| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
| Post Effective Amendment No. 1 to |
| FORM S-1 |
| REGISTRATION STATEMENT |
| UNDER THE SECURITIES ACT OF 1933 |
| VYCOR MEDICAL, INC. |
| (Exact Name of Registrant as Specified in its Charter) |
| Delaware | 333-176713 | 20-3369218 |
| (State or Other Jurisdiction of Incorporation) | (Commission File No.) | (I.R.S. Employer Identification No.) |
| 6401 Congress Ave. Suite 140, Boca Raton, FL | 33487 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (561) 558-2000
n/a
(Former name or former address, if changed since last report)
Approximate date of proposed sale to the public: From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.o
CALCULATION OF REGISTRATION FEE
| Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share(1) | Proposed maximum aggregate offering price | Amount of registration fee | |||||||||
| Common Stock, $0.0001 par value | 93,602,221 | $ | 0.04 | $ | 3,744,089 | $ | 435.38 | ||||||
| Total | 93,602,221 | $ | 0.04 | $ | 3,744,089 | $ | 435,38 | ||||||
(1)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(e) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Neither the Securities Exchange Commission nor any state securities commissions have approved or disapproved of these securities or passed upon the adequacy of the Prospectus. Any representation to the contrary is a criminal offense.
EXPLANATORY NOTE
Vycor Medical, Inc., a Delaware corporation (the “Company”), filed a Registration Statement on September 7, 2011, on Form S-1, and subsequent amendments (the “Original Registration Statement”) (SEC File Number 333-176713), which was declared effective November 10, 2011, for the purpose of registering 93,602,221 shares of common stock par value $0.0001offered for sale by selling shareholders (the “Offering”) under the Securities Act of 1933.
This Post-Effective amendment No. 1 to the Original Registration Statement on Form S-1 contains an updated prospectus relating to the offering and sale of shares of common stock declared effective by the Securities and Exchange Commission on November 10, 2011. This Post-Effective Amendment No. on Form S-1 is being filed to 1) extend our offering date until June 30, 2013, and 2) include the audited financial statements for the years ended December 31, 2011 and December 31, 2010 (restated) and unaudited financial statements for the interim period ended June 30, 2012 and June 30, 2011 (restated). All filing fees payable in connection with the registration of the shares being registered hereby were previously paid in connection with the filing of the original registration statement.
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-176713
Dated August 20, 2012
VYCOR MEDICAL, INC.
93,602,221 Shares of Common Stock
Par Value $0.0001 Per Share
This prospectus relates to the offering by the selling stockholders ofVYCOR MEDICAL, INC. of up to 93,602,221 shares of our common stock, par value $0.0001 per share. We will not receive any proceeds from the sale of common stock.
The selling stockholders have advised us that they will sell the shares of common stock from time to time in broker’s transactions, in the open market, on the OTC Bulletin Board, in privately negotiated transactions or a combination of these methods, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. We will pay the expenses incurred to register the shares for resale, but the selling stockholders will pay any underwriting discounts, commissions or agent’s commissions related to the sale of their shares of common stock.
Our common stock is traded on the OTC Bulletin Board under the symbol “VYCO.OB”. On August 17, 2012, the closing sale price of our common stock was $0.012 per share.
You should rely only on the information contained in this prospectus or any prospectus supplement or amendment. We have not authorized anyone to provide you with different information.
Investing in these securities involves significant risks. See “Risk Factors” beginning on page 12
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is August 20, 2012.
The information contained in this prospectus is not complete and may be changed. This prospectus is included in the registration statement that was filed by VYCOR MEDICAL, INC. with the Securities and Exchange Commission. The selling stockholders may not sell these securities until the registration statement becomes effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
SUMMARY INFORMTION AND RISK FACTORS
The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the “Risk Factors” section, the financial statements, and the notes to the financial statements.
For purposes of this prospectus, unless otherwise indicated or the context otherwise requires, all references herein to “Vycor”, “the Company”, “we,” “us,” and “our,” refer to VYCOR MEDICAL, INC., a Delaware corporation.
Going Concern. Our independent auditors, Paritz & Company, certified public accountants, have expressed substantial doubt concerning our ability to continue as a going concern. We have incurred losses since our inception, including a net loss of $1,581,164 for the six months ended June 30, 2012 and a net loss of $4,778,541 for the year ended December 31, 2011 and we expect to incur substantial additional losses, including additional development costs, costs related to clinical studies and manufacturing expenses. We have incurred negative cash flows from operations since inception. As of June 30, 2012 and December 31, 2011 we had a stockholders’ equity (deficit) of $(445,847) and $875,324 respectively, total assets of $2,725,246 and $3,571,640 respectively, and cash and cash equivalents balances of $169,657 and $950,841 respectively.
For the six months ended June 30, 2012 the aggregate of cash used in operating activities and investing activities was $713,44, or an average monthly “burn rate” of approximately $120,000. The cash and cash equivalent balance of $169,657 at June 30, 2012 is therefore equivalent to less than 2 months of “burn rate”. This does not take into account any potential future sales growth and/or future cost cutting. There have been no significant changes in the operations of the Company since June 30, 2012 and none are anticipated in the next six months which would have a significant impact on the “burn rate”.
The Company will seek to obtain additional cash from the issuance of equity or debt securities although does not presently have any commitments for such funding. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations.
THE COMPANY
Business Overview
1. Organizational History
We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical LLC”. On August 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.” (“Vycor” or the “Company”). The Company’s listing went effective on February 2009 and on November 29, 2010, Vycor completed an acquisition of substantially all of the assets of NovaVision, Inc., a company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological visual loss predominantly resulting from Stroke or Traumatic Brain Injury.
2. Overview of Business
Vycor operates two distinct business units--Vycor Medical Inc. (“Vycor Medical”) and NovaVision, Inc (“NovaVision”). Vycor Medical is a medical device company that designs, develops and markets medical devices for use in neurosurgery. NovaVision develops non-invasive, computer-based visual neuro-stimulation therapy called VRT for those suffering from vision loss resulting from neurological trauma. In addition to our existing products and products in development, we actively seek acquisition, joint venture and in-licensing opportunities in the medical device field which we believe will add shareholder value.
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Vycor Medical
Introduction
Vycor Medical is a medical device company that designs, develops and markets medical devices for use in neurosurgery. Vycor Medical is ISO 13485:2003 compliant, has U.S. FDA 510(k) clearance for brain and spine surgeries, and CE Marking for Europe as well as applicable regulatory approvals in Australia, Canada, China, Japan and Russia for sale of its brain access system. Vycor Medical’s first product, the ViewSite Brain Access System (VBAS), is a next generation access system which was fully commercially launched in early 2010. The VBAS device is the first significant technological change to brain tissue retraction. The incumbent blade retractor technology has not changed materially in over 50 years in contrast to development in most other neuro-surgical technologies.
The second product in Vycor Medical’s pipeline is the Cervical Access System (VCAS), which requires further prototyping and successful market testing prior to commercialization launch. Like the VBAS, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.
Vycor Medical has received FDA 510(k) clearance for its products, with which we are authorized to market our products in the U.S. without further approvals.
Vycor Medical’s Products
Viewsite Brain Access System (VBAS)
To access a surgical site in the brain, the surgeon needs to remove part of the skull (crainiotomy) and then part (retract) the soft brain tissue to access the target site. The current standard of care utilizes a metal blade retractor to force the tissue apart; to maintain the opening the blades are attached to a head frame and tension is applied to the tissue
The VBAS series is used by neurosurgeons to access the surgical site in the brain. This is done by inserting the VBAS into the brain tissue and then removing the VBAS introducer, leaving the remaining hollow working channel in place to provide the surgeon with access to the precise location desired for surgery.
The VBAS is available in multiple sizes and is a single-use product. The series consists of twelve 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. We intend to add additional models in the future.
We believe our Brain Access System offers several advantages over the brain retractor systems, commonly known as ribbon or blade retractors that are metallic, including having the potential to significantly reduce brain tissue trauma resulting from the currently used retractors when accessing deep brain targets. The unique design of the product can minimize the size of the brain entry access necessary for surgical procedures, and in turn the amount of brain tissue exposed.
Vycor Medical Product Pipeline
Brain Access and Related Products
The Company’s future plans include developing additional Brain Access Systems that are designed for the requirements of specific surgical applications like aneurisms, tumors and endoscopic work and identifying other products that can be used in conjunction with our VBAS product.
Cervical Access Products
The Company will continue its preliminary work to design Cervical Access System products which would be used by the surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck). While the Company has filed certain intellectual property applications with respect to this technology, such development is in an early stage.
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Sales and Marketing
Domestic Sales Strategy
VBAS sales strategy is focused on driving sales through leading neurosurgeons. In this regard, the Company has adopted a dual strategy of targeting both the leading neurosurgeons and the leading neurosurgical hospitals.
We are currently using independent distributors who have existing relationships with neurosurgeons to target hospitals and drive our sales.
International Sales
The Company utilizes select medical device distributors with experience in neurosurgical devices in select countries. In Europe, the company has agreements with distributors for Spain, Italy, Belgium, Scandinavia, Switzerland and the U.K. who are all focused in neurosurgery. Vycor also has required regulatory approvals in Australia, Canada, China, Japan and Russia with distribution agreements in place or being put into place.
Reference Hospitals Program
The Company has developed a Reference Hospital Program to identify centers of excellence and to provide neurosurgeons with evidence of support for our products.
VBAS Market and the Hospital Adoption Process
The market for VBAS in the US is relatively concentrated. Teaching hospitals not only carry out more relevant procedures but also provide a natural way to drive adoption through the conversion of new surgeons. We focus our efforts initially on surgeons as the principle proponent within the hospital. Vycor has found that the learning curve is only 1-2 cases for surgeons, who like the simplicity of design and ease of use after trialing the product. Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation product.
Experience has been that the approval process can take up to six months for each hospital, and in some cases may even be longer.
Peer Review and Other Clinical Studies
The publication of clinical papers in neurosurgery journals by surgeon-users of VBAS regarding their experiences with the products (peer review papers), and the publication of other clinical data, is important for the Company as it continues to evidence the clinical superiority of VBAS. During 2011 the following papers were published:
| • | “Usage of a Minimally Invasive Tubular Retraction System for Deep-Seated Tumors in Pediatric Patients” inJournal of Neurosurgeryin May 2011: Pediatrics. Co-authors Pablo Recinos, M.D., of the Cleveland Clinic and George Jallo, M.D., of Johns Hopkins University conclude that while access to deep-seated, intra-axial tumors is challenging, the ViewSite™ tubular retractor and frameless neuro navigation facilitated the surgical approach and the combination of these technologies adds to the surgeon’s armamentarium to safely approach tumors in deep locations. |
| • | “Vycor Viewsite TC: Endoscope-guided Intraparenchimal Brain Tumor Resection,” by Daniel Prevedello, M.D., Director of the Minimally Invasive Cranial Surgery Program at the Ohio State University. Dr Prevedello reported on a case with a patient taking Avastin®, which delays surgical wound healing. He said the Viewsite TC was essential to the surgery; otherwise, no procedure could have been performed on the patient. |
| • | “Minimally Invasive Trans-Portal Resection of Deep Intracranial Lesions” inMinimally Invasive Neurosurgery,February 2011 a Johns Hopkins University paper by lead author A. Quinones Hinojosa. The authors reported a case series of 9 adult and pediatric patients with a variety of pathologies, including colloid cyst, DNET, papillary pineal tumor, anaplastic astrocytoma, toxoplasmosis and lymphoma. The locations of the lesions approached included: lateral ventricle, basal ganglia, pulvinar/posterior thalamus and insular cortex. Post-operative imaging was assessed to determine extent of resection and extent of white matter damage along the surgical trajectory. Satisfactory resection or biopsy was obtained in all patients. “VBAS lends itself well to minimally invasive microsurgical approaches and can be used in combination with modern |
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| navigational systems. The use of navigation permits not only the creation of a smaller craniotomy but also facilitates the creation of a trajectory that provides efficient and safe means for splitting white fiber tracts,” said the authors. |
Manufacturing
Vycor Medical has executed agreements with Lacey Manufacturing Company of Bridgeport, Connecticut (“Lacey”) and C&J Industries, Meadville PA (“C&J”) to provide a full range of engineering, contract manufacturing and logistical support for our products.
Lacey and C&J 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. Lacey and C&J have shipped orders to Vycor Medical and have made production runs of all 12 sizes.
Market
The market for our Brain Access System product lines is the neurosurgical community, both in the US and internationally.
Competition
Competitive manufacturers of brain retractors include:
| • | Cardinal Health (V. Mueller line) | |
| • | Aesculap | |
| • | Integra Life Science | |
| • | Codman (Division of Johnson & Johnson) |
Cervical Access System competitors include Medtronic, Asculap/B. Braun, Cardinal and Nuvasive, Cloward Instruments, among others. In addition to the standard “blade retractors” distributed by the aforementioned companies. In addition companies such as Endius and EBI have announced cervical retractor systems.
Customers
Vycor Medical sells to stocking regional distributors and direct to hospitals through independent representatives. For the six months ended June 30, 2012 and 2011 international sales accounted for approximately 54% and 12% of revenues, respectively.
Intellectual Property
Patent Applications
| Vycor Medical has the following issued, patents: | |
| • | Russia (2009124446) – Surgical Access Instruments for use with Delicate Tissues (Brain) |
| • | China (200680056889.9) – Surgical Access Instruments for use with Delicate Tissues (Brain) |
Additionally, Vycor has 14 patents pending for its Brain and Spine technology and products in: the U.S. (4), Canada (2), Europe (2), India (2), Japan (2), and Hong Kong (2).
Trademarks
VYCOR MEDICAL is a registered trademark and VIEWSITE is pending registration as a trademark with the United States Patent and Trademark Office.
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NovaVision, Inc.
Introduction
NovaVision develops and markets a non-invasive, computer-based light stimulation therapy called Vision Restoration Therapy (VRT) and through its recently acquired subsidiary, Sight Science, Neuro-Eye Therapy (NeET). Both therapies are aimed at those suffering from vision loss resulting from neurological trauma such as stroke and traumatic brain injury (TBI). It is estimated that approximately 16% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living. NovaVision’s target market is this subset of patients who have suffered a visual field deficit.
NovaVision operates in the US, in Germany through a wholly-owned subsidiary and in the UK through Sight Science, also a wholly-owned subsidiary.
VRT is based on NovaVision’s platform technology which management believes induces neuroplasticity, the brain’s natural ability to repair or remap broken neural connections that cause vision loss. Before VRT, such patients were informed that their vision loss would likely be permanent and they were prescribed therapy or aids to merely compensate for their lost vision.
The diagnostic algorithm in the VRT product first maps the visual field and defines the areas of defect in patients suffering vision loss. The therapeutic algorithm in the VRT product is then specifically designed for each patient based upon the results of the diagnostic program and it repetitively challenges the visual cortex with thousands of stimuli over the course of time. VRT is generally performed over a four to six month period, twice a day for an hour total, six days a week. The Company maintains broad IP protection. NovaVision has collected significant amounts of data from clinical studies and peer reviewed papers that support the Company’s claims about the benefits of its platform technology for vision restoration and other indications. NovaVision has received 510(k) clearance and CE Marking for VRT and NeET.
Platform Technology
The management of NovaVision believes that the underlying basis for the visual field recovery it has witnessed, and the functional outcome improvements it has noted with its patients, is largely due to neuroplasticity of the visual field which is the brain’s ability to remap or repair itself in response to a pre-programmed and deliberate stimulation. Neuroplasticity has been discussed over the last 20 years or so and as far back as 1990 Gilbert & Weisel talked about the cortex not having a fixed functional architecture. The platform technology is comprised of proprietary algorithms that generate patient-specific therapies enabling NovaVision’s products to be used as both diagnostic and therapeutic tools. The platform technology generates light-based, or photic, stimulus programs consisting of a fixation point on a display screen. As the patient focuses on this fixation point, a series of photic stimuli are delivered on the screen that are specific to the patient’s neurological requirements, and relayed directly to the brain using the eye as a conduit.
Management believes that it is these programmed light sequences that stimulate the border zone between the “seeing” and “blind” visual fields which induces neuroplasticity. While neuroplasticity for explaining VRT has never been conclusively demonstrated, Randy Mashall’s study using MRI did demonstrate that VRT results in increased neural activity in the visual cortex. Irrespective of mechanism, patient studies point to significantly improved functional outcomes for patients who have done VRT treatment. This improvement manifests itself in greater confidence to move around and an average shift of 4.9 degrees in the border between seeing and blind visual fields. The visual field is the portion of space surrounding an individual which is visible at any given time by that individual while their gaze is held stationary. To humans, the central 10° of visual field holds the greatest functional importance for focal and cognitive tasks.
Clinical Data Relating to VRT
NovaVision has accumulated significant amounts of clinical data as a result of company-sponsored trials as well as studies conducted by independent third parties.
| • | Studies have indicated that 88% of patients experience an improvement in at least one of their daily life activities. |
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| • | 75% of patients experience an improvement in their mobility, which is regarded as one of the most important functional tasks. | |
| • | Approximately 70% of patients experience positive outcome reflected by an increase in their visual field and studies have indicated an average increase of 4.9 degrees | |
| • | Elapsed time since injury does not seem to impact VRT and NeET therapies success. Therefore, a massive historical backlog of patients can potentially be treated. | |
| • | Improvements are permanent and do not appear to be age or gender dependent. | |
| • | Age at the onset of the injury is not a critical factor, allowing access to the therapy by both young and older adults with brain injuries |
Pipeline Products Utilizing NovaVision’s Platform Technology
NovaVision is carrying out a development program that will enable VRT to be delivered direct to patients’ computers over the internet, rather than being delivered in the form of a physical device to patients’ homes. This development will enable the Company to streamline its operations resulting in the ability to deliver the therapy at a lower cost to patients.
Management is also looking to further develop its product range leveraging its existing technology platform. To this end it has launched a second generation of portable visual field screening device called head mounted perimeter (HMP). The Company has registration to sell the HMP as a Class 1 device as a screening tool for physicians.
Regulatory Matters
In the U.S., NovaVision’s products are regulated by the FDA as Class U medical devices subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT as a Class I device. NovaVision received its 510(k) clearance for VRT specific to Stroke and TBI indications in 2003.
Intellectual Property
Patents
NovaVision maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically and internationally, with a total of 24 granted and 14 pending patents.
The Company’s 24 granted patents are in the U.S. (12), Canada (2), Europe (4), Australia (1), China (2), Hong Kong (1), India (1) and Japan (1).
The Company’s 14 pending patents are in the U.S. and Canada (4), Europe (5), Australia (2), and Japan (3).
Trademarks
NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT and VISION RESTORATION THERAPY amongst others, both in the US and internationally.
Manufacturing and Operations
NovaVision is based at the Vycor Medical, Inc. group headquarters at a 10,000 square foot leased facility in Boca Raton, Florida. NovaVision purchases electronics and custom fabricated hardware from third party vendors and assembles and tests all of its medical devices within the facility. NovaVision has an FDA Establishment Registration and the Company does not have any long-term contractual obligations with its vendors to purchase products from them, nor are suppliers contractually obligated to sell products to NovaVision.
Acquisition of Sight Science, Ltd.
In January 2012 NovaVision acquired Sight Science, Ltd. (“Sight Science”). Sight Science, which was established in 2009 based on the research of Professor Arash Sahraie at the University of Aberdeen, provides an interactive computer-based therapy called Neuro-Eye Therapy (“NeET”), which patients administer at home. To date, over 100 patients have utilized NeET. The Company has 5 patents granted in the UK, France, Germany, Switzerland and Singapore and 2 patents pending in the U.S. and Canada. Prof. Sahraie has conducted extensive research on blindsight and residual visual processing after brain injury, and is highly regarded in the field.
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As part of the transaction, Prof. Sahraie agreed to join NovaVision as its Chief Scientific Officer on a part-time secondment basis from the University for a minimum of 5 years. Prof. Sahraie is responsible for driving NovaVision’s scientific effort to develop and validate technologies in vision rehabilitation for visual field defects resulting from brain injury. The acquisition also created a long-term relationship between the Company, NovaVision and the University, which is a leading medical research center.
Both NovaVision’s VRT and Sight Science’s NeET work on the basis that repeated stimulation of the blind areas by either bright patches of light (VRT) or the specific spatial patterns (NeET) and can lead to increases in sensitivity of the blind areas. Patients progress after VRT appears to be initiated at the blind and sighted borders whereas NeET results in changes deep within the field damage. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living. The Company believes that these therapies are highly complementary.
3. Other Matters
Product Liability Insurance
We presently have Product Liability insurance for both Vycor Medical and NovaVision.
Government Regulations
We are committed to an integrated total quality management system. We believe that we have completed the necessary procedures and are certified to the ISO standards expected of medical device manufacturers as follows:
ISO 13485:2003 Medical Devices — Quality Management Systems
The certification of a quality management system to ISO 13485, specifically for medical devices, is advantageous and often essential for medical companies to export their products to the global market, as well as maintain and enter into certain agreements and business growth opportunities within the U.S. For example, Canada requires that medical device manufacturers marketing their products in Canada must have a quality system certified to ISO 13485:2003. The certification is also required for placement of branded devices into the European Union.
| Vycor Medical has the following certification/licensing: | |
| • | Fully Quality Assurance System Directive 93/42/EEC for Medical Devices, Annex II (3) |
| • | EC Design-Examination Certificate Directive 93/42/EEC for Medical Devices, Annex II (4) |
| • | ISO 13485.2003 |
Continuing Regulatory Requirements
Governmental regulation in the United States and other countries is a significant factor affecting the research and development, manufacture and marketing of medical devices, including our products. In the United States, the FDA has broad authority under the Federal Food, Drug and Cosmetic Act (the FD&C Act) to regulate the development, distribution, manufacture, marketing and sale of medical devices. Foreign sales of medical devices are subject to foreign governmental regulation and restrictions that vary from country to country.
Medical devices intended for human use in the United States are classified into one of three categories, depending upon the degree of regulatory control to which they will be subject. Such devices are classified by regulation into either Class I general controls, Class II special standards or Class III pre-market approval (PMA), depending upon the level of regulatory control required to provide reasonable assurance of the safety and effectiveness of the device.
Most Class I devices are exempt from pre-market notification (510(k)) or PMA. However, Class I devices are subject to “general controls,” including compliance with FDA manufacturing requirements (Quality System Regulation (QSR), sometimes referred to as current good manufacturing practices or CGMPs), adverse event reporting, labeling and other requirements. Class II devices are subject to general controls and to the pre-market notification requirements under Section 510(k) of the FD&C Act. For a 510(k) to be cleared by the FDA, the manufacturer must demonstrate to the FDA that a device is substantially equivalent to another legally marketed device that was either cleared through the 510(k) process or on the market prior
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to 1976. It generally takes four to twelve months from the date of submission to obtain 510(k) clearance although it may take longer. Class III is the most stringent regulatory category for devices. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls. Class III devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Class III devices also include devices that are not substantially equivalent to other legally marketed devices. To obtain approval to market a Class III device, a manufacturer must obtain FDA approval of a PMA application. The PMA process requires more data, including ordinarily data from clinical studies testing the device in humans, takes longer and is typically a significantly more complex and expensive process than the 510(k) procedure. Clinical studies of devices in humans is also subject to regulation by the FDA. Testing must be conducted in compliance with the investigational device exemption (IDE) regulations.
According to the FDA, Vycor Medical’s products have been classified as Class II products and cleared for marketing through the 510(k) process. NovaVision’s VRT product has been cleared as a Class U product while its HMP has been cleared as a Class 1 device.
We can provide no assurance that we will be able to maintain and obtain clearances or approvals needed to introduce new products and technologies. After a device is placed on the market, numerous regulatory requirements apply. These include:
| • | quality system regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process; |
| • | labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and |
| • | medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur. |
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
| • | fines, injunctions, and civil penalties; |
| • | recall or seizure of our products; |
| • | operating restrictions, partial suspension or total shutdown of production; |
| • | Refusing a request for 510(k) clearance or premarket approval of new products; |
| • | withdrawing 510(k) clearance or premarket approvals that are already granted; and |
| • | criminal prosecution. |
Medical device laws are also in effect in many of the countries outside of the United States in which we will do business. These laws range from comprehensive device approval and quality system requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. In June 1998, the European Union Medical Device Directive became effective, and all medical devices must meet the Medical Device Directive standards and receive CE mark certification. CE mark certification involves a comprehensive Quality System program, and submission of data on a product to the Notified Body in Europe.
Vycor Medical has obtained the CE marking approval to allow for distribution of its VBAS products in Europe and has received our HPB licensing approval for distribution in Canada. NovaVison’s VRT is considered a Class 1 device in Europe. HMP does not have European regulatory clearance at this time.
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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 currently have 21 full-time employees.
Outstanding Shares. As of the date of this prospectus, the Company has 841,527,668 shares of $0.0001 par value common stock issued and outstanding to a total of approximately 100 shareholders of record.
Fiscal Year End. The Company’s fiscal year end is December 31.
Website. The Company operates websites at www.vycormedical.com and www.novavision.com.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. This prospectus includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. These forward looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions “may,” “could,” “should,” etc. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and business opportunities also constitute such forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
CORPORATE ADDRESS AND TELEPHONE NUMBER
The Company maintains its designated office at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487. The Company’s telephone number is 561-558-2000.
THE OFFERING
This prospectus will be utilized in connection with the re-sale of 93,602,221 shares which could be potentially issued in the future as of the result of the prospective exercise of certain investor warrants, placement agent warrants and other warrants which were issued in connection with the Company’s recent stock offering. The Company will not receive any proceeds from any sales of these shares.
| Common stock currently outstanding | 841,527,668 shares(1) | |
| Common stock offered by the selling stockholders | 93,602,221 shares | |
| Use of proceeds | We will not receive any proceeds from the sale of common stock offered by this prospectus. |
| (1) | Shares of common stock issued and outstanding as of August 17, 2012. | |
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FINANCIAL INFORMATION
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, 2011, December 31, 2010 and December 31, 2009. The consolidated statement of operations data and balance sheet data were derived from the audited consolidated financial statements. Such financial data should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements starting on page 45 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| 12/31/11 | 12/31/10 (as restated) | 12/31/09 (as restated) | ||||||||||
| Revenues | $ | 971,367 | $ | 316,450 | $ | 199,046 | ||||||
| Net loss | $ | (4,778,541 | ) | $ | (1,983,822 | ) | $ | (1,164,036 | ) | |||
| Net loss per share | $ | (0.006 | ) | $ | (0.003 | ) | $ | (0.040 | ) | |||
| Weighted average no. shares | 780,096,806 | 663,168,900 | 29,183,482 | |||||||||
| Stockholders’ equity (deficit) | $ | 875,324 | $ | 88,714 | $ | (1,245,940 | ) | |||||
| Total assets | $ | 3,571,640 | $ | 2,153,694 | $ | 400,960 | ||||||
| Total liabilities | $ | 2,696,316 | $ | 2,064,980 | $ | 1,646,900 | ||||||
The following selected data contains statement of operations data and balance sheet for the three months ended June 30, 2012 and June 30, 2011. The statement of operations data and balance sheet data were derived from the financial statements for the periods. Such financial data should be read in conjunction with the unaudited financial statements and the notes to the financial statements for said periods starting on page 45 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| As of June 30, 2012 | As of June 30, 2011 | |||||||
| Balance Sheet Data: | ||||||||
| Assets | $ | 2,725,246 | $ | 4,760,602 | ||||
| Liabilities | $ | 3,171,093 | $ | 2,816,966 | ||||
| Total Stockholders’ Equity (Deficit) | $ | (445,847 | ) | $ | 4,760,602 | |||
| Statement of Operations Data | ||||||||
| Revenue | $ | 265,386 | $ | 142,331 | ||||
| Operating Expenses | $ | 967,857 | $ | 1,912,851 | ||||
| Net Loss | $ | (797,734 | ) | $ | (1,835,258 | ) | ||
| Basis and Diluted Loss Per Share | $ | (0.001 | ) | $ | (0.002 | ) | ||
| Weighted Average Number of Shares Outstanding | 849,074,677 | 780,845,969 | ||||||
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RISK FACTORS
Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
Risks Related to Our Financials
We do not have a significant operating history and have not achieved profitable operations. If we are unable to achieve profitable operations, you may lose your entire investment.
