Company Quick10K Filing
Vycor Medical
Price0.14 EPS-0
Shares25 P/E-6
MCap3 P/FCF41
Net Debt-0 EBIT-1
TEV3 TEV/EBIT-6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
10-Q 2020-06-30 Filed 2020-08-17
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-03-27
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-13
10-K 2018-12-31 Filed 2019-03-29
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-30
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-31
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-08-12
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-04-07
10-Q 2013-09-30 Filed 2013-11-15
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-22
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-12
10-K 2009-12-31 Filed 2010-03-31
8-K 2020-06-30
8-K 2020-03-23
8-K 2019-03-29
8-K 2018-10-09
8-K 2018-03-30

VYCO 10K Annual Report

Part I
Item 1. Description of Business.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters To A Vote of Security Holders.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A(T). Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers, Promoters, and Corporate Governance
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services.
Part IV
Item 15. Exhibits, Financial Statement Schedules
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Vycor Medical Earnings 2009-12-31

Balance SheetIncome StatementCash Flow
4.93.21.6-0.1-1.7-3.42012201420172020
Assets, Equity
0.50.1-0.2-0.6-0.9-1.32012201420172020
Rev, G Profit, Net Income
3.92.91.90.8-0.2-1.22012201420172020
Ops, Inv, Fin

10-K 1 d26446.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

 

 

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the fiscal year ended December 31, 2009

 

 

 

Or

 

 

 o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 333-149782

 

VYCOR MEDICAL, INC.

 

(Exact name of registrant as specified in charter)

 

 

 

 

Delaware

 

20-3369218

 

 

 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

80 Orville Drive, Suite 100, Bohemia, New York 11716
(Address of principal executive offices) (Zip Code)

Registrant’s telephone Number: (631) 244 1435

Securities registered pursuant to section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

o

Accelerated Filer

o

Non-accelerated Filer

o

(Do not check if a smaller reporting company)

Smaller Reporting Company

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $4,064,073 based upon the closing sales price of the registrant’s common stock on March 24, 2010 of $0.05 per share. At March 24, 2010, 622,893,799 shares of the registrant’s common stock were outstanding, of which 541,612,342 were held by affiliates of the Company.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 


TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

PART I

 

Item 1.

Business

3

Item 1A

Risk Factors

10

Item 1B

Unresolved Staff Comments

17

Item 2.

Properties

17

Item 3.

Legal Proceedings

17

Item 4.

Submission of Matters to a Vote of Security Holders

17

 

 

 

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

17

 

 

 

Item 6

Selected Financial Data

22

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

22

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

25

Item 8.

Financial Statements and Supplementary Data

25

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

27

Item 9A(T).

Controls and Procedures

27

Item 9B.

Other Information

27

 

 

 

 

PART III

 

Item 10.

Directors, Executive Officers, Promoters and Corporate Governance

31

Item 11.

Executive Compensation

33

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

35

 

 

 

Item 13.

Certain Relationship and Related Transactions, and Director Independence

36

Item 14.

Principal Accountant Fees and Services

36

 

 

 

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

36

 

 

 

SIGNATURES

37



PART I

          This Form 10-K contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this Form 10-K generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

          Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Form 10-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

          The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise.

ITEM 1. DESCRIPTION OF BUSINESS.

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.” (“Delaware Corporation”). Our sole reason for conversion to the Delaware Corporation was to facilitate the raising of additional capital, as prospective investors had expressed resistance to investing in the Company as the NY LLC. At August 14, 2007, we had approximately 1,122 membership units of the NY LLC issued and outstanding. The managing members of the NY LLC determined, in their reasonable business judgment, that such units, in the aggregate, should convert to an aggregate of 17,999,999 shares of common stock of the Delaware Corporation. On this basis, we adopted a conversion ratio of 16,048 shares of common stock of the Delaware Corporation for each former unit of the NY LLC. Likewise, all conversion rights, options, warrants and any other rights to acquire units of the NY LLC (including but not limited to units issuable pursuant to the terms of the Fountainhead Bridge Loan Debenture, Fountainhead Warrant to purchase 50.22 units of the NY LLC, the Company’s Option Agreement with Fountainhead dated December 14, 2006), were converted to conversion rights, options, warrants and rights to acquire common shares of the Delaware Corporation, based on the same conversion ratio, The action authorizing the conversion was adopted by the unanimous consent of the Managing Members of the NY LLC pursuant to the terms of the NY LLC Operating Agreement.

Overview of Business

          Vycor Medical Inc. is a medical device company headquartered in Bohemia, NY that designs, develops and markets medical devices for use in neurosurgery. The company is ISO 13485:2003 compliant, has U.S. FDA 510(k) clearance for brain and spine surgeries, CE Marking for Europe and Canadian HPB licensing for sale in Canada of its brain retractors. The Company has developed its first product, the ViewSite Brain Access System (VBAS), a next generation brain retractor system. This is now commercialized and revenue generating. The VBAS addresses a market that has not changed materially in over 80 years in contrast to development in surgical technologies.

          The second product in our pipeline is the Cervical Access System, which, pending receipt of additional funding, requires further prototyping and successful market testing and commercialization launch. Like the Brain Access System, this product is designed to assist the surgeon in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site.

          We have received FDA 510(k) clearance for our products. Section 510(k) of the United States Food, Drug and Cosmetic Act requires medical device manufacturers to register with the U.S. Food and Drug Administration of their intent to market a medical device at least 90 days in advance. The 510(k) submission allows the U.S. Food and Drug Administration to determine whether a device is generally equivalent to similar one already on the market. With the FDA 510(k) clearance, we are authorized to take our products to market in the U.S. without further approvals.

3


Our Products

Viewsite Brain Access System (VBAS)

          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. 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. When designing the products, we felt that if we can incorporate certain features into our products, the surgeon reaction and acceptance would be favorable. We attempted to incorporate the following features:

 

 

Gently separate delicate tissue by utilizing a tapered forward edge;

 

 

Minimize venous pressure caused by in the brain;

 

 

Reduce “target shift” to allow the surgeon to reach the site accurately;

 

 

Minimize healthy tissue damage while reaching the target site;

 

 

Allow for accurate neuronavigational image guidance systems (“IGS”) performance;

 

 

Integrate in due course with the leading surgical IGS systems such as Medtronic® and BrainLab®;Stryker and GE

 

 

Improve surgical outcomes (reducing potential surgeon and hospital liability), for example, decreased insertion tissue trauma, less need for readjustment during surgery and minimum interface surface pressures;

 

 

Reduce damage to healthy brain tissue potentially leading to shorter post-op recovery and reduced hospital stay

 

 

To allow direct surgical visualization of brain tissue via optically transparent construction

          The extent to which we are successful in achieving the above objectives will be judged by the acceptance of the devices in the market.

          The Brain Access System products have the potential to significantly reduce brain tissue trauma resulting from the currently used retractors and standard access procedures. First, the unique design of the product minimizes the size of the brain entry access necessary for surgical procedures, and in turn the amount of brain tissue exposed. For instance, a brain procedure involving the removal of a 7cm cystic astrocyctoma would result in an access site (corticotomy) of approximately 20mm. However, the same procedure that was performed utilizing the Company’s Brain Access System product required a corticotomy of only 2mm.

          Because our products are relatively new to the market, there is no guarantee that any of the abovementioned features would prove effective and be useful by the end user.

