(b) Geographic information. The Company operates in two geographic segments, the United States and Europe. Set out below are the revenues, gross profits and total assets for each segment.
As of December 31, 2012 and 2011, Property and Equipment and the estimated lives used in the computation of depreciation are as follows:
Depreciation expense for the years ended December 31, 2012 and 2011 was $247,156 and $157,676 respectively, including $22,610 and $16,725 respectively for Therapy Devices which is allocated to Cost of Sales.
8. INTANGIBLE ASSETS
As of December 31, 2012 and 2011, Intangible Assets consists of:
| | | December 31, |
| | | 2012 | | 2011 |
| Amortized intangible assets: Patent (8 years useful life) | | | | | | | | |
| Gross carrying Amount | | $ | 705,662 | | | $ | 492,147 | |
| Accumulated Amortization | | | (202,767 | ) | | | (112,568 | ) |
| | | $ | 502,895 | | | $ | 379,579 | |
| | | | | | | | | |
| Amortized intangible assets: Website (5 years useful life) | | | | | | | | |
| Gross carrying Amount | | $ | 18,909 | | | $ | 18,909 | |
| Accumulated Amortization | | | (16,137 | ) | | | (14,003 | ) |
| | | $ | 2,772 | | | $ | 4,906 | |
| | | | | | | | | |
| Intangible assets not subject to amortization | | | | | | | | |
| Trademarks | | | 251,157 | | | | 130,000 | |
Intangible asset amortization expense for the periods ended December 31, 2012 and 2011 was $104,344 and $69,022, respectively.
9. EQUITY
Certain Equity Transactions
In January and February 2011, the Company issued an aggregate of 50,527 shares of common stock to three investors at a price of $2.85 per share for aggregate gross proceeds of $144,000.
During the period from January 1, 2011 through December 31, 2011, the Company issued 5,920 shares of Common Stock (valued at $20,000) to Steven Girgenti and 645 shares of Common Stock (valued at $2,174) Dr Oscar Bronsther in consideration for services provided to the Board of Directors; and 1,217 shares of Common Stock (valued at $6,250) to Alvaro Pasual-Leone, and 926 shares of Common Stock (valued at $6,250) to each of Jason Barton and Jose Romano, in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
On March 2, 2011, the Company issued warrants to seven parties to purchase 98,070 shares of the Company's common stock at a price of $4.50 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 2,667 shares of Company common stock at an exercise price of $4.50 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 162,965 shares of common stock together with Warrants to purchase 81,842 shares of common stock at an exercise price of $4.50 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 120,000 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 17,778 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 57,779 shares of common stock together with Warrants to purchase 28,889 shares of Company common stock at an exercise price of $4.50 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 14,815 shares of the Company's Common Stock ($3.38 per share) and a Warrant to purchase 7,408 shares of the Company's Common Stock at $4.50 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 465,186 shares of the Company's Common Stock and Warrants to purchase 232,593 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 228,149 shares of the common stock and Warrants to purchase 114,074 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 14,815 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 7,408 shares of the Company's Common Stock.
On June 3, 2011, in connection with a consultancy agreement, the Company issued 103,334 shares of common stock (valued at $348,750) to GreenBridge Capital Partners IV, LLC. 68,889 of these shares remained 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 6,667 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 (25,719 shares) in the Preferred Offering. The Placement Agent Warrants are exercisable for three years from the date of issuance at an exercise price of $3.38 per share. In connection with the investor rescinding in December 2011 referred to above, the number of warrants was reduced to 24,682.
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 14,453 shares of common stock at a conversion price of $2.85 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 260,425 shares of the Company's common stock should certain conditions be met during the term of the Consulting Agreement. These warrants are exercisable at $1.88 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 15,334 shares of Company common stock at an exercise price of $4.50 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 195,556 shares of the Company's Common Stock and Warrants to purchase 97,778 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 888,889 shares of Common Stock, and Warrants to purchase 444,444 shares of the Company's Common Stock.
In August 2011 2,858 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 14,815 shares of the Company's Common Stock ($3.38 per share) and a Warrant to purchase 7,408 shares of the Company's Common Stock at $4.50 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 2,667 of the Company's Common Stock for a period of three years from September 30, 2011 at a price of $4.50 per share.
On September 30, 2011 the Company issued 3,400 shares of Company common stock to Joe Simone in respect of an amendment to a previously disclosed consulting agreement.
In December 2011 the Company issued 2,687 shares of Common Stock to Fountainhead Capital Partners Limited in respect of the exercise of December 2006 warrants, and received $443.26 in cash.