Our independent auditors, Paritz & Company, certified public accountants, have expressed substantial doubt concerning our ability to continue as a going concern. We have incurred losses since our inception, including a net loss of $4,778,541 for the year ended December 31, 2011 and we expect to incur substantial additional losses, including additional development costs, costs related to clinical studies and manufacturing expenses. We have incurred negative cash flows from operations since inception. As of December 31, 2011 we had a stockholders’ equity of $875,324 and a cash and cash equivalents balance of $950,841 at December 31, 2011. Since we have no record of profitable operations, there is high a possibility that you may suffer a complete loss of your investment.
The absence of significant operating history for us makes forecasting our revenue and expenses difficult, and we may be unable to adjust our spending in a timely manner to compensate for unexpected revenue shortfalls or unexpected expenses.
As a result of the absence of profitable operating history for us, it is difficult to accurately forecast our future revenue. In addition, we have limited meaningful historical financial data upon which to base planned operating expenses. Current and future expense levels are based on our operating plans and estimates of future revenue. Revenue and operating results are difficult to forecast because they generally depend on our ability to promote and sell our products. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would result in further substantial losses. We may also be unable to expand our operations in a timely manner to adequately meet demand to the extent it exceeds expectations.
Our limited operating history does not afford investors a sufficient history on which to base an investment decision.
We were formed on June 17, 2005 and are currently in the relatevely early stages of marketing our products. There can be no assurance at this time that we will ever operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:
| • | competition; |
| • | need for acceptance of products and therapies — there can be no assured market for our products and |
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| therapies and there is no guarantee of orders or of surgeon, physician or and patient acceptance; | |
| • | ability to continue to develop and extend brand identity; |
| • | ability to anticipate and adapt to a competitive market; |
| • | ability to effectively manage rapidly expanding operations; |
| • | amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and |
| • | dependence upon key personnel to market and sell our products and the loss of one of our key managers may adversely affect the marketing of our products. |
We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
Our revenue is dependent upon acceptance of our products and therapies by the market. The failure of such acceptance will cause us to curtail or cease operations.
Virtually all of our revenue comes from the sale of our products and therapies. As a result, we will continue to incur substantial operating losses until such time as sales of our products and therapies reach a mature level and we are able to generate sufficient revenue from the sale of our products and therapies to meet our operating expenses. There can be no assurance that customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for our products and therapies or that there will be adequate insurance reimbursement for our products and therapies, if at all. In the event that we are not able to significantly increase the number of customers that purchase our products and therapies, or if we are unable to charge the necessary prices, our financial condition and results of operations will be materially and adversely affected.
Risks Related to Our Business
We cannot be certain that we will obtain patents for our devices and technology or that such patents will protect us from competitors
We believe that our success and competitive position will depend in large part on our ability to obtain and maintain patents for our devices. We have filed 16 patent applications for our Vycor Medical Brain Access System and Cervical Access System and 47 for the technologies underlying our NovaVision and Signt Science therapies and products, of which 2 Vycor patents and 29 NovaVision/Sight Science patents have been granted or issued. Patent Offices typically requires 12-24 months or more to process a patent application. There can be no assurance that the remainder of our patent applications will be approved. However we have not waited for the approval of the patent applications before launching sales of our devices and therapies. There can be no assurance regarding how long it will take the U.S. Patent and Trademark Office to decide whether to approve our patent applications or how long it will take foreign patent offices to grant us patents. There can be no assurance that any patent issued or licensed to us will provide us with protection against competitive products and therapies or otherwise protect our commercial viability, or that challenges will not be instituted against the validity or enforceability of any of our patents or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity of a patent and enforce it against infringement can be substantial and we do not have patent insurance. Even issued patents may later be modified or revoked by the Patent and Trademark Office or in legal proceedings. Patent applications in the United States are maintained in secrecy until the patent issues and, since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries,
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we cannot be certain that we were the first creator of the inventions covered by our pending patent applications or the first to file patent applications on such inventions.
Vycor Medical is dependent on two key vendors to manufacture our products.
Vycor Medical is dependent on Lacey Manufacturing Company and C&J Industries to provide a full range of engineering, contract manufacturing and logistical support to manufacture our products. We are dependent upon their manufacture of our products in accordance with our specifications and delivering them on a timely basis.
If either supplier fails to manufacture and/or deliver our products as specified, we may need to locate another manufacturer. We can offer no assurances that we will be successful in finding an alternate manufacturer and negotiating acceptable terms with them on a timely basis without impact on our manufacturing and delivery schedule.
Both manufacturers are subject to regulatory requirements and certifications. Loss of such certification would affect our ability to deliver products.
We will need distribution and marketing partners to help us market our products.
At this time, we only have limited distribution and marketing channels which we will need to expand in the future. Vycor Medical has contracted with independent medical device distributors and representatives that collectively have field salespeople who call on neurosurgery departments and have undertaken to expand the international scope of our sales and distribution. We are in also in discussions with other potential medical device distributors and sales agents for both Vycor Medical and NovaVision. There is no assurance that the contracted distributors or potential new distributors will be successful in promoting and selling our products and therapies.
We will need to raise substantial additional funds to continue bring products to market and operate.
Our current funds are only sufficient to allow us to operate for a limited period of time. We will require additional funds in order to continue our operations after we exhaust our available funding. For the six months ended June 30, 2012 the aggregate of cash used in operating activities and investing activities was $713,444, or an average monthly “burn rate” of approximately $120,000. The cash and cash equivalent balance of $169,657 at June 30, 2012 is therefore equivalent to only slightly more than one month of “burn rate”. This does not take into account any future sales growth and/or future cost cutting. There have been no significant changes in the operations of the Company since June 30, 2012 and none are anticipated in the next six months which would have a significant impact on the “burn rate”. Beyond this period the Company believes it will not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations
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We may not be successful in capturing desired market share if products are not integrated with neuro-navigational systems.
We believe that integrated Vycor Medical’s products with neuro-navigation systems will be important in gaining market acceptance. We can offer no assurances that we will be able to conclude a formal integration agreement with any of the manufacturers of these systems. Further, if we were to grant an exclusive to one manufacturer of neuro-navigation systems, we may be precluded from selling our products to customers who do not use that particular navigation system.
Sales may not produce profits.
We may be forced to sell our products and therapies 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 or financial constraints of our customers. Further, we may sell fewer products or therapies than anticipated, and the costs associated with each unit, including costs of manufacturing, delivery and commissions, may be greater than anticipated. As a result, there is a risk that costs associated with the sales of our products and therapies may be greater than we anticipated and that sales may fail to yield profitability.may be greater than we anticipated and that the sale of devices may fail to yield profitability.
Our products may not be accepted in the marketplace.
Uncertainty exists as to whether our products and therapies will be fully accepted by the market without extensive additional clinical evaluations. A number of factors may limit the market acceptance of our products and therapies, including the timing of regulatory approvals and market entry relative to competitive products, the availability of alternative products and therapies and the price of the our products and therapies relative to alternative products and therapies. There is a risk that surgeons will be encouraged to use multiple use devices, such as retractors, instead of our single use devices. Our VBAS device is designed to be used once and then discarded. Vycor Medical’s 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. In the US, NovaVision’s therapies require physician prescriptions, and physicians may not be persuaded by the effectiveness of our therapies to prescribe them to their patients.
Even though our current products and therapies 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 or therapies, these products or therapies could be subject to restrictions or withdrawal from the market.
Any product or therapy which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product or therapy, 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 and delivery of our therapies which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product or therapy 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:
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| • | 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 or therapy 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.
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
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its Notified Body and we would be obligated to fix the problem and follow up with either the Notified Body or Competent Authorities.
Similarly, in other international markets for which Vycor Medical’s curently have regulatory approval (Australia, Canada, China, Japan and Russia), the relevant regulatory body could place a hold on imports from us and could revoke any licenses held for violations of its rules and regulations. The relevant regulatory vody could issue a warning the first time around and we would be obligated to fix the problem and follow up.
Because product liability is inherent in the medical devices industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.
Our business exposes us to potential product liability risks, which are inherent in the manufacturing, marketing and sale of medical devices. While we will take precautions we deem to be appropriate to avoid product liability suits against us, there can be no assurance that we will be able to avoid significant product liability exposure. Product liability insurance for the medical products industry is generally expensive, to the extent it is available at all. While we have product liability coverage for our Vycor Medical devices and NovaVision and Sight Science therapies, there can be no assurance that we will be able to continue to obtain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against potential claims. A successful product liability claim brought against us may exceed any insurance coverage secured by us and could have a material adverse effect on our results or ability to continue marketing our products.
Because the healthcare industry is subject to changing policies and procedures, we may find it difficult to continue to compete in an uncertain environment.
The health care industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare industry participants. During the past several years government regulation of the healthcare industry has changed significantly in several countries. Healthcare industry participants may react to new policies by curtailing or deferring use of new treatments for disease, including treatments that would use our devices. This could substantially impair our ability to successfully marker our products, which would have a material adverse effect on our performance.
The market success of our products and therapies may be dependent in part upon third-party reimbursement policies that are often subject to change.
Our ability to successfully penetrate the market for our products and therapies may depend on the availability of reimbursement to individuals for rehabilitation therapies and to hospitals for neurosurgical procedures from third-party payers, such as governmental programs, private insurance and private health plans. There is no guarantee that this will not change in the future or that applicable levels of reimbursement to individuals and hospitals, if any, will be high enough to allow us to charge a reasonable profit margin. Vycor Medical’s products are not specifically reimbursed by third party payors, they are part of the overall procedure cost and therefore some hospitals may view this as an increase in cost. If levels of reimbursement are decreased in the future, the demand for our products could diminish or our ability to sell our products on a profitable basis could be adversely affected.
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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 1,500,000,000 shares of common stock, $0.0001 par value per share, of which, as of August 17, 2012, 841,527,668 shares of common stock were issued and outstanding. These shares may be issued by our board of directors without further stockholder approval. The issuance of large numbers of shares, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances of large numbers of shares may adversely affect the market price of our common stock.
Further, our Certificate of Incorporation authorizes 10,000,000 shares of preferred stock, $0.0001 par value per share of which as of August 17, 2012 44.8 shares of preferred stock were issued and outstanding. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which
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convert into large numbers of shares of common stock and consequently lead to further dilution of other shareholders.
There is also a large number of warrants and options outstanding which, if fully exercised, would increase the number of outstanding shares by approximately 265 million.
We may need additional capital that could dilute the ownership interest of investors.
We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these securities may have rights, preferences or privileges senior to those of the rights of holders of our common stock and they may experience additional dilution. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations in the future. The issuance of additional common stock by our management, may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.
We rely on our current management team for the management of our business, and the loss of their services may significantly harm our business and prospects.
We depend, to a large extent, on the abilities and participation of our current management team. The loss of the services of any member of our management team, for any reason, may have a material adverse effect on our business and prospects. We cannot assure you that the services of the members of our management team will continue to be available to us, or that we will be able to find a suitable replacement for any of them. We do not have key man insurance on any members of our management team. If any member of our management team were to die and we are unable to replace either or both of them for a prolonged period of time, we may be unable to carry out our long term business plan and our future prospect for growth, and our business, may be harmed.
We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire such personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.
Our future success depends heavily upon the continuing services of the members of our senior management team. If one or more of our senior executives or other key personnel is/are unable or unwilling to continue in his/her/their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and personnel is intense, the pool of qualified candidates in the medical device field is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could materially and adversely affect our future growth and financial condition.
We may not have effective disclosure controls and procedures and adequate internal accounting controls.
We are constantly striving to improve our internal accounting controls. The Company’s management, including the Company’s President (“President”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the June 30, 2012. Based upon that evaluation the Company’s President and CFO
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concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2012 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s President and CFO, as appropriate, to allow timely decisions regarding required disclosure. We do not have a full-time dedicated Chief Financial Officer. The Company’s management, including the Company’s President and CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
We may have inadequate insurance coverage
We only have Directors and Officers Liability Insurance, Product Liability insurance and certain commercial liability and personal property insurances at present. We have exposure in the event of loss or damage to our properties.
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.
Risks Related to an Investment in Our Common Stock
Fountainhead Capital Management Limited effectively controls us through their position and stock ownership and their interests may differ from other stockholders
As of August 17, 2012, Fountainhead Capital Management Limited beneficially owned, in the aggregate, approximately 63% of our common stock. As a result, they are holders of a majority of the outstanding shares and they may be able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions, including business combinations. Their interests may differ from other stockholders.
We do not intend to pay cash dividends in the foreseeable future
We currently intend to retain all future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.
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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. Those rules, which require delivery of a schedule explaining the penny stock market and the associated risks before any sale, may further limit your ability to sell your shares.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5 per share. Our common stock, when and if a trading market develops, may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the 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.
Our common stock may be illiquid and subject to price volatility unrelated to our operations
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Also, as a result of the exercise or conversion of certain convertible securities by the selling stockholders, there may be a significant number of new shares of common stock on the market in addition to the current public float. Sales of substantial amounts of common stock, or the perception that such sales could occur, and the existence of 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.
This prospectus relates to the resale of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive any proceeds from the sale of shares of common stock in this offering.
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DETERMINATION OF OFFERING PRICE
All shares of our common stock being offered will be sold by the selling stockholders without our involvement. It is our expectation that the selling shareholders will sell their shares at the market prices prevailing from time-to-time.
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The common stock to be sold by the selling shareholders is common stock that is currently issued or will be issued to our shareholders upon exercise of certain Warrants issued by the Company. Accordingly, there will be no dilution to our existing shareholders from these sales, other than from the exercise of the Warrants.
The following table sets forth the number of shares of Company common stock issuable on the exercise of warrants beneficially owned, as of the date of this prospectus, by the selling stockholders prior to the offering contemplated by this prospectus, the number of shares which are issuable on the exercise of warrants beneficially owned by each selling stockholder which is being offered by this prospectus and the number of shares which are issuable on the exercise of warrants beneficially owned which each selling stockholder would own beneficially if all such offered shares are sold. None of the selling stockholders is known to us to be a registered broker-dealer or an affiliate of a registered broker-dealer. Each of the selling stockholders has acquired his, her or its shares solely for investment and not with a view to or for resale or distribution of such securities. Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to the securities.
| Name(1) | Shares of common stock owned prior to the offering | Shares of common stock to be sold(2) | Shares of common stock owned after the offering | Percentage of common stock owned after this offering | ||||||||||||
| MKM Opportunity Master Fund, Limited | 5,555,556 | 5,555,556 | 0 | 0.00 | % | |||||||||||
| Andrew Mitchell | 555,556 | 555,556 | 0 | 0.00 | % | |||||||||||
| Matthew Balk | 3,589,333 | 3,589,333 | 0 | 0.00 | % | |||||||||||
| Daniel Balk | 1,222,222 | 1,222,222 | 0 | 0.00 | % | |||||||||||
| David Balk | 1,222,222 | 1,222,222 | 0 | 0.00 | % | |||||||||||
| Daniel Schneiderman | 885,778 | 885,778 | 0 | 0.00 | % | |||||||||||
| Jonathan Balk | 555,556 | 555,556 | 0 | 0.00 | % | |||||||||||
| Richard L. Hoffman | 500,000 | 500,000 | 0 | 0.00 | % | |||||||||||
| Robert I and Sandra S Neborsky Living Trust | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Skriloff Family Irrevocable Trust for benefit of Samuel Skriloff | 111,111 | 111,111 | 0 | 0.00 | % | |||||||||||
| Skriloff Family Irrevocable Trust for benefit of Olivia Skriloff | 111,111 | 111,111 | 0 | 0.00 | % | |||||||||||
| Jason Adelman | 2,771,556 | 2,771,556 | 0 | 0.00 | % | |||||||||||
| Robert and Amy Bernstein | 555,556 | 555,556 | 0 | 0.00 | % | |||||||||||
| Dick F. Chase, Jr. | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
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| Name(1) | Shares of common stock owned prior to the offering | Shares of common stock to be sold(2) | Shares of common stock owned after the offering | Percentage of common stock owned after this offering | ||||||||||||
| Boris and Alexandra Smirnov | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Nadegda Kassatkina | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Irina Pavlova | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Jeffrey J and Jennifer S. Clayton | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Greenbridge Capital Partners IV, L.L.C | 1,666,667 | 1,666,667 | 0 | 0.00 | % | |||||||||||
| Core Capital IV Trust | 1,666,667 | 1,666,667 | 0 | 0.00 | % | |||||||||||
| Rolant Investments Limited | 6,666,667 | 6,666,667 | 0 | 0.00 | % | |||||||||||
| David Wiener | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| One East Partners Opportunity L.P. | 3,000,000 | 3,000,000 | 0 | 0.00 | % | |||||||||||
| One East Partners Master L.P. | 5,888,889 | 5,888,889 | 0 | 0.00 | % | |||||||||||
| Narang Family Partnership, L.P. | 555,556 | 555,556 | 0 | 0.00 | % | |||||||||||
| Hugh Scott Campbell | 222,222 | 222,222 | 0 | 0.00 | % | |||||||||||
| Fraser Campbell | 222,222 | 222,222 | 0 | 0.00 | % | |||||||||||
| Sean Campbell | 555,556 | 555,556 | 0 | 0.00 | % | |||||||||||
| Dr. Wayne Fleischacker | 4,444,444 | 4,444,444 | 0 | 0.00 | % | |||||||||||
| Dr. Glenn Fleischacker | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Jane Ellis | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Duane Renfro | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Guri Dauti | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Matteo Joseph Rosselli | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Sarah Benveniste | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Steven Reichbach | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Myles Wittenstein | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Neil Weiss | 3,333,333 | 3,333,333 | 0 | 0.00 | % | |||||||||||
| Randolf Kahn | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Marc S Cohen | 6,666,666 | 6,666,666 | 0 | 0.00 | % | |||||||||||
| Millennium Capital Corporation | 2,300,000 | 2,300,000 | 0 | 0.00 | % | |||||||||||
| Ilex Investments, L.P. | 4,444,444 | 4,444,444 | 0 | 0.00 | % | |||||||||||
| Carol Tambor | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Stephen Nicholas Bunzl | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Jack Lens | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Robert Crames | 1,111,111 | 1,111,111 | 0 | 0.00 | % | |||||||||||
| Sal & Kathryn DeMarco | 555.556 | 555,556 | 0 | 0.00 | % | |||||||||||
| Maurice Reissman | 2,222,222 | 2,222,222 | 0 | 0.00 | % | |||||||||||
| Dashka Solanky | 444,445 | 444,445 | 0 | 0.00 | % | |||||||||||
| Total | 93,602,221 | 93,602,221 | 0 | 0.00 | % | |||||||||||
| (1) | All shares are owned of record and beneficially unless otherwise indicated. Beneficial ownership information for the selling stockholders is provided as of August 17, 2012, based upon information provided by the selling stockholders or otherwise known to us. |
| (2) | Assumes the sale of all shares of common stock registered pursuant to this prospectus. The selling stockholders are under no obligation known to us to sell any shares of common stock at this time. |
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We are registering the shares offered by this prospectus on behalf of the selling stockholders. The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. To the extent any of the selling stockholders gift, pledge or otherwise transfer the shares offered hereby, such transferees may offer and sell the shares from time to time under this prospectus, provided that this prospectus has been amended under Rule 424(b)(3) or other applicable provision of the Securities Act to include the name of such transferee in the list of selling stockholders under this prospectus. The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:
| • | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| • | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
| • | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| • | an exchange distribution in accordance with the rules of the applicable exchange; |
| • | privately negotiated transactions; |
| • | short sales |
| • | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| • | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| • | a combination of any such methods of sale; and |
| • | any other method permitted pursuant to applicable law. |
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The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents.
The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.
The selling stockholders might be, and any broker-dealers that act in connection with the sale of securities will be, deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act, and any commissions received by such broker-dealers and any profit on the resale of the securities sold by them while acting as principals will be deemed to be underwriting discounts or commissions under the Securities Act. Each selling stockholder has represented and warranted to the company that it does not have any agreement or understanding, directly or indirectly with any person to distribute shares.
To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
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We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. Regulation M’s prohibition on purchases may include purchases to cover short positions by the selling stockholders, and a selling stockholder’s failure to cover a short position at a lender’s request and subsequent purchases by the lender in the open market of shares to cover such short positions, may be deemed to constitute an inducement to buy shares, which is prohibited by Regulation M.
We will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
We have advised the selling stockholders that if a particular offer of shares is to be made on terms constituting a material change from the information described under a final prospectus, then, to the extent required, a supplement to the final prospectus must be distributed setting forth the terms and related information as required.
We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.
We agreed to keep this prospectus effective until the earlier of (i) the date that is two years following the date that the registration statement, of which this prospectus forms a part, is declared effective by the SEC; or (ii) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
DESCRIPTION OF SECURITIES TO BE REGISTERED
Our authorized capital stock consists of 1,500,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share, the rights and preferences of which may be established from time to time by our board. As of August 17, 2012, there were 841,527,668 shares of common stock and 44.8 shares of preferred stock issued and outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share on all matters voted upon by our stockholders, including the election of directors, and do not have cumulative voting rights. Subject to the rights of holders of any then outstanding shares of our preferred stock, our common stockholders are entitled to any dividends that may be declared by our board. Holders of our common stock are entitled to share ratably in our net assets upon our dissolution or liquidation after payment or provision for all liabilities and any preferential liquidation rights of our preferred stock then outstanding. Holders of our common stock have no preemptive rights to purchase shares of our stock. The shares of our common stock are not subject to any redemption provisions and are not convertible into any other shares of our capital stock. All outstanding shares of our common stock are, and the shares of common stock to be issued in the offering will be, upon payment therefor, fully paid and non-assessable. The rights, preferences and
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privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may issue in the future.
Preferred Stock
Our board may, from time to time, authorize the issuance of one or more classes or series of preferred stock without stockholder approval. Subject to the provisions of our certificate of incorporation and limitations prescribed by law, our board is authorized to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series, and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions on shares of our preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each case without any action or vote by our stockholders. One of the effects of undesignated preferred stock may be to enable our board to discourage an attempt to obtain control of our company by means of a tender offer, proxy contest, merger or otherwise. The issuance of preferred stock may adversely affect the rights of our common stockholders by, among other things:
| • | Restricting dividends on the common stock; |
| • | diluting the voting power of the common stock; |
| • | impairing the liquidation rights of the common stock; or |
| • | delaying or preventing a change in control without further action by the stockholders. |
Series C Convertible Preferred Stock
At this time, the only issued and outstanding preferred stock is 44.8 shares of Series C Convertible Preferred Stock. Each share of Series C Preferred Convertible Stock is convertible (at the Holder’s option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the Company’s Common Stock (at $0.0225 per share).
On June 7, 2011, the Company completed the sale of 31.4 Units comprising Series C Convertible Preferred Shares and Warrants (the “Units”) to accredited investors (the “Investors”) (the “Preferred Offering”) for aggregate proceeds of $1,570,000. The Units were issued pursuant to separate Series C Convertible Preferred Stock Purchase Agreements (the “Agreements”) between the Company and each of the Investors. This sale was an initial closing (the “Initial Closing”) under the Agreements which allows for maximum proceeds of $3,000,000. Each Unit was priced at $50,000 and comprised one share of Series C Preferred Convertible Stock convertible (at the Holder’s option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the Company’s Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Company’s Common Stock at $0.03 per share (subject to adjustments) for a period of three years (the “Warrant” or “Warrants”). A total of 31.4 shares of Series C Convertible Preferred Stock convertible into 69,777,773 shares of the Company’s Common Stock and Warrants to purchase 34,888,890 shares of the Company’s Common Stock were issued. On June 28, 2011, the Company completed a second closing of the Preferred Offering (the “Second Closing”) with the sale of an additional 15.4 Units to Investors for aggregate proceeds of $770,000. An additional 15.4 shares of Series C Convertible Preferred Stock convertible into 34,222,220 shares of the common stock and Warrants to purchase 17,111,111 shares of the Company’s common stock were issued in connection with the Second Closing. The Company entered into a Registration Rights Agreement with the Investors with respect to the Warrants. On August 4, 2011, the Company completed a final closing of the Preferred Offering (the “Final Closing”) with the sale of an additional 13.2 Units to Investors for aggregate proceeds of $660,000. An additional 13.2 shares of Series C Convertible Preferred Stock convertible into 29,333,330 shares of the Company’s Common Stock and Warrants to purchase 14,666,665 shares of the Company’s Common Stock were issued in connection with the Final Closing. An aggregate of 60 Units were sold to Investors in the First Closing, Second Closing and Final Closing of the Preferred Offering for total proceeds of $3,000,000.
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A total of 60 shares of Series C Convertible Preferred Stock were issued, convertible into an aggregate of 133,333,324 shares of Common Stock, and Warrants to purchase 66,666,666 shares of the Company’s Common Stock. The Company entered into a Registration Rights Agreement with the Investors with respect to the Warrants, and the Common Stock in respect of these Warrants are being registered hereunder.
Burnham Hill Partners LLC (“BHP”) served as placement agent in connection with the sale of 24.8 Units in the Preferred Offering. Pursuant to a placement agent agreement with BHP, the Company paid BHP a cash placement fee equal to seven percent (7%) of the gross proceeds received by the Company from Units placed by BHP. Also pursuant to the placement agent agreement, the Company issued BHP Warrants (the “Placement Agent Warrants”) to purchase a number of shares equal to seven percent (7%) of the number of shares of common stock issuable upon conversion of the 24.8 Units placed by BHP (3,857,778 shares) in the Preferred Offering. The Placement Agent Warrants are exercisable for three years from the date of issuance at an exercise price of $0.0225 per share, and the shares of Common Stock in respect of these Warrants are being registered hereunder.
On August 26, 2011, the Company completed a new sale of 3.8 Units comprising Series C Convertible Preferred Shares and Warrants (the “Units”) to an accredited investor (the “Investor”) (the “ New Preferred Offering”) for aggregate proceeds of $190,000. Each Unit was priced at $50,000 and comprised one share of Series C Preferred Convertible Stock convertible (at the Holder’s option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the Company’s Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Company’s Common Stock at $0.03 per share (subject to adjustments) for a period of three years (the “Warrant” or “Warrants”). The Company entered into a Registration Rights Agreement with the Investor with respect to the Warrants, and the Common Stock in respect of these Warrants are being registered hereunder.
In December 2011, by mutual consent for technical reasons, the sale of 1 unit of Series C Convertible Preferred Stock convertible into 2,222,222 shares of the Company’s Common Stock was rescinded; the Company returned the $50,000 invested and the investor returned the preferred share and the warrants to purchase 1,111,111 shares of the Company’s Common Stock.
During the period January 1, 2012 through June 2012, the Company issued a total of 39,999,996 shares of Common Stock in respect of conversion of 18.0 shares of Series C Preferred Stock.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Beginning on March 30, 2009, our Common Stock was quoted on the OTC Bulletin Board under the symbol “VYCO”.
The following table shows the high and low prices of our common shares on the OTC Bulletin Board for each quarter since our common stock began to trade on the OTC Bulletin Board in March 2009. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:
| Period | High | Low | |||||
| March 30, 2009-June 30, 2009 | $ | 0.35 | $ | 0.33 | |||
| July 1, 2009-September 30, 2009 | $ | 0.33 | $ | 0.01 | |||
| October 1, 2009-December 31, 2009 | $ | 0.07 | $ | 0.01 | |||
| January 1, 2010-March 31, 2010 | $ | 0.15 | $ | 0.04 | |||
| April 1, 2010-June 30, 2010 | $ | 0.06 | $ | 0.01 | |||
| July 1, 2010-September 30, 2010 | $ | 0.03 | $ | 0.01 | |||
| October 1, 2010-December 31, 2010 | $ | 0.04 | $ | 0.01 | |||
| January 1, 2011-March 31, 2011 | $ | 0.03 | $ | 0.015 | |||
| April 1, 2011-June 30, 2011 | $ | 0.048 | $ | 0.019 | |||
| July 1, 2011-September 30, 2011 | $ | 0.05 | $ | 0.02 | |||
| October 1, 2011-December 31, 2011 | $ | 0.0375 | $ | 0.015 | |||
| January 1, 2012-March 31, 2012 | $ | 0.0225 | $ | 0.015 | |||
| April 1, 2012-June 30, 2012 | $ | 0.0225 | $ | 0.0102 | |||
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The market price of our common stock, like that of other technology companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of technological innovations or new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance.