Product shortcomings

Our products have a few shortcomings:

 

 

As compared to existing blade retractors our device diameter is fixed as opposed to variable which might give the surgeon less flexibility once he is at the desired location.

 

 

The diameters and lengths of our devices are set to specific measurements, which may limit the surgeon to these specific sizes.

 

 

Depending on the case, usage of a disposable product may be viewed as more costly and may not be accepted by our potential end users.

IGS Opportunity for the Brain Access System

          The VBAS product has the potential to improve surgical use of IGS (Image Guidance Systems) employed in many surgeries, by addressing two substantial IGS-related problems of target shifting and the lack of real-time retractor positioning data during procedures:

 

 

Target Shifting

          The normal surgical procedure utilizing standard retractors in brain surgery require pulling away the healthy tissue to expose the targeted region of the brain located underneath. However, in many cases, the amount of pulling required causes the

4


targeted area to shift away from what is shown on the IGS system. This target shifting then requires the surgeon to cause possible additional trauma to healthy tissue and spend additional time as the shifted target area is located and the retractor is repositioned. The VBAS system is designed to minimize or eliminate target shift, as the elliptical shape of the product distributes relatively uniform pressure on the surrounding brain tissue.

 

 

Real-Time Retractor Positioning Data

Current retractor technology (commonly known as ribbon or blade retractors) is not well integrated with IGS systems. During insertion, the surgeon typically does not have real-time data to allow visualization of retractor insertion on the IGS monitor. The VBAS product line has the potential to adapt to IGS systems, such that the use of a Brain Access System unit will allow the surgeon to see on the surgical monitor, in real-time, exactly where the retractor is in relation to critical brain structures and underlying pathologies. With the IGS enabled unit, the tip of the introducer is literally the “pointer” on the IGS system.

Brain Access System Product Models

 

 

TC-VBAS

          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.

Cervical Access Products

          Subject to the raising of additional capital (which cannot be guaranteed), 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.

          We plan to design the Cervical Access System to:

 

 

reduce the possibility of surrounding anatomic tissue damage, which include the trachea, esophagus, carotid artery, recurrent laryngeal and sympathetic nerve;

 

 

minimize skin disruption with the utilization of tapered outward edges;

 

 

eliminate retractor induced electrocautery burn injuries because it is made with surgical grade plastic materials;

 

 

enable stable fixation (directly to the spinal column) in order to avoid accidental displacement and surrounding “tissue creep”; and

 

 

allows for direct visualization of underlying anatomic structures using optically clear plastic.

          Because the Cervical Access System products have not yet been brought to market, there is no guarantee that any of the abovementioned features would prove effective and even so, be welcomed by the end user. Further research and development is needed for a market-ready product.

New Products

Brain Retractors

          Subject to the availability of additional financing, the Company’s future plans include developing additional Brain Access System retractors. Our goals would be to eventually include retractor lines that are designed for the requirements of specific surgical applications like aneurisms, tumors and endoscopic work.

Additional Applications of Brain Access System and Cervical Access System Technology

          We believe that our Brain Access System and Cervical Access System technology can be adapted to advance retractor systems for use in other areas of the body. We believe that the key cross-applicable benefits of our technology are:

 

 

Promotes minimally invasive procedures from smallest possible entry incision

 

 

Uniform pressure distribution minimizes collateral tissue damage due to stress points

 

 

Eliminates “tissue creep” into the surgical field

 

 

Reduces the number of materials in the surgical field

Sales and Marketing

5


          We are implementing an educational and marketing strategy to promote product and brand awareness in our target markets including clinical papers and attending trade shows.

Domestic Sales Strategy

          VBAS was launched in November 2008 with a strategy of driving sales through leading neurosurgeons. In this regard, the Company has adopted a dual strategy of targeting both the leading neurosurgeons and the leading neurosurgery hospitals. The Company believes that out of the 4,500 neurosurgeons in the US approximately 1,500 focus predominantly on craniotomies or cranial procedures that could potentially benefit from the VBAS product. Management believes that there are approximately 750-1,000 hospitals that represent the majority of its target market.

          We are currently using independent distributors who have existing relationships with neurosurgeons and target hospitals.

International Sales

          In Europe, the company has agreements with three exclusive distributors who are also focused in neurosurgery. In China, Vycor has entered into a distribution agreement, for its VBAS. The Company has not yet received SFDA approval, which is required to sell and market products in this country.

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.

Manufacturing

          We have 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 and have made production runs of all 12 sizes. (See “Risk Factors — “We are dependent on two key vendors to manufacture our products”)

Market

          The market for our Brain Access System product lines is the neurosurgical community. The Company has analyzed and estimated the market for its products from an analysis of available statistics, discussion with surgeons, distributors and other market participants. Vycor is currently focusing its attention for VBAS on the US, China and Europe.

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, Medtronic distributes the MetRx dilating retractor system. In addition companies such as Endius and EBI have announced cervical retractor systems.

Customers

6


The Company sells to regional distributors and hospitals. The Company believes that its products currently are utilized in approximately 50 hospitals in the United States. In addition, in 2009 international sales accounted for approximately 25% of revenues.

Intellectual Property

Patent Applications

          Below is a table setting out the status and particulars of our patent applications:

 

 

 

 

 

Filing date

Application No.

Country

Title

Status

         

22-Jun-2005

60/692,959

US – PROV

Surgical Access Instruments For Use With Spinal Or Orthopedic Surgery (Cervical)

Converted

 

 

 

22-Jun-2006

PCT/US06/24243

PCT

Surgical Access Instruments For Use With Spinal Or Orthopedic Surgery (Cervical)

National Phase Completed

 

 

 

27-Nov-2006

PCT/US06/61246

PCT

Surgical Access Instruments for use with Delicate Tissues (Brain)

National Phase Completed

 

 

 

22-Jun-2006

2613323

Canada

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending – annuity due 6/22/10

 

 

 

22-Jun-2006

06785312.7

Europe

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending – annuity due 6/22/10

 

 

 

22-Jun-2006

299/KOLNP/2008

India

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending

 

 

 

22-Jun-2006

2008-518369

Japan

Surgical Access Instruments for use with spinal or orthopedic surgery

Published

 

 

 

20-Dec-2007

11/993,280

US – UTIL

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending

 

 

 

25-Jun-2008

08107050.4

Hong Kong

Surgical Access Instruments for use with spinal or orthopedic surgery

Pending

 

 

 

18-Sep-2008

61/098041

US – PROV

Surgical Access Instruments for use with Delicate Tissues (Brain)

Converted

 

 

25-May-2009

2670631

Canada

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending – annuity due 11/27/10

 

 

26-May-2009

06840022.5

Europe

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending – annuity due 5/27/10

 

 

26-May-2009

1977/KOLNP/2009

India

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending – exam due 11/27/10

 

 

 

27-May-2009

2009-539227

Japan

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

 

 

 

26-Jun-2009

2009124446

Russia

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

 

 

 

27-Jul-2009

200680056889.9

China

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

 

 

 

21-Aug-2009

12/545686

US – CON

Surgical Access Instruments for use with Delicate Tissues (Brain)

Pending

 

 

 

21-Aug-2009

12/545719

US – CON

Surgical Access Instruments for use with Delicate Tissues (Brain) (apparatus claims)

Pending




          The inventor on the above-indicated patent applications was Dr. John Mangiardi, who assigned the rights to the Sawmill Trust on September 17, 2005 under the terms of an assignment agreement between the parties. The Sawmill Trust then, in turn, assigned the same rights to the Company on September 17, 2005 pursuant to an assignment agreement between the Sawmill Trust and the Company dated the same date.