On January 4, 2012, an aggregate of 95,667 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 the period from January 1, 2012 through December 31, 2012, the Company issued 5,928 shares of Common Stock (valued at $20,000) to each of Steven Girgenti and Dr Oscar Bronsther in consideration for services provided to the Board of Directors, 3,704 shares of Common Stock (valued at $12,500) to each of Alvaro Pasual-Leone, Jason Barton and Jose Romano, and 2,778 shares of Common Stock (valued at $9,375) to Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
In April 2012 the Company issued 8,889 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 68,889 shares were repurchased into Treasury Stock at $1,033.33.
In August 2012, 137,778 shares of Common Stock previously issued to Mr. Jerrald Ginder under the terms of Consulting Agreement were returned to the Company in consideration of a full settlement of performance and amounts due under the Consulting Agreement; the shares were retired.
During the period from January 1, 2012 through December 2012, the Company issued a total of 348,152 shares of Common Stock in respect of conversion of Series C Preferred Stock.
During the period from May 1, 2012 through December 31 2012, the Company issued a total of 50,372 shares of Common Stock at $3.375 for a total consideration of $170,000 to four investors.
On November 30, 2012 the Company made a charitable donation of 14,815 shares of Common Stock valued at $16,667 to The Fiducuary Foundation.
On November 30, 2012 the Company entered into 12 month consulting agreements with Del Mar Consulting, Inc and Alex Partners, LLC to provide investor relations and investor awareness consultancy services. Under these agreements, Del Mar and Alex Partners received shares 140,000 and 93,334 Common Shares valued at $157,500 and $105,000 respectively.
10. SHARE-BASED COMPENSATION
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. No employee stock options were granted for the years ended December 31, 2012 and 2011.
Initial grants of options to purchase 3,334 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 $20.25 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, 667 unvested options were cancelled. For the years ended December 31, 2012 and 2011, the Company recognized share-based compensation of $0 and $0, 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 December 31, 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:
| | | |
STOCK WARRANTS: | Number of shares | | Weighted average exercise price
per share |
Outstanding at December 31, 2010 | 777,371 | | $2.35 |
Granted | 987,869 | | 3.78 |
Exercised | (2,687) | | 0.17 |
Cancelled or expired | (15,212) | | 12.96 |
Outstanding at December 31, 2011 | 1,747,341 | | $3.07 |
Granted | 4,667 | | 4.50 |
Exercised | - | | - |
Cancelled or expired | (2,140) | | 36.00 |
Outstanding at December 31, 2012 | 1,749,868 | | $3.03 |
| | | |
| | | |
STOCK OPTIONS: | Number of shares | | Weighted average exercise price
per share |
Outstanding at December 31, 2010 | 5,557 | | $20.25 |
Granted | - | | - |
Exercised | - | | - |
Cancelled or expired | - | | - |
Outstanding at December 31, 2011 | 5,557 | | $20.25 |
Granted | - | | - |
Exercised | - | | - |
Cancelled or expired | - | | - |
Outstanding at December 31, 2012 | 5,557 | | $20.25 |
As of December 31, 2012, the weighted-average remaining contractual life of outstanding warrants and options is 1.93 and 5.12 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 260,425 shares of the Company's common stock at $1.88 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 was amortized over the two-year life of the consultancy agreement, to February 2012. For year the ended December 31, 2012, $20,397 was recognized as share-based compensation in connection with this agreement.
During the year ended December 31, 2012, the Company issued an aggregate of 5,928 shares of common stock, valued at $20,000, to each of Steven Girgenti and Oscar Bronsther for services rendered to the board of directors. For the ended December 31, 2012, 2012, a total of $30,000 was recognized as share-based compensation for the issuance of these shares.
During the year ended December 31, 2012 the Company issued an aggregate of 3,704 shares of common stock, valued at $12,500, to each of Alvaro Pascual-Leone, Jason Barton and Jose Romano and 2,778 shares of Common Stock, valued at $9,375, to Josef Zihl for services rendered to the Scientific Advisory Board of NovaVision. For the ended December 31, 2012, an aggregate of $46,875 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 137,778 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 the year ended December 31, 2012, aggregate compensation recognized in respect of the Consulting Agreement, as amended, was $109,570. The consultancy was fully expensed as of March 31, 2012. This Agreement is further discussed in Note 14.
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 103,334 shares of the Company’s common stock. The stock was valued by the Company at $348,750 and was 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 68,889 shares. Accordingly, a total of $116,250 was recognised as expense under this agreement. As at December 31, 2011, $113,344 had been recognized and for the year ended December 31, 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 8,889 shares of Common Stock, valued at $30,000. For the year ended December 31, 2012, aggregate compensation recognized in respect of this agreement was $30,000.