Holders
As of August 17, 2012, there were approximately 100 record holders of our common stock and there were 841,527,668 shares of our common stock issued and outstanding. Please see SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT for information related to the holdings of certain beneficial owners and management of the Company.
Transfer Agent and Registrar
Our transfer agent is Corporate Stock Transfer, Inc., 3200 Cherry Creek Dr. South, Suite 430, Denver, CO 80209, tel. (303) 282-4800.
Dividend Policy
We have never paid any cash dividends on our Common Stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.
The Securities Enforcement and Penny Stock Reform Act of 1990
The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
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
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his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:
| • | contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
| • | contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended; |
| • | contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price; |
| • | contains a toll-free telephone number for inquiries on disciplinary actions; |
| • | 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. |
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.
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Equity Compensation Plan Information
Stock Option Plan
The Company adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan (the “Plan”) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the 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 non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.
Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. Initial grants of options to purchase 500,000 shares were issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Company’s Chief Executive Officer and Heather N. Vinas, the Company’s then President at an exercise price of $0.135 per share. The options vested 33-1/3% on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Following Heather Vinas’ resignation as President of the Company in May 2010, 166,667 unvested options were cancelled.
Stock appreciation rights may be granted either on a stand-alone basis or in conjunction with all or part of any other stock options granted under the plan. As of August 17, 2012 there were no awards of any stock appreciation rights.
Reports
We are subject to certain reporting requirements and will furnish annual financial reports to our stockholders, certified by our independent accountants, and will furnish unaudited quarterly financial reports in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website, www.sec.gov.
INTEREST OF NAMED EXPERT AND COUNSEL
The Law Offices of Robert L. B. Diener, 56 Laenani Street, Haiku, HI 96708 was retained for the purpose of preparing this registration statement, rendering the legal opinion, attached as an exhibit hereto, on the validity of the common stock to be issued pursuant to this Registration Statement and for an opinion letter to the auditor which was required to complete the audit enclosed herein. As payment for said service, the Law Office of Robert L. B. Diener was paid a total of $5,000.00. The Law Offices of Robert L. B. Diener is not receiving any contingent interest, fee or shares in the Company.
The Law Office of Robert L. B. Diener may be retained for additional legal services in the future at fees to be agreed upon.
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The financial statements of Vycor Medical, Inc. as provided herein, have been audited by an independent public accountant firm approved by the Public Company Accounting Oversight Board. The audit firm that has provided the audited financials is Paritz & Co., P.A., 15 Warren St., Hackensack NJ 07601. Paritz & Co., P.A. is not receiving any contingent interest, fee or shares in the Company.
INFORMATION WITH RESPECT TO THE REGISTRANT
Business Overview
1. Organizational History
We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical LLC”. On August 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.” (“Vycor” or the “Company”). The Company’s listing went effective on February 2009 and on November 29, 2010, Vycor completed an acquisition of substantially all of the assets of NovaVision, Inc., a company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological visual loss predominantly resulting from Stroke or Traumatic Brain Injury.
2. Overview of Business
Vycor operates two distinct business units--Vycor Medical Inc. (“Vycor Medical”) and NovaVision, Inc (“NovaVision”). Vycor Medical is a medical device company that designs, develops and markets medical devices for use in neurosurgery. NovaVision develops non-invasive, computer-based visual neuro-stimulation therapy called VRT for those suffering from vision loss resulting from neurological trauma. In addition to our existing products and products in development, we actively seek acquisition, joint venture and in-licensing opportunities in the medical device field which we believe will add shareholder value.
Vycor Medical
Introduction
Vycor Medical is a medical device company that designs, develops and markets medical devices for use in neurosurgery. Vycor Medical is ISO 13485:2003 compliant, has U.S. FDA 510(k) clearance for brain and spine surgeries, and CE Marking for Europe as well as applicable regulatory approvals in Australia, Canada, China, Japan and Russia for sale of its brain access system. Vycor Medical’s first product, the ViewSite Brain Access System (VBAS), is a next generation access system which was fully commercially launched in early 2010. The VBAS device is the first significant technological change to brain tissue retraction. The incumbent blade retractor technology has not changed materially in over 50 years in contrast to development in most other neuro-surgical technologies.
The second product in Vycor Medical’s pipeline is the Cervical Access System (VCAS), which requires further prototyping and successful market testing prior to commercialization launch. Like the VBAS, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.
Vycor Medical has received FDA 510(k) clearance for its products, with which we are authorized to market our products in the U.S. without further approvals.
Vycor Medical’s Products
Viewsite Brain Access System (VBAS)
To access a surgical site in the brain, the surgeon needs to remove part of the skull (crainiotomy) and then part (retract) the soft brain tissue to access the target site. The current standard of care utilizes a metal blade retractor to force the tissue apart; to maintain the opening the blades are attached to a head frame and tension is applied to the tissue
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The VBAS series is used by neurosurgeons to access the surgical site in the brain. This is done by inserting the VBAS into the brain tissue and then removing the VBAS introducer, leaving the remaining hollow working channel in place to provide the surgeon with access to the precise location desired for surgery.
The VBAS is available in multiple sizes and is a single-use product. The series consists of twelve 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. We intend to add additional models in the future.
We believe our Brain Access System offers several advantages over the brain retractor systems, commonly known as ribbon or blade retractors that are metallic, including having the potential to significantly reduce brain tissue trauma resulting from the currently used retractors when accessing deep brain targets. The unique design of the product can minimize the size of the brain entry access necessary for surgical procedures, and in turn the amount of brain tissue exposed.
Vycor Medical Product Pipeline
Brain Access and Related Products
The Company’s future plans include developing additional Brain Access Systems that are designed for the requirements of specific surgical applications like aneurisms, tumors and endoscopic work and identifying other products that can be used in conjunction with our VBAS product.
Cervical Access Products
The Company will continue its preliminary work to design Cervical Access System products which would be used by the surgeon to access the anterior cervical surgical site (the uppermost vertebrae located in the neck). While the Company has filed certain intellectual property applications with respect to this technology, such development is in an early stage.
Sales and Marketing
Domestic Sales Strategy
VBAS sales strategy is focused on driving sales through leading neurosurgeons. In this regard, the Company has adopted a dual strategy of targeting both the leading neurosurgeons and the leading neurosurgical hospitals.
We are currently using independent distributors who have existing relationships with neurosurgeons to target hospitals and drive our sales.
International Sales
The Company utilizes select medical device distributors with experience in neurosurgical devices in select countries. In Europe, the company has agreements with distributors for Spain, Italy, Belgium, Scandinavia, Switzerland and the U.K. who are all focused in neurosurgery. Vycor also has required regulatory approvals in Australia, Canada, China, Japan and Russia with distribution agreements in place or being put into place.
Reference Hospitals Program
The Company has developed a Reference Hospital Program to identify centers of excellence and to provide neurosurgeons with evidence of support for our products.
VBAS Market and the Hospital Adoption Process
The market for VBAS in the US is relatively concentrated. Teaching hospitals not only carry out more relevant procedures but also provide a natural way to drive adoption through the conversion of new surgeons. We focus our efforts initially on surgeons as the principle proponent within the hospital. Vycor has found that the learning curve is only 1-2 cases for surgeons, who like the simplicity of design and ease of use after trialing the product. Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation product.
Experience has been that the approval process can take up to six months for each hospital, and in some cases may even be longer.
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Peer Review and Other Clinical Studies
The publication of clinical papers in neurosurgery journals by surgeon-users of VBAS regarding their experiences with the products (peer review papers), and the publication of other clinical data, is important for the Company as it continues to evidence the clinical superiority of VBAS. During 2011 the following papers were published:
| • | “Usage of a Minimally Invasive Tubular Retraction System for Deep-Seated Tumors in Pediatric Patients” inJournal of Neurosurgeryin May 2011: Pediatrics. Co-authors Pablo Recinos, M.D., of the Cleveland Clinic and George Jallo, M.D., of Johns Hopkins University conclude that while access to deep-seated, intra-axial tumors is challenging, the ViewSite™ tubular retractor and frameless neuro navigation facilitated the surgical approach and the combination of these technologies adds to the surgeon’s armamentarium to safely approach tumors in deep locations. | |
| • | “Vycor Viewsite TC: Endoscope-guided Intraparenchimal Brain Tumor Resection,” by Daniel Prevedello, M.D., Director of the Minimally Invasive Cranial Surgery Program at the Ohio State University. Dr Prevedello reported on a case with a patient taking Avastin®, which delays surgical wound healing. He said the Viewsite TC was essential to the surgery; otherwise, no procedure could have been performed on the patient. | |
| • | “Minimally Invasive Trans-Portal Resection of Deep Intracranial Lesions” inMinimally Invasive Neurosurgery,February 2011 a Johns Hopkins University paper by lead author A. Quinones Hinojosa. The authors reported a case series of 9 adult and pediatric patients with a variety of pathologies, including colloid cyst, DNET, papillary pineal tumor, anaplastic astrocytoma, toxoplasmosis and lymphoma. The locations of the lesions approached included: lateral ventricle, basal ganglia, pulvinar/posterior thalamus and insular cortex. Post-operative imaging was assessed to determine extent of resection and extent of white matter damage along the surgical trajectory. Satisfactory resection or biopsy was obtained in all patients. “VBAS lends itself well to minimally invasive microsurgical approaches and can be used in combination with modern navigational systems. The use of navigation permits not only the creation of a smaller craniotomy but also facilitates the creation of a trajectory that provides efficient and safe means for splitting white fiber tracts,” said the authors. |
Manufacturing
Vycor Medical has executed agreements with Lacey Manufacturing Company of Bridgeport, Connecticut (“Lacey”) and C&J Industries, Meadville PA (“C&J”) to provide a full range of engineering, contract manufacturing and logistical support for our products.
Lacey and C&J 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. Lacey and C&J have shipped orders to Vycor Medical and have made production runs of all 12 sizes.
Market
The market for our Brain Access System product lines is the neurosurgical community, both in the US and internationally.
Competition
Competitive manufacturers of brain retractors include:
| • | Cardinal Health (V. Mueller line) | |
| • | Aesculap | |
| • | Integra Life Science | |
| • | Codman (Division of Johnson & Johnson) |
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Cervical Access System competitors include Medtronic, Asculap/B. Braun, Cardinal and Nuvasive, Cloward Instruments, among others. In addition to the standard “blade retractors” distributed by the aforementioned companies. In addition companies such as Endius and EBI have announced cervical retractor systems.
Customers
Vycor Medical sells to stocking regional distributors and direct to hospitals through independent representatives. For the six months ended June 30, 2012 and 2011 international sales accounted for approximately 54% and 12% of revenues, respectively.
Intellectual Property
Patent Applications
| Vycor Medical has the following issued, patents: | ||
| • | Russia (2009124446) – Surgical Access Instruments for use with Delicate Tissues (Brain) | |
| • | China (200680056889.9) – Surgical Access Instruments for use with Delicate Tissues (Brain) |
Additionally, Vycor has 14 patents pending for its Brain and Spine technology and products in: the U.S. (4), Canada (2), Europe (2), India (2), Japan (2), and Hong Kong (2).
Trademarks
VYCOR MEDICAL is a registered trademark and VIEWSITE is pending registration as a trademark with the United States Patent and Trademark Office.
NovaVision, Inc.
Introduction
NovaVision develops and markets a non-invasive, computer-based light stimulation therapy called Vision Restoration Therapy (VRT) and through its recently acquired subsidiary, Sight Science, Neuro-Eye Therapy (NeET). Both therapies are aimed at those suffering from vision loss resulting from neurological trauma such as stroke and traumatic brain injury (TBI). It is estimated that approximately 16% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living. NovaVision’s target market is this subset of patients who have suffered a visual field deficit.
NovaVision operates in the US, in Germany through a wholly-owned subsidiary and in the UK through Sight Science, also a wholly-owned subsidiary.
VRT is based on NovaVision’s platform technology which management believes induces neuroplasticity, the brain’s natural ability to repair or remap broken neural connections that cause vision loss. Before VRT, such patients were informed that their vision loss would likely be permanent and they were prescribed therapy or aids to merely compensate for their lost vision.
The diagnostic algorithm in the VRT product first maps the visual field and defines the areas of defect in patients suffering vision loss. The therapeutic algorithm in the VRT product is then specifically designed for each patient based upon the results of the diagnostic program and it repetitively challenges the visual cortex with thousands of stimuli over the course of time. VRT is generally performed over a four to six month period, twice a day for an hour total, six days a week. The Company maintains broad IP protection. NovaVision has collected significant amounts of data from clinical studies and peer reviewed papers that support the Company’s claims about the benefits of its platform technology for vision restoration and other indications. NovaVision has received 510(k) clearance and CE Marking for VRT and NeET.
Platform Technology
The management of NovaVision believes that the underlying basis for the visual field recovery it has witnessed, and the functional outcome improvements it has noted with its patients, is largely due to neuroplasticity of the visual field which is the brain’s ability to remap or repair itself in response to a pre-
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programmed and deliberate stimulation. Neuroplasticity has been discussed over the last 20 years or so and as far back as 1990 Gilbert & Weisel talked about the cortex not having a fixed functional architecture. The platform technology is comprised of proprietary algorithms that generate patient-specific therapies enabling NovaVision’s products to be used as both diagnostic and therapeutic tools. The platform technology generates light-based, or photic, stimulus programs consisting of a fixation point on a display screen. As the patient focuses on this fixation point, a series of photic stimuli are delivered on the screen that are specific to the patient’s neurological requirements, and relayed directly to the brain using the eye as a conduit.
Management believes that it is these programmed light sequences that stimulate the border zone between the “seeing” and “blind” visual fields which induces neuroplasticity. While neuroplasticity for explaining VRT has never been conclusively demonstrated, Randy Mashall’s study using MRI did demonstrate that VRT results in increased neural activity in the visual cortex. Irrespective of mechanism, patient studies point to significantly improved functional outcomes for patients who have done VRT treatment. This improvement manifests itself in greater confidence to move around and an average shift of 4.9 degrees in the border between seeing and blind visual fields. The visual field is the portion of space surrounding an individual which is visible at any given time by that individual while their gaze is held stationary. To humans, the central 10° of visual field holds the greatest functional importance for focal and cognitive tasks.
Clinical Data Relating to VRT
NovaVision has accumulated significant amounts of clinical data as a result of company-sponsored trials as well as studies conducted by independent third parties.
| • | Studies have indicated that 88% of patients experience an improvement in at least one of their daily life activities. | |
| • | 75% of patients experience an improvement in their mobility, which is regarded as one of the most important functional tasks. | |
| • | Approximately 70% of patients experience positive outcome reflected by an increase in their visual field and studies have indicated an average increase of 4.9 degrees | |
| • | Elapsed time since injury does not seem to impact VRT and NeET therapies success. Therefore, a massive historical backlog of patients can potentially be treated. | |
| • | Improvements are permanent and do not appear to be age or gender dependent. | |
| • | Age at the onset of the injury is not a critical factor, allowing access to the therapy by both young and older adults with brain injuries |
Pipeline Products Utilizing NovaVision’s Platform Technology
NovaVision is carrying out a development program that will enable VRT to be delivered direct to patients’ computers over the internet, rather than being delivered in the form of a physical device to patients’ homes. This development will enable the Company to streamline its operations resulting in the ability to deliver the therapy at a lower cost to patients.
Management is also looking to further develop its product range leveraging its existing technology platform. To this end it has launched a second generation of portable visual field screening device called head mounted perimeter (HMP). The Company has registration to sell the HMP as a Class 1 device as a screening tool for physicians.
Regulatory Matters
In the U.S., NovaVision’s products are regulated by the FDA as Class U medical devices subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT as a Class I device. NovaVision received its 510(k) clearance for VRT specific to Stroke and TBI indications in 2003.
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Intellectual Property
Patents
NovaVision maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically and internationally, with a total of 24 granted and 14 pending patents.
The Company’s 24 granted patents are in the U.S. (12), Canada (2), Europe (4), Australia (1), China (2), Hong Kong (1), India (1) and Japan (1).
The Company’s 14 pending patents are in the U.S. and Canada (4), Europe (5), Australia (2), and Japan (3).
Trademarks
NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT and VISION RESTORATION THERAPY amongst others, both in the US and internationally.
Manufacturing and Operations
NovaVision is based at the Vycor Medical, Inc. group headquarters at a 10,000 square foot leased facility in Boca Raton, Florida. NovaVision purchases electronics and custom fabricated hardware from third party vendors and assembles and tests all of its medical devices within the facility. NovaVision has an FDA Establishment Registration and the Company does not have any long-term contractual obligations with its vendors to purchase products from them, nor are suppliers contractually obligated to sell products to NovaVision.
Acquisition of Sight Science, Ltd.
In January 2012 NovaVision acquired Sight Science, Ltd. (“Sight Science”). Sight Science, which was established in 2009 based on the research of Professor Arash Sahraie at the University of Aberdeen, provides an interactive computer-based therapy called Neuro-Eye Therapy (“NeET”), which patients administer at home. To date, over 100 patients have utilized NeET. The Company has 5 patents granted in the UK, France, Germany, Switzerland and Singapore and 2 patents pending in the U.S. and Canada. Prof. Sahraie has conducted extensive research on blindsight and residual visual processing after brain injury, and is highly regarded in the field.
As part of the transaction, Prof. Sahraie agreed to join NovaVision as its Chief Scientific Officer on a part-time secondment basis from the University for a minimum of 5 years. Prof. Sahraie is responsible for driving NovaVision’s scientific effort to develop and validate technologies in vision rehabilitation for visual field defects resulting from brain injury. The acquisition also created a long-term relationship between the Company, NovaVision and the University, which is a leading medical research center.
Both NovaVision’s VRT and Sight Science’s NeET work on the basis that repeated stimulation of the blind areas by either bright patches of light (VRT) or the specific spatial patterns (NeET) and can lead to increases in sensitivity of the blind areas. Patients progress after VRT appears to be initiated at the blind and sighted borders whereas NeET results in changes deep within the field damage. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living. The Company believes that these therapies are highly complementary.
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of August 17, 2012, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements other than the following:
On July 20, 2012, the Company filed Action #13 148 01633 12 with the American Arbitration Association entitledVycor Medical, Inc. (Claimant) against Greenbridge Capital Partners IV, LLC, Partizipant, LLC, and Joseph D. Kowal (Respondents) (the “Action”). The Action is based on breach of contract and fraud and seeks recovery of 5,166,667 shares of Company Common Stock previously issued to Greenbridge Capital Partners IV, LLC and recovery of at least $357,000 paid to Partizipant, LLC (including amounts
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paid to third parties at Partizipant’s direction), together with recovery of fees, costs and expenses incurred in connection with the Action. The Action is still in its early stages and the Respondents have yet to file any response. The Company cannot project whether it will achieve a successful result in connection with the Action.
The Company leases approximately 10,000 sq. ft located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease is 5 years and 6 months terminating July, 2017.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operation for the years ended December 31, 2011 and 2010 and the three and six month periods ended June 30, 2012 and 2011 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Notice Regarding Forward-Looking Statements” and “Our Business” sections in this Form S-1. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Critical Accounting Policies and Estimates
Uses of estimates in the preparation of financial statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.
Going Concern
The 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 net losses of $4,778,541 and $1,502,666 for the year ended December 31, 2011 and six months ended June 30, 2012, respectively, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of December 31, 2011 and June 30, 2012, the Company had a stockholders’ equity (deficit) of $875,324 and $(445,847), respectively, and cash and cash equivalents of $950,841 and $169,657, respectively. The Company believes it would not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds
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are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations. These conditions raise substantial doubt about the 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, 2011 and 2010, the amounts charged to research and development expenses were $115,665 and $15,208, respectively. For the 6 months ended June 30, 2012 and 2011, the amounts charged to research and development expenses were $70,547 and $61,336, respectively.
Cash and cash equivalents
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up to 105% of the account balance. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Included within cash are deposits paid by patients, held by the Company until the patient returns the VRT device at the end of therapy.
Property and equipment
The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and seven years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized
Income taxes
The Company accounts for income taxes in accordance with the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be realized.
Patents and Other Intangible Assets
The Company capitalizes legal and related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The capitalized costs are amortized over the life of the patent. The Company reviews intangible assets on an annual basis using a present value, cash flow method based upon the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative guidance.
Revenue Recognition
Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.
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NovaVision generates revenues from various programs, therapy services and other sources such as government grants. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Company’s work effort is expended. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average over 6 months in the U.S. and 10 months in Germany. A patient contract comprise set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a specified time frame.
Research grants and other subsidies represent revenue from certain German government agencies to cover certain patients within an insurance group and also to reimburse NovaVision AG for certain payroll and other costs. The Company recognizes grant revenue when services or costs have been incurred which would entitle the Company to use the German government funds, and the grant requirements have been satisfied.
Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.
Accounts Receivable
The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to exceed the 9 or 10 month therapy period. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customer’s ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.
Inventory
Inventories are comprised of Vycor Medical VBAS devices, components ancillary to NovaVision’s medical device provided to patients and centers and diagnostic products, and are stated at the lower of cost or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a device is shipped to a customer or patient.
Foreign Currency
The Euro is the local currency of the country in which NovaVision AG conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated as part of the accumulated other comprehensive income (loss) and included in shareholders’ (deficit) in the accompanying Consolidated Balance Sheet.
Educational marketing and advertising expenses
The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will include education, marketing and advertising expense as a component of selling, general and administrative costs as such costs are incurred.
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Critical Accounting Policies
The Securities and Exchange Commission issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” suggesting that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. See “Uses of estimates in the preparation of financial statements”above.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2011 to the Year Ended December 31, 2010
Revenue and Gross Margin:
| 2011 | 2010 | % Change | ||||||||
| Revenue: | ||||||||||
| Vycor Medical | $ | 548,463 | $ | 307,582 | 78 | % | ||||
| NovaVision | $ | 422,904 | $ | 8,868 | NM | |||||
| $ | 971,367 | $ | 316,450 | 207 | % | |||||
| 2011 | 2010 | % Change | ||||||||
| Cost of Revenue: | ||||||||||
| Vycor Medical | $ | (109,021 | ) | $ | (47,607 | ) | 128 | % | ||
| NovaVision | $ | (67,237 | ) | $ | (1,130 | ) | NM | |||
| $ | (176,258 | ) | $ | (48,737 | ) | 262 | % | |||
| Gross Profit | ||||||||||
| Vycor Medical | $ | 439,422 | $ | 259,975 | 69 | % | ||||
| NovaVision | $ | 355,687 | $ | 7,738 | NM | |||||
| $ | 795,109 | $ | 267,713 | 197 | % | |||||
Vycor Medical recorded revenue of $548,463 from the sale of its products in 2011, an increase of 78% over 2010. The increase in sales was attributable to greater penetration and usage of our product in hospitals in the United States both direct and through distributors, and increased sales internationally. In December 2011 VBAS received SFDA approval to be marketed in the People’s Republic of China (PRC) and shipped its first order with a value of $170,000. Approximately 39% of sales were international in 2011 compared to 20% in 2010. Gross margin of 80% was achieved in 2011 compared to 85% for 2010. Gross margin is mostly a product of sale mix between US sales through distributors, US sales direct and international sales. International sales are all indirect through distributors and end-market prices internationally tend to be lower. In addition in 2011 Vycor Medical had one-off costs from a packaging life extension program.
NovaVision recorded revenues of $422,904 for the period ended December 31, 2011 and a gross margin of 84%.
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Research and Development Expense:
Research and development expenses were $115,665 in 2011 compared to $15,208 for 2010. The increase in R&D expense relates primarily to the inclusion of NovaVision in the 2011 period and the development work carried out on new products and technologies.
General and Administrative Expenses:
General and administrative expenses increased by $3,067,946 to $4,987,120 for 2011 from $1,919,174 for 2010. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for 2011 was $1,755,661, an increase of $1,412,797 over $342,864 in 2010. The increase was primarily related to the recognition of $658,651 for fully vested warrants issued to Fountainhead during the 2011 period, the recognition of common stock issued to Jerrald Ginder and GreenBridge Capital Partners IV, LLC and the addition of members to the Board of Directors and the NovaVision Scientific Advisory Board who are partly compensated in stock. The remaining General and Administrative increase of $1,655,149 reflects approximately $1,150,990 of additional expenses related to the inclusion of NovaVision in 2011, increased professional and consulting fees, including increased consulting fees with Fountainhead following the NovaVision acquisition, and higher levels of marketing activities in Vycor Medical. In addition there were $119,273 of non-recurring costs; $70,463 with regard the accrual of a retention bonus to Ken Coviello, the Chief Executive, in relation to the 2009 Recapitalization Agreement; and $48,810 with regard to the accrual of a vendor settlement relating to the distribution of certain NovaVision products in Germany prior to the acquisition of NovaVision by Vycor.
Interest Expense:
Interest expense comprises: interest expense on the Company’s debt and insurance policy financing. Interest expense for 2011 was increased by $81,260 to $127,142 from $45,882 for 2010, as a result of an increase in average debt levels during the year.
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for the periods ended December 31, 2011 and December 31, 2010:
| December 31, 2011 | December 31, 2010 | $ Change | ||||||||
| Cash | $ | 950,841 | $ | 127,081 | $ | 823,760 | ||||
| Accounts receivable, inventory and other current assets | 1,378,754 | 774,122 | 604,632 | |||||||
| Total current liabilities | (2,696,316 | ) | (2,064,980 | ) | (631,336 | ) | ||||
| Working capital (deficit) | $ | (366,721 | ) | $ | (1,163,777 | ) | $ | 797,056 | ||
| Cash provided by financing activities | $ | 4,173,426 | $ | 2,489,500 | $ | 1,683,926 | ||||
As of December 31, 2011 we had $950,841 cash, a working capital deficit of $366,721 and an accumulated deficit of $11,661,704. The Stockholders’ equity at December 31, 2011 was $875,324, an improvement from $786,610 at December 31, 2010. Debt at December 31, 2011 was $1,636,125 compared to $1,415,662 at December 31, 2010.
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Off-Balance Sheet Arrangements
As of December 31, 2011, we had no off-balance sheet arrangements.
Seasonality
Our operating results are not affected in any material way by seasonality.
Inflation
Our business and operating results are not affected in any material way by inflation.
Comparison of the Three Months Ended June 30, 2012 to the Three Months Ended June 30, 2011
Revenue and Gross Margin:
| 2012 | 2011 | % Change | ||||||||
| Revenue: | ||||||||||
| Vycor Medical | $ | 138,239 | $ | 82,239 | 68 | % | ||||
| NovaVision | 127,147 | 60,092 | 112 | % | ||||||
| Total Revenue | $ | 265,386 | $ | 142,331 | 86 | % | ||||
| Gross Profit | ||||||||||
| Vycor Medical | $ | 118,206 | $ | 60,890 | 94 | % | ||||
| NovaVision | 106,932 | 46,249 | 131 | % | ||||||
| Total Gross Profit | $ | 225,138 | $ | 107,139 | 110 | % | ||||
Vycor Medical recorded revenue of $265,386 from the sale of its products in for the three months ended June 30, 2012, an increase of 68% over the same period in 2011. The increase in sales was attributable to greater penetration and usage of our product in hospitals in the United States both direct and through distributors, and increased sales internationally. Gross margin of 86% was achieved in 2012 compared to 74% for 2011. Gross margin is mostly a product of sale mix between US sales through distributors, US sales direct and international sales. International sales are all indirect through distributors and end-market prices internationally tend to be lower. In addition the 2011 period reflected certain regulatory validation costs.