Trademarks

          VYCOR MEDICAL is a registered trademark and VIEWSITE is pending registration as a trademark with the United States Patent and Trademark Office.

Insurance

          We presently have Directors’ and Officers’ Liability Insurance and Product Liability insurance.

Government Regulations

          We are committed to an integrated total quality management system. We have completed the necessary procedures and are certified to the ISO standards expected of medical device manufacturers as follows:

ISO 13485:2003 Medical Devices — Quality Management Systems

          The certification of a quality management system to ISO 13485, specifically for medical devices, is advantageous and often essential for medical companies to export their products to the global market, as well as maintain and enter into certain agreements and business growth opportunities within the U.S. For example, Canada requires that medical device manufacturers marketing their products in Canada must have a quality system certified to ISO 13485:2003. The certification is also required for placement of branded devices into the European Union.

          In November 2009, we successfully passed our re-certification audit through Intertek. Recertification audits are required every 3 years while surveillance audits occur annually in between.

We have 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

— HPB Licensing for Canada

Continuing Regulatory Requirements

          Governmental regulation in the United States and other countries is a significant factor affecting the research and development, manufacture and marketing of medical devices, including our products. In the United States, the FDA has broad authority under the Federal Food, Drug and Cosmetic Act (the FD&C Act) to regulate the development, distribution, manufacture, marketing and sale of medical devices. Foreign sales of medical devices are subject to foreign governmental regulation and restrictions that vary from country to country.

          Medical devices intended for human use in the United States are classified into one of three categories, depending upon the degree of regulatory control to which they will be subject. Such devices are classified by regulation into either Class I general controls, Class II special standards or Class III pre-market approval (PMA), depending upon the level of regulatory control required to provide reasonable assurance of the safety and effectiveness of the device.

          Most Class I devices are exempt from pre-market notification (510(k)) or PMA. However Class I devices are subject to “general controls,” including compliance with FDA manufacturing requirements (Quality System Regulation (QSR), sometimes

8


referred to as current good manufacturing practices or CGMPs), adverse event reporting, labeling and other requirements. Class II devices are subject to general controls and to the pre-market notification requirements under Section 510(k) of the FD&C Act. For a 510(k) to be cleared by the FDA, the manufacturer must demonstrate to the FDA that a device is substantially equivalent to another legally marketed device that was either cleared through the 510(k) process or on the market prior to 1976. It generally takes four to twelve months from the date of submission to obtain 510(k) clearance although it may take longer. Class III is the most stringent regulatory category for devices. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls. Class III devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, 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 US FDA, our products have been classified as Class II products and cleared for marketing through the 510(k) process.

          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.

          We have obtained the CE marking approval to allow for distribution of our VBAS products in Europe and have received our HPB licensing approval for distribution in Canada.

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.

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          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 5 full-time employees.

ITEM 1A. RISK FACTORS

Risks Related to Our Financials

We are a recently formed company that has not achieved profitable operations. If our business plan fails, you may lose your entire investment.

          Our independent auditors, Paritz & Company, certified public accountants, have expressed substantial doubt concerning our ability to continue as a going concern. We have incurred losses since our inception, including a net loss of $1,141,383 for the year ended December 31, 2009 and we expect to incur substantial additional losses, including additional development costs, costs related to clinical trials and manufacturing expenses. We have incurred negative cash flows from operations since inception. As of December 31, 2009 we had a stockholders’ deficiency of $1,111,941 and a cash and cash equivalents of $12,771 at December 31, 2009. Since we have no record of profitable operations, there is a high possibility that you may suffer a complete loss of your investment.

We were formed on June 17, 2005 and have a limited operating history and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objectives.

          The Company has limited operating results to date. Since we do not have an established operating history, you will have no basis upon which to evaluate our ability to achieve our business objectives.

The absence of any significant operating history for us makes forecasting our revenue and expenses difficult, and we may be unable to adjust our spending in a timely manner to compensate for unexpected revenue shortfalls or unexpected expenses.

          As a result of the absence of any operating history for us, it is difficult to accurately forecast our future revenue. In addition, we have limited meaningful historical financial data upon which to base planned operating expenses. Current and future expense levels are based on our operating plans and estimates of future revenue. Revenue and operating results are difficult to forecast because they generally depend on our ability to promote and sell our products. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would result in further substantial losses. We may also be unable to expand our operations in a timely manner to adequately meet demand to the extent it exceeds expectations.

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 still developing and introducing new products. There can be no assurance that at this time we will operate profitably or that we will have adequate working capital to meet our obligations as they become due. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:

 

 

competition;

 

 

need for acceptance of products — there can be no assured market for our products and there is no guarantee of orders or surgeon acceptance;

 

 

ability to continue to develop and extend brand identity;

 

 

ability to anticipate and adapt to a competitive market;

 

 

ability to effectively manage rapidly expanding operations;

 

 

amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and

10



 

 

dependence upon key personnel to market and sell our products and the loss of one of our key managers may adversely affect the marketing of our products.

          We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to continue as a going concern and our ability to obtain future financing.

          In their report dated March 22, 2010, our independent auditors stated that our financial statements for the period ended December 31, 2009 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations and cash flow deficiencies since our inception. We continue to experience net losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. If we are unable to continue as a going concern, you may lose your entire investment.

Our revenue will be dependent upon acceptance of our products by the market. The failure of such acceptance will cause us to curtail or cease operations.

          We believe that virtually all of our revenue will come from the sale of our products. As a result, we will continue to incur substantial operating losses until such time as we are able to generate sufficient revenue from the sale of our products to cover operating expenses. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for our products. In the event that we are not able to significantly increase the number of customers that purchase our products, or if we are unable to charge the necessary prices, 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 or that such patents will protect us from competitors

          We believe that our success and competitive position will depend in large part on our ability to obtain and maintain patents for our devices. We have filed patent applications for both the design of our Brain Access System and Cervical Access System and the method of performing surgery with our devices. The U.S. Patent and Trademark Office typically requires 12-24 months or more to process a patent application. There can be no assurance that our patent applications will be approved. However we did not wait for the approval of the patent applications before launching VBAS and do not intend to do so before launching other devices. There can be no assurance regarding how long it will take the U.S. Patent and Trademark Office to decide whether to approve our patent applications or how long it will take foreign patent offices to grant us patents. There can be no assurance that any patent issued or licensed to us will provide us with protection against competitive products or otherwise protect our commercial viability, or that challenges will not be instituted against the validity or enforceability of any of our patents or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity of a patent and enforce it against infringement can be substantial. Even issued patents may later be modified or revoked by the Patent and Trademark Office or in legal proceedings. Patent applications in the United States are maintained in secrecy until the patent issues and, since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries, we cannot be certain that we were the first creator of the inventions covered by our pending patent applications or the first to file patent applications on such inventions.

We are dependent on two key vendors to manufacture our products.

          We are dependent on Lacey Manufacturing Company 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.

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We rely on independent distributors to assist in the sale and marketing of our products.

          We have contracted with independent medical device distributors and representatives that collectively have field salespeople who call on neurosurgery departments. We are in also in discussions with other potential medical device distributors and sales agents. There is no assurance that the contracted distributors or potential new distributors will be successful in promoting and selling our products.

We will need to raise substantial additional funds to reach viability and continue operations.