On May 14, 2012, the Company entered into a three-month Consulting Agreement with OneSource Advisors, LLC to provide consulting and advisory services to the Company, which was amended on August 31, 2012. Under the terms of the Consulting Agreement, on September 30, 2012 OneSource received warrants to purchase up to 4,667 of the Company’s Common Stock for a period of three years from May 14, 2012 at a price of $4.50 per share. The fair value of these warrants was estimated at $8,708 using the Black-Scholes model and the full value was recognized immediately.
On November 30, 2012 the Company entered into 12 month consulting agreements with Del Mar Consulting, Inc and Alex Partners, LLC to provide investor relations and investor awareness consultancy services. Under these agreements, Del Mar and Alex Partners received shares Common Shares valued at $157,500 and $105,000 respectively. The value of these shares is being amortized over the period of the agreement, and for the year ended December 31, 2012 stock compensation of $21,875 was recognized as share-based compensation in connection with this agreements.
Aggregate stock-based compensation expense charged to operations on stock and warrants granted to the above non-employees the year ended December 31, 2012 is $280,331. As of December 31, 2012, there was $240,625 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 in years ended December 31, 2012 and 2011:
| | |
| Year ended December 31, |
| 2012 | 2011 |
Risk-free interest rates | 0.31-2.39 % | 0.42-1.60 % |
Expected life | 3 years | 3 years |
Expected dividends | 0% | 0% |
Expected volatility | 96-99% | 96-99% |
Vycor Common Stock fair value | $1.88-$4.50 | $3.00-$4.50 |
12. INCOME TAXES
Loss Before Taxes
| | | | | |
| | | December 31,
2012 | | December 31,
2011 |
| Domestic | | $ | 2,613,733 | | | $ | 4,455,038 | |
| Foreign | | | 312,477 | | | | 323,505 | |
| | | | $2,926,210 | | | $ | 4,778,543 | |
Deferred 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.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company and its subsidiaries’ deferred tax assets at December 31, 2012 and December 31, 2011 are as follows:
| | | | | |
| | | December 31,
2012 | | December 31,
2011 |
| Operating loss carry-forward | | $ | 2,700,000 | | | $ | 2,100,000 | |
| Deferred tax asset before Valuation allowance | | | 2,700,000 | | | | 2,100,000 | |
| Valuation allowance | | | (2,700,000 | ) | | | (2,100,000 | ) |
| Net deferred tax asset | | $ | — | | | $ | — | |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.
The authoritative guidance requires a valuation allowance to reduce the deferred tax assets 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, 2012 and December 31, 2011.
Net Operating Loss Carry-Forwards
As of December 31, 2012 and 2011, the Company has U.S. accumulated losses for tax purposes of approximately $7,600,000 and $6,000,000 respectively, which may be carried forward and offset against U.S. taxable income, and which expire during the tax years 2027 through 2031.
Federal tax laws impose significant restrictions on the utilization of net operating loss carry-forwards and in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carry-forwards may be subject to the above limitations.
As of December 31, 2012 and 2011, had German accumulated losses for tax purposes of approximately $490,000 and $450,000 respectively, which may be carried forward and offset against German taxable income subject to certain restrictions and limitations. Such carry-forwards are subject to certain restrictions and limitations in the event of changes in the NovaVision GmbH’s ownership.
As of December 31, 2012 and 2011, had UK accumulated losses for tax purposes of approximately $100,000 and $0 respectively, which may be carried forward and offset against UK taxable income subject to certain restrictions and limitations.
Tax Rates
The applicable US income tax rate for the Company for both of the years ended December 31, 2012 and 2011 was 35%.
Non-US subsidiaries are taxed according to the tax laws in their respective country of residence. The German applicable rate for both of the years ended December 31, 2012 and 2011 was 35%; the UK applicable rate for the year ended December 31, 2012 was 24% respectively.
US income taxes and foreign withholding taxes were not provided for on undistributed earnings of the Company’s foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to US in the form of dividends or otherwise, after the repayment of intercompany debt, the Company would be subject to additional US income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.
Uncertain Tax Position
The Company has recorded no liability for income taxes associated with unrecognized tax benefits at the date of adoption and has not recorded any liability associated with unrecognized tax benefits during 2012 and 2011. Accordingly, the Company has not recorded any interest or penalty in regard to any unrecognized benefit.
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. The Company’s subsidiaries in Germany and the UK occupy properties on short term lease agreements. Rent expense for the years ended December 31, 2012 and 2011 were $190,023 and $180,255, respectively.