Sales commissions for the sale of Vycor’s products, which are recorded in General and Administrative Expenses, were $20,993 for the three months ended June 30, 2012 compared to $10,696 for the same period in 2011.
NovaVision recorded revenues of $127,147 for the three months ended June 30, 2012 and gross margin of 84%, compared to $60,092 and gross margin of 77% for the same period in 2011. This reflects the start-up of NovaVision in the US in 2011 and the consolidation of Sight Science in 2012.
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Research and Development Expense:
Research and development (“R&D”) expenses were $45,860 for the three months ended June 30, 2012, as compared to $37,484 for the same period in 2011.
General and Administrative Expenses:
General and administrative expenses decreased by $983,612 to $839,407 for the three months ended June 30, 2012 from $1,823,019 for the same period in 2011. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the three months ended June 30, 2012 was $55,413, a decrease of $900,769 over $956,182 in 2011. Also included within General and Administrative Expenses are Sales Commissions, which increased by $10,298 to $20,993 reflecting higher levels of sales. The remaining General and Administrative decrease of $93,142 reflects: increased scientific advisory costs ($33,856), the costs of a corporate video ($45,887) and increased professional fees ($14,955); offset by reduced investor relations and fundraising costs ($46,167), reduced premises and other costs ($33,445), reduced payroll costs ($91,323) and reduced sales and marketing costs ($16,905). :
Interest expense includes interest expense on the Company’s debt and insurance policy financing. Interest expense in the three months ended June 30, 2012 decreased by $7,934to $31,679 from $39,613 for the same period in 2011, reflecting decreased debt levels.
Comparison of the Six Months Ended June 30, 2012 to the Six Months Ended June 30, 2011
Results for the six months ended June 30, 2011 include adjustments to reflect of the effects of the restated financial statements included in the Company’s Quarterly Report on Form 10-Q/A for the quarterly period ending June 30, 2011.
Revenue and Gross Margin:
| 2012 | 2011 | % Change | ||||||||
| Revenue: | ||||||||||
| Vycor Medical | $ | 460,021 | $ | 182,081 | 153 | % | ||||
| NovaVision | 237,967 | 105,372 | 126 | % | ||||||
| Total Revenue | $ | 697,988 | $ | 287,453 | 143 | % | ||||
| Gross Profit | ||||||||||
| Vycor Medical | $ | 378,795 | $ | 153,615 | 147 | % | ||||
| NovaVision | 199,523 | 76,273 | 162 | % | ||||||
| Total Gross Profit | $ | 578,318 | $ | 229,888 | 152 | % | ||||
Vycor Medical recorded revenue of $460,021 from the sale of its products in for the six months ended June 30, 2012, an increase of 153% over the same period in 2011. The increase in sales was attributable to greater penetration and usage of our product in hospitals in the United States both direct and through
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distributors, and increased sales internationally. In December 2011 VBAS received SFDA approval to be marketed in the People’s Republic of China (PRC) and made shipments with a value of $174,000 during the period and also shipped its first order to Japan. Gross margin of 82% was achieved in 2012 compared to 84% for 2011. Gross margin is mostly a product of sale mix between US sales through distributors, US sales direct and international sales. International sales are all indirect through distributors and end-market prices internationally tend to be lower.
Sales commissions for the sale of Vycor’s products, which are recorded in General and Administrative Expenses, were $43,103 for the six months ended June 30, 2012 compared to $29,404 for the same period in 2011.
NovaVision recorded revenues of $237,967 for the six months ended June 30, 2012 and gross margin of 84%, compared to $105,372 and gross margin of 72% for the same period in 2011. This reflects the start-up of NovaVision in the US in 2011 and the consolidation of Sight Science in 2012.
Research and Development Expense:
Research and development (“R&D”) expenses were $70,547 for the six months ended June 30, 2012, as compared to $61,336 for the same period in 2011.
General and Administrative Expenses:
General and administrative expenses decreased by $889,910 to $1,894,380 for the six months ended June 30, 2012 from $2,784,290 for the same period in 2011. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the six months ended June 30, 2012 was $204,755, a decrease of $959,644 over $1,164,399 in 2011. Also included within General and Administrative Expenses are Sales Commissions, which increased by $13,698 to $43,103 reflecting higher levels of sales. The remaining General and Administrative increase of $56,036 reflects: increased scientific advisory costs ($70,588), the costs of the move to a new headquarters premises ($41,622), the costs of a corporate video ($45,887), increased investor relations and fundraising costs ($46,167), and increased professional fees ($31,556); offset by reduced premises and other costs ($22,183), reduced payroll costs ($125,034) and reduced sales and marketing costs ($15,234).
Interest Expense:
Interest expense includes interest expense on the Company’s debt and insurance policy financing. Interest expense in the six months ended June 30, 2012 decreased by $255to $63,279from $63,534 for the same period in 2011.
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for the periods ended June 30, 2012 and December 31, 2011:
| June 30, 2012 | December 31, 2011 | $ Change | ||||||||
| Cash | $ | 169,657 | $ | 950,841 | $ | (781,184 | ) | |||
| Accounts receivable, inventory and other current assets | 767,042 | 1,378,754 | (611,712 | ) | ||||||
| Total current liabilities | (3,171,093 | ) | (2,696,316 | ) | (474,777 | ) | ||||
| Working capital deficit | (2,234,394 | ) | $ | (366,721 | ) | (1,867,673 | ) | |||
| Cash provided by financing activities | 119,272 | 4,190,510 | (4,071,238 | ) | ||||||
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As of June 30, 2012 we had $169,657 cash, a working capital deficit of $2,234,394 and an accumulated deficit of $13,242,868. Total Stockholders’ deficit at June 30, 2012 was $445,847. Total debt at June 30, 2012, included in the working capital deficit above, was $1,625,175.
Restatement
In late July 2011, the Company’s management re-evaluated certain of its accounting policies and procedures in connection with the preparation of the Company’s financial statements for the periods ended June 30, 2011, and determined that it had not properly accounted for warrants issued in connection with certain service agreements and for the beneficial conversion feature of certain convertible debentures. Specifically, management determined that the Company had previously not recognized the fair value of warrants issued in connection with certain consulting or other service agreements at the measurement date, and had previously recognized the expense ratably over the life of the warrant. The Company’s management further determined that the proper accounting, following the guidance in ASC Topic 505, is to record the fair value of these warrants as a prepaid expense on the date of issuance, and recognize the expense ratably over the life of the underlying service agreement. In addition, the Company had, since December 2009, been determining the existence of a beneficial conversion feature of convertible debt based on the fair value of the conversion feature on the date of issuance, rather than using the intrinsic value of the conversion feature on the date of issuance, as required under ASC Topic 470.
Following discussions with the Company’s independent registered public accounting firm, the Company’s management met on August 12, 2011 with the Company’s Board of Directors, which concluded that the Company’s previously issued consolidated financial statements: (i) for the years ended December 31, 2009 and 2010 (the “Annual Financial Statements”) included in the Company’s Annual Reports on Form 10-K for the years then ended (the “Annual Reports”); and (ii) for the interim periods ended March 31, 2010, June 30, 2010, September 30, 2010 and March 31, 2011 (collectively, the “Quarterly Financial Statements”) included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and March 31, 2011 respectively (the “Quarterly Reports”) should no longer be relied upon and that the Company should, as soon as practicable, file with the SEC amendments to the aforementioned Annual Reports and Quarterly Reports to restate such Annual Financial Statements and Quarterly Financial Statements to properly record the warrants and beneficial conversion features and to make related adjustments and disclosures in connection therewith. The net impact on the Company’s previously reported Net Loss for the 18-month period of October 1, 2009 through March 31, 2011 was to increase losses by approximately $152,000.
Internal Control Deficiencies
Management determined that the forgoing matters reflected a deficiency in the Company’s internal controls that constitutes a significant deficiency. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. The significant deficiency is discussed in each of the foregoing amended Annual Reports and Quarterly Reports.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since inception until the present time, the principal independent accounting firm for the Company has not resigned, declined to stand for reelection or been dismissed. We have no disagreements with our
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independent registered public accounting firm on any matter of accounting principles or with any financial statement disclosures.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our Directors and Executive Officers
Set forth below is certain biographical information concerning our current executive officers and directors. We currently have two executive officers as described below.
| Directors and Executive Officers | Position/Title | Age | ||
| Adrian Christopher Liddell | Chairman of the Board and a Director | 54 | ||
| David Marc Cantor | President and a Director | 46 | ||
| Peter C. Zachariou | Executive Vice President and a Director | 51 | ||
| Richard P. Denness | Chief Executive Officer and a Director | 46 | ||
| Heather N. Vinas | Director | 33 | ||
| Pascale Mangiardi | Director | 40 | ||
| Steven Girgenti | Director | 67 | ||
| Oscar Bronsther, M.D. | Director | 49 |
Adrian Christopher Liddell, 54, has been Chairman of the Board and a Director of the Company since January 2010. He is an advisor to Fountainhead Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to growth companies in healthcare and other sectors. Mr. Liddell has 30 years of strategic, corporate and financial advisory and company investment. From 2003-2006, Mr. Liddell was an investment advisor at Phoenix Equity Partners, a European private equity fund. From 1998 to 2003, Mr. Liddell served as Managing Director, Mergers & Acquisitions at Donaldson Lufkin & Jenrette and then Citigroup in London. From 1984 to 1998, Mr. Liddell held various positions at Samuel Montagu & Co, Lehman Brothers and Erik Penser Corporate Finance in London. Mr. Liddell qualified as a Chartered Accountant in 1984 and holds an MA from Christ’s College, Cambridge University.
David Marc Cantor, 46, has been President of the Company since September 2010 and a Director since January 2010. He is an investment manager of Fountainhead Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to growth companies across a broad range of sectors. Mr. Cantor has over 22 years experience in Investment Banking with a focus on Mergers and Acquisitions and Equity Capital Raisings. Prior to Fountainhead from 2001 – 2005 he was at Citigroup Capital Markets where he was Co-head of its European Business Development and subsequently European Head of its Diversified Industrials and Aerospace activities. Prior to Citigroup he was a Managing Director in M&A at Donaldson Lufkin & Jenrette and worked at Lehman Brothers both in New York and London in both the Equity capital and M&A groups. Mr. Cantor has a BSc with Honours from City Business School, London.
Peter C. Zachariou,51, was appointed a Director of the Company in May 2010 and Executive Vice President in September 2010. He is an investment manager for Fountainhead Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to growth companies in healthcare and other sectors. For the past 20 years, Mr.
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Zachariou has been an active investor in a variety of companies and industries, both public and private, specializing in workouts and capital formation. Mr. Zachariou’s investments and activities have predominantly been in U.S. emerging and growth companies across a broad range of industry sectors. He has also been proprietor and operator of several businesses in the U.K. and U.S. in the manufacturing, retail and leisure industries.
Richard P. Denness, 46, has been Chief Executive Officer and a Director of the Company since July 2012. Mr. Denness is a healthcare executive with global experience who has held senior management positions at UCB, Inc., Schwarz Pharma US, Schering-Plough and IVAX Corporation. From 1990-2001 Mr Denness held a series of managerial and sales positions at Schering-Plough, including: Regional Sales Director Southern/Mid-Atlantic US (1999-2001); and General Manager Australia/New Zealand (1997-1999). From 2001-2002 he was Director of Sales, Eastern US for Viropharma. From 2002-2004 Mr. Denness was President, IVAX Laboratories. From 2004-2010 he held a number of senior positions at UCB, Inc. and its subsidiaries, including: Vice President, UCB Managed Markets (2009-2010); Vice President and General Manager, CNS Unit (2004-2009), including CEO of Schwarz Pharma US during its integration into UCB. Mr. Denness holds a BS, Marketing from Missouri State University.
Heather N. Vinas, 33, is our founder and former President and a director. Ms. Vinas has more than 10 years experience in the medical profession ranging from hospitals to medical device manufacturing. Ms. Vinas joined us in November 2005. Ms. Vinas’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. Vinas’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. Vinas belongs to the Brain Injury Association, American Brain Tumor Association, and the National Association for Female Executives. She holds an Associates Degree in Business with a focus on Human Sciences and has additional credits in business administration from Katharine Gibbs College.
Pascale Mangiardi, 40, 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.
Steven Girgenti, 67, has been a director since November 19, 2008. He is President, CEO, Director and Co-Founder DermWorx, a specialty pharmaceutical company dedicated to solutions for dermatological conditions. Steve is also the Worldwide Chairman of Ogilvy Healthworld, a leading global healthcare communications network with 55 offices in 36 countries. The network has more than 1,000 brand assignments from nearly 200 clients worldwide, providing strategic marketing and communications services to many of the world’s leading healthcare companies. Mr. Girgenti founded Healthworld in 1986 and, under his leadership, the company has made numerous acquisitions to expand and diversify the business. Healthworld went public in 1997. In addition to Vycor Medical, Mr. Girgenti has served as a director of Burren Pharmaceuticals and Pharmacon International, and is currently a director of AVTV Networks. He is also Vice Chairman of the Board of Governors for the Mt. Sinai Hospital Prostate Disease and Research Center in New York City, and is on the Board of Directors for Jack Martin Fund, a Mt. Sinai Hospital affiliated charitable organization devoted to pediatric oncology research. He graduated from Columbia University and has worked in the pharmaceutical industry since 1968 for companies such as Bristol-Myers Squibb, Carter Wallace and DuPont, as well as advertising agencies that specialize in healthcare. During his career, Steve has held positions in marketing research, product management, new product planning and commercial development.
Oscar Bronsther, M.D., F.A.C.S,49, has been a Director of the Company since November 2011. Dr. Bronsther is currently Clinical Professor at George Washington University, Washington, DC and has served in that capacity since 2002. He had previously served as an Associate Professor at the University of Rochester, Rochester, NY (1994-2001), University of Pittsburgh, Pittsburgh, PA (1989-1994) and University of California San Diego (1984). He also serves as the Chairman, Section of General Surgery at Inova Fairfax Hospital. Since 2002, he has served as a Board Member, National Board Member and Director of Transplant Services of Kaiser Permanente Medical Group. Dr. Bronsther is a graduate of the University of Rochester (B.A. 1973) and Downstate Medical Center, Brooklyn, N.Y. (M.D. 1978). He did
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post-graduate work at Downstate Medical Center (Research Assistant 1975; Kidney Transplant Fellowship 1983-1984), Mount Sinai Medical Center, New York, N.Y (Residency 1978-1983) and Children’s Hospital Medical Center, Boston, MA (Research Fellowship 1980-1981).
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.
None of our directors and executive officers have during the past five years:
| • | had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time; |
| • | been convicted in a criminal proceeding and is not subject to a pending criminal proceeding; |
| • | been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; |
| • | or been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. |
Committees of the Board of Directors
Our Board of Directors currently has two committees, aNominating and Governance Committee and a Management Compensation Committee. At the present time, Steven Girgenti is the sole member of each committee. The Board anticipates appointing other directors to these committees in the future and the consideration of the formation of other committees of the board, including but not limited to an audit committee.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the Board of Directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our Board of Directors.
There are no family relationships between our officers and directors. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.
At the date of this prospectus, the Company is not engaged in any transactions, either directly or indirectly, with any persons or organizations considered promoters.
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Identification of Significant Employees
The Company does not presently have any significant employees other than the named officers and directors.
Corporate Code of Conduct and Ethics
On September 25, 2007, the Company adopted a Code of Conduct and Ethics applicable to the Board of Directors, management and all employees of the Company.
Officers and Directors Indemnification
Under our Certificate of Incorporation and Bylaws of the corporation, the Company may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his or her position, if he or she acted in good faith and in a manner he or she reasonably believed to be in the Company’s best interest. The Company may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he or she is to be indemnified, the Company must indemnify the officer or director against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, then only by a court order. The indemnification coverage is intended to be to the fullest extent permitted by applicable laws.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to officers or directors under applicable state law, the Company is informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
The following is a summary of the compensation we paid for each of the last two years ended December 31, 2011 and 2010, respectively (i) to the persons who acted as our principal executive officer during our fiscal year ended December 31, 2011 and (ii) to the person who acted as our next most highly compensated executive officer other than our principal executive officer who was serving as our executive officer as of the end of our last fiscal year.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Option Awards ($) | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings ($) | All other Compensation ($) | Total ($) | |||||||||||||||||||
| Kenneth T. Coviello | 2011 | $ | 153,989 | — | — | $ | 29,212 | — | — | $ | 12,578 | $ | 195,779 | |||||||||||||||
| (Former Chief Executive Officer) | 2010 | $ | 153,989 | — | — | $ | 29,212 | — | — | $ | 12,578 | $ | 195,779 | |||||||||||||||
| Heather N. Vinas | 2011 | — | — | — | — | — | — | — | — | |||||||||||||||||||
| (Former President) | 2010 | $ | 72,739 | — | — | $ | 29,212 | — | — | $ | 9,184 | $ | 111,135 | |||||||||||||||
| David Cantor | 2011 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||
| (President) | 2011 | $ | — | — | — | — | — | — | — | — | ||||||||||||||||||
(1) Management Warrants
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OUTSTANDING EQUITY AWARDS
Grants of Plan-Based Awards
Initial grants under the 2008 Stock Plan were to Kenneth T. Coviello and Heather N. Vinas of options to purchase 1,000,000 shares in the aggregate. There were no option exercises by or stock vested in fiscal 2010 or 2011. Following the resignation of Heather N. Vinas, 166,667 options were cancelled.
| Option Awards | |||||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) | Option Exercise Price ($) | Option Expiration Date | |||||||||||||
| Kenneth T. Coviello | 2/15/2008 | — | — | 500,000 | $ | 0.135 | 2/12/2018 | ||||||||||||
| Heather N. Vinas | 2/15/2008 | — | — | 333,333 | $ | 0.135 | 2/12/2018 | ||||||||||||
| Equity Compensation Plan Information | ||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |||||||
| Equity compensation plans approved by security holders | 1,000,000 | $ | 0.135 | 2,651,345 | ||||||
| Equity compensation plans not approved by security holders | 50,000 | 0.19 | — | |||||||
| Total | 1,050,000 | $ | 0.138 | 2,651,345 | ||||||
(1) As of December 31, 2011
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Warrants Issued to Management
| Name | Grant Date | Number of Securities Underlying Unexercised Exercisable Warrants (1) | Number of Securities Underlying Unexercised Exercisable Warrants (1) | Warrant Exercise Price ($) | Warrant Expiration Date | |||||||||||
| Kenneth T. Coviello | 12/29/2009 | — | 16,450,066 | $ | 0.00717 | 12/29/2014 | ||||||||||
| Heather N. Vinas | 12/29/2009 | — | 8,225,063 | $ | 0.00717 | 12/29/2014 | ||||||||||
| Total | — | 24,675,129 | $ | 0.00717 | ||||||||||||
(1) As of December 31, 2011
Employment Agreements
Effective December 29, 2009, the Company entered into new employment agreements with each of our Chief Executive Officer, Mr. Kenneth Coviello and with our Former President, Ms. Heather Vinas. Ms. Vinas’ employment agreement terminated when she resigned her employment with the Company in May 2010 and Mr. Coviello’s employment agreement terminated when he resigned his employment with the Company in July 2012.
Effective September 30, 2010, the Company entered into identical employment agreements with David Cantor to serve as the Company’s President and Peter C. Zachariou to serve as the Company’s Executive Vice President. Each employment agreement continues until August 30, 2011 and is then automatically extended unless terminated by either party, and provides that the executives will receive no compensation for services rendered under the agreements.
Effective July 2, 2012, the Company entered into an employment agreement with Richard P. Denness as Chief Executive Officer of the Company. A copy of Mr. Denness’ employment Agreement is attached to the Company’s Form 8-K Current Report filed with the Securities and Exchange Commission on July 9, 2012 as Exhibit 10-1 thereto. Until the Company completes a planned funding and contemporaneous listing on NASDAQ Global Capital Markets (the “Funding Completion”), Mr. Denness will receive a salary $10,000 per month and reimbursement of certain travel and business-related expenses. Following the Funding Completion Mr. Denness will receive a salary of $250,000 per year and will be granted certain stock options described below. In connection with the appointment, the Company has entered into an indemnification agreement with Mr. Denness.
Compensation of Directors
Each of our independent directors is entitled to receive $5,000 in cash or stock at the option of the company per quarter. The Company also intends to compensate directors who serve as Chairmen of board committees. No other directors of the Company receive compensation for their service to the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of any class of voting securities, (ii) each
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director, (iii) our chief executive officer and president and (iv) all executive officers and directors as a group as of August 17, 2012. Unless noted, the address for the following beneficial owners and management is 6401 Congress Ave. Suite 140, Boca Raton, FL 33487.
| Common Stock | Heather N. Vinas | 5,284,587 | * | |||||||
| Common Stock | Pascale Mangiardi | — | 0.00 | % | ||||||
| Common Stock | Steven Girgenti | 2,839,103 | * | |||||||
| Common Stock | Adrian Christopher Liddell | — | 0.00 | % | ||||||
| Common Stock | Marc David Cantor | — | 0.00 | % | ||||||
| Common Stock | Peter C. Zachariou | — | 0.00 | % | ||||||
| Common Stock | Richard P. Denness | — | 0.00 | % | ||||||
| Common Stock | Oscar Bronsther, M.D. | 541,064 | * | |||||||
| Common Stock | All executive officers and directors as a group | 8,664,754 | 1.0 | % | ||||||
| Common Stock | Fountainhead Capital Management Limited (3) | 531,779,465 | 63.2 | % |
| * | 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 August 17, 2012, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which the beneficial ownership may acquire within 60 days of exercise of debentures, warrants and options, and (b) the denominator is the sum of (i) the total shares of that class outstanding on August 17, 2012 (841,527,668 shares of common stock) and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the debentures, warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares. |
| (2) | In addition, in determining the percent of common stock owned by a person or entity on August 17, 2012, (a) the numerator is the number of shares of the class beneficially owned by such person and includes shares which the beneficial owner may acquire within 60 days upon conversion or exercise of a derivative security, and (b) the denominator is the sum of (i) the shares of that class outstanding on August 17, 2012 (841,527,668 shares of common stock) and (ii) the total number of shares that the beneficial owner may acquire upon conversion or exercise of a derivative security within such 60 day period. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of the shares. |
| (3) | The address of Fountainhead Capital Management Limited is Portman House, Hue Street, St. Helier, Jersey JB4 5RP |
| 54 |
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS AND DIRECTOR INDEPENDENCE
Related Transactions
In January 2010 the Company issued a convertible debenture for $74,500 to Fountainhead Capital Management Limited (“Fountainhead”), holder of approximately 72.6% of the common shares of the Company, as more fully disclosed in Note 5 of the Notes to the Financial Statements. This debenture was repaid in May 2010
In February 2010 the Company issued a convertible debenture for $70,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In February 2010 the Company entered into a Consulting Agreement with Fountainhead. Under the terms of the agreement, Fountainhead receives $8,500 as a monthly consulting fee, which is to be accrued and converted into stock or paid in cash once a certain level of cash has been raised. Under the terms of the agreement, the Company also issued warrants to Fountainhead to purchase up to 39,063,670 shares of the Company’s common stock at $.0125 per share. The warrants are valid from February 10, 2010 for a period of five years.
In March 2010 the Company issued a convertible debenture for $102,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements. This debenture was repaid in May 2010
In May 2010 the Company issued a convertible debenture for $45,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements. This debenture was repaid in May 2010.
In September 2010 the Company issued a convertible debenture for $85,000 to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In September 2010 the Company entered into a new agreement with Fountainhead under which Fountainhead agreed to extend a previously disclosed agreement to fund or procure funding for Vycor Medical’s monthly operating expenses for through August 2011. Under the terms of the agreement, the Company issued warrants to Fountainhead to purchase up to 50,627,407 shares of the Company’s common stock at $.0175 per share. The warrants are valid from September 29, 2010 for a period of five years.
In October 2010 the Company issued a convertible debenture for $90,000, and a $77,500 non-convertible debenture to Fountainhead, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In November 2010 the Company issued a non-convertible debenture for $322,500, as more fully disclosed in Note 5 of the Notes to the Financial Statements.
In November 2010 the Company issued an unsecured, subordinated loan note to Fountainhead for $20,000. The note was repaid in December 2010.
In November 2010 the Company issued a convertible debenture for $350,000 to Peter Zachariou, a director of the Company, as more fully disclosed in Note 5 of the Notes to the Financial Statements. In December 2010 $50,000 of this debenture was repaid and the convertible rights removed.
In January, February and March 2011 the Company issued unsecured, subordinated loan notes to Fountainhead for a total of $99,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due April 30, 2011
In January 2011 the Company issued an unsecured, subordinated loan note to Peter Zachariou, a director of the Company for $15,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due April 30, 2011
In February 2011 the Company issued an unsecured, subordinated loan note to Peter Zachariou, a director of the Company for $40,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due April 30, 2011
In February 2011 the Company issued an unsecured, subordinated loan note to David Cantor, a director of the Company for $15,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due April 30, 2011
On May 6, 2011, the Company entered into a Supplement to a prior Consulting Agreement with Fountainhead entered into on February 10, 2010 (amended September 29, 2010) to recognize Fountainhead’s expanded responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Supplement, commencing January 1, 2011 the Company will pay to FCM an additional monthly retainer of $29,000. This additional monthly retainer shall be accrued and
| 55 |
paid out to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.0225 per share; or (ii) in cash following the closing of a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011. Notwithstanding, Fountainhead shall have the option to receive up to $5,000 of the additional monthly retainer in cash each month, commencing April 1, 2011. In addition, the term of the Consulting Agreement was extended to May 5, 2013. Other than as supplemented, the Consulting Agreement remains in full force and effect according to its terms.
Under the terms of a Consulting Agreement dated February 10, 2010 with Fountainhead, the Company was required to issue to Fountainhead fully vested warrants to purchase an additional 39,063,670 shares of the Company’s Common Stock, at a price of $0.0125 per share should new funding totaling $3 million in aggregate in Common Stock of Vycor or in securities convertible into Common Stock of Vycor at a price of no less than $0.0125 per share of Common Stock be closed during the term of the Consulting Agreement. These warrants became issuable upon completion of the Preferred Offering and were issued in June 2011.
On June 6, 2011, in connection the Preferred Offering, Fountainhead agreed to extend to maturity of debentures totaling $931,362 to December 31, 2012. At the same time, Peter Zachariou, a director of the Company, agreed to extend the maturity of debentures totaling $300,000 to the same date.
On September 30, 2011, short-term loans including accrued interest of $102,449.75 and accrued interest on the loans extended on June 6, 2011 of $76,658.01, were repaid to Fountainhead. At the same time, short-term loans including accrued interest of $57,003.84 and accrued interest on the loans extended on June 6, 2011 of $14,991.78 were repaid to Peter Zachariou, a director of the Company; and short-term loans including accrued interest of $10,351.78 were repaid to David Cantor, a director of the Company.
During July 2012, the Company issued unsecured, subordinated loan notes to Fountainhead for a total of $100,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% are due on demand or by July 9, 2013.
Other
The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.
Director Independence
The Company has four “independent” directors within the meaning of Nasdaq Marketplace Rule 4200—Steven Girgenti, Heather Vinas, Pascale Mangiardi and Oscar Bronsther, M.D.
Our financial statements for the fiscal years ended December 31, 2011 and December 31, 2010 along with the related consolidated statements of operations, stockholders’ equity and cash flows in this prospectus have been audited by Paritz & Co P.C., of Hackensack, New Jersey, independent registered public accounting firm, to the extent and for the periods set forth in their report, and are set forth in this prospectus in reliance upon such report given upon the authority of them as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Our filings are available to the public at the SEC’s web site at http://www.sec.gov. You may also read and copy any document with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Further information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
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We have filed a registration statement on Form S-1 with the SEC under the Securities Act for the common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which have been omitted in accordance with the rules and regulations of the SEC. For further information, reference is made to the registration statement and its exhibits. Whenever we make references in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for the copies of the actual contract, agreement or other document.