          We will require substantial additional funds in order to continue operations and generate enough revenue to reach positive cash flow. Sufficient funds on terms acceptable to us may not be available or may be available only on terms that are dilutive to investors. Our inability to obtain additional funds might prevent us from continuing operations.

We may not be successful in capturing desired market share if products are not compatible with navigational systems.

          We believe that using our products with existing navigation systems will be important in gaining market acceptance and making our pre-market evaluations. We have had discussions with some of the manufacturers about integrating our products with their navigation systems by making an adaptor to allow our products to work with their navigation systems. We can offer no assurances that we will be able to conclude a formal agreement of terms with these manufacturers.

Our development of new products may be more expensive than anticipated and that we may not have sufficient resources to realize our business plan.

          There is a possibility that the money and time required to develop new products may be excessive and more than what we anticipate. We may conclude that the expenses will make the launch uneconomical. Therefore there is a risk that we may not be able to complete the development of and sale of new products.

Sales may not produce profits.

          We may be forced to sell our products at a lower price than anticipated due to a variety of reasons, including without limitation selling prices of comparable products by our competitors and budget constraints of our customers. Further, we may sell fewer products than anticipated, and the costs associated with each unit, including costs of manufacturing and commissions, may be greater than anticipated. As a result, there is a risk that the sale of devices may fail to yield profitability.

Our products may not be accepted in the marketplace.

          Uncertainty still exists as to whether our products will be well accepted by the market. A number of factors may limit the market acceptance of our products, including the timing of regulatory approvals and market entry relative to competitive products, the availability of alternative products and the price of the our products relative to alternative products. There is a risk that surgeons will be encouraged to use multiple use devices, such as retractors, instead of our single use devices. Our device is designed to be used once and then discarded. Our competitors market multiple use devices such as retractors. The multiple use devices are not appreciably more expensive than our single use devices and therefore they are significantly less expensive on a per use basis. We are assuming that notwithstanding the difference in price that surgeons will elect to use our devices because of their perception that our devices will permit safer and less invasive surgery. However, hospitals, medical insurance providers, health maintenance organizations and others approving surgical costs may decide that the cost outweighs the benefit. In addition, surgeons may opt to use other devices.

Even if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

          Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the Quality System Regulation, or QSR, for the manufacture of our products which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval. The FDA enforces the GMP and QSR through unannounced inspections. We and our third party manufacturers and suppliers will have to successfully

12


complete such inspections. Failure by us or one of our suppliers, with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following enforcement actions:

 

 

warning letters or untitled letters;

 

 

fines and civil penalties;

 

 

unanticipated expenditures;

 

 

withdrawal or suspension of approval by the FDA or other regulatory bodies;

 

 

product recall or seizure;

 

 

orders for physician notification or device repair, replacement or refund;

 

 

interruption of production;

 

 

operating restrictions;

 

 

injunctions; and

 

 

criminal prosecution.

          If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.

          If the FDA determines that our promotional materials, training or other activities constitutes promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

          Moreover, any modification to a device that has received FDA approval that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new approval from the FDA. If the FDA disagrees with any determination by us that new approval is not required, we may be required to cease marketing or to recall the modified product until we obtain approval. In addition, we could also be subject to significant regulatory fines or penalties.

          In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or GMP, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.

          Further, healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory environment may change in a way that restricts our operations.

          Similarly, in Canada , Health Canada could place a hold on imports from us and could revoke any licenses held for violations of its rules and regulations. Health Canada could issue a warning the first time around and we would be obligated to fix the problem and follow up with Health Canada.

          In Europe, the relevant European authorities could hold imports from us and remove CE marking for violating their rules and regulations. We could get a warning from a European Competent Authority or its Notified Body and we would be obligated to fix the problem and follow up with either the Notified Body or Competent Authorities.

Because product liability is inherent in the medical devices industry and insurance is expensive and difficult to obtain, we may be exposed to large lawsuits.

          Our business exposes us to potential product liability risks, which are inherent in the manufacturing, marketing and sale of medical devices. While we will take precautions we deem to be appropriate to avoid product liability suits against us, there can be no assurance that we will be able to avoid significant product liability exposure. Product liability insurance for the medical products industry is generally expensive, to the extent it is available at all. While we have obtained such coverage, there can be no assurance that we will be able to continue 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.

13


Because the healthcare industry is subject to changing policies and procedures, we may find it difficult to continue to compete in an uncertain environment.

          The health care industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare industry participants. During the past several years government regulation of the healthcare industry has changed significantly in several countries. Healthcare industry participants may react to new policies by curtailing or deferring use of new treatments for disease, including treatments that would use our devices. This could substantially impair our ability to successfully marker our products, which would have a material adverse effect on our performance.

The market success of our product candidates will be dependent in part upon third-party reimbursement policies that are often subject to change.

          Our ability to successfully penetrate the market for our products may depend significantly on the availability of reimbursement to hospitals for 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 hospitals, if any, will be high enough to allow us to charge a reasonable profit margin. Our products are not specifically reimbursed by third party payors, they are part of the overall procedure cost. If levels of reimbursement are decreased in the future, the demand for our products could diminish or our ability to sell our products on a profitable basis could be adversely affected.

Some of our competitors are more established and better capitalized than we are and we may be unable to establish market share.

          Some of our competitors are well-known, more established and better capitalized than we are. As such, they may have at their disposal greater marketing strength and economies of scale. They may also have more resources to expend on research and development to create more innovative products in competition with ours. Accordingly, we may not be successful in competing with them for market share.

We will need to increase the size of our organization, and may experience difficulties in managing growth.

          We are a small company with minimal employees. We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future growth effectively.

We are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.

          We have offered and sold our common stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves.

          If any prior offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes under the National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.

The availability of a large number of authorized but unissued shares of common stock may, upon their issuance, lead to dilution of existing stockholders.

          We are authorized to issue 1,000,000,000 shares of common stock, $0.0001 par value per share, of which, as of March 24, 2010, 622,893,799 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.

14


          Further, our Certificate of Incorporation authorizes 10,000,000 shares of preferred stock, $0.0001 par value per share. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which convert into large numbers of shares of common stock and consequently lead to further dilution of other shareholders.

We may need additional capital that could dilute the ownership interest of investors.

          We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these securities may have rights, preferences or privileges senior to those of the rights of holders of our common stock and they may experience additional dilution. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations in the future. The issuance of additional common stock by our management, may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.

We rely on Mr. Kenneth T. Coviello, our Chief Executive Officer and Ms. Heather Vinas, our President, for the management of our business, and the loss of their services may significantly harm our business and prospects.

          We depend, to a large extent, on the abilities and participation of our current management team, but have a particular reliance upon Mr. Kenneth Coviello, our Chief Executive Officer and Ms. Heather Vinas, our President for the direction of our business. The loss of the services of either Mr. Coviello or Ms. Vinas, for any reason, may have a material adverse effect on our business and prospects. We cannot assure you that the services of Mr. Coviello or Ms. Vinas will continue to be available to us, or that we will be able to find a suitable replacement for either of them. We do not have key man insurance on Mr. Coviello or Ms. Vinas. If either or both of them were to die and we are unable to replace either or both of them for a prolonged period of time, we may be unable to carry out our long term business plan and our future prospect for growth, and our business, may be harmed.

We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire such personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.