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 December, 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 December 31, 2012 for the full amount of these fees, being approximately €39,000 ($50,105).
Potential Patent Infringement
The Company is aware that potential competitors are developing products similar to VBAS for sale in foreign markets. If those products come to market, Vycor has the option to take action to enforce its patent rights. As with all patent infringement actions, there is some risk that the accused infringer will not be found to infringe the claims, and an additional risk that the accused infringer will successfully challenge the validity of the asserted claims.
VBAS Limited Product Recall
In August 2012 the Company initiated a limited product recall having identified a microscopic fiber in a single lot of its TC171105 model. Further investigation concluded that there was a very low incidence of this microscopic fiber in the lot, which had not been picked up during the inspection process. The FDA was notified and all customers with units that had been distributed (a total of 5 customers in the U.S. and 2 customers internationally) were contacted and the units were recalled and replaced with re-inspectedand passed units, or internationally re-inspected under 100% enhanced inspection guidelines; this recall and replacement process was completed in November 2012 and there are no affected units on the marketplace. In January 2013, following their review, classified the recall as a Class I. The Company is in the process of closing out this recall with the FDA.
Vycor re-inspected all remaining units in the lot prior to shipment under 100% enhanced inspection procedures and took steps to ensure that this issue was contained to this lot and that other lots and products were not affected (this is one of 12 products sold by Vycor). The likely source of the fiber was identified and corrective steps implemented in both the manufacturing and inspection processes to ensure that the issue would not re-occur.
Vycor is not able at this time to determine whether there will be any financial impact on the Company as a result of this recall. However, the limited replacement of defective units is immaterial and at this time the Company does not believe there are additional costs of sufficient materiality to make a reserve provision in its financial statements. Vycor’s customers have appreciated that Vycor took swift voluntary action to remove this product from the marketplace, even though the incidence of this fiber and therefore the risk was low, before any units could be used, and to maintain Vycor’s high safety and quality standards.
14. CONSULTING AND OTHER AGREEMENTS
The Company has entered into the following consulting and other agreements during the year ended December 31, 2012:
Consulting Agreement with OneSource Advisors, LLC.
On May 14, 2012, the Company entered into a three-month Consulting Agreement with OneSource Advisors, LLC to provide consulting and advisory services to the Company, which was amended on August 31, 2012. Under the terms of the Consulting Agreement, on September 30, 2012 OneSource received warrants to purchase up to 4,667 of the Company’s Common Stock for a period of three years from May 14, 2012 at a price of $4.50 per share.
Consulting Agreement with Del Mar Consulting Group, Inc and Alex Partners, LLC.
On November 30, 2012 the Company entered into 12 month consulting agreements with Del Mar Consulting, Inc and Alex Partners, LLC to provide investor relations and investor awareness consultancy services. Under these agreements, Del Mar and Alex Partners received shares Common Shares valued at $157,500 and $105,000 respectively.
The following agreements remained in force during the period:
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 $1.88 per share for the Original Agreement and $3.38 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 Jerrald Ginder
In March 2011, as amended June 2011, the Company entered into a one-year consultancy agreement with Mr. Jerrald Ginder, a sales executive of Stryker Corporation, effective April 1, 2011. Under the terms of the agreement Mr. Ginder received 137,778 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 ending March 30, 2012 as share-based compensation expense.
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 137,778 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. As of September 12, 2012, these shares were returned to the Company and retired.
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 103,334 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 68,889 of the 103,334 shares for a total purchase price of $1,033.33. The Company also believes that it is entitled to the return of the remaining 34,445 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. In March 2013Greenbridge returned to the Company all of the 34,445 shares being sought by the Company. At this time, the Company cannot project whether it will achieve a successful result in connection with the remainder of the action or any other related actions. The Company has reserved its right to claim legal costs.
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 a hearing is set for September 2013. At this time, the Company cannot project whether it will achieve a successful result in this action.
15. RELATED PARTY TRANSACTIONS
During July to December 2012, the Company issued unsecured, subordinated loan notes to: Fountainhead for a total of $309,900; and to Peter Zachariou, a director of the Company, for a total of $115,550. The loan notes are subordinated to the Company’s secured debentures and Preferred C Stock of the Company, bear interest at a rate of 6% are due on demand or by their one-year anniversary.
In November 2012, Fountainhead and Peter Zachariou, a director of the Company, extended the maturity of secured loans totaling $1,016,362 and $300,000 respectively from December 31, 2012 to March 31, 2013. These have been subsequently extended to December 31, 2013.