INCORPORATION OF CERTAIN MATERIAL BY REFERENCE
The Company does not elect to incorporate any material by reference.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Securities and Exchange Commission’s Policy on Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the company pursuant to any provisions contained in its Articles of Incorporation, Bylaws, or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of registrant’s legal counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
FINANCIAL STATEMENTS
Our consolidated financial statements are included with this prospectus. These financial statements have been prepared on the basis of accounting principles generally accepted in the United States and are expressed in US dollars.
Index to Financial Statements
| Fiscal years ended December 31, 2011 and December 31, 2010 (restated) (audited) | F-1 | |
| Three and Six Months ended June 30, 2012 and June 30, 2011 (unaudited). | F-21 |
| 57 |
| Paritz & Company, P.A. | 15 Warren Street, Suite 25 Hackensack, New Jersey 07601 (201)342-7753 Fax: (201) 342-7598 E-Mail: paritz @paritz.com | |||
| Certified Public Accountants | ||||
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors Vycor Medical Inc. and Subsidiaries Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Vycor Medical Inc. and Subsidiaries as of December 31, 2011 and 2010 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vycor Medical Inc. and Subsidiaries as of December 31, 2011 and 2010 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a loss since inception, has a net accumulated deficit and may be unable to raise further equity. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Paritz & Company, P.A.
Hackensack, New Jersey
March 29, 2012
VYCOR MEDICAL, INC.
(Audited)
| December 31, 2011 | December 31, 2010 (restated) | ||||||
| ASSETS | |||||||
| Current Assets | |||||||
| Cash | $ | 950,841 | $ | 127,081 | |||
| Accounts receivable, net | 313,679 | 76,460 | |||||
| Inventory | 184,070 | 52,360 | |||||
| Prepaid expenses and other current assets | 881,005 | 645,302 | |||||
| 2,329,595 | 901,203 | ||||||
| Fixed assets, net | 671,291 | 773,188 | |||||
| Intangible and Other assets: | |||||||
| Trademarks | 130,000 | 130,000 | |||||
| Patents, net of accumulated amortization | 379,579 | 333,072 | |||||
| Website, net of accumulated amortization | 4,906 | 3,932 | |||||
| Security deposits | 56,269 | 12,299 | |||||
| 570,754 | 479,303 | ||||||
| TOTAL ASSETS | $ | 3,571,640 | $ | 2,153,694 | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 176,181 | $ | 114,447 | |||
| Accrued interest | 56,993 | 36,992 | |||||
| Accrued liabilities | 754,895 | 406,998 | |||||
| Other current liabilities | 72,122 | 90,881 | |||||
| Notes payable - current | 1,636,125 | 1,415,662 | |||||
| TOTAL LIABILITIES | 2,696,316 | 2,064,980 | |||||
| STOCKHOLDERS’ EQUITY | |||||||
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized Series C Convertible Preferred Stock, 63.8 and 0 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively | 1 | — | |||||
| Common Stock, $0.0001 par value, 1,500,000,000 shares authorized, 807,205,445 and 724,488,929 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively | 80,721 | 72,449 | |||||
| Additional Paid-in Capital | 12,432,114 | 6,902,427 | |||||
| Accumulated Deficit | (11,661,704 | ) | (6,883,163 | ) | |||
| Accumulated Other Comprehensive Loss | 24,192 | (2,999 | ) | ||||
| 875,324 | 88,714 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,571,640 | $ | 2,153,694 | |||
See accompanying notes to financial statements
| F-1 |
VYCOR MEDICAL, INC.
Consolidated Statement of Operations
(Audited)
| For the twelve months ended December 31, | |||||||
| 2011 | 2010 (restated) | ||||||
| Revenue | $ | 971,367 | $ | 316,450 | |||
| Cost of Goods Sold | 176,258 | 48,737 | |||||
| Gross Profit | 795,109 | 267,713 | |||||
| Operating expenses: | |||||||
| Research and development | 115,665 | 15,208 | |||||
| Depreciation and Amortization | 209,973 | 56,801 | |||||
| General and administrative | 4,987,120 | 1,919,174 | |||||
| Goodwill on Acquisition of Subsidiary | — | 58,027 | |||||
| Costs related to Aqcuisition of Subsidiary | 110,032 | 154,203 | |||||
| Total Operating expenses | 5,422,790 | 2,203,413 | |||||
| Operating loss | (4,627,681 | ) | (1,935,700 | ) | |||
| Other income (expense) | |||||||
| Other income (expense) | (23,718 | ) | 8 | ||||
| Interest expense, net | (127,142 | ) | (45,882 | ) | |||
| Total Other Income (expense) | (150,860 | ) | (45,874 | ) | |||
| Net Loss Before Taxes | (4,778,541 | ) | (1,981,574 | ) | |||
| Taxes | — | (2,248 | ) | ||||
| Net Loss | $ | (4,778,541 | ) | $ | (1,983,822 | ) | |
| Loss Per Share | |||||||
| Basic and diluted | $ | (0.006 | ) | $ | (0.003 | ) | |
| Weighted Average Number of Shares Outstanding | 780,096,806 | 663,168,900 | |||||
See accompanying notes to financial statements
| F-2 |
VYCOR MEDICAL, INC.
Statement of Stockholders’ Equity
| Shares | Common Stock | Preferred Stock - Series B | Preferred Stock - Series C | Additional Paid-in Capital | Accumulated Deficit | Accumulated OCI (Loss) | Total | ||||||||||||||||||
| Balance at January 1, 2010 | 557,798,599 | $ | 55,780 | $ | 0 | $ | 0 | $ | 3,597,621 | $ | (4,899,341 | ) | $ | 0 | $ | (1,245,940 | ) | ||||||||
| Issuance of stock for consulting fees | 2,612,500 | 261 | 40,364 | 40,625 | |||||||||||||||||||||
| Share-based compensation for consulting services | 823,693 | 823,693 | |||||||||||||||||||||||
| Share-based compensation - employee options vesting | 57,840 | 57,840 | |||||||||||||||||||||||
| Purchases of equity - Series B preferred | 14 | 139,986 | 140,000 | ||||||||||||||||||||||
| Common stock issuance for conversion of Series B preferred and interest | 11,768,197 | 1,177 | (14 | ) | 5,939 | 7,102 | |||||||||||||||||||
| Common stock issuance for conversion of debt | 64,295,200 | 6,430 | 797,260 | 803,690 | |||||||||||||||||||||
| Beneficial conversion feature on convertible debt | 0 | ||||||||||||||||||||||||
| Purchases of equity - Common stock | 87,079,447 | 8,708 | 1,425,792 | 1,434,500 | |||||||||||||||||||||
| Common stock issuance for satisfaction of accounts payable | 934,986 | 93 | 13,932 | 14,025 | |||||||||||||||||||||
| Accumulated Comprehensive Loss | (2,999 | ) | (2,999 | ) | |||||||||||||||||||||
| Net loss for twelve months ended December 31, 2010 | $ | (1,983,822 | ) | $ | (1,983,822 | ) | |||||||||||||||||||
| Balance at December 31, 2010 | 724,488,929 | $ | 72,449 | $ | 0 | $ | 0 | $ | 6,902,427 | $ | (6,883,163 | ) | $ | (2,999 | ) | $ | 88,714 | ||||||||
| Issuance of stock for consulting fees | 39,455,594 | 3,946 | 852,279 | 856,225 | |||||||||||||||||||||
| Share-based compensation for consulting services | 699,605 | 699,605 | |||||||||||||||||||||||
| Share-based compensation - employee options vesting | 29,796 | 29,796 | |||||||||||||||||||||||
| Purchases of equity - Common stock | 40,690,055 | 4,069 | 884,931 | 889,000 | |||||||||||||||||||||
| Purchases of equity - Series C preferred | 1 | 2,971,455 | 2,971,456 | ||||||||||||||||||||||
| Common stock issuance for conversion of debt | 2,167,902 | 217 | 40,973 | 41,190 | |||||||||||||||||||||
| Common stock issuance for warrant exercise | 402,965 | 40 | 403 | 443 | |||||||||||||||||||||
| Preferred Stock issue placement agent warrants | 50,245 | 50,245 | |||||||||||||||||||||||
| Accumulated Comprehensive Loss | 27,191 | 27,191 | |||||||||||||||||||||||
| Net loss for twelve months ended December 31, 2011 | $ | (4,778,541 | ) | (4,778,541 | ) | ||||||||||||||||||||
| Balance at December 31, 2011 | 807,205,445 | $ | 80,721 | $ | — | $ | 1 | $ | 12,432,114 | $ | (11,661,704 | ) | $ | 24,192 | $ | 875,324 | |||||||||
See accompanying notes to financial statements
| F-3 |
VYCOR MEDICAL, INC.
Statement of Cash Flows (Audited)
| For the twelve months ended December 31, | |||||||
| 2011 | 2010 (restated) | ||||||
| Cash flows from operating activities: | |||||||
| Net loss | $ | (4,778,541 | ) | $ | (1,983,822 | ) | |
| Adjustments to reconcile net loss to cash used in operating activities: | |||||||
| Amortization of intangible assets | 174,735 | 21,539 | |||||
| Depreciation of fixed assets | 55,571 | 35,262 | |||||
| Share based interest expense | 4,884 | — | |||||
| Share based compensation | 1,755,661 | 342,864 | |||||
| Shares issued for Consulting Services | — | 38,854 | |||||
| Interest satisfied with stock conversion | — | 7,102 | |||||
| Goodwill written off on acquisition of subsidiary | — | 58,027 | |||||
| Net loss as adjusted for non-cash items | (2,787,690 | ) | (1,480,174 | ) | |||
| Changes in assets and liabilities: | |||||||
| Accounts receivable | (237,294 | ) | (40,032 | ) | |||
| Inventory | (131,872 | ) | 3,908 | ||||
| Prepaid expenses | (412,254 | ) | (39,262 | ) | |||
| Security deposit | (43,970 | ) | (9,949 | ) | |||
| Accounts payable | 62,560 | (247,163 | ) | ||||
| Accounts payable satisfied with common stock | 14,025 | ||||||
| Accrued interest | 21,191 | 34,088 | |||||
| Accrued liabilities | 349,906 | 294,306 | |||||
| Other current liabilities | (15,911 | ) | 19,983 | ||||
| Cash used in operating activities | (3,195,334 | ) | (1,450,270 | ) | |||
| Cash flows provided by / (used in) investing activities: | |||||||
| Purchase of fixed assets | (61,995 | ) | (21,521 | ) | |||
| Purchase of website | (3,360 | ) | — | ||||
| Acquisition of subsidiary | — | (898,017 | ) | ||||
| Acquisition of patents | (110,406 | ) | (8,575 | ) | |||
| Cash provided by / (used in) investing activities | (175,761 | ) | (928,113 | ) | |||
| Cash flows from financing activities: | |||||||
| Proceeds from issuance of Common Stock, net | 889,443 | 1,434,500 | |||||
| Proceeds from issuance of Preferred Stock - Series B, net | — | 140,000 | |||||
| Proceeds from issuance of Preferred Stock - Series C, net | 3,021,700 | — | |||||
| Proceeds from Notes Payable | 543,105 | 1,276,500 | |||||
| Repayment of Notes Payable | (280,822 | ) | (361,500 | ) | |||
| Cash provided by financing activities | 4,173,426 | 2,489,500 | |||||
| Effect of exchange rate changes on cash | 21,429 | 3,193 | |||||
| Net increase (decrease) in cash | 823,760 | 114,310 | |||||
| Cash at beginning of period | 127,081 | 12,771 | |||||
| Cash at end of period | $ | 950,841 | $ | 127,081 | |||
| Supplemental Disclosures of Cash Flow information: | |||||||
| Interest paid: | $ | 1,686 | $ | — | |||
| Taxes paid | $ | — | $ | 2,248 | |||
| Non-Cash Transactions: | |||||||
| Warrants, options and common stock issued for debt financing | $ | 41,190 | $ | 803,690 | |||
See accompanying notes to unaudited financial statements
| F-4 |
1. FORMATION AND BUSINESS OF THE COMPANY
Business Description
Vycor Medical, LLC was formed on June 17, 2005 as a New York Limited Liability Company. The Company changed its name to Vycor Medical, Inc. and converted to a Delaware Corporation on August 14, 2007 and issued 16,048 shares of common stock in exchange for each of the 1,122 partnership units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the earliest period presented. Accordingly, all references to number of shares prior to the date of conversion are based upon the common stock equivalent of the partnership units outstanding on such dates.
The Company designs, develops and markets neurological medical devices and therapies through two operating divisions: Vycor Medical and NovaVision. Vycor Medical focuses on brain and cervical surgical access systems for sale to hospitals and medical professionals; NovaVision focuses on neuro-stimulation therapies and diagnostic devices for the treatment and screening of vision field loss.
2. 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 $4,778,541 for the year ended December 31, 2011, and the Company expects to continue to incur substantial additional losses in the future, including additional development costs, costs related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of December 31, 2011 the Company had a stockholders’ equity of $875,324 and cash and cash equivalents of $950,841. The Company believes it would not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations. These conditions raise substantial doubt about the 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. ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Vycor Medical, Inc., and its subsidiaries, NovaVision, Inc. (a U.S. corporation incorporated in Delaware) and NovaVision AG (German corporation), a wholly owned subsidiary of NovaVision, Inc. (individually and collectively referred to herein as the Company), which is headquartered in Boca Raton, FL. The operations of NovaVision, Inc have been consolidated from November 30, 2010, the date of the acquisition of substantially all the assets of the former NovaVision, Inc. All material inter-company accounts, transactions, and profits have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current presentation.
Research and Development
The Company expenses all research and development costs as incurred. For the years ended December 31, 2011 and 2010, the amounts charged to research and development expenses were $115,665 and $15,208, respectively.
Software Development Costs For Internal Use
The authoritative guidance requires software development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company’s software for internal use, incurred during the application development stage, are capitalized and amortized using the straight-line method of the estimated life of three years. The Company acquired internally developed software valued at $540,000 as part of the acquisition of the assets of NovaVision, Inc. For the years ended December 31, 2011 and 2010 there was no capitalization of software development costs.
| F-5 |
Concentration of Credit Risk
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up to 105% of the account balance. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Property and equipment
The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and ten years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
Patents and Other Intangible Assets
The Company capitalizes legal and related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The capitalized costs are amortized over the life of the patent.
The Company reviews intangible assets on an annual basis using a present value, cash flow method based upon the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative guidance
Income taxes
The Company accounts for income taxes in accordance with the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be realized.
Uses of estimates in the preparation of financial statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.
Revenue Recognition
Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.
NovaVision generates revenues from various programs, therapy services and other sources such as government grants. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Company’s work effort is expended. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average over 6 months in the U.S. and 10 months in Germany. A patient contract comprises set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a specified time frame.
Research grants and other subsidies represent revenue from certain German government agencies to cover certain patients within an insurance group and also to reimburse NovaVision AG for certain payroll and other costs. The Company recognizes grant revenue when services or costs have been incurred which would entitle the Company to use the German government funds, and the grant requirements have been satisfied.
Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.
| F-6 |
Accounts Receivable
The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to exceed the therapy period. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customer’s ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.
Inventory
Inventories are comprised of Vycor Medical VBAS devices, components ancillary to NovaVision’s medical device provided to patients and centers and diagnostic products, and are stated at the lower of cost or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a device is shipped to a customer or patient.
Foreign Currency
The Euro is the local currency of the country in which NovaVision AG conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated as part of the accumulated other comprehensive income (loss) and included in shareholders’ (deficit) in the accompanying Consolidated Balance Sheet.
Educational marketing and advertising expenses
The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will include education, marketing and advertising expense as a component of selling, general and administrative costs as such costs are incurred.
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 authoritative guidance. Other costs including the development of functionality and identification of software tools are expensed as incurred.
Stock-Based Compensation
The Company accounts for stock based compensation awards to employees using a fair-value-based method, for costs related to all share-based payments including stock options. These standards require companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model.
Fair Values of Assets and Liabilities
We value financial instruments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets or liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
There are three general valuation techniques that may be used to measure fair value, as described below:
a) Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;
b)Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and
c)Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
| F-7 |
Financial assets and liabilities are valued using either level 1 inputs based on unadjusted quoted market prices within active markets or using level 2 inputs based primarily on quoted prices for similar assets or liabilities in active or inactive markets. For certain long-term debt, fair value is based on present value techniques using inputs principally derived or corroborated from market data. Using level 3 inputs uses management’s assessment about the assumptions market participants would utilize in pricing the asset or liability. In the Company’s case this entailed assumptions used in pricing models for attached warrant calculations. Valuation techniques utilized to determine fair value are consistently applied.
The Company has no items that are subject to these standards as of December 31, 2011.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is 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, 2011 | December 31, 2010 | ||||||
| Stock options outstanding | 833,333 | 833,333 | |||||
| Warrants to purchase common stock | 262,096,921 | 90,191,077 | |||||
| Debentures convertible into common stock | 55,308,960 | 47,414,223 | |||||
| Preferred shares convertible into common stock | 139,555,546 | — | |||||
| Total | 457,794,760 | 138,438,633 | |||||
Recent Accounting Pronouncements
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
4. NOTES PAYABLE
As of December 31, 2011 and December 31, 2010, Notes Payable consists of:
| December 31, 2011 | December 31, 2010 | ||||||
| On December 29, 2009 and February 3, 2010, the Company issued convertible debentures in the amount of $371,362 and $70,000, respectively, payable to Fountainhead Capital Management (“Fountainhead”), the beneficial owner of more than 50% of the Company’s common stock. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to orpari passuwith, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. These debentures were originally due August 31, 2010. On May 14, 2010, the due date for satisfaction was extended to March 30, 2011, on March 28, 2011 the due date was further extended to August 31, 2011 and on June 6, 2011 the due date was further extended to December 31, 2012. | 441,362 | 441,362 | |||||
| F-8 |
| December 31, 2011 | December 31, 2010 | ||||||
| On September 30, 2010 and October 14, 2010, the Company issued convertible debentures payable to Fountainhead in the amount of $85,000 and $90,000, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0175 per share, subject to adjustment and does not require bifurcation. The debentures were originally due August 31, 2011, however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012. | 175,000 | 175,000 | |||||
| On October 26, 2010 and November 15, 2010, the Company issued debentures payable to Fountainhead in the amount of $77,500 and $322,500, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The debentures were originally due August 31, 2011, however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012. | 400,000 | 400,000 | |||||
| On November 15, 2010, the Company issued a convertible debenture in the amount of $350,000 payable to Peter Zachariou, a Director of the Company. This debenture accrues interest rate of 6% per annum, is due on December 31, 2012, is secured by a first priority security interest in all of the assets of the Company, and is senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per share, subject to adjustment and does not require bifurcation. On December 20, 2010, the Company repaid $50,000 of this debenture and removed the convertible rights. On June 6, 2011 the due date for satisfaction was extended to December 31, 2012. | 300,000 | 300,000 | |||||
| On December 3, 2010, the Company issued a debenture in the amount of $40,000 payable to Berardino Investment Group. This debenture accrued interest at a rate of 6% per annum, was due June 30, 2011, was secured by a first priority security interest in all of the assets of the Company, and was senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The Holder was entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per share, subject to adjustment and did not require bifurcation. On June 30, 2011, the entire principal and unpaid interest on this debenture was converted into 2,167,902 shares of the Company’s Common Stock at the conversion price of $0.019 per share. | — | 40,000 | |||||
| On March 25, 2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the Company’s common stock at an exercise price of $0.03 per share for a period of three (3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares of common stock of the Company at the conversion price of $0.03 per share, subject to adjustment and does not require bifurcation. On October 25, 2011 the due date for this note was further extended to December 10, 2011 and on March 27, 2011 the due date was further extended to June 30, 2012 | 300,000 | — | |||||
| Unsecured, non-interest bearing loan from the chief executive of NovaVision AG, advanced a total of to NovaVision AG, which is being repaid in monthly installments. As of December 31, 2011 and 2010 the remaining balance was €8,250 and €33,000, respectively. | 10,660 | 44,019 | |||||
| Insurance policy finance agreements | 9,103 | 15,281 | |||||
| Total Notes Payable: | $ | 1,636,125 | $ | 1,415,662 | |||
| F-9 |
The following is a schedule of future minimum loan payments:
| Twelve months ending December 31, | Amount | |||
| 2012 | $ | 1,636,125 | ||
| Total | $ | 1,636,125 | ||
As of December 31, 2011, $1,316,362 of Company’s notes payable are secured by a first security interest in all of the assets of the Company. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of each of the convertible debt instruments set out above, the fair value of the stock was either the same or less than the conversion price, and so there was no value attributable to any beneficial conversion feature.
5. SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a) Business segments
The Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses on neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss. Set out below are the revenues, gross profits and total assets for each segment.
| December 31, | |||||||
| 2011 | 2010 (restated) | ||||||
| Revenue: | |||||||
| Vycor Medical | $ | 548,463 | $ | 307,582 | |||
| NovaVision | 422,904 | 8,868 | |||||
| Total Revenue | $ | 971,367 | $ | 316,450 | |||
| Gross Profit: | |||||||
| Vycor Medical | 439,422 | 259,975 | |||||
| NovaVision | 355,687 | 7,738 | |||||
| Total Gross Profit | $ | 795,109 | $ | 267,713 | |||
| Total Assets: | |||||||
| Vycor Medical | 2,068,084 | 1,085,680 | |||||
| NovaVision | 1,503,556 | 1,068,014 | |||||
| Total Assets | $ | 3,571,640 | $ | 2,153,694 | |||
(b) Geographic information. The Company operates in two geographic segments, the United States and Germany. Set out below are the revenues, gross profits and total assets for each segment.
| December 31, | |||||||
| 2011 | 2010 (restated) | ||||||
| Revenue: | |||||||
| United States | $ | 740,967 | $ | 307,582 | |||
| Germany | 230,400 | 8,868 | |||||
| Total Revenue | $ | 971,367 | $ | 316,450 | |||
| Gross Profit: | |||||||
| United States | 607,702 | 259,975 | |||||
| Germany | 187,407 | 7,738 | |||||
| Total Gross Profit | $ | 795,109 | $ | 267,713 | |||
| Total Assets: | |||||||
| F-10 |
| December 31, | |||||||
| 2011 | 2010 (restated) | ||||||
| United States | 3,470,993 | 2,084,029 | |||||
| Germany | 100,647 | 69,665 | |||||
| Total Assets | $ | 3,571,640 | $ | 2,153,694 | |||
6. PROPERTY AND EQUIPMENT
As of December 31, 2011 and 2010, Property and Equipment and the estimated lives used in the computation of depreciation is as follows:
| 2011 | 2010 | ||||||
| Machinery and equipment | $ | 106,368 | $ | 93,764 | |||
| Purchased Software | 15,607 | 10,000 | |||||
| Molds and Tooling | 234,230 | 230,830 | |||||
| Furniture and fixtures | 21,130 | 18,288 | |||||
| Therapy Devices | 59,065 | 44,412 | |||||
| Internally Developed Software | 559,304 | 540,000 | |||||
| 995,704 | 937,294 | ||||||
| Less: Accumulated depreciation and amortization | (324,413 | ) | (164,106 | ) | |||
| Property and Equipment, net | $ | 671,291 | $ | 773,188 | |||
Estimated useful lives of property and equipment are as follows:
| Therapy devices | 3 years |
| Computer equipment and software | 3 years |
| Furniture and fixtures | 7 years |
| Machinery and office equipment | 5 years |
| Internally Developed Software | 5 years |
7. INTANGIBLE ASSETS
As of December 31, 2011 and 2010, Intangible Assets consists of:
| December 31, | |||||||
| 2011 | 2010 | ||||||
| Amortized intangible assets: Patent (8 years useful life) | |||||||
| Gross carrying Amount | $ | 492,147 | $ | 381,740 | |||
| Accumulated Amortization | (112,568 | ) | (48,668 | ) | |||
| $ | 379,579 | $ | 333,072 | ||||
| Intangible assets not subject to amortization | |||||||
| Trademarks | 130,000 | 130,000 | |||||
Intangible asset amortization expense for the periods ended December 31, 2011 and 2010 was $66,735 and $21,539, respectively.
8. EQUITY
Certain Equity Transactions
In January and February 2011, the Company issued an aggregate of 7,578,947 shares of common stock to three investors at a price of $0.019 per share for aggregate gross proceeds of $144,000.
In February 2011, the Company issued 250,000 shares of its common stock (valued at $5,000) to Steven Girgenti in consideration for services provided to the Board of Directors. In May 2011, the Company issued an additional 222,222 shares of its common stock (valued at $5,000) to Mr. Girgenti.
| F-11 |
On March 2, 2011, the Company issued warrants to seven parties to purchase 14,710,530 shares of the Company’s common stock at a price of $0.03 per share. The warrants are exercisable over a period of three years from the date of issuance.
On March 25, 2011, in connection with the issuance by the Company of a term note for $300,000 to EuroAmerican Investment Corp, the Company issued warrants to purchase 400,000 shares of Company common stock at an exercise price of $0.03 per share for a period of three years from the date of issuance. The estimated fair value of this warrant was recorded as a debt discount at issuance and was amortized over the three-month term of the loan as interest expense.
In April 2011, the Company issued 24,444,442 shares of common stock together with Warrants to purchase 12,222,221 shares of common stock at an exercise price of $0.03 per share for a period of three years for aggregate gross proceeds of $550,000.
In April 2011, in connection with a consultancy agreement, the Company issued 18,000,000 shares of common stock (valued at $360,000) to Jerrald Ginder. On June 25, 2011, pursuant to an amendment to this consultancy agreement, the Company issued an additional 2,666,667 shares of common stock to Mr. Ginder in lieu of aggregate monthly cash payments due under the agreement totaling $60,000.
In May 2011, the Company issued 8,666,666 shares of common stock together with Warrants to purchase 4,333,334 shares of Company common stock at an exercise price of $0.03 per share for a period of three years for aggregate gross proceeds of $195,000.
On June 7, 2011, the Company completed the sale of 31.4 Units comprising Series C Convertible Preferred Shares and Warrants (the “Units”) to accredited investors (the “Investors”) (the “Preferred Offering”) for aggregate proceeds of $1,570,000. The Units were issued pursuant to separate Series C Convertible Preferred Stock Purchase Agreements (the “Agreements”) between the Company and each of the Investors. This sale was an initial closing (the “Initial Closing”) under the Agreements which allows for maximum proceeds of $3,000,000. Each Unit was priced at $50,000 and comprised one share of Series C Preferred Convertible Stock convertible (at the Holder’s option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the Company’s Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Company’s Common Stock at $0.03 per share (subject to adjustments) for a period of three years (the “Warrant” or “Warrants”). A total of 31.4 shares of Series C Convertible Preferred Stock convertible into 69,777,773 shares of the Company’s Common Stock and Warrants to purchase 34,888,890 shares of the Company’s Common Stock were issued. On June 28, 2011, the Company completed a second closing of the Preferred Offering (the “Second Closing”) with the sale of an additional 15.40 Units to Investors for aggregate proceeds of $770,000. An additional 15.40 shares of Series C Convertible Preferred Stock convertible into 34,222,220 shares of the common stock and Warrants to purchase 17,111,111 shares of the Company’s common stock were issued in connection with the Second Closing. The Company entered into a Registration Rights Agreement with the Investors with respect to the Warrants. In December 2011, by mutual consent for technical reasons, the sale of 1 unit of Series C Convertible Preferred Stock convertible into 2,222,222 shares of the Company’s Common Stock was rescinded; the Company returned the $50,000 invested and the investor returned the preferred share and the warrants to purchase 1,111,111 shares of the Company’s Common Stock
On June 3, 2011, in connection with a consultancy agreement, the Company issued 15,500,000 shares of common stock (valued at $348,750) to GreenBridge Capital Partners IV, LLC. 10,333,333 of these shares remain held in escrow and are subject to clawback options, at the Company’s sole descretion, exerciseable in equal tranches by April 15 and 30, 2012.