          Our future success depends heavily upon the continuing services of the members of our senior management team, in particular our Chief Executive Officer, Mr. Kenneth Coviello and our President, Ms. Heather Vinas. If one or more of our senior executives or other key personnel is/are unable or unwilling to continue in his/her/their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and personnel is intense, the pool of qualified candidates in the medical device field is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could materially and adversely affect our future growth and financial condition.

We may not have adequate internal accounting controls. While we have certain internal procedures in our budgeting, forecasting and in the management and allocation of funds, our internal controls may not be adequate.

          We are constantly striving to improve our internal accounting controls. We do not have a full-time dedicated Chief Financial Officer. We hope to develop an adequate internal accounting control to budget, forecast, manage and allocate our funds and account for them. There is no guarantee that such improvements will be adequate or successful or that such improvements will be carried out on a timely basis. If we do not have adequate internal accounting controls, we may not be able to appropriately budget, forecast and manage our funds, we may also be unable to prepare accurate accounts on a timely basis to meet our continuing financial reporting obligations and we may not be able to satisfy our obligations under US securities laws.

We have inadequate insurance coverage

          We have only Directors and Officers Liability Insurance and Product Liability insurance at present. We have exposure in the event of loss or damage to our properties. We are seeking quotations for property and other necessary insurances.

          We cannot assure you that we would not face liability in the event of the failure of any of our products. This is particularly true given our plan to significantly expand our sales into international markets, like Europe, where product liability claims are more prevalent. Moreover, our insurance may not be adequate to cover any such product liability damages.

          We do not maintain a reserve fund for warranty or defective products claims. Our costs could substantially increase if we experience a significant number of warranty claims. We have not established any reserve funds for 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.

15


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 March 24, 2010, Fountainhead Capital Management Limited beneficially owned, in the aggregate, approximately 85.3% of our common stock. As a result, they are holders of a majority of the outstanding shares and they may be able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions, including business combinations. Their interests may differ from other stockholders.

We do not intend to pay cash dividends in the foreseeable future

          We currently intend to retain all future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.

Our common stock is subject to the Penny Stock Regulations

          Our common stock and will likely be subject to the 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.

Our securities are not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended

          We have not registered our securities pursuant to Section 12 of the Securities Exchange Act, as amended, which means we are considered a “voluntary filer” under SEC regulations. We may register our securities pursuant to Section 12 of the Securities Exchange Act in the future although we currently do not have any plans to do so. In the meantime, we are, therefore, not currently obligated to file any periodic reports under the Securities Exchange Act, to follow the SEC’s proxy rules or to distribute an annual report, containing audited financial reports to our securities holders, although we may voluntarily file annual, quarterly and special

16


reports, and other information with the SEC. If we are not required to deliver an annual report to security holders, we do not intend to voluntarily deliver annual reports to security holders containing audited financial statements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

N/A

ITEM 2. PROPERTIES

The Company executed a lease agreement with Regus Management Group, LLC dated January 4, 2010, for administrative office space at its current location at 80 Orville Drive, Bohemia, New York. The lease term is nine months ending October 31, 2010. Payments under this lease include $3,050 per month, plus additional charges for common area, phone equipment, phone usage, secure inventory storage area, office services, and other consumables.

ITEM 3. LEGAL PROCEEDINGS

          We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION

          Beginning on July 20, 2009, our Common Stock was quoted on the OTC Bulletin Board, a service provided by the Nasdaq Stock Market Inc., 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 July 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

 

 

 

 

 

 

 

July 20, 2009-September 30, 2009

 

$0.04

 

$0.02

 

 

 

 

 

 

 

 

 

October 1, 2009-December 31, 2009

 

$0.07

 

$0.01

 

          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 March 24, 2010 there were 622,893,799 shares of common stock outstanding and approximately 60 stockholders of record.

Transfer Agent and Registrar

          Our transfer agent is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209, (303) 282-4800.

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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.

18


RECENT SALES OF UNREGISTERED SECURITIES

Below is a list of securities sold by us within the past three years which were not registered under the Securities Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name of Purchaser

 

Date of Sale

 

Title of
Security

 

Amount of Securities
Sold

 

Consideration

 

 

 

 

 

 

 

 

 

 

 

Kenneth Olson

 

 

April 18, 2007

 

 

Common Stock

 

 

100,301

 

$

25,000

 

Feldstein Management

 

 

August 14, 2007

 

 

Common Stock

 

 

12,197

 

$

3,040

 

Dr. David Langer

 

 

August 14, 2007

 

 

Common Stock

 

 

24,072

 

 

Professional Services

 

Vinas & Company

 

 

August 14, 2007

 

 

Common Stock

 

 

16,048

 

 

Professional Services

 

David Salomon

 

 

August 15, 2007

 

 

Common Stock

 

 

150,000

 

$

150,000

 

 

 

 

February 13, 2008

 

 

 

 

 

1,211,111

 

 

Debenture Conv.

 

MAC Strategic Advisors

 

 

November 15, 2007

 

 

Common Stock

 

 

40,000

 

 

Professional Services

 

George Kivotidis

 

 

November 15, 2007

 

 

Common Stock

 

 

100,000

 

$

50,000

 

 

 

 

March 10, 2008

 

 

Common Stock

 

 

263,158

 

$

50,000

 

Christopher A. Vinas

 

 

January 23, 2008 &

 

 

Common Stock

 

 

263,158

 

$

50,000

 

 

 

 

February 26, 2008

 

 

 

 

 

 

 

 

 

 

RES Holdings

 

 

February 26, 2008

 

 

Common Stock

 

 

23,683

 

 

Professional Services

 

 

 

 

April 15, 2008

 

 

Common Stock

 

 

23,683

 

 

Professional Services

 

LFI Investments Ltd

 

 

February 20, 2008

 

 

Common Stock

 

 

78,947

 

$

10,000

 

Jay Berkow

 

 

February 20, 2008

 

 

Common Stock

 

 

52,632

 

$

10,000

 

Vivek Bhaman

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Robert Braumann

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

John A. Brown Jr.

 

 

February 20, 2008

 

 

Common Stock

 

 

52,632

 

$

10,000

 

Vincent P. Carroll

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Robert A. Frazier

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Martin Keating

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Vicor F. Keen

 

 

February 20, 2008

 

 

Common Stock

 

 

78,947

 

$

15,000

 

Robert M. Richards

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Joseph Roberts

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Thomas Romano

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Edward F. Sager, Jr.

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Mark Staples

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Neil Strauss

 

 

February 20, 2008

 

 

Common Stock

 

 

52,632

 

$

10,000

 

Terry Tyson

 

 

February 20, 2008

 

 

Common Stock

 

 

52,632

 

$

10,000

 

Geoffrey C Walker

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

James Ward

 

 

February 20, 2008

 

 

Common Stock

 

 

26,316

 

$

5,000

 

Jay S. Weiss

 

 

February 20, 2008

 

 

Common Stock

 

 

52,632

 

$

10,000

 

Concordia Financial Group

 

 

February 20, 2008

 

 

Common Stock

 

 

523,747

 

 

Professional Services

 

 

 

 

April 15, 2008

 

 

Common Stock

 

 

523,747

 

 

Professional Services

 

Sichenzia Ross Friedman

 

 

February 20, 2008

 

 

Common Stock

 

 

523,747

 

 

Professional Services

 

Ference, LLP

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr. Konstantin Slavin

 

 

September 1, 2008

 

 

Common Stock

 

 

26,000

 

 

Professional Services

 

Arthur Shaw

 

 

September 26, 2008

 