On November 30, 2012 the Company entered into an Option Agreement with Heather Vinas, a director of the Company, to purchase up to 54,834 warrants to purchase Common Stock held by Mrs Vinas at $0.87. On January 1, 2013 and on the first day of each calendar month thereafter, the Company shall have the right to an Option Exercise with respect to 4,570 Warrants. The Company, in its sole discretion, may elect to cease its Option Exercises at any time. This was subsequently amended on January 15, 2013 to commence on February 15, 2013. The Company and Mrs Vinas are currently in discussions regarding this agreement.
There were no other related party transactions during the year ended December, 2012 other than the payment or accrual of fees under the Fountainhead Consulting agreement described in 14 above.
16. SUBSEQUENT EVENTS
Share Issuance
During January 2013, the Company issued 1,482 shares of Common Stock (valued at $5,000) to each of Steven Girgenti and Oscar Bronsther, M.D. in consideration for services provided to the Board of Directors, and 926 shares of Common Stock (valued at $3,125) to each of Alvaro Pasual-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
Reverse Stock Split
On January 11, 2013, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of 1 for 150 on the issued and outstanding Common Stock par value $0.0001 (“Common Stock”). On January 15, 2013 (the “Effective Date”), the Company effectuated its reverse stock split. On the Effective date, the Company implemented a one for 150 share reverse split of its Common Stock. On the Effective Date, the Company’s pre-split 892,749,897 shares of Common Stock became 5,951,744 post-split shares of Common Stock, including the issuance of 79 shares of Common Stock for the round-up of partial shares. In connection with the reverse split, the Company’s authorized capital was not changed. All relevant information relating to the number of shares and per share information has been retrospectively adjusted to reflect the recerse stock split for all periods presented.
Loan Funding
During January to March, the Company issued unsecured, subordinated loan notes to: Fountainhead for a total of $130,000; and to Peter Zachariou, a director of the Company, for a total of $145,000. The loan notes are subordinated to the Company’s secured debentures and Preferred C Stock of the Company, bear interest at a rate of 6% are due on demand or by their one-year anniversary.
Sight Science Acquisition Deferred Consideration Amendment
In February 2013, The Company and its subsidiary, Nova Vision, Inc. agreed, among other things, to extend the payment schedule for the payment of the cash consideration and working capital excess by the Company to the University of
Aberdeen and Prof. Arash Sahriae pursuant to the original Sale Agreement between the parties dated as of January 2012 to a period ending June 30, 2013.
GreenBridge Litigation
In March 2013Greenbridge returned to Vycor all of the 34,445 shares being sought by the Company. At this time, the Company cannot project whether it will achieve a successful result in connection with the remainder of the Action or any other related actions.
Loan Extensions
In March 2013, Fountainhead and Peter Zachariou, a director of the Company, extended the maturity of secured loans totaling $1,016,362 and $300,000 respectively from March 31, 2013 to December 31, 2013.
Option Agreement
On October 12, 2012 the Company entered into an Option Agreement with Kenneth T. Coviello, the Company’s former Chief Executive Officer, to purchase up to 109,668 warrants to purchase Common Stock held by Mr. Coviello at $0.87. On January 1, 2013 the Company shall have the right to an Option Exercise with respect to 27,417 Warrants. On the first day of each calendar month therafter, the Company shall have the right to an Option Exercise with respect to 9,139 Warrants per month, for a period of 9 months. On January 15, 2013 this was amended to commence on February 15, 2013. The Company, in its sole discretion, may elect to cease its Option Exercises at any time.
On November 30, 2012 the Company entered into an Option Agreement with Heather Vinas, a director of the Company, to purchase up to 54,834 warrants to purchase Common Stock held by Mrs Vinas at $0.87. On January 1, 2013 and on the first day of each calendar month thereafter, the Company shall have the right to an Option Exercise with respect to 4,570 Warrants. On January 15, 2013 this was amended to commence on February 15, 2013. The Company, in its sole discretion, may elect to cease its Option Exercises at any time.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s President (“President”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s President and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 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 CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
b)
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| | | |
● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2012, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matter involving internal controls and procedures that our management considered to be a material weakness under the standards of the Public Company Accounting Oversight Board was the lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. The aforementioned material weaknesses were identified by our management in connection with the review of our financial statements for the year ended December 31, 2012.
Management believes that the material weakness set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the management's report in this annual report.
(c) Changes in Internal Controls
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company’s management, including the Company’s 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.
ITEM 9B. OTHER INFORMATION.
