | |||
10.15 | Consulting Agreement with Dr. Slavin*** | |||
| 10.16 | 2008 Employee, Director and Consultant Stock Plan**** | |||
| 23.1 | Consent of Sichenzia Ross Friedman Ference LLC (will be included in its legal opinion to be filed as Exhibit 5.1) | |||
| 23.2 | Consent of Paritz & Company for use of their report. | |||
*Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on June 3, 2008.
** Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on August 25, 2008.
*** Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the SEC on September 25, 2008.
**** Attached herewith
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(5) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York State of New York on the 3rd21st day of November, 2008.January 2009.
VYCOR MEDICAL, INC. | ||
| By: | /s/ Kenneth T. Coviello | |
Kenneth T. Coviello Chief Executive Officer and Director (Principal Financial Officer) | ||
| By: | /s/ Heather N. Jensen | |
Heather N. Jensen President, Founder and Director (Principal Executive Officer) | ||
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following person in the capacities and date stated.
| /s/ Kenneth T. Coviello | ||
Kenneth T. Coviello Chief Executive Officer and Director | ||
| /s/ Heather N. Jensen | ||
Heather N. Jensen President and Director | ||
| /s/ Pascale Mangiardi | ||
Pascale Mangiardi Director | ||
| /s/ | ||
Director |
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