 

Common Stock

 

 

131,578

 

$

25,000

 

Dr. Konstantin Slavin

 

 

October 21, 2008

 

 

Common Stock

 

 

21,875

 

 

Professional Services

 

William Roberts

 

 

November 20, 2008

 

 

Common Stock

 

 

657,895

 

 

125,000

 

The Armentarium

 

 

November 20, 2008

 

 

Common Stock

 

 

131,579

 

 

25,000

 

Troy Leight

 

 

November 30, 2008

 

 

Common Stock

 

 

52,632

 

 

10,000

 

Steve Girgenti

 

 

November 19, 2008

 

 

Common Stock

 

 

26,316

 

 

Professional Services

 

Derek Johannson

 

 

December 2, 2008

 

 

Common Stock

 

 

2,032,520

 

$

250,000

 

Steve Girgenti

 

 

March 23, 2009

 

 

Common Stock

 

 

26,318

 

 

Professional services

 

Steve Girgenti

 

 

July 28, 2009

 

 

Common Stock

 

 

26,318

 

 

Professional services

 

Dr. Konstantin Slavin

 

 

July 28, 2009

 

 

Common Stock

 

 

39,145

 

 

Professional services

 

Fountainhead Capital

 

 

January 11, 2010

 

 

Common Stock

 

 

531,376,500

 

 

Debenture Exchange

 

Management Limited

 

 

 

 

 

 

 

 

 

 

 

 

 

19



 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

35,000

 

$

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

 

          Dr. Donald O’Rourke entered into a consulting agreement with us on January 18, 2008. Pursuant to the consulting agreement, Dr. O’Rourke shall provide consulting or advisory services on an as needed basis, to guide us in making important strategic decisions and to evaluate our strategic plans and decisions, research and/or development activities and results, competitive positions and/or other scientific and/or technical issues. In consideration for providing such services, Dr. O’Rourke was granted an option to purchase 50,000 shares of the Company’s common stock at $.50 per share.

          Dr. Konstantin Slavin entered into a consulting agreement with us on September 1, 2008. Pursuant to the agreement, Dr. Slavin agreed to provide us certain consulting services. In consideration of such consulting services, Dr. Slavin received a one-time retainer of $5,000, which the Company has paid by the issuance of 26,000 shares of the Company’s common stock to Dr. Slavin. On October 21, 2008, Dr. Slavin was issued an additional 21,875 common shares in lieu of $4,156.25 worth of professional services. On July 28, 2009, the Company issued an additional 39,145 common shares in lieu of the payment for additional professional services.

          In consideration for being our strategic business advisor, we issued to Martin Magida a warrant to purchase up to 160,480 shares of our common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.

          In consideration for purchasing our stock of common shares, we issued to George Kivotidis a warrant to purchase up to 4,000 shares of our common stock at $.50 per share. The warrant is valid from November 6, 2007 for a period of three years.

          On December 2, 2008 Derek Johannson converted $250,000 of his debenture to 2,032,520 shares of common stock of the company.

          In consideration for advisory services, we issued to Robert Guinta a warrant to purchase up to 160,480 shares of the Company’s common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years.

          Each of Kenneth Coviello and Heather Vinas entered into a stock option agreement with us dated February 15, 2008. Pursuant to the said stock option agreements, each of Kenneth Coviello and Heather Vinas was granted an option to purchase 500,000 shares of common stock of the Company at an exercise price of $.135 per share. The option shall vest 33 1/3% on each of the first, second and third anniversary of the grant and shall expire February 12, 2018.

          On December 14, 2006, we issued to Fountainhead Capital Partners Limited a Bridge Loan Debenture for the original principal amount of $172,500, which may be converted, at the option of Fountainhead Capital Partners Limited to 1,979,456 shares of our common stock. The Bridge Loan Debenture has a maturity date of February 15, 2009. On December 29, 2009, this note was satisfied in accordance with the recapitalization transaction with Fountainhead Capital Management Limited.

          On February 15, 2008, we entered into a transaction with Regent Private Capital, LLC, whereby Regent Private Capital, LLC agreed to invest $1,000,000 in the purchase of our Convertible Debentures—such investment to be made in two tranches of $500,000 each. On December 29, 2009, this note was satisfied by the issuance of a short term debenture to the Holder for the principal and accrued interest to date.

          In connection with the investment by Regent Private Capital, LLC, Fountainhead Capital Partners Limited agreed to make additional investments totaling $300,000 in two tranches of $150,000 each concurrent with the Regent investments. On December 29, 2009, this note was satisfied by the issuance of a short term debenture to the Holder for the principal and accrued interest to date.

20


          At the same time, approximately twenty smaller investors agreed to invest an additional approximately $140,000 in the purchase of shares of our common stock at approximately $.19 per share. The investment closed on or about February 20, 2008.

          In connection with the investments by Regent Private Capital, LLC, Fountainhead Capital Partners Limited and consultancy services provided, we issued a total of 1,047,494 shares of our common stock to The Concordia Financial Group and 523,747 shares of our common stock to Sichenzia, Ross Friedman and Ference, LLP.

          On December 14, 2006, we entered into an Option Agreement with Fountainhead Capital Partners Limited which granted to Fountainhead Capital Partners Limited an option to invest up to $1,850,000 within three years from December 14, 2006 in exchange for up to 5,652,954 shares of our common stock and warrants to convert to 3,017,409 shares of our common stock. This option has now expired.

          In consideration for services provided to the Board of Directors, the Company issued 26,318 shares of its common stock to Steven Girgenti on March 23, 2009 and July 28, 2009, (52,636 shares in aggregate).

          In accordance with an existing consulting agreement, in consideration for services provided, the Company issued 39,145 shares of its common stock to Dr. Konstantin Slavin on July 28, 2009.

          On January 11, 2010, the Company issued 531,376,500 shares of common stock to Fountainhead Capital Management Limited in accordance with the terms of a Debenture Exchange Agreement dated as of December 29, 2009 (see Exhibit 4.1 to the Company’s Form 8-K Current Report filed with the SEC on January 6, 2010.

          On January 11, 2010, the Company issued 4,000,000 shares of common stock to Jodi Yeager on the conversion of $50,000 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 8,787,600 shares of common stock to Panamerica Capital Group, Inc. on the conversion of $109,845 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 9,187,600 shares of common stock to Hyperlink Media, LLC on the conversion of $114,845 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 10,320,000 shares of common stock to Karen Ginder on the conversion of $129,000 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 4,000,000 shares of common stock to Accessible Development Corp. on the conversion of $50,000 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 16,000,000 shares of common stock to Altitude Group, LLC on the conversion of $200,000 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 6,000,000 shares of common stock to Mario Zachariou on the conversion of $75,000 face value of the Company’s convertible debenture.

          On January 11, 2010, the Company issued 6,000,000 shares of common stock to Anthony Cantor on the conversion of $75,000 face value of the Company’s convertible debenture.

          On January 12, 2010, SLJ Consulting Corp. purchased 80,000 shares of the Company’s series B Preferred Stock for $80,000 cash.

          On January 12, 2010, Joseph Simone purchased 35,000 shares of the Company’s series B Preferred Stock for $35,000 cash.

          On February 23, 2010, in consideration for services provided to the Board of Directors (valued at $10,000), the Company issued 800,000 shares of its common stock to Steven Girgenti.

          On March 11, 2010, Kenneth D. Watkins purchased 25,000 shares of the Company’s series B Preferred Stock for $25,000 cash.