Subsequent Events
Share Issuance
During January 2013, the Company issued 1,482 shares of Common Stock (valued at $5,000) to each of Steven Girgenti and Oscar Bronsther, M.D. in consideration for services provided to the Board of Directors, and 926 shares of Common Stock (valued at $3,125) to each of Alvaro Pasual-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
Reverse Stock Split
On January 11, 2013, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of 1 for 150 on the issued and outstanding Common Stock par value $0.0001 (“Common Stock”). On January 15, 2013 (the “Effective Date”), the Company effectuated its reverse stock split. On the Effective date, the Company implemented a one for 150 share reverse split of its Common Stock. On the Effective Date, the Company’s pre-split 892,749,897 shares of Common Stock became 5,951,744 post-split shares of Common Stock, including the issuance of 79 shares of Common Stock for the round-up of partial shares. In connection with the reverse split, the Company’s authorized capital was not changed. All relevant information relating to the number of shares and per share information has been retrospectively adjusted to reflect the recerse stock split for all periods presented.
Loan Funding
During January to March 2013, the Company issued unsecured, subordinated loan notes to: Fountainhead for a total of $130,000; and to Peter Zachariou, a director of the Company, for a total of $145,000. The loan notes are subordinated to the Company’s secured debentures and Preferred C Stock of the Company, bear interest at a rate of 6% are due on demand or by their one-year anniversary.
Sight Science Acquisition Deferred Consideration Amendment
In February 2013, The Company and its subsidiary, Nova Vision, Inc. agreed, among other things, to extend the payment schedule for the payment of the cash consideration and working capital excess by the Company to the University of Aberdeen and Prof. Arash Sahriae pursuant to the original Sale Agreement between the parties dated as of January 2012 to a period ending June 30, 2013.
GreenBridge Litigation
In March 2013Greenbridge returned to Vycor all of the 34,445 shares (5,166,667 pre-split) being sought by the Company. At this time, the Company cannot project whether it will achieve a successful result in connection with the remainder of the action or any other related actions. (See Item 3—LEGAL PROCEEDINGS, above)
Loan Extensions
In March 2013, Fountainhead and Peter Zachariou, a director of the Company, extended the maturity of secured loans totaling $1,016,362 and $300,000 respectively from March 31, 2013 to December 31, 2013.
Option Agreement
On October 12, 2012 the Company entered into an Option Agreement with Kenneth T. Coviello, the Company’s former Chief Executive Officer, to purchase up to 109,668 warrants to purchase Common Stock held by Mr. Coviello at $0.87. On January 1, 2013 the Company shall have the right to an Option Exercise with respect to 27,417 Warrants. On the first day of
each calendar month therafter, the Company shall have the right to an Option Exercise with respect to 9,139 Warrants per month, for a period of 9 months. On January 15, 2013 this was amended to commence on February 15, 2013. The Company, in its sole discretion, may elect to cease its Option Exercises at any time.
On November 30, 2012 the Company entered into an Option Agreement with Heather Vinas, a director of the Company, to purchase up to 54,834 warrants to purchase Common Stock held by Mrs Vinas at $0.87. On January 1, 2013 and on the first day of each calendar month thereafter, the Company shall have the right to an Option Exercise with respect to 4,570 Warrants. On January 15, 2013 this was amended to commence on February 15, 2013. The Company, in its sole discretion, may elect to cease its Option Exercises at any time.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our Directors and Executive Officers
Set forth below is certain biographical information concerning our current executive officers and directors. We currently have two executive officers as described below.
| | | | |
Directors and Executive Officers | | Position/Title | | Age |
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 |
Heather N. Vinas | | Director | | 33 |
Pascale Mangiardi | | Director | | 40 |
Steven Girgenti | | Director | | 67 |
Oscar Bronsther, M.D. | | Director | | 60 |
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. 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.
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 presently the Managing Partner of Medi-Pharm Consulting, LLC providing strategic services to a number of medical device, pharmaceutical and diagnostic businesses. Steve was formerly President, CEO, Director and Co-Founder of DermWorx, a specialty pharmaceutical company dedicated to solutions for dermatological conditions. Steve was 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 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. 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,60, has been a director 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 post-graduate work at Downstate Medical Center (Research Assistant 1975; Kidney Transplant Fellowship 1983-1984), Mount Sinai Medical Center, New York, N.Y (Residency 1978-1983) and Children’s Hospital Medical Center, Boston, MA (Research Fellowship 1980-1981). He resides in Potomac, MD.
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 Company has two committees of its Board of Directors—(a) a Nominating and Governance Committee and (b) a Management Compensation Committee. The Board of Directors has approved charters for each committee. At this time, Steven Girgenti is the only appointed member to each of these committees. The Committees are intended to operate consistent with applicable NASDAQ governance requirements.
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.
ITEM 11. EXECUTIVE COMPENSATION.