On June 6, 2011, in connection with a consultancy agreement, the Company issued 1,000,000 shares of common stock (valued at $22,500) to Burnham Hill Advisors, LLC.
Burnham Hill Partners LLC (“BHP”) served as placement agent in connection with the sale of 24.8 Units in the Preferred Offering. Pursuant to a placement agent agreement with BHP, the Company paid BHP a cash placement fee equal to seven percent (7%) of the gross proceeds received by the Company from Units placed by BHP. Also pursuant to the placement agent agreement, the Company issued BHP Warrants (the “Placement Agent Warrants”) to purchase a number of shares equal to seven percent (7%) of the number of shares of common stock issuable upon conversion of the 24.8 Units placed by BHP (3,857,778 shares) in the Preferred Offering. The Placement Agent Warrants are exercisable for three years from the date of issuance at an exercise price of $0.0225 per share. In connection with the investor rescinding in December 2011 referred to above, the number of warrants was reduced to 3,702,223.
On June 30, 2011, the entire principal and unpaid interest on a Debenture dated December 3, 2010 payable to Berardino Investment Group in the original principal amount of $40,000 was converted into 2,167,902 shares of common stock at a conversion price of $0.019 per share.
Under the terms of a Consulting Agreement dated February 10, 2010 with Fountainhead, the Company was required to issue to Fountainhead fully vested warrants to purchase 39,063,670 shares of the Company’s common stock should certain conditions
| F-12 |
be met during the term of the Consulting Agreement. These warrants are exercisable at $0.0125 per share for a period of five years from February 2010. These warrants became issuable upon completion of the Preferred Offering and were issued in June 2011.
In July 2011 the Company issued Warrants to purchase 2,300,000 shares of Company common stock at an exercise price of $0.03 per share for a period of three years to Millenium Capital Corporation in respect of consulting and advisory services.
On August 4, 2011, the Company completed a final closing of the Preferred Offering (the “Final Closing”) with the sale of an additional 13.2 Units to Investors for aggregate proceeds of $660,000. An additional 13.2 shares of Series C Convertible Preferred Stock convertible into 29,333,330 shares of the Company’s Common Stock and Warrants to purchase 14,666,665 shares of the Company’s Common Stock were issued in connection with the Final Closing. An aggregate of 60 Units were sold to Investors in the First Closing, Second Closing and Final Closing of the Preferred Offering for total proceeds of $3,000,000. A total of 60 shares of Series C Convertible Preferred Stock, convertible into an aggregate of 133,333,324 shares of Common Stock, and Warrants to purchase 66,666,666 shares of the Company’s Common Stock.
In August 2011 the Company issued 154,600 shares of Common Stock (valued at $5,000) to Steven Girgenti, 78,300 shares of Common Stock to Alvaro Pascale-Leone (valued at $3,125) and 428,571 shares of Common Stock (valued at $10,000) to McCombie Group, LLC in respect of consulting agreements.
On August 26, 2011, the Company completed a new sale of 3.8 Units comprising Series C Convertible Preferred Shares and Warrants (the “Units”) to an accredited investor (the “Investor”) (the “ New Preferred Offering”) for aggregate proceeds of $190,000. Each Unit was priced at $50,000 and comprised one share of Series C Preferred Convertible Stock convertible (at the Holder’s option or mandatorily upon the occurrence of certain events) into 2,222,222 shares of the Company’s Common Stock ($0.0225 per share) and a Warrant to purchase 1,111,111 shares of the Company’s Common Stock at $0.03 per share (subject to adjustments) for a period of three years (the “Warrant” or “Warrants”).
In September 2011 the Company entered into a Consulting Agreement with Dr Oscar Bronsther with regard to certain potential clinical studies utilizing Vycor’s VBAS product. Under the terms of the agreement, Dr Bronsther received warrants to purchase up to 400,000 of the Company’s Common Stock for a period of three years from September 30, 2011 at a price of $0.03 per share.
On September 30, 2011 the Company issued 510,000 shares of Company common stock to Joe Simone in respect of an amendment to a previously disclosed consulting agreement.
In October 2011 the Company issued 166,667 shares of Common Stock (valued at $5,000) to Steven Girgenti and 104,167 shares of Common Stock to Alvaro Pascale-Leone (valued at $3,125) in respect of consulting agreements.
Effective December 2011, the Company issued 222,222 shares of Common Stock (valued at $5,000) to Steven Girgenti and 96,620 shares of Common Stock (valued at $2,174) to Dr Oscar Bronsther in consideration for services provided to the Board of Directors; and 138,890 shares of Common Stock (valued at $3,125) to each of Alvaro Pasuale-Leone, Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
In December 2011 the Company issued 402,965 shares of Common Stock to Fountainhead Capital Partners Limited in respect of the exercise of December 2006 warrants, and received $443.26 in cash.
During the year ended December 31, 2011, the Company received $889,000 in net cash proceeds from the sale of Common Shares, $3,018,200 in net proceeds from the sale of Preferred Stock and $443 in net proceeds from the exercise of warrants, as detailed above.
9. SHARE-BASED COMPENSATION
The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance.
Stock Option Plan
The Company adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan (the “Plan”) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the 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
| F-13 |
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 non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.
Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. No employee stock options were granted for the six month periods ended June 30, 2011 and 2010.
Initial grants of options to purchase 500,000 shares were issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Company’s Chief Executive Officer and Heather N. Vinas, the Company’s President at an exercise price of $0.135 per share. The options vested 33-1/3% on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Following Heather Vinas’ resignation as President of the Company in May 2010, 166,667 unvested options were cancelled. Accordingly, for the year ended December 31, 2011, the Company recognized share-based compensation only for the grant to Mr. Coviello, totaling $29,796.
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, 2011 there were no awards of any stock appreciation rights.
The Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the “measurement date” using an option pricing model. The “measurement date” for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.
The details of the outstanding rights, options and warrants and value of such rights, options and warrants are as follows:
| STOCK WARRANTS: | Number of shares | Weighted average exercise price per share | |||||
| Outstanding at December 31, 2009 | 35,493,172 | $ | 0.030 | ||||
| Granted | 90,191,077 | 0.015 | |||||
| Exercised | |||||||
| Cancelled or expired | (9,079,473 | ) | 0.015 | ||||
| Outstanding at December 31, 2010 | 116,604,776 | $ | 0.019 | ||||
| Granted | 148,176,421 | 0.025 | |||||
| Exercised | (402,965 | ) | 0.001 | ||||
| Cancelled or expired | (2,281,311 | ) | 0.163 | ||||
| Outstanding at December 31, 2011 | 262,096,921 | $ | 0.021 | ||||
| STOCK OPTIONS: | Number of shares | Weighted average exercise price per share | |||||
| Outstanding at December 31, 2009 | 1,000,000 | $ | 0.14 | ||||
| Granted | |||||||
| Exercised | |||||||
| Cancelled or expired | (166,667 | ) | 0.14 | ||||
| Outstanding at December 31, 2010 | 833,333 | $ | 0.14 | ||||
| Granted | — | — | |||||
| Exercised | — | — | |||||
| Cancelled or expired | — | — | |||||
| STOCK OPTIONS: | Number of shares | Weighted average exercise price per share | |||||
| Outstanding at December 31, 2011 | 833,333 | $ | 0.14 | ||||
| F-14 |
As of December 31, 2011, the weighted-average remaining contractual life of outstanding warrants and options is 2.93 and 7.88 years, respectively.
Non-Employee Stock Compensation
Under the terms of a consulting agreement dated February 2010, the Company issued fully vested warrants to Fountainhead to purchase up to 39,063,670 shares of the Company’s common stock at $0.0125 per share. The warrants are valid from February 10, 2010 for a period of five years. The fair value of these warrants was estimated using the Black-Scholes option pricing model and is being amortized over the two-year life of the consultancy agreement. For the year ended December 31, 2011, $179,095 was recognized as share-based compensation in connection with this agreement. Under the same agreement, the Company was also required to issue fully vested warrants to purchase an additional 39,063,670 shares of the Company’s common stock, at a price of $0.0125 per share should new funding totaling $3 million in aggregate in Common Stock of Vycor or in securities convertible into Common Stock of Vycor at a price of no less than $0.0125 per share of Common Stock be closed during the term of the Consulting Agreement. These warrants became issuable upon completion of the Preferred Offering and were issued in June 2011. The fair value of these warrants was estimated at $658,651 using the Black-Scholes model and, because the performance criteria of the warrants had been satisfied on the date of issuance the full value was expensed immediately.
During the year ended December 31, 2011, the Company issued an aggregate of 793,489 shares of common stock to Steven Girgenti for services rendered to the board of directors, valued at $20,000, which was recognized as share-based compensation for the year ended December 31, 2011.
Under the terms of a twelve-month sales and marketing consulting agreement dated March 2010, the Company issued 750,000 shares of its Common Stock to Joe Simone, valued at $9,375. As an amendment to this agreement in September 2011, 510,000 shares of Common Stock were issued, valued at $15,300. For the year ended December 31, 2011, $17,071 was recognized as share-based compensation in connection with this agreement.
Under the terms of an Extension of Funding Commitment agreement dated September 2010, the Company issued warrants to Fountainhead to purchase up to 50,627,407 shares of the Company’s common stock at $0.0175 per share. The warrants are valid from September 29, 2010 for a period of five years. The fair value of these warrants was estimated using the Black-Scholes model and is being amortized over the life of the agreement to August 30, 2011. For the year ended December 31, 2011, $336,114 was recognized as share-based compensation in connection with this agreement.
Under the terms of a one-year consulting agreement dated December 6, 2010, the Company issued warrants to Market Media Connect, LLC to purchase up to 500,000 shares of the Company’s common stock at $0.07 per share. The warrants are valid from December 1, 2010 for a period of three years. The fair value of these warrants was estimated using the Black-Scholes model and is being amortized over the life of the consulting agreement. For the year ended December 31, 2011, $3,063 was recognized as share-based compensation in connection with this agreement.
In March 2011 the Company entered into a one-year consultancy agreement with Mr Jerrald Ginder, effective April 1, 2011. Mr Ginder has extensive experience in sales and marketing and the development of medical device products, and has contacts which will be of use to the Company. Under the terms of the agreement, which the Company has the right to terminate with 30 days notice, Mr. Ginder was to receive $60,000 cash, payable monthly, and 18,000,000 restricted shares of common stock of the Company. The stock has been valued by the Company at $360,000 and is being amortized over the life of the agreement as share-based compensation expense. On June 22, 2011, the Company and Mr. Ginder entered into an Amendment to the Consulting Agreement. Pursuant to this amendment, the Company issued to Mr. Ginder an additional 2,666,667 shares of the Company’s common stock in lieu of the $60,000 cash due under the Consulting Agreement. The $60,000 value of the additional shares is also being amortized as share-based compensation over the life of the agreement. For the year ended December 31, 2011, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $310,430.
In June 2011, the Company entered into a one-year Consulting Agreement with GreenBridge Capital Partners, IV, LLC, to provide consulting and advisory services to the Company. Under the terms of this agreement, GreenBridge is to receive up to 15,500,000 shares of the Company’s common stock. 5,166,667 were received by Greenbridge during 2011 and the remainder is held in escrow subject to clawback, at the Company’s sole option, in two tranches on April 15 and 30, 2012. The stock has
| F-15 |
been valued by the Company at $348,750 and is being amortized over the life of the agreement as earned as share-based compensation expense. For the year ended December 31, 2011, $113,344 was recognized as share-based compensation in connection with this agreement.
In June 2011 the Company entered into a Consulting Agreement with Burnham Hill Advisors LLC (“BHA”) under which BHA shall provide, for a period of six months, financial and strategic advice to the Company. BHA received 1,000,000 restricted shares of the Company’s common stock. The stock has been valued by the Company at $22,500 and is being amortized over the life of the agreement as share-based compensation expense. For the year ended December 31, 2011, $22,250 was recognized as share-based compensation in connection with this agreement.
In July 2011 the Company issued Warrants to purchase 2,300,000 shares of Company common stock at an exercise price of $0.03 per share for a period of three years to Millenium Capital Corporation in respect of consulting and advisory services. The fair value of these warrants was estimated at $28,735 using the Black-Scholes model and, because because the performance criteria of the warrants had been satisfied on the date of issuance, the full value was recognized immediately.
In relation to his role as Chairman of the Scientific Advisory Board of NovaVision, the Company issued a total of 182,467 shares of the Company’s Common Stock to Alvaro Pascale-Leone, valued at $6,250, which was recognized as share-based compensation in the year ended December 31, 2011.
In July 2011 the Company entered into a Consulting Agreement with McCombie Group LLC with regard to certain business and strategic planning services. Under the terms of the agreement McCombie Group received 428,571 shares of Common Stock valued at $15,000, which was recognized as share-based compensation in the year ended December 31, 2011.
In September 2011 the Company entered into a Consulting Agreement with Dr Oscar Bronsther with regard to certain potential clinical studies utilizing Vycor’s VBAS product. Under the terms of the agreement, Dr Bronsther received warrants to purchase up to 400,000 of the Company’s Common Stock for a period of three years from September 30, 2011 at a price of $0.03 per share. The fair value of these warrants was estimated at $7,335 using the Black-Scholes model and, because the time period for the agreement is indeterminable, the full value was recognized immediately. Additionally, for services rendered to the board of directors, Dr Bronsther received 96,620 shares of Common Stock valued at $2,174, which was recognized as share-based compensation for the year ended December 31, 2011.
In relation to their roles as members of the Scientific Advisory Board of NovaVision, the Company issued a total of 138,890 shares of the Company’s Common Stock, valued at $3,125, to each of Jason Barton and Jose Romano, which was recognized as share-based compensation in the year ended December 31, 2011
Aggregate stock-based compensation expense charged to operations on employee options and on stock and warrants granted to the above non-employees for the year ended December 31, 2011 is $1,755,661. As of December 31, 2011, there was approximately $365,373 of total unrecognized compensation costs related to warrant and stock awards and non-vested options, which are expected to be recognized over a weighted average period of approximately 0.36 years.
Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock is determined by the then-prevailing private placement purchase price. Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Constant Maturity rate.
The following assumptions were used in calculations of the Black-Scholes option pricing model in years ended December 31, 2011 and 2010:
| Year ended December 31, | |||||||
| 2011 | 2010 | ||||||
| Risk-free interest rates | 0.42-1.60% | 1.91-2.39% | |||||
| Expected life | 3 years | 3 years | |||||
| Expected dividends | 0% | 0% | |||||
| Expected volatility | 96-99% | 96% | |||||
| Vycor Common Stock fair value | $0.02-$0.03 | $0.0125-$0.0175 | |||||
| F-16 |
10. INCOME TAXES
The Company has incurred net operating losses since inception. The Company has not reflected any tax benefit related to such net operating losses in the financial statements. Prior to August 15, 2007 the Company was a limited liability company and losses were passed through to the individual members, therefore the Company only has potential tax benefits from the date it became a ‘C’ corporation.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.
The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, management has determined that a 100% valuation allowance is appropriate at December 31, 2011 and December 31, 2010. The Company’s gross deferred tax assets and valuation allowance at December 31, 2011 and December 31, 2010 are as follows:
| December 31, 2011 | December 31, 2010 | ||||||
| Gross deferred tax assets | 2,100,000 | 1,573,000 | |||||
| Valuation allowance | (2,100,000 | ) | (1,573,000 | ) | |||
| Net deferred tax asset | — | — | |||||
As of December 31, 2011 and December 31, 2010, the Company has U.S. federal net operating loss carryforwards of approximately $6,000,000 and $3,675,000, respectively. The federal net operating loss carryforwards expire in the tax years 2027 through 2031.
Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carryforwards and research and development credits may be subject to the above limitations.
At December 31, 2011 and December 31, 2010 the Company has available for carryforward German net operating losses of approximately $420,000 and $125,000 respectively, to be applied against future German taxable income which may be subject to certain restrictions and limitations. Such carryforwards are subject to certain restrictions and limitations in the event of changes in the NovaVision AG’s ownership.
11. COMMITMENTS AND CONTINGENCIES
Lease
The Company leases approximately 10,000 sq. ft located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease is 5 years and 6 months months terminating July, 2017.
Kenneth Coviello retention bonus
Under the terms of the 2009 Recapitalization Agreement, certain accrued salaries totaling $70,643 were converted into a contingent retention bonus payable either on the closing of a Company fundraising of more than $1.5 million or on the sale of the Company (or substantially all of its assets) at a value above $3 million. The Company and Mr. Coviello are in discussions with regard to this agreement and timing of payment, but the company has accrued for this in full during 2011.
Contingent Vendor Settlement Provision
During the fourth quarter of 2011 the Company became aware of a matter with a distributor of NovaVision products in Germany relating to the distribution of products prior to the Company’s acquisition of NovaVision. The Company is in discussions with the vendor regarding the terms of a future commercial and settlement agreement, and has provided an accrual in the amount of €37,000, net ($48,810) representing the maximum settlement amount.
| F-17 |
12. CONSULTING AND OTHER AGREEMENTS
The Company has entered into the following consulting and other agreements during the year ended December 31, 2011:
Consulting Agreement with Jerrald Ginder
In March 2011 the Company entered into a one-year consultancy agreement with Mr. Jerrald Ginder, a sales executive of Stryker Corporation, effective April 1, 2011. Mr. Ginder has extensive experience in sales and marketing and the development of medical device products, and has contacts which will be of use to the Company. Under the terms of the agreement, which the Company has the right to terminate with 30 days notice, Mr. Ginder was to receive $60,000 cash, payable monthly, and 18,000,000 restricted shares of common stock of the Company. The stock has been valued by the Company at $360,000 and is being amortized over the life of the agreement as share-based compensation expense. On June 22, 2011, the Company and Mr. Ginder entered into an Amendment to the Consulting Agreement. Pursuant to this amendment, the Company issued to Mr. Ginder an additional 2,666,667 shares of the Company’s common stock in lieu of the $60,000 cash due under the Consulting Agreement. The $60,000 value of the additional shares is also being amortized as share-based compensation over the life of the agreement. For the six months ended June 30, 2011, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $91,720.
Supplement to Consulting Agreement with Fountainhead Capital Management Limited
On May 12, 2011, the Company entered into a Supplement to a prior Consulting Agreement with Fountainhead entered into on February 10, 2010 (amended September 29, 2010) to recognize Fountainhead’s expanded responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Supplement, commencing January 1, 2011 the Company will pay to Fountainhead an additional monthly retainer of $29,000. This additional monthly retainer shall be accrued and paid out to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.0225 per share; or (ii) in cash following the closing of a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011. Notwithstanding, Fountainhead shall have the option to receive up to $5,000 of the additional monthly retainer in cash each month, commencing April 1, 2011. In addition, the term of the Consulting Agreement was extended to May 5, 2013. Other than as supplemented, the Consulting Agreement remains in full force and effect according to its terms.
Consulting Agreement with GreenBridge Capital Partners, IV, LLC
On June 3, 2011, the Company entered into a Consulting Agreement (“Consulting Agreement”) with GreenBridge Capital Partners, IV, LLC, a Delaware limited liability company (“GreenBridge”), to provide consulting and advisory services to the Company. Under the terms of this agreement GreenBridge is to receive up to 15,500,000 shares of the Company’s Common Stock. Said shares are subject to a Company repurchase option, which may be exercised within specified time periods at the Company’s sole discretion.
On August 18, 2011, the Company agreed with GreenBridge to amend the Consulting Agreement to modify the dates for exercise of the Company’s repurchase option related to the shares delivered to Greenbridge pursuant to the terms of the Agreement. Specifically, the parties agreed that, of the 15,500,000 shares delivered to GreenBridge, the Company would have the option to repurchase 5,166,666 of the shares prior to November 30, 2011 and an additional 5,166,667 shares prior to February 28, 2012. The remaining 5,166,667 shares are not subject to a repurchase option. The shares which are the subject of the repurchase option are to be held in escrow by a third party. In all other respects, the original Consulting Agreement remains in full force and effect as written. The Consulting Agreement was subsequently amended on several occasions and as of the date hereof the option to repurchase 5,166,666 of the shares is exercisable by the Company prior to April 15, 2012 and an additional 5,166,667 shares prior to April 30, 2012.
Consulting Agreement with Burnham Hill Advisors LLC
The Company entered into a Consulting Agreement dated June 6, 2011 with Burnham Hill Advisors LLC (“BHA”) under which BHA shall provide, for a period of six months, financial and strategic advice to the Company. BHA shall receive fees of $10,000 per month and received 1,000,000 restricted shares of the Company’s Common Stock.
Agreement with Partizipant, LLC
On July 31, 2011, the Company entered into an Agreement (the “Agreement”) with Partizipant, LLC, a Delaware limited liability company (“Partizipant”), to provide a broad range of investor relations and public relations services as more particularly described in the Agreement, a copy of which is attached as Exhibit 10.1 to the Company’s Current report on Form 8-K filed on August 4, 2011. Pursuant to the Agreement, the Company agreed to pay Partizipant a one-time payment of $300,000.
| F-18 |
13. RELATED PARTY TRANSACTIONS
In January, February and March 2011 the Company issued unsecured, subordinated loan notes to Fountainhead for a total of $99,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due May 30, 2011.
In January and February 2011 the Company issued unsecured, subordinated loan notes to Peter Zachariou, a director of the Company for a total of $55,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due on demand.
In February 2011 the Company issued an unsecured, subordinated loan note to David Cantor, a director of the Company for $10,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% and are due on demand.
On May 6, 2011, the Company entered into a Supplement to a prior Consulting Agreement with Fountainhead entered into on February 10, 2010 (amended September 29, 2010) to recognize Fountainhead’s expanded responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Supplement, commencing January 1, 2011 the Company will pay to FCM an additional monthly retainer of $29,000. This additional monthly retainer shall be accrued and paid out to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.0225 per share; or (ii) in cash following the closing of a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011. Notwithstanding, Fountainhead shall have the option to receive up to $5,000 of the additional monthly retainer in cash each month, commencing April 1, 2011. In addition, the term of the Consulting Agreement was extended to May 5, 2013. Other than as supplemented, the Consulting Agreement remains in full force and effect according to its terms.
Under the terms of a Consulting Agreement dated February 10, 2010 with Fountainhead, the Company was required to issue to Fountainhead fully vested warrants to purchase an additional 39,063,670 shares of the Company’s Common Stock, at a price of $0.0125 per share should new funding totaling $3 million in aggregate in Common Stock of Vycor or in securities convertible into Common Stock of Vycor at a price of no less than $0.0125 per share of Common Stock be closed during the term of the Consulting Agreement. These warrants became issuable upon completion of the Preferred Offering and were issued in June 2011.
On June 6, 2011, in connection the Preferred Offering, Fountainhead agreed to extend to maturity of debentures totaling $931,362 to December 31, 2012. At the same time, Peter Zachariou, a director of the Company, agreed to extend the maturity of debentures totaling $300,000 to the same date.
On September 30, 2011, short-term loans including accrued interest of $102,450 and accrued interest on the loans extended on June 6, 2011 of $76,658, were repaid to Fountainhead. At the same time, short-term loans including accrued interest of $57,004 and accrued interest on the loans extended on June 6, 2011 of $14,992 were repaid to Peter Zachariou, a director of the Company; and short-term loans including accrued interest of $10,352 were repaid to David Cantor, a director of the Company.
In December 2011 the Company issued 402,965 shares of Common Stock to Fountainhead Capital Partners Limited in respect of the exercise of December 2006 warrants, and received $443.26 in cash.
| F-19 |
14. SUBSEQUENT EVENTS
Share Issuance
During January to March 2012, the Company issued 222,222 shares of Common Stock (valued at $5,000) to Steven Girgenti and 96,620 shares of Common Stock (valued at $2,174) to Dr Oscar Bronsther in consideration for services provided to the Board of Directors.
During January to March 2012, the Company issued 138,890 shares of Common Stock (valued at $3,125) to each of Alvaro Pasuale-Leone, Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
Conversion of Preferred Shares
During January to March 2012, the Company issued a total of 15,555,554 shares of Common Stock in respect of conversion of Series C Preferred Stock.
Acquisition of Sight Science Limited
On January 4, 2012, NovaVision, entered into various agreements with Professor Arash Sahraie (“Prof. Sahraie”) and the University of Aberdeen (Scotland) (the “University”), relating to the acquisition of all of the shares of Sight Science, Ltd. (“Sight Science”) by NovaVision. In consideration of the Share Purchase Agreement and other transaction agreements, the Company agreed to pay the Sight Science shareholders £200,000 (US$ 310,660) cash, of which £100,000 (US$155,330) was paid at the Closing and an additional £100,000 (US$155,330) cash to be paid to the Sight Science shareholders on the one-year anniversary of the Closing. In addition, the Sight Science shareholders received at Closing further consideration in the form of an aggregate of 14,350,000 restricted shares of the Company, which are the subject of lock-up agreements between the Parties and which at Closing were valued at £184,768 (US$287,000). Further details on the acquisition can be found in the Company’s Form 8-K/A dated March 21, 2012.
Amendment of Consulting Agreement
Effective as of March 4, 2012 the Company agreed with with GreenBridge Capital Partners IV, LLC to amend the Consulting Agreement between the parties to modify the dates for exercise of the Company’s repurchase option related to the shares delivered to Greenbridge pursuant to the terms of the Agreement. Specifically, the parties agreed that, of the 15,500,000 shares delivered to GreenBridge, the Company would have the option to repurchase 5,166,666 of the shares prior to April 15, 2012 and an additional 5,166,667 shares prior to April 30, 2012. The remaining 5,166,667 shares are not subject to a repurchase option. The shares which are the subject of the repurchase option are held in escrow by a third party. In all other respects, the original Consulting Agreement remains in full force and effect as written.
| F-20 |
VYCOR MEDICAL, INC.
Consolidated Balance Sheets
| June 30, 2012 | December 31, 2011 | ||||||
| (unaudited) | |||||||
| ASSETS | |||||||
| Current Assets | |||||||
| Cash | $ | 169,657 | $ | 950,841 | |||
| Accounts receivable, net | 171,849 | 313,679 | |||||
| Inventory | 329,409 | 184,070 | |||||
| Prepaid expenses and other current assets | 265,784 | 881,005 | |||||
| Total Current Assets | 936,699 | 2,329,595 | |||||
| Property and equipment, net | 941,315 | 671,291 | |||||
| Intangible and Other assets: | |||||||
| Trademarks | 251,157 | 130,000 | |||||
| Patents, net of accumulated amortization | 535,967 | 379,579 | |||||
| Website, net of accumulated amortization | 3,839 | 4,906 | |||||
| Security deposits | 56,269 | 56,269 | |||||
| Total Intangible and Other assets | 847,232 | 570,754 | |||||
| TOTAL ASSETS | $ | 2,725,246 | $ | 3,571,640 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 157,336 | $ | 176,181 | |||
| Accrued interest | 120,441 | 56,993 | |||||
| Accrued liabilities | 980,807 | 754,895 | |||||
| Other current liabilities | 287,334 | 72,122 | |||||
| Notes payable – current | 1,625,175 | 1,636,125 | |||||
| TOTAL CURRENT AND TOTAL LIABILITIES | 3,171,093 | 2,696,316 | |||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
| Preferred Stock, $0.0001 par value, 10,000,000 shares authorized, 44.8 and 62.8 issued and outstanding as at June 30, 2012 and December 31, 2011 respectively | $ | 1 | $ | 1 | |||
| Common Stock, $0.0001 par value, 1,500,000,000 shares authorized, 870,083,225 and 807,205,445 shares issued and outstanding at June 30, 2012 and December 31, 2011 respectively | 87,008 | 80,721 | |||||
| Additional Paid-in Capital | 12,672,208 | 12,432,114 | |||||
| Treasury Stock, 10,033,333 shares, at cost | (1,033 | ) | — | ||||
| Accumulated Deficit | (13,242,868 | ) | (11,661,704 | ) | |||
| Accumulated Other Comprehensive Income | 38,837 | 24,192 | |||||
| Total Stockholders’ Equity (Deficit) | (445,847 | ) | 875,324 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 2,725,246 | $ | 3,571,640 | |||
See accompanying notes to financial statements
| F-21 |
VYCOR MEDICAL, INC.