21


          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 6. SELECTED FINANCIAL DATA

See Item 7—Results of Operations, below.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Critical Accounting Policies and Estimates

Uses of estimates in the preparation of financial statements

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Currently, the Company estimates depreciation, amortization of intangible assets, and the fair values of options and warrants.

          The most critical estimates that impact the financial position and results of operation of the company, have to do with the methodologies and assumptions used in determining the fair value of various debt estimates. These include assumptions associated with warrants, options and stock issued in conjunction with such debt. Additionally, the Black-Scholes option pricing model and its related assumptions of volatility, risk free interest, stock price also significantly impacted share based compensation and the results of operations.

Going Concern

          We have incurred losses since our inception, including a net loss of $1,141,383 for the year ended December 31, 2009 and we expect to incur substantial additional losses, including additional development costs, costs related to clinical trials and manufacturing expenses. We have incurred negative cash flows from operations since inception. As of December 31, 2009, we had a stockholders’ deficiency of $1,111,941 and a cash and cash equivalents of $12,771. Since we have no record of profitable operations, there is high a possibility that you may suffer a complete loss of your investment. In these circumstances the Company believes it may not have enough cash to meet its various cash needs for the year ended 2010 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Research and Development

          The Company expenses all research and development costs as incurred. For the years ended December 31, 2009 and 2008, the amounts charged to research and development expenses were $4,761 and $33,686, respectively.

Cash and cash equivalents

          The Company considers all highly liquid debt investments with original maturities of three months or less when purchased to be cash equivalents. The carrying amounts approximate fair market value because of the short maturity. The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.

Fair Values of Financial Instruments

          At December 31, 2009 and 2008, fair values of cash and cash equivalents, accounts payable, convertible promissory notes, and options and warrants approximate their carrying amount due to the short period of time to maturity and various fair value model calculations.

22


Property and equipment

          The Company records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and seven years.

Income taxes

          The Company accounts for income taxes in accordance with relevant FASB standards, using of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Patents

          The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or process are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.

          The Company reviews existing patents as well as those in the approval process for impairment on an annual basis using a present value, cash flow method pursuant to relevant FASB standards. Since the Company’s patents are either very new or still in the process of approval, the Company does not believe that any impairment of these amounts exists.

Revenue Recognition

          The Company records revenue at the time, pursuant to relevant FASB standards that a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company intends to sell a surgical access system which has already cleared the U.S. FDA 510(k) review process. It has been granted a 510(k) number to market to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warrantee costs but will review such potential costs after the commencement of sales.

Educational and marketing expenses

          The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will expense such costs as a component of selling, general and administrative costs as such costs are incurred.

Results of Operations

          The following table presents the dollar amount and percentage of changes from period to period of the line-items included in our Statements of Operations for the years ended December 31, 2009 and 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

2009

 

2008

 

Increase/
(Decrease)

 

% Change

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

199,046

 

$

129,947

 

$

69,099

 

 

53.17

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,761

 

 

33,686

 

 

(28,925

)

 

(85.87

)

General and administrative

 

 

1,114,406

 

 

1,554,242

 

 

(439,836

)

 

(28.30

)

Operating loss

 

 

(942,603

)

 

(1,471,070

)

 

(528,467

)

 

(35.92

)

Other Expenses

 

 

198,780

 

 

910,225

 

 

(711,445

)

 

(78.16

)

Total Expenses

 

 

1,340,429

 

 

2,511,242

 

 

(1,170,813

)

 

(46.62

)

 

 

   

 

   

 

   

 

   

 

Net loss

 

$

(1,141,383

)

$

(2,381,295

)

$

(1,239,912

)

 

(52.07

)

Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008

Revenue:

          We recorded revenue from the sale of our products in the year ended December 31, 2009 of $199,046, compared to $129,947 in the year ended December 31, 2008. The growth in revenues is due to increased sales of the Company’s products.

23


Research and Development Expenses:

          Research and development expenses decreased by 85.87%, or $28,925 from $33,686 for the fiscal year ended December 31, 2008 to $4,761 for the fiscal year ended December 31, 2009. During 2009 the decrease was primarily attributed to lower engineering costs and less emphasis needed on product design.

General and Administrative Expenses:

          General and administrative expenses decreased by 28.30%, or $439,836 from $1,554,242 for the fiscal year ended December 31, 2008 to $1,114,406 for the fiscal year ended December 31, 2009. The decrease was attributable to decreased costs relating to raising capital and decreased salaries and other office expense.

Other Income (Expense):

          We recorded interest expense of $249,762 and $916,704 for years ended December 31, 2009 and 2008, respectively. The decrease is due to the conversion of certain convertible debt agreements and certain non-recurring expense incurred in connection with debt issuance in 2008. For the years ended December 31, 2009 and 2008, interest expense was offset with interest income of $257 and $6,479 respectively.

Liquidity and Capital Resources

Liquidity

The following table shows cash flow and liquidity data for the periods ended December 31, 2009 and December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

2009

 

2008

 

Increase/
(Decrease)

 

% Change

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

12,771

 

$

196,138

 

$

(183,367

)

 

(93.49

)

Accounts payable and accrued expenses

 

 

401,848

 

 

477,667

 

 

(75,819

)

 

(15.87

)

Total Current Liabilities

 

 

1,512,901

 

 

1,554,864

 

 

(41,963

)

 

(2.70

)

Cash provided by financing activities

 

 

422,552

 

 

1,608,035

 

 

(1,185,483

)

 

(73.72

)

For the fiscal year ended December 31, 2009, the Company used $543,786 cash in its operating activities; used $62,133 cash in investing activities and had $422,552 cash provided by financing activities, which resulted in a net use of $183,367 cash in the fiscal year ended December 31, 2009. As of December 31, 2009, the Company had a stockholders’ deficiency of $1,111,941 and cash and cash equivalents balance of $12,771. The Company is reliant on future funding in accordance with a recapitalization agreement it signed with Fountainhead Capital Management Limited. This agreement calls for the advancement to the Company of monthly operating proceeds through August 2010 subject to the Company meeting certain financial benchmarks. The Company believes it would not have enough cash to meet its various cash needs without this funding, and could not meet its obligations beyond August 2010 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.

We believe that the level of financial resources is a significant factor for our future development, and accordingly we may choose at any time to raise capital through private debt or equity financing to strengthen our financial position, facilitate growth and provide us with additional flexibility to take advantage of business opportunities. There is no guarantee that any offering will be completed, and if completed, the specific terms and conditions. We do not have immediate plans to have a public offering of our common

24


stock and there is no guarantee that any such offering would be successful or be completed on terms which are beneficial to the Company.

Off-Balance Sheet Arrangements

As of the end of fiscal 2009, we had no off-balance sheet arrangements.

Seasonality

Our operating results are not affected by seasonality.

Inflation

Our business and operating results are not affected in any material way by inflation.

Critical Accounting Policies

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. The nature of our business generally does not call for the preparation or use of estimates. Due to the fact that the Company does not have any operating business, we do not believe that we do not have any such critical accounting policies.

Contractual Obligations

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

          The financial information required by Item 8 begins on the following page.

25


 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Vycor Medical, Inc.

We have audited the accompanying balance sheets of Vycor Medical, Inc. as of December 31, 2009 and 2008 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended. Vycor Medical, Inc.’s management is responsible for these financial statements. 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 audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.