The following is a summary of the compensation we paid for each of the last two years ended December 31, 2012 and 2011, respectively (i) to the persons who acted as our principal executive officer during our fiscal year ended December 31, 2012 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 | 2012 | $115,817 | $70,643 | | | | | | $186,460 |
(Chief Executive Officer*) | 2011 | $153,989 | — | — | $ 29,212 | — | — | $12,578 | $195,779 |
Richard P. Denness | 2012 | $57,500 | — | | — | | — | — | $57,500 |
(Chief Executive Officer**) David Cantor |
2012 | $— | — | — | — | — | — | — | — |
(President) |
2011 | $— | — | — | — | — | — | — | — |
*Resigned effective August 3, 2012
**Resigned effective December 31, 2012
(1) Management Warrants
OUTSTANDING EQUITY AWARDS
Grants of Plan-Based Awards
Initial grants under the 2008 Stock Plan were to Kenneth T. Coviello and Heather N. Vinas of options to purchase 1,000,000 shares in the aggregate. There were no option exercises by or stock vested any holder in fiscal 2012 or 2011. Following the resignation of Heather N. Vinas, 1,111 options were cancelled.
| | | | | | | |
| | Option Awards |
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) | | Option
Exercise Price
($) | Option
Expiration Date |
Kenneth T. Coviello | 2/15/2008 | | - | 3,334 | | $20.25 | 2/12/2018 |
| | | | | | | |
Heather N. Vinas | 2/15/2008 | | - | 2,223 | | $20.25 | 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 | | 6,667 | | $20.25 | | 17,676 |
Equity compensation plans not approved by security holders | | 3,333 | | 28.50 | | – |
Total | | 7,000 | | $20.70 | | 17,676 |
(1) As of December 31, 2012
Warrants Issued to Management
| | | | | | | | | | |
Name | | Grant Date | | Number of Securities Underlying Unexercised Exercisable
Warrants | | Number of Securities Underlying Unexercised Exercisable
Warrants | | Warrant
Exercise Price
($) | | Warrant
Expiration Date |
None | | | | | | | | | | |
| | | | | | | | | | |
Total | | | | - | | | | | | |
Employment Agreements
On July 2, 2012, the Company entered into an Employment Agreement with Richard P. Denness to serve as the Company’s Chief Executive Officer effective August 3, 2012. This Employment Agreement was terminated concurrent with Mr. Denness’ departure on December 31, 2012.
Effective December 29, 2009, the Company entered into new employment agreements with each of our former Chief Executive Officer, Mr. Kenneth Coviello and with our Former President, Ms. Heather Vinas. These new employment agreements superseded all prior employment agreements or arrangements between the Company and these individuals. Ms. Vinas’ employment agreement terminated when she resigned her employment with the Company in May 2010. Mr. Coviello’s employment agreement terminated when he resigned his employment with the Company in August 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.
Compensation of Directors
During the period January 1, 2012 through February 2013, we granted Steven Girgenti a total of 5,928 shares of the Company’s Common Stock for Mr. Girgenti’s service to the Board of Directors. During the period January 1, 2012 through February 2013, we granted Oscar Bronsther, M.D. a total of 5,928 shares of the Company’s Common Stock for Dr. Bronsther’s service to the Board of Directors. Each of Mr. Girgenti and Dr. Bronsther is entitled to receive $5,000 in cash or stock at the option of the company per quarter. No other directors of the Company receive compensation for their service to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of any class of voting securities, (ii) each director, (iii) our chief executive officer and president and (iv) all executive officers and directors as a group as of March 20, 2013. Unless noted, the address for the following beneficial owners and management is 6401 Congress Ave., Suite 140, Boca Raton, FL 33487.
| | | | | | |
Title of Class | | Name and Address of Beneficial Owner | | Amount and Nature of
Beneficial Owner (1) | | Percent of
Class (2) |
Common Stock | | Heather N. Vinas | | 93,039 | | 1.56% |
Common Stock | | Pascale Mangiardi | | — | | 0.00 % |
Common Stock | | Steven Girgenti | | 21,898 | | * |
Common Stock | | Adrian Christopher Liddell | | -- | | 0.00% |
Common Stock | | Marc David Cantor | | -- | | 0.00% |
Common Stock | | Peter C. Zachariou | | -- | | 0.00% |
Common Stock | | Oscar Bronsther, M.D | | 9,350 | | * |
Common Stock | | All executive officers and directors as a group | | 124,287 | | 2.08% |
Common Stock | | Fountainhead Capital Management Limited Portman House Hue Street, St. Helier, Jersey JB4 5RP | | 4,732,288 | | 66.58% |
* 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 March 20 2013, (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 March 20, 2013 (5,920,634 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 March 20, 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 March 20 2012 (5,920,634 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. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
During July to December 2012, the Company issued unsecured, subordinated loan notes to: Fountainhead for a total of $309,900; and to Peter Zachariou, a director of the Company, for a total of $115,550. The loan notes are subordinated to the Company’s secured debentures and Preferred C Stock of the Company, bear interest at a rate of 6% are due on demand or by their one-year anniversary.