Consolidated Statements of Operation
(unaudited)
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Revenue | $ | 265,386 | $ | 142,331 | $ | 697,987 | $ | 287,453 | |||||
| Cost of Goods Sold | 40,248 | 35,192 | 119,669 | 57,565 | |||||||||
| Gross Profit | 225,138 | 107,139 | 578,318 | 229,888 | |||||||||
| Operating expenses: | |||||||||||||
| Research and development | 45,860 | 37,484 | 70,547 | 61,336 | |||||||||
| Depreciation and Amortization | 82,590 | 52,348 | 164,166 | 101,753 | |||||||||
| General and administrative | 839,407 | 1,823,019 | 1,894,380 | 2,784,290 | |||||||||
| Negative Goodwill on Acquisition of Subsidiary | — | — | (66,394 | ) | — | ||||||||
| Costs related to Acquisition of Subsidiary | — | — | 18,285 | — | |||||||||
| Total Operating expenses | 967,857 | 1,912,851 | 2,080,984 | 2,947,379 | |||||||||
| Operating loss | (742,719 | ) | (1,805,712 | ) | (1,502,666 | ) | (2,717,491 | ) | |||||
| Other income (expense) | |||||||||||||
| Other income (expense) | (23,336 | ) | 10,067 | (15,219 | ) | 10,067 | |||||||
| Interest expense | (31,679 | ) | (39,613 | ) | (63,279 | ) | (63,534 | ) | |||||
| Total Other expense | (55,015 | ) | (29,546 | ) | (78,498 | ) | (53,467 | ) | |||||
| Net Loss Before Taxes | $ | (797,734 | ) | (1,835,258 | ) | (1,581,164 | ) | (2,770,958 | ) | ||||
| Taxes | — | — | — | — | |||||||||
| Net Loss | (797,734 | ) | $ | (1,835,258 | ) | (1,581,164 | ) | $ | (2,770,958 | ) | |||
| Loss Per Share | |||||||||||||
| Basic and diluted | $ | (0.001 | ) | $ | (0.002 | ) | $ | (0.002 | ) | $ | (0.004 | ) | |
| Weighted Average Number of Shares Outstanding | 849,074,677 | 780,845,969 | 841,103,645 | 753,940,244 | |||||||||
See accompanying notes to financial statements
| F-22 |
VYCOR MEDICAL, INC.
Consolidated Statements of Cash Flows
(unaudited)
| For the six months ended June 30, | |||||||
| 2012 | 2011 | ||||||
| Cash flows from operating activities: | |||||||
| Net loss | $ | (1,581,164 | ) | $ | (2,770,958 | ) | |
| Adjustments to reconcile net loss to cash used in operating activities: | |||||||
| Amortization of intangible assets | 51,546 | 83,685 | |||||
| Depreciation of fixed assets | 123,320 | 17,989 | |||||
| Share based compensation | 204,755 | 1,164,400 | |||||
| Shares based interest expense | — | 4,884 | |||||
| Foreign currency loss (gain) | — | (4,156 | ) | ||||
| Net loss as adjusted for non-cash items | (1,201,543 | ) | (1,504,156 | ) | |||
| Changes in assets and liabilities: | |||||||
| Accounts receivable | 141,390 | (29,592 | ) | ||||
| Inventory | (145,473 | ) | (14,467 | ) | |||
| Prepaid expenses | 177,296 | (187,517 | ) | ||||
| Security deposit | — | 1,047 | |||||
| Accounts payable | (18,567 | ) | 116,485 | ||||
| Accrued interest | 63,448 | 57,459 | |||||
| Accrued liabilities | 218,114 | 102,909 | |||||
| Other current liabilities | 51,891 | 56,535 | |||||
| Cash used in operating activities | (713,444 | ) | (1,401,297 | ) | |||
| Cash flows used in investing activities: | |||||||
| Purchase of fixed assets | (17,635 | ) | (16,071 | ) | |||
| Purchase of website | — | (3,360 | ) | ||||
| Acquisition of subsidiary, net of cash acquired | (153,641 | ) | |||||
| Acquisition of patents | (16,077 | ) | (56,435 | ) | |||
| Cash used in investing activities | (187,353 | ) | (75,866 | ) | |||
| Cash flows from financing activities: | |||||||
| Net proceeds from issuance of Common stock | 120,000 | 889,000 | |||||
| Net proceeds from issuance of Series B preferred | — | 2,218,200 | |||||
| Purchase of shares into Treasury Stock | (1,033 | ) | — | ||||
| Net proceeds from issuance of Notes Payable | 15,863 | 530,576 | |||||
| Repayment of Notes Payable | (26,528 | ) | (81,582 | ) | |||
| Cash provided by financing activities | 108,302 | 3,556,194 | |||||
| Effect of exchange rate changes on cash | 11,311 | 504 | |||||
| Net increase (decrease) in cash | (781,184 | ) | 2,079,535 | ||||
| Cash at beginning of period | 950,841 | 127,081 | |||||
| Cash at end of period | $ | 169,657 | $ | 2,206,616 | |||
| Supplemental Disclosures of Cash Flow information: | |||||||
| Interest paid: | $ | 197 | $ | — | |||
| Taxes paid | $ | — | $ | 542 | |||
| Non-Cash Transactions: | |||||||
| Warrants, options and common stock issued for acquisition of subsidiary | $ | 287,000 | $ | — | |||
| Deferred consideration payable | $ | 156,150 | — | ||||
| Warrants, options and common stock issued for debt financing | $ | — | $ | 40,000 | |||
See accompanying notes to financial statements
| F-23 |
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
(unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the accompanying unaudited condensed financial statements have been prepared by Vycor Medical, Inc. (together with its consolidated subsidiaries, the “Company” or “Vycor”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to the quarterly report on Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011. Certain prior period amounts have been reclassified to conform to the current presentation.
2. FORMATION AND BUSINESS OF THE COMPANY
Business Description
Vycor Medical, LLC was formed on June 17, 2005 as a New York Limited Liability Company. The Company changed its name to Vycor Medical, Inc. and converted to a Delaware Corporation on August 14, 2007 and issued 16,048 shares of common stock in exchange for each of the 1,122 partnership units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the earliest period presented. Accordingly, all references to number of shares prior to the date of conversion are based upon the common stock equivalent of the partnership units outstanding on such dates.
The Company designs, develops and markets neurological medical devices and therapies through two operating divisions: Vycor Medical and NovaVision. Vycor Medical focuses on brain and cervical surgical access systems for sale to hospitals and medical professionals; NovaVision focuses on neuro-stimulation therapies and diagnostic devices for the treatment and screening of vision field loss resulting from neurological damage.
3. 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 $1,581,164 for the six months ended June 30, 2012, and the Company expects to continue to incur substantial additional losses in the future, including significant development, marketing, manufacturing and distribution costs. The Company has generated negative cash flows from operations since inception. As of June 30, 2012 the Company had a stockholders’ deficit of $445,847 and cash and cash equivalents of $169,657. The Company believes it will not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease operations. These conditions raise substantial doubt about the 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.
4. BUSINESS ACQUISITION
On January 4, 2012, the Company completed its acquisition (the “Acquisition”) of all of the shares of Sight Science Limited (“Sight Science”) in the UK, a company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological visual loss. The total consideration to the Sight Science shareholders was £384,768 (US$597,660); comprising: £200,000 (US$ 310,660) cash, of which £100,000 (US$155,330) was paid at the Closing and an additional £100,000 (US$155,330) cash to be paid to the Sight Science shareholders on the one-year anniversary of the Closing; an aggregate of 14,350,000 restricted shares of the Company, which are the subject of lock-up agreements between the Parties and which at Closing were valued at £184,768 (US$287,000).
As required under Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 805, Business Combinations, the Company commissioned an independent appraisal of the assets acquired which was finalized in March 2012. The Company determined the fair value of the assets acquired pursuant to the acquisition method as defined in ASC 805 and ASC 350, Intangibles-Goodwill and Other. Included in this valuation were assumptions concerning the cost of equity determined via the build-up method, the cost of debt and the weighted average cost of capital. Cash flows as included in the valuation were projected based on historical operations as well as management’s projections for future results based on these historical amounts. The trademark and patent valuations were based upon the Relief-from Royalty Method on an after tax basis. The value of the Internally Developed Software was based upon the Multi-period Excess Earnings Method utilizing, among other factors, a discount rate based on the Weighted Average Cost of Capital.
| F-24 |
The assets of Sight Science were entered into the Company’s consolidated accounts on the basis of this valuation As a result, the Company generated negative goodwill on acquisition of $66,394 which has been taken to the Consolidated Statement of Operations for the six months ended June 30, 2012.
The expenses of the transaction, which primarily comprised legal fees and audit fees in connection with the Form 8-K/A filed on March 21, 2012 and the ASC 805 valuation amounted to $18,285.
The following table represents the final purchase price allocation to the estimated fair value of the assets and liabilities assumed:
| As of January 4, 2012 | Amount | |||
| Trademarks and Tradenames | $ | 121,157 | ||
| Patents | 180,183 | |||
| Internally Developed Software | 363,472 | |||
| Other Net Assets | (758 | ) | ||
| 664,054 | ||||
| Negative Goodwill on acquisition | (66,394 | ) | ||
| Purchase Price | $ | 597,660 | ||
Principles of Consolidation
Assuming the acquisition discussed above had occurred on January 1, 2011, for the six months ended June 30, 2011, pro forma revenues, net loss and net loss per share for the Company would have been $326,324, $(2,807,662) and $(0.01), respectively.
The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
Deferred Consideration
As stated above, £100,000 of the cash consideration is deferred until January 4, 2013. This is recorded in Other Current Liabilities and at June 30, 2012 amounted to $156,150.
5. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation), NovaVision AG (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. The operations of Sight Science have been consolidated since January 4, 2012 the date of the completion of he acquisition of all the shares of Sight Science. All material inter-company accounts, transactions, and profits have been eliminated in consolidation.
Research and Development
The Company expenses all research and development costs as incurred. For the six months ended June 30, 2012 and 2011 the amounts charged to research and development expenses were $70,547 and $61,336, respectively.
Software Development Costs
The authoritative accounting guidancerequires software development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line method of the estimated life of five years. The Company acquired internally developed software valued at $540,000 as part of the acquisition of the assets of NovaVision, Inc. on November 30, 2010 and $363,472 as part of the acquisition of the assets of Sight Science Limited on January 4, 2012. For the six months ended June 30, 2012 and 2011 there was no capitalization of software development costs.
Uses of estimates in the preparation of financial statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrants included in the determination of debt discounts and share based compensation.
| F-25 |
Fair Values of Assets and Liabilities
We value financial instruments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets or liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
There are three general valuation techniques that may be used to measure fair value, as described below:
a) Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;
b) Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and
c) Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
Financial assets and liabilities are valued using either level 1 inputs based on unadjusted quoted market prices within active markets or using level 2 inputs based primarily on quoted prices for similar assets or liabilities in active or inactive markets. For certain long-term debt, fair value is based on present value techniques using inputs principally derived or corroborated from market data. Using level 3 inputs uses management’s assessment about the assumptions market participants would utilize in pricing the asset or liability. In the Company’s case this entailed assumptions used in pricing models for attached warrant calculations. Valuation techniques utilized to determine fair value are consistently applied.
The Company has no items that are subject to these standards as of June 30, 2012.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock and convertible debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. No dilution adjustment has been made to the weighted average outstanding common shares in the periods presented because the assumed exercise of outstanding options and warrants and the conversion of preferred stock and debt would be anti-dilutive.
The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share:
| June 30, 2012 | June 30, 2011 | ||||||
| Stock options outstanding | 833,333 | 833,333 | |||||
| Warrants to purchase common stock | 262,096,921 | 243,142,310 | |||||
| Debentures convertible into common stock | 55,308,960 | 35,308,960 | |||||
| Preferred shares convertible into common stock | 99,555,549 | — | |||||
| Total | 417,794,763 | 279,284,603 | |||||
Recent Accounting Pronouncements
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
| F-26 |
6. NOTES PAYABLE
As of June 30, 2012 and December 31, 2011 Notes Payable consists of:
| June 30, 2012 | December 31, 2011 | ||||||
| On December 29, 2009 and February 3, 2010, the Company issued convertible debentures in the amount of $371,362 and $70,000, respectively, payable to Fountainhead Capital Management (“Fountainhead”), the beneficial owner of more than 50% of the Company’s common stock. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to orpari passuwith, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. These debentures were originally due August 31, 2010. On May 14, 2010, the due date for satisfaction was extended to March 30, 2011, on March 28, 2011 the due date was further extended to August 31, 2011 and on June 6, 2011 the due date was further extended to December 31, 2012. | 441,362 | 441,362 | |||||
| On September 30, 2010 and October 14, 2010, the Company issued convertible debentures payable to Fountainhead in the amount of $85,000 and $90,000, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debentures then outstanding into shares of common stock of the Company at the conversion price of $0.0175 per share, subject to adjustment and does not require bifurcation. The debentures were originally due August 31, 2011, however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012. | 175,000 | 175,000 | |||||
| On October 26, 2010 and November 15, 2010, the Company issued debentures payable to Fountainhead in the amount of $77,500 and $322,500, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The debentures were originally due August 31, 2011, however the due date for satisfaction was extended on June 6, 2011 to December 31, 2012. | 400,000 | 400,000 | |||||
| On November 15, 2010, the Company issued a convertible debenture in the amount of $350,000 payable to Peter Zachariou, a Director of the Company. This debenture accrues interest rate of 6% per annum, is due on December 31, 2012, is secured by a first priority security interest in all of the assets of the Company, and is senior to orpari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.019 per share, subject to adjustment and does not require bifurcation. On December 20, 2010, the Company repaid $50,000 of this debenture and removed the convertible rights. On June 6, 2011 the due date for satisfaction was extended to December 31, 2012. | 300,000 | 300,000 | |||||
| On March 25, 2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the Company’s common stock at an exercise price of $0.03 per share for a period of three (3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares of common stock of the Company at the conversion price of $0.03 per share, subject to adjustment and does not require bifurcation. On October 25, 2011 the due date for this note was further extended to December 10, 2011,on March 27, 2011 the due date was further extended to June 30, 2012 and in July 2012 the due date was further extended to September 30, 2012 | 300,000 | 300,000 | |||||
| F-27 |
| Unsecured, non-interest bearing loan from the chief executive of NovaVision AG, advanced a total of €8,250 to NovaVision AG, repayable in monthly installments. As of June 30, 2012 the loan had been repaid in full and December 31, 2011 the remaining balance was €8,250. | — | 10,660 | |||||
| Insurance policy finance agreements | 8,813 | 9,103 | |||||
| Total Notes Payable: | $ | 1,625,175 | $ | 1,636,125 |
The following is a schedule of future minimum loan payments:
| Twelve months ending December 31, | Amount | |||
| 2012 | 1,625,175 | |||
| Total | $ | 1,625,175 | ||
As of June 30, 2012, $1,316,362 of Company’s notes payable are secured by a first security interest in all of the assets of the Company. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of each of the convertible debt instruments set out above, the fair value of the stock was either the same or less than the conversion price, and so there was no value attributable to any beneficial conversion feature.
7. SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a) Business segments
The Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses on neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss. Sight Science is consolidated as part of NovaVision from January 4, 2012, the date of the completion of the acquisition. Set out below are the revenues, gross profits and total assets for each segment.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Revenue: | |||||||||||||
| Vycor Medical | $ | 138,239 | $ | 82,239 | $ | 460,020 | $ | 182,081 | |||||
| NovaVision | 127,147 | 60,092 | 237,967 | 105,372 | |||||||||
| Total Revenue | $ | 265,386 | $ | 142,331 | $ | 697,987 | $ | 287,453 | |||||
| Gross Profit: | |||||||||||||
| Vycor Medical | $ | 118,206 | $ | 60,890 | $ | 378,795 | $ | 153,615 | |||||
| NovaVision | 106,932 | 46,249 | 199,523 | 76,273 | |||||||||
| Total Gross Profit | $ | 225,138 | $ | 107,139 | $ | 578,318 | $ | 229,888 | |||||
| June 30, 2012 | December 31, 2011 | ||||||
| Total Assets: | |||||||
| Vycor Medical | $ | 1,023,111 | $ | 2,068,084 | |||
| NovaVision | 1,702,135 | 1,503,556 | |||||
| Total Assets | $ | 2,725,246 | $ | 3,571,640 | |||
(b) Geographic information
The Company operates in two geographic segments, the United States and Europe. Sight Science is consolidated as part of Europe from January 4, 2012, the date of the completion of the acquisition. Set out below are the revenues, gross profits and total assets for each segment.
| F-28 |
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Revenue: | |||||||||||||
| United States | $ | 205,602 | $ | 105,193 | $ | 567,850 | $ | 209,202 | |||||
| Europe | 59,784 | 37,138 | 130,137 | 78,251 | |||||||||
| Total Revenue | $ | 265,386 | $ | 142,331 | $ | 697,987 | $ | 287,453 | |||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Gross Profit: | |||||||||||||
| United States | $ | 172,994 | $ | 79,766 | $ | 463,764 | $ | 173,658 | |||||
| Europe | 52,144 | 27,373 | 114,554 | 56,230 | |||||||||
| Total Gross Profit | $ | 225,138 | $ | 107,139 | $ | 578,318 | $ | 229,888 | |||||
| June 30, 2012 | December 31, 2011 | ||||||
| Total Assets: | |||||||
| United States | $ | 2,636,109 | $ | 3,470,993 | |||
| Europe | 89,137 | 100,647 | |||||
| Total Assets | $ | 2,725,246 | $ | 3,571,640 | |||
8. PROPERTY AND EQUIPMENT
As of June 30, 2012 and December 31, 2011, Property and Equipment and the estimated lives used in the computation of depreciation are as follows:
| Estimated Useful Lives | June 30, 2012 | December 31, 2011 | ||||||||
| Machinery and equipment | 3 years | $ | 118,422 | $ | 106,368 | |||||
| Leasehold Improvements | 5 years | 3,459 | — | |||||||
| Purchased Software | 3 years | 17,833 | 15,607 | |||||||
| Molds and Tooling | 5 years | 234,230 | 234,230 | |||||||
| Furniture and fixtures | 7 years | 22,554 | 21,130 | |||||||
| Therapy Devices | 3 years | 67,149 | 59,065 | |||||||
| Internally Developed Software | 5 years | 922,261 | 559,304 | |||||||
| 1,385,908 | 995,704 | |||||||||
| Less: Accumulated depreciation and amortization | (444,593 | ) | (324,413 | ) | ||||||
| Property and Equipment, net | $ | 941,315 | $ | 671,291 | ||||||
Depreciation expense for the six month periods ended June 30, 2012 and 2011 was $123,320 and $71,989 respectively, including $10,700 and $7,871 respectively for Therapy Devices which is allocated to Cost of Sales.
| F-29 |
9. INTANGIBLE ASSETS
As of June 30, 2012 and December 31, 2011, Intangible Assets consists of:
| June 30, 2012 | December 31, 2011 | ||||||
| Amortized intangible assets: Patent (8 years useful life) | |||||||
| Gross carrying Amount | $ | 688,407 | $ | 492,147 | |||
| Accumulated Amortization | (152,440 | ) | (112,568 | ) | |||
| $ | 535,967 | $ | 379,579 | ||||
| Intangible assets not subject to amortization | |||||||
| Trademarks | $ | 251,157 | $ | 130,000 | |||
Amortization expense for the six month periods ended June 30, 2012 and 2011 was $51,546 and $29,685, respectively.
10. EQUITY
Certain Equity Transactions
On January 4, 2012, an aggregate of 14,350,000 restricted shares of the Company were issued to Prof. Sahraie and the University of Aberdeen, relating to the acquisition of all of the shares of Sight Science, Ltd. (“Sight Science”) by NovaVision.
During January to June 2012, or effective June 30, 2012, the Company issued 444,444 shares of Common Stock (valued at $10,000) to each of Steven Girgenti and Dr Oscar Bronsther in consideration for services provided to the Board of Directors, 277,780 shares of Common Stock (valued at $6,250) to each of Alvaro Pasual-Leone, Jason Barton and Jose Romano, and 138,890 shares of Common Stock (valued at $3,125) to Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
In April 2012 the Company issued 1,333,333 shares of Common Stock (valued at $30,000) to Brunella Jacs, LLC in respect of consultancy services provided the Company.
In June 2012, following the exercise of the Company’s option to repurchase shares of Common Stock from Greenbridge Capital Partners, IV, LLC, a total of 10,333,333 shares were repurchased into Treasury Stock at $1,033.
During January to June 2012, the Company issued a total of 39,999,996 shares of Common Stock in respect of conversion of Series C Preferred Stock.
During May to June 2012, the Company issued a total of $5,333,333 shares of Common Stock at $0.0225 for a total consideration of $120,000 to three investor.
11. SHARE-BASED COMPENSATION
The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance.
Stock Option Plan
The Company adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan (the “Plan”) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the 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
| F-30 |
date. The vesting period for employees is generally over three years. The vesting Period for non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.
Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. No employee stock options were granted for the six month periods ended June 30, 2012 and 2011.
Initial grants of options to purchase 500,000 shares were issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Company’s Chief Executive Officer and Heather N. Vinas, the Company’s President at an exercise price of $0.135 per share. The options vested 33-1/3% on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Following Heather Vinas’ resignation as President of the Company in May 2010, 166,667 unvested options were cancelled. For the six months ended June 30, 2012 and 2011, the Company recognized share-based compensation of $0 and $29,796, respectively.
Stock appreciation rights may be granted either on a stand alone basis or in conjunction with all or part of any other stock options granted under the plan. As of June 30, 2012 there were no awards of any stock appreciation rights.
The Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the “measurement date” using an option pricing model. The “measurement date” for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.
The details of the outstanding rights, options and warrants and value of such rights, options and warrants are as follows:
| Number of shares | Weighted average exercise price per share | ||||||
| STOCK WARRANTS: | |||||||
| Outstanding at December 31, 2010 | 116,604,776 | $ | 0.019 | ||||
| Granted | 148,176,421 | 0.025 | |||||
| Exercised | (402,965 | ) | 0.001 | ||||
| Cancelled or expired | (2,281,311 | ) | 0.163 | ||||
| Outstanding at December 31, 2011 | 262,096,921 | $ | 0.021 | ||||
| Granted | — | — | |||||
| Exercised | — | — | |||||
| Cancelled or expired | — | — | |||||
| Outstanding at June 30, 2012 | 262,096,921 | $ | 0.021 | ||||
| Number of shares | Weighted average exercise price per share | ||||||
| STOCK OPTIONS: | |||||||
| Outstanding at December 31, 2010 | 833,333 | $ | 0.14 | ||||
| Granted | — | — | |||||
| Exercised | — | — | |||||
| Cancelled or expired | — | — | |||||
| Outstanding at December 31, 2011 | 833,333 | $ | 0.14 | ||||
| Granted | — | — | |||||
| Exercised | — | — | |||||
| Cancelled or expired | — | — | |||||
| Outstanding at June 30, 2012 | 833,333 | $ | 0.14 | ||||
| F-31 |
As of June 30, 2012, the weighted-average remaining contractual life of outstanding warrants and options is 2.43 and 5.6 years, respectively.
Non-Employee Stock Compensation
Under the terms of a consulting agreement dated February 2010, the Company issued fully vested warrants to Fountainhead to purchase up to 39,063,670 shares of the Company’s common stock at $0.0125 per share. The warrants are valid from February 10, 2010 for a period of five years. The fair value of these warrants was estimated using the Black-Scholes option pricing model and is being amortized over the two-year life of the consultancy agreement. For the six months ended June 30, 2012, $20,397 was recognized as share-based compensation in connection with this agreement.
During the six months ended June 30, 2012, the Company issued an aggregate of 444,444 shares of common stock, valued at $10,000, to each of Steven Girgenti and Oscar Bronsther for services rendered to the board of directors. For the six months ended June 30, 2012, a total of $20,000 was recognized as share-based compensation for the issuance of these shares.
During the six months ended June 30, 2012, the Company issued an aggregate of 277,780 shares of common stock, valued at $6,250, to each of Alvaro Pascual-Leone, Jason Barton and Jose Romano and 138,890 shares of Common Stock, valued at $3,125, to Josef Zihl for services rendered to the Scientific Advisory Board of NovaVision. For the six months ended June 30, 2012, an aggregate of $21,875 was recognized as share-based compensation for the issuance of these shares.
Under the terms of a one-year consultancy agreement with Mr. Jerrald Ginder dated March 2011, as amended June 2011, the company issued an aggregate of 20,666,667 restricted shares of common stock of the Company. The stock was valued by the Company at $420,000 and was amortized over the life of the agreement as share-based compensation expense. For six months ended June 30, 2012, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $109,570. The consultancy was fully expensed as of March 30, 2012.
In June 2011, the Company entered into a one-year Consulting Agreement with GreenBridge Capital Partners, IV, LLC, to provide consulting and advisory services to the Company. Under the terms of this agreement, GreenBridge was to receive up to 15,500,000 shares of the Company’s common stock. The stock was valued by the Company at $348,750 and was being amortized over the life of the agreement as share-based compensation expense, in accordance with the performance under that agreement. As further discussed in Note 14, in May 2012 the Company exercised its option to repurchase 10,333,333 shares. Accordingly, a total of $116,250 is to be recognised as expense under this agreement. As at December 31, 2011, $113,344 had been recognized and for the six months ended June 30, 2012, $2,906 was recognized as share-based compensation in connection with this agreement.
In April 2012 the Company entered into a consultancy agreement with Brunella Jacs, LLC for certain corporate and strategic advisory services. Under the terms of the agreement, Brunella Jacs was issued 1,333,333 shares of Common Stock, valued at $30,000. For six months ended June 30, 2012, aggregate compensation recognized in respect of this agreement was $30,000.
Aggregate stock-based compensation expense charged to operations on employee options and on stock and warrants granted to the above non-employees for the six months ended June 30, 2012 is $204,755. As of June 30, 2012, there was $0 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.
Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock is determined by the then-prevailing private placement purchase price. Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Constant Maturity rate.
The following assumptions were used in calculations of the Black-Scholes option pricing model for options and warrants expensed in the three months ended June, 2012 and 2011:
| Six months ended June 30, | |||||
| 2012 | 2011 | ||||
| Risk-free interest rates | 2.39% | 0.57-1.60% | |||
| Expected life | 3 years | 3 years | |||
| Expected dividends | 0% | 0% | |||
| Expected volatility | 96% | 96% | |||
| Vycor Common Stock fair value | $0.0125-$0.0225 | $0.0125 | |||
| F-32 |
12. INCOME TAXES
The Company has incurred net operating losses since inception. The Company has not reflected any tax benefit related to such net operating losses in the financial statements. Prior to August 15, 2007 the Company was a limited liability company and losses were passed through to the individual members, therefore the Company only has potential tax benefits from the date it became a ‘C’ corporation.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.
The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, management has determined that a 100% valuation allowance is appropriate at June 30, 2012 and December 31, 2011. The Company’s gross deferred tax assets and valuation allowance at June 30, 2012 and December 31, 2011are as follows:
| June 30, 2012 | December 31, 2011 | ||||||
| Gross deferred tax assets | 2,400,000 | 2,100,000 | |||||
| Valuation allowance | (2,400,000 | ) | (2,100,000 | ) | |||
| Net deferred tax asset | — | — | |||||
As of June 30, 2012 and December 31, 2011, the Company has U.S. federal net operating loss carryforwards of approximately $7,050,000 and $6,000,000, respectively. The federal net operating loss carryforwards expire in the tax years 2027 through 2031.
Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carryforwards and research and development credits may be subject to the above limitations.
At June 30, 2012 and December 31, 2011the Company has available for carryforward German net operating losses of approximately $500,000 and $420,000 respectively, to be applied against future German taxable income which may be subject to certain restrictions and limitations. Such carryforwards are subject to certain restrictions and limitations in the event of changes in the NovaVision AG’s ownership.
13. COMMITMENTS AND CONTINGENCIES
Lease
The Company leases approximately 10,000 sq. ft located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease is 5 years and 6 months terminating July, 2017.
Kenneth Coviello retention bonus
Under the terms of the 2009 Recapitalization Agreement, certain accrued salaries totaling $70,643 were converted into a contingent retention bonus. Mr Coviello will receive 50% of this amount on his departure from the company on August 3, 2012, and the remainder after 60 days.
Contingent Vendor Settlement Provision
During the fourth quarter of 2011 the Company became aware of a matter with a distributor of NovaVision products in Germany relating to the distribution of products prior to the Company’s acquisition of NovaVision. The Company is in discussions with the vendor regarding the terms of a future commercial and settlement agreement, and provided an accrual during the year ended December 31, 2011 in the amount of €37,000, net ($48,810) representing the maximum settlement amount.
Potential German tax liability and connected professional fees
In June 2012 the Company’s German subsidiary received a preliminary assessment for Magdeburg City trade tax of approximately €75,000 (approximately $94,000). This assessment is for the 2010 fiscal year and relates to the Company’s acquisition of the assets of the former NovaVision, Inc. An initial assessment for corporate tax for the same period has been preliminarily reduced to zero. The Company has not accepted this trade tax assessment and is in discussion with the relevant tax authorities with a view to its reduction. To the extent that this assessment, a higher or a reduced amount, is ultimately confirmed by the tax authorities, the Company believes it has a very strong claim against certain professional advisors which would offset the liability in full. Accordingly, the Company has made no provision for this liability for the period ended June 30, 2012.
Related to the above tax situation, the Company has incurred advisory fees. The Company believes it also has a strong claim against certain professional advisors for a recovery of the full amount of the fees, however such recovery may be limited to a statutory minimum. Accordingly the Company has made a provision in the period ended June 30, 2012 for the excess over the statutory minimum, being €19,000 ($23,900).
| F-33 |
14. CONSULTING AND OTHER AGREEMENTS
The Company has entered into one new consulting agreement during the three months ended June 30, 2012.
Consulting Agreement with Brunella Jacs, LLC.
In April 2012, the Company entered into a consulting agreement with Brunella Jacs for certain corporate and strategic advisory services. Under the terms of the agreement, Brunella Jacs was issued 1,333,333 shares of Common Stock, valued at $30,000, which has been fully expensed in the three months ended June 30, 2012. There is no other consideration payable under this agreement.
The following agreements remained in force during the three months ended June 30, 2012:
Consulting Agreement with Fountainhead Capital Management Limited (“Fountainhead”)
In February 2010 the Company entered into a Consulting Agreement with Fountainhead, which was the subject of a Supplement Agreement in May, 2011 to recognize Fountainhead’s expanded responsibilities as a result of the acquisition by the Company of the assets of NovaVision, Inc. Under the terms of the Agreement and Supplement, the Company will pay to Fountainhead a monthly retainer of $37,500 ($8,500 under the Original Agreement and $29,000 under the Supplement). This monthly retainer shall be accrued and paid out to Fountainhead at the option of Fountainhead as follows: (i) in Vycor stock at any time at $0.125 per share for the Original Agreement and $0.0225 per share for the Supplement; or (ii) in cash following the closing of a fundraising of no less than $2.5 million or on the sale of the Company or a substantial part of the assets thereof at any time after June 30, 2011. Notwithstanding, Fountainhead has the option to receive up to $5,000 of monthly retainer in cash each month, commencing April 1, 2011. The term of the Consulting Agreement is to May 5, 2013.
Consulting Agreement with GreenBridge Capital Partners, IV, LLC
On June 3, 2011, the Company entered into a Consulting Agreement (“Consulting Agreement”) with GreenBridge Capital Partners, IV, LLC, a Delaware limited liability company (“GreenBridge”), to provide consulting and advisory services to the Company. Under the terms of this agreement GreenBridge was to receive up to 15,500,000 shares of the Company’s Common Stock. Said shares were subject to a Company repurchase option, which could be exercised within specified time periods at the Company’s sole discretion.
As of June 30, 2012, the Company had exercised its option to repurchase 10,333,333 of the 15,500,000 shares for a total purchase price of $1,033.33. The Company also believes that it is entitled to the return of the remaining 5,166,667 shares because it contends that GreenBridge breached the Consulting Agreement and failed to deliver the services it was obligated to perform pursuant to the terms of the Consulting Agreement. The Company has filed an action relative to this matter with the American Arbitration Association alleging causes of action based upon breach of contract and fraud. This action is still in its early stages and GreenBridge has yet to file its response. As a result, the Company cannot project whether it will achieve a successful result in this action.
Agreement with Partizipant, LLC
On July 31, 2011, the Company entered into an Agreement (the “Agreement”) with Partizipant, LLC, a Delaware limited liability company (“Partizipant”), to provide a broad range of investor relations and public relations services. Pursuant to the Agreement, the Company agreed to pay Partizipant a one-time payment of $300,000.
The Company believes that Partizipant has not adequately performed its services under the Agreement and that it is entitled to the return of a substantial portion of the amounts paid under the terms of the Agreement. The Company has filed an action relative to this matter with the American Arbitration Association alleging causes of action based upon breach of contract and fraud. This action is still in its early stages and Partizipant yet to file its response. As a result, the Company cannot project whether it will achieve a successful result in this action.
15. RELATED PARTY TRANSACTIONS
There were no related party transactions during the six months ended June 30, 2012 other than the payment or accrual of fees under the Fountainhead Consulting agreement described in 14 above.
16. SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10Q.
Share Issuance
During July 2012, the Company issued 222,222 shares of Common Stock (valued at $5,000) each to Steven Girgenti and Oscar Bronsther, M.D.in consideration for services provided to the Board of Directors.
During July 2012, the Company issued 2,222,222 shares of Common Stock at $0.0225 for a total consideration of $50,000 to one investor.
Loan from Fountainhead
During July 2012, the Company issued unsecured, subordinated loan notes to Fountainhead for a total of $100,000. The loan notes are subordinated to the Company’s secured debentures, bear interest at a rate of 6% are are due on demand or by July 9, 2013.
Legal Action against GreenBridge Capital Partners, IV, LLC and Partizipant, LLC
On July 20, 2012, the Company filed Action #13 148 01633 12 with the American Arbitration Association entitledVycor Medical, Inc. (Claimant) against Greenbridge Capital Partners IV, LLC, Partizipant, LLC, and Joseph D. Kowal (Respondents) (the “Action”). The Action is based on breach of contract and fraud and seeks recovery of 5,166,667 shares of Company Common Stock previously issued to Greenbridge Capital Partners IV, LLC and recovery of at least $357,000 paid to Partizipant, LLC (including amounts paid to third parties at Partizipant’s direction), together with recovery of fees, costs and expenses incurred in connection with the Action. The Action is still in its early stages and the Respondents have yet to file any response. The Company cannot project whether it will achieve a successful result in connection with the Action.
| F-34 |
This prospectus is part of a registration statement we filed with the SEC. You should rely only on the information or representations provided in or incorporated by reference into this prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents.
No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in or incorporated by reference in this prospectus in connection with the offer made by this prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any security other than the securities offered hereby, nor does it constitute an offer to sell or a solicitation of any offer to buy any of the shares offered by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof.
The date of this prospectus is August 20, 2012.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 13. | Other Expenses of Issuance and Distribution |
Although we will receive no proceeds from the sale of shares pursuant to this prospectus, we have agreed to bear the costs and expenses of the registration of the shares. Our expenses in connection with the issuance and distribution of the securities being registered are estimated as follows:
| Nature of expense | Amount | ||||
| SEC Registration fee | $ | 435.00 | |||
| Accounting fees and expenses | $ | 7,500.00 | |||
| Legal fees and expenses | $ | 7,500.00 | |||
| Printing expenses | $ | 3,000.00 | |||
| Miscellaneous | $ | 1,000.00 | |||
| TOTAL | $ | 19,435.00 | |||
All amounts are estimates other than the Securities and Exchange Commission’s registration fee. We are paying all expenses of the offering listed above through advances to the Company by the Company’s founding shareholders. No portion of these expenses will be borne by the selling shareholders. The selling shareholders, however, will pay any other expenses incurred in selling their common stock, including any brokerage commissions or costs of sale.
| Item 14. | Indemnification of Directors and Officers |
Pursuant to our Certificate of Incorporation and By-Laws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. In certain cases, we may advance expenses incurred in defending any such proceeding. To the extent that the officer or director is successful on the merits in any such proceeding as to which such person is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The prior discussion of indemnification in this paragraph is intended to be to the fullest extent permitted by the laws of the State of Delaware.
Indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors or officers pursuant to the foregoing provisions. However, we are informed that, in the opinion of the Commission, such indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
| II-1 |
| Item 15. | Recent Sales of Unregistered Securities |
Below is a list of securities sold by us from January 1, 2010 to the present date which were not registered under the Securities Act.
| Name of Purchaser | Date of Sale | Title of Security | Amount of Securities Sold | Consideration | |||||||
| Fountainhead Capital Management Limited | January 11, 2010 | Common Stock | 531,376,500 | Debenture Exchange | |||||||
| Jodi Yeager | January 11, 2010 | Common Stock | 4,000,000 | Debenture Conv. | |||||||
| Panamerica Capital Group, Inc. | January 11, 2010 | Common Stock | 8,787,600 | Debenture Conv. | |||||||
| Hyperlink Media, LLC | January 11, 2010 | Common Stock | 9,187,600 | Debenture Conv. | |||||||
| Karen Ginder | January 11, 2010 | Common Stock | 10,320,000 | Debenture Conv. | |||||||
| Accessible Development Corp. | January 11, 2010 | Common Stock | 4,000,000 | Debenture Conv. | |||||||
| Altitude Group, LLC | January 11, 2010 | Common Stock | 16,000,000 | Debenture Conv. | |||||||
| Mario Zachariou | January 11, 2010 | Common Stock | 6,000,000 | Debenture Conv. | |||||||
| Anthony Cantor | January 11, 2010 | Common Stock | 6,000,000 | Debenture Conv. | |||||||
| SLJ Consulting Corp | January 12, 2010 | Series B. Pref. | 80,000 | $80,000 | |||||||
| Joseph Simone | January 12, 2010 | Series B. Pref. | 80,000 | $35,000 | |||||||
| Steven Girgenti | February 23, 2010 | Common Stock | 800,000 | Professional services | |||||||
| Kenneth D. Watkins | March 11, 2010 | Series B. Pref. | 25,000 | $25,000 | |||||||
| Jane G. Ellis | April, 2010 | Common Stock | 6,666,667 | $100,000 | |||||||
| Gregory Sichenzia | April 2010 | Common Stock | 934,986 | Professional Services | |||||||
| Joe Simone | April 2010 | Common Stock | 750,000 | Professional services | |||||||
| Myles F. Wittenstein | May 2010 | Common Stock | 3,300,000 | $49,500 | |||||||
| Guri Dauti | May 2010 | Common Stock | 2,333,333 | $35,000 | |||||||
| Stanley Katz | May 2010 | Common Stock | 3,000,000 | $45,000 | |||||||
| Stanley Katz | May 2010 | Common Stock | 3,000,000 | $45,000 | |||||||
| Duane John Renfro | May 2010 | Common Stock | 3,333,333 | $50,000 | |||||||
| Glenn Fleischacker | May 2010 | Common Stock | 3,333,333 | $50,000 | |||||||
| Datavision Computer Video, Inc. | May 2010 | Common Stock | 1,666,667 | $25,000 | |||||||
| Thomas Ambrose | May 2010 | Common Stock | 3,333,333 | $50,000 | |||||||
| Jack Lens | May 2010 | Common Stock | 3,333,333 | $50,000 | |||||||
| IRA Services Trust Company | May 2010 | Common Stock | 13,333,333 | $200,000 | |||||||
| Falcon Partners BVBA | May 2010 | Common Stock | 3,333,333 | $50,000 | |||||||
| Konstantin Slavin | July 2010 | Common Stock | 262,500 | Professional services | |||||||
| Ramon Rak | July 2010 | Common Stock | 300,000 | Professional Services | |||||||
| Steven Girgenti | July 2010 | Common Stock | 250,000 | Professional services |
| II-2 |
| Sal & Kathryn DeMarco | July 2010 | Common Stock | 4,241,072 | $76,250 | |||||||
| Jarvis D & Molly Littlefield | August 2010 | Common Stock | 2,857,143 | $50,000 | |||||||
| Berardino Investment Group | August 2010 | Common Stock | 1,428,571 | $25,000 | |||||||
| Panayiotis Panayiotou | August 2010 | Common Stock | 571,429 | $10,000 | |||||||
| Simon Becker | August 2010 | Common Stock | 6,285,714 | $110,000 | |||||||
| Richard H. Lawson | September 2010 | Common Stock | 1,428,571 | $25,000 | |||||||
| SLJ Consulting | September 2010 | Common Stock | 6,548,515 | Preferred Conversion | |||||||
| Joe Simone | September 2010 | Common Stock | 3,139,463 | Preferred Conversion | |||||||
| Kenny Watkins | September 2010 | Common Stock | 2,080,219 | Preferred Conversion | |||||||
| Sal & Kathryn DeMarco | October 2010 | Common Stock | 2,285,714 | $40,000 | |||||||
| Sal & Kathryn DeMarco | November 2010 | Common Stock | 1,714,286 | $30,000 | |||||||
| Steven Girgenti | November 2010 | Common Stock | 250,000 | Professional services | |||||||
| Myles F. Wittenstein | November 2010 | Common Stock | 2,631,579 | $50,000 | |||||||
| Brunella Jacs LLC | November 2010 | Common Stock | 2,631,579 | $50,000 | |||||||
| Dr. Sam Fox | November 2010 | Common Stock | 2,631,579 | $50,000 | |||||||
| Neil A. Weiss | December 2010 | Common Stock | 5,263,158 | $100,000 | |||||||
| Stephen Nicholas Bunzl | December 2010 | Common Stock | 7,894,737 | $150,000 | |||||||
| Peter Lawrence | December 2010 | Common Stock | 2,631,579 | $50,000 | |||||||
| Stephen Rathkopf | January 2011 | Common Stock | 1,000,000 | $19,000 | |||||||
| Steven Girgenti | January 2011 | Common Stock | 250,000 | Professional services | |||||||
| Datavision Computer Video, Inc. | February 2011 | Common Stock | 1,315,789 | $25,000 | |||||||
| Dr. Wayne Fleischacker | February 2011 | Common Stock | 5,263,158 | $100,000 | |||||||
| Jerrald Ginder | April 2011 | Common Stock | 18,000,000 | ** | $360,000 | ||||||
| Ilex Investments, LP | April 2011 | Common Stock | 8,888,888 | $200,000 | |||||||
| Carol Tambor | April 2011 | Common Stock | 2,222,222 | $50,000 | |||||||
| Neil Weiss | April 2011 | Common Stock | 4,444,444 | $100,000 | |||||||
| Myles Wittenstein | April 2011 | Common Stock | 2,222,222 | $50,000 | |||||||
| Duane John Renfro | April 2011 | Common Stock | 2,222,222 | $50,000 | |||||||
| Stephen Nicholas Bunzl | April 2011 | Common Stock | 2,222,222 | $50,000 | |||||||
| Jack Lens | April 2011 | Common Stock | 2,222,222 | $50,000 | |||||||
| Robert Crames | May 2011 | Common Stock | 2,222,222 | $50,000 | |||||||
| Sal & Kathryn DeMarco | May 2011 | Common Stock | 1,111,111 | $25,000 | |||||||
| Steven Girgenti | May 2011 | Common Stock | 222,222 | Professional Services | |||||||
| Maurice Reissman | May 2011 | Common Stock | 4,444,444 | $100,000 | |||||||
| GreenBridge Capital Partners IV, LLC | June 2011 | Common Stock | 15,500,000 | Consulting Services | |||||||
| Matthew Balk | June 2011 | Common Stock | 700,000 | Financial Advisory Services | |||||||
| Jason Adelman | June 2011 | Common Stock | 200,000 | Financial Advisory Services |
| II-3 |
| Daniel Schneiderman | June 2011 | Common Stock | 100,000 | Financial Advisory Services | |||||||
| Dashka Solanky | June 2011 | Common Stock | 888,889 | $20,000 | |||||||
| Berardino Investment Group | June 2011 | Common Stock | 2,167,902 | Debenture Conversion | |||||||
| Jerrald Ginder | June 2011 | Common Stock | 2,666,667 | ** | Debt Conversion | ||||||
| Alvaro Pascale Leone | August 2011 | Common Stock | 78,300 | Services | |||||||
| Steven Girgenti | August 2011 | Common Stock | 154,600 | Professional Services | |||||||
| McCombie Group, LLC | August 2011 | Common Stock | 428,571 | Consulting Services | |||||||
| MKM Opportunity Master Fund, Ltd | June 7, 2011 | Series C Preferred Stock | 3.0 | * | $250,000 | ||||||
| Andrew Mitchell | June 7, 2011 | Series C Preferred Stock | .5 | * | $25,000 | ||||||
| Matthew Balk | June 7, 2011 | Series C Preferred Stock | .8 | * | $40,000 | ||||||
| Daniel Balk | June 7, 2011 | Series C Preferred Stock | 1.1 | * | $55,000 | ||||||
| David Balk | June 7, 2011 | Series C Preferred Stock | 1.1 | * | $55,000 | ||||||
| Daniel Schneiderman | June 7, 2011 | Series C Preferred Stock | .45 | * | $22,500 | ||||||
| Jonathan Balk | June 7, 2011 | Series C Preferred Stock | .5 | * | $25,000 | ||||||
| Richard L. Hoffman | June 7, 2011 | Series C Preferred Stock | .45 | * | $22,500 | ||||||
| Robert I and Sandra S Neborsky Living Trust | June 7, 2011 | Series C Preferred Stock | 2.0 | * | $100,000 | ||||||
| Skriloff Family Irrevocable Trust F/B/O Samuel Skriloff | June 7, 2011 | Series C Preferred Stock | .1 | * | $5,000 | ||||||
| Skriloff Family Irrevocable Trust F/B/O Olivia Skriloff | June 7, 2011 | Series C Preferred Stock | .1 | * | $5,000 | ||||||
| Jason Adelman | June 7, 2011 | Series C Preferred Stock | 1.8 | * | $90,000 | ||||||
| Robert and Amy Bernstein | June 7, 2011 | Series C Preferred Stock | .5 | * | $25,000 | ||||||
| Dick F. Chase, Jr. | June 7, 2011 | Series C Preferred Stock | 2 | * | $100,000 | ||||||
| Boris and Alexandra Smirnov | June 7, 2011 | Series C Preferred Stock | 2 | * | $100,000 | ||||||
| Nadegda Kassatkina | June 7, 2011 | Series C Preferred Stock | 2 | * | $100,000 |
| II-4 |
| Irina Pavlova | June 7, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Jeffrey J and Jennifer S. Clayton | June 7, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Greenbridge Capital Partners IV, LLC | June 7, 2011 | Series C Preferred Stock | 1.5 | * | 75,000 | ||||||
| Core Capital IV Trust | June 7, 2011 | Series C Preferred Stock | 1.5 | * | $75,000 | ||||||
| Rolant Investments Limited | June 7, 2011 | Series C Preferred Stock | 6 | * | $300,000 | ||||||
| David Wiener | June 28, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| One East Partners Opportunity L.P. | June 28, 2011 | Series C Preferred Stock | 2.7 | * | $135,000 | ||||||
| One East Partners Master L.P. | June 28, 2011 | Series C Preferred Stock | 5.3 | * | $265,000 | ||||||
| Narang Family Partnership, LP | June 28, 2011 | Series C Preferred Stock | .5 | * | $25,000 | ||||||
| Hugh Scott Campbell | June 28, 2011 | Series C Preferred Stock | .2 | * | $10,000 | ||||||
| Fraser Campbell | June 28, 2011 | Series C Preferred Stock | .2 | * | $10,000 | ||||||
| Sean Campbell | June 28, 2011 | Series C Preferred Stock | .5 | * | $25,000 | ||||||
| Dr. Wayne Fleischacker | June 28, 2011 | Series C Preferred Stock | 2 | * | $100,000 | ||||||
| Dr. Glenn Fleischacker | June 28, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Jane Ellis | June 28, 2011 | Series C Preferred Stock | 2 | * | $100,000 | ||||||
| Duane Renfro | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Guri Dauti | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Matteo Joseph Rosselli | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 |
| II-5 |
| Sarah Benveniste | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Steven Reichbach | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Dr. Glenn Fleischacker | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Myles Wittenstein | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Neil Weiss | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Randolf Kahn | August 4, 2011 | Series C Preferred Stock | 1 | * | $50,000 | ||||||
| Dr. Wayne Fleischacker | August 4, 2011 | Series C Preferred Stock | 2 | * | $100,000 | ||||||
| Marc S Cohen | August 4, 2011 | Series C Preferred Stock | 2.2 | * | $110,000 | ||||||
| Steven Girgenti | November 4, 2011 | Common Stock | 166,667 | Professional Services | |||||||
| Alvaro Pascual-Leone, M.D. | November 4, 3011 | Common Stock | 104,167 | Professional Services | |||||||
| Joseph Simone | November 15, 2011 | Common Stock | 510,000 | Consulting Services | |||||||
| Fountainhead Capital Management Limited | December 20, 2011 | Common Stock | 402,965 | Exercise of Warrant | |||||||
| University of Aberdeen | January 19, 2012 | Common Stock | 4,448,500 | Purchase of Sight Science, Ltd. | |||||||
| Prof. Arash Sahraie | January 19, 2012 | Common Stock | 9,901,500 | Purchase of Sight Science, Ltd. | |||||||
| Steven Girgenti | January 20, 2012 | Common Stock | 222,222 | Professional Services | |||||||
| Jason J. S. Barton | January 20, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Jose Romano | January 20, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Oscar Bronsther, M.D. | January 20, 2012 | Common Stock | 96,620 | Professional Services | |||||||
| Alvaro Pascual-Leone, M.D. | March 19, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Jason J. S. Barton | April 18, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Jose Romano | April 18, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Brunella Jacs, LLC | April 26, 2012 | Common Stock | 1,333,333 | Consulting Services | |||||||
| Steven Girgenti | April 27, 2012 | Common Stock | 222,222 | Professional Services | |||||||
| Oscar Bonsther, M.D. | April 27, 2012 | Common Stock | 222,222 | Professional Services |
| II-6 |
| Alvaro Pascual-Leone, M.D. | May 8, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Prof. Dr. Josef Zihl | May 8, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Glenn Tomalty | May 29, 2012 | Common Stock | 2,222,222 | $50,000 | |||||||
| Millennium Trust Co., LLC | June 20, 2012 | Common Stock | 1,111,111 | $25,000 | |||||||
| Peter Bubenzer | June 25, 2012 | Common Stock | 2,000,000 | $45,000 | |||||||
| Steven Girgenti | July 3, 2012 | Common Stock | 222,222 | Professional Services | |||||||
| Oscar Bronsther, M.D. | July 3, 2012 | Common Stock | 222,222 | Professional Services | |||||||
| Jason J. S. Barton | July 3, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Jose Romano | July 3, 2012 | Common Stock | 138,890 | Professional Services | |||||||
| Robert J. Koch | July 25, 2012 | Common Stock | 2,222,222 | $50,000 |
* Units comprising one share of Series C Convertible Preferred Stock convertible into 2,222,222 shares of common stock and a warrant to purchase 1,111,111 shares of common stock at $0.0225 per share.
** On August 7, 2012, the Company and Mr. Ginder reached a Settlement and Mutual General Release Agreement relative to the Consulting Agreement whereby it was acknowledged by all parties that the Consulting Agreement expired as of April 1, 2012 and that Mr. Ginder would cause to be delivered to the Company 20,666,667 shares of Company common stock previously issued to Mr. Ginder in consideration of a full settlement of performance and amounts due under the Consulting Agreement and a mutual general release among the parties.
The securities issued in the abovementioned transactions were issued in connection with private placements exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act and Rule 506 of Regulation D.
| Item 16. | Exhibits |
| Exhibit No. | Description | |||
| 3.1(a) | Certificate of Incorporation of Vycor Medical, Inc. (previously filed) | |||
| 3.1(b) | Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of January 11, 2010 (previously filed) | |||
| 31.(c) | Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of July 20, 2010 (previously filed) | |||
| 3.2 | Bylaws of Vycor Medical, Inc. (previously filed) | |||
| 5.1 | Legal Opinion of Legal Robert Diener, Esq. | |||
| 23.1 | Legal Opinion of Legal Robert Diener, Esq. (included with Exhibit 5.1) | |||
| 23.2 | Consent of Independent Auditors | |||
Item 17. Undertakings
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
| II-7 |
| i. | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
| iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided however, That: |
| A. | Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; and |
| B. | Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement. |
| 2. | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| 3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| 4. | If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished,provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. |
| 5. | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| i. | If the registrant is relying on Rule 430B: |
| A. | Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the |
| II-8 |
registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
| B. | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or |
| ii. | If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| 6. | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| II-9 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boca Raton in the State of Florida on the 20th day of August, 2012.
| Vycor Medical, Inc. | |||
| (Registrant) | |||
| By: | /s/ David Cantor | ||
| David Cantor | |||
| President and Director (Principal Executive Officer) | |||
| Date | August 20, 2012 | ||
| By: | /s/ Adrian Liddell | ||
| Adrian Liddell | |||
| Chairman of the Board and Director | |||
| (Principal Financial and Accounting Officer) | |||
| Date | August 20, 2012 | ||
| II-10 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity and on the date indicated.
| By: | /s/ David Cantor | ||
| David Cantor | |||
| President and Director (Principal Executive Officer) | |||
| Date | August 20, 2012 | ||
| By: | /s/ Heather Vinas | ||
| Heather Vinas | |||
| Director | |||
| Date | August 20, 2012 | ||
| By: | /s/ Pascale Mangiardi | ||
| Pascale Mangiardi | |||
| Director | |||
| Date | August 20, 2012 | ||
| By: | /s/ Steven Girgenti | ||
| Steven Girgenti | |||
| Director | |||
| Date | August 20, 2012 | ||
| II-11 |
| By: | /s/ Adrian Christopher Liddell | ||
| Adrian Christopher Liddell | |||
| Chairman of the Board and Director (Principal Financial and Accounting Officer) | |||
| Date | August 20, 2012 | ||
| By: | /s/ Richard P. Denness | ||
| Richard P. Denness | |||
| Chief Executive Officer and Director | |||
| Date | August 20, 2012 | ||
| By: | /s/ Peter C. Zachariou | ||
| Peter C. Zachariou | |||
| Executive Vice President and Director | |||
| Date | August 20, 2012 | ||
/s/ Oscar Bronsther, M.D. | |||
| Oscar Bronsther, M.D. Director | |||
| Date | August 20, 2012 | ||
| II-12 |
EXHIBIT LIST
| Exhibit No. | Description | |||
| 3.1(a) | Certificate of Incorporation of Vycor Medical, Inc. (previously filed) | |||
| 3.1(b) | Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of January 11, 2010 (previously filed) | |||
| 31.(c) | Certificate of Amendment to Certificate of Incorporation of Vycor Medical, Inc. dated as of July 20, 2010 (previously filed) | |||
| 3.2 | Bylaws of Vycor Medical, Inc. (previously filed) | |||
| 5.1 | Legal Opinion of Legal Robert Diener, Esq. | |||
| 23.1 | Legal Opinion of Legal Robert Diener, Esq. (included with Exhibit 5.1) | |||
| 23.2 | Consent of Independent Auditors | |||
| II-13 |