As discussed in Note 2 to the financial statements, the Company’s recurring losses from operations, among other factors, raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The 2009 and 2008 financial statements do not include any adjustments that might result from the outcome of this uncertainty

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vycor Medical, Inc. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for each the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

//Paritz & Company, P.A.

Hackensack, New Jersey

March 22, 2010

 

 

APPENDIX 9B

 

F-1


VYCOR MEDICAL, INC.
Balance Sheets

 

 

 

 

 

 

 

 

 

 

December 31,
2009

 

December 31,
2008

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash

 

$

12,771

 

$

196,138

 

Accounts receivable

 

 

29,748

 

 

89,765

 

Inventory

 

 

41,967

 

 

71,527

 

Prepaid expenses

 

 

22,369

 

 

7,040

 

 

 

   

 

   

 

 

 

 

106,855

 

 

364,470

 

 

 

   

 

   

 

Fixed assets, net

 

 

191,009

 

 

213,958

 

 

 

   

 

   

 

Other assets:

 

 

 

 

 

 

 

Patents, net of accumulated amortization

 

 

93,704

 

 

42,507

 

Website, net of accumulated amortization

 

 

7,042

 

 

10,152

 

Security deposits

 

 

2,350

 

 

2,350

 

 

 

   

 

   

 

 

 

 

103,096

 

 

55,009

 

 

 

   

 

   

 

TOTAL ASSETS

 

$

400,960

 

$

633,437

 

 

 

   

 

   

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

336,942

 

$

313,611

 

Accrued interest

 

 

2,904

 

 

88,588

 

Accrued liabilities

 

 

62,002

 

 

75,468

 

Notes payable

 

 

1,111,053

 

 

 

Current portion of long-term debt

 

 

 

 

1,077,197

 

 

 

   

 

   

 

TOTAL LIABILITIES

 

 

1,512,901

 

 

1,554,864

 

 

 

   

 

   

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding

 

 

 

 

 

Common Stock, $0.0001 par value, 1,000,000,000 shares authorized, 557,798,599 and 25,463,455 shares issued and outstanding at December 31, 2009 and 2008, respectively

 

 

55,780

 

 

25,463

 

Additional Paid-in Capital

 

 

3,708,967

 

 

2,788,415

 

Accumulated Defici

 

 

(4,876,688

)

 

(3,735,305

)

 

 

   

 

   

 

 

 

 

(1.111,941

)

 

(921,427

)

 

 

   

 

   

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

400,960

 

$

633,437

 

 

 

   

 

   

 

See accompanying notes to financial statements

F-2


VYCOR MEDICAL, INC.
Statement of Operations

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Revenue

 

$

199,046

 

$

129,947

 

 

 

 

 

 

 

 

 

Cost of Goods Sold

 

 

22,482

 

 

13,089

 

 

 

   

 

   

 

Gross Profit

 

 

176,564

 

 

116,858

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

4,761

 

 

33,686

 

General and administrative

 

 

1,114,406

 

 

1,554,242

 

 

 

   

 

   

 

Total Operating expenses

 

 

1,119,167

 

 

1,587,928

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(942,603

)

 

(1,471,070

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

 

257

 

 

6,479

 

Interest expense

 

 

(249,762

)

 

(916,704

)

Forgiveness of previously accrued salaries

 

 

50,725

 

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Other income (expense):

 

 

(198,780

)

 

(910,225

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(1,141,383

)

$

(2,381,295

)

 

 

   

 

   

 

Loss Per Share

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.04

)

$

(0.11

)

 

 

   

 

   

 

Weighted Average Number of Shares Outstanding

 

 

29,183,482

 

 

21,977,954

 

 

 

   

 

   

 

See accompanying notes to financial statements

F-3


VYCOR MEDICAL, INC.
Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

For the twelve months ended December 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(1,141,383

)

$

(2,381,295

)

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to cash

 

 

 

 

 

 

 

used in operating activities:

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

14,046

 

 

11,763

 

Depreciation of fixed assets

 

 

22,949

 

 

6,407

 

Amortization of debt discount expense

 

 

146,405

 

 

671,629

 

Share based compensation

 

 

391,706

 

 

25,789

 

Shares issued for consulting services

 

 

17,437

 

 

321,629

 

Interest satisifed with stock conversion

 

 

6,625

 

 

173,111

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

60,017

 

 

(87,200

)

Inventory

 

 

29,560

 

 

(71,527

)

Prepaid expenses

 

 

(15,329

)

 

(7,040

)

Security deposit

 

 

 

 

(2,350

)

Accounts payable

 

 

23,331

 

 

28,396

 

Accrued interest

 

 

(85,684

)

 

63,862

 

Accrued liabilities

 

 

(13,466

)

 

75,204

 

 

 

   

 

   

 

Cash used in operating activities

 

 

(543,786

)

 

(1,171,622

)

 

 

   

 

   

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

 

 

(220,365

)

Acquisition of website

 

 

 

 

(29,149

)

Acquisition of patents

 

 

(62,133

)

 

(6,500

)

 

 

   

 

   

 

Cash used in investing activities

 

 

(62,133

)

 

(256,014

)

 

 

   

 

   

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from sale of equity (see Note 5)

 

 

300,000

 

 

425,035

 

Payment on Notes Payable-GC Advisors

 

 

 

 

(17,000

)

Proceeds from short term Notes Payable

 

 

274,000

 

 

 

Repayment of short term Notes Payable

 

 

(204,000

)

 

 

Proceeds from Fountainhead Convertible Note Payable (see Note 5)

 

 

371,362

 

 

300,000

 

Repayment of existing Fountainhead Notes Payable

 

 

(472,500

)

 

 

Proceeds from Regent Convertible Note Payable (see Note 5)

 

 

803,690

 

 

1,000,000

 

Repayment of existing Regent Notes Payable

 

 

(650,000

)

 

 

Payment on Optimum Health Services Loan Payable

 

 

 

 

(100,000

)

 

 

   

 

   

 

Cash provided by financing activities

 

 

422,552

 

 

1,608,035

 

 

 

   

 

   

 

Net increase (decrease) in cash

 

 

(183,367

)

 

180,399

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

196,138

 

 

15,739

 

 

 

   

 

   

 

Cash at end of period

 

$

12,771

 

$

196,138

 

 

 

   

 

   

 

Supplemental Disclosures of Cash Flow information:

 

 

 

 

 

 

 

Interest paid:

 

$

 

$

7,638

 

 

 

   

 

   

 

Taxes paid

 

$

 

$

375

 

 

 

   

 

   

 

Non-Cash Tranactions:

 

 

 

 

 

 

 

Warrants, options and common stock issued for debt financing

 

$

400,000

 

$

 

 

 

   

 

   

 

See accompanying notes to financial statements

F-4


VYCOR MEDICAL, INC.
Statement of Stockholders’ Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Common
Stock

 

Additional
Paid-in
Capital

 

Accumulated
Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2008

 

 

18,289,999

 

$

18,290

 

$

741,893

 

$

(1,354,010

)

$

(593,827

)

Purchases of equity during period ended December 31, 2008

 

 

2,237,027

 

$

2,237

 

$

422,798

 

 

 

 

$

425,035

 

Common stock issued in conjunction with Salomon note payable

 

 

1,111,111

 

 

1,111

 

 

148,889

 

 

 

 

 

150,000

 

Inducement to convert debt

 

 

100,000

 

 

100

 

 

173,011

 

 

 

 

 

173,111

 

Issuance of stock