In November 2012, Fountainhead and Peter Zachariou, a director of the Company, extended the maturity of secured loans totaling $1,016,362 and $300,000 respectively from December 31, 2012 to March 31, 2013. These have been subsequently extended to December 31, 2013.
On November 30, 2012 the Company entered into an Option Agreement with Heather Vinas, a director of the Company, to purchase up to 54,834 warrants to purchase Common Stock held by Mrs Vinas at $0.87. On January 1, 2013 and on the first day of each calendar month thereafter, the Company shall have the right to an Option Exercise with respect to 4,570 Warrants. The Company, in its sole discretion, may elect to cease its Option Exercises at any time. This was subsequently amended on January 15, 2013 to commence on February 15, 2013. The Company and Mrs Vinas are currently in discussions regarding this agreement.
There were no other related party transactions during the year ended December, 2012 other than the payment or accrual of fees under the Fountainhead Consulting agreement described herein.
Director Independence
As of March 11, 2013, of our seven (7) directors, only Steven Girgenti, Oscar Bronsther and Pascale Mangiardi are considered "independent" in accordance with Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The remaining directors are not considered “independent”. We are currently traded on the Over-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board does not require that a majority of the board be independent.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2012 and December 31, 2011, respectively, were approximately $39,500 and $41,900.
Tax Fees
The fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2012 and 2011 were $3,620 and $3,885 respectively.
All Other Fees
Fees billed for other products or services provided by our principal accountant for the fiscal years ended December 31, 2012 and December 31, 2011 were $2,275 and 0, respectively.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this 10-K:
1. FINANCIAL STATEMENTS
The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:
·
Report of Paritz & Co., P.C., Independent Registered Certified Public Accounting Firm
·
Balance Sheets as of December 31, 2012 and 2011 (audited)
·
Statements of Operations for the years ended December 31, 2012 and 2011 (audited)
·
Statements of Stockholders’ Deficit from January 1, 2009 to December 31, 2012 (audited)
·
Statement of Cash Flows for the years ended December 31, 2012 and 2011 (audited)
·
Notes to Financial Statements (audited)
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
3. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference in this report.
| |
Exhibit No. | Identification of Exhibit |
31.1. | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2. | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| | Vycor Medical, Inc. |
| | (Registrant) |
| By: | |
| | /s/ David M. Cantor |
| | ________________________ |
| | |
| | David M. Cantor |
| | President and Director (Principal Executive Officer) |
| Date | |
| | April 1, 2013 |
| By: | |
| | /s/ Adrian Liddell |
| | ________________________ |
| | |
| | Adrian Liddell |
| | Chairman of the Board and Director |
| | (Principal Financial and Accounting Officer) |
| Date | |
| | April 1, 2013 |
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/ Heather Vinas |
| | ________________________ |
| | |
| | Heather Vinas |
| | Director |
| Date | |
| | April 1, 2013 |
| By: | |
| | /s/ Pascale Mangiardi |
| | _________________________ |
| | |
| | Pascale Mangiardi |
| | Director |
| Date | |
| | April 1, 2013 |
| By: | |
| | /s/ Steven Girgenti |
| | _________________________ |
| | |
| | Steven Girgenti |
| | Director |
| Date | |
| | April 1, 2013 |
| | |
| By: | |
| | /s/ Adrian Christopher Liddell |
| | _________________________ |
| | |
| | Adrian Christopher Liddell |
| | Chairman of the Board and Director (Principal Financial and Accounting Officer) |
| Date | |
| | April 1, 2013 |
| By: | |
| | /s/ David Marc Cantor |
| | _________________________ |
| | |
| | David Marc Cantor |
| | President and Director (Principal Executive Officer |
| Date | |
| | April 1, 2013 |
| By: | |
| | /s/ Peter C. Zachariou |
| | _________________________ |
| | |
| | Peter C. Zachariou |
| | Executive Vice President and Director |
| Date | |
| | April 1, 2013 |
| | |
| By: | |
| | /s/ Oscar Bronsther, M.D. |
| | _________________________ |
| | |
| | Oscar Bronsther, M.D. |
| | Director |
| Date | |
| | April 1, 2013 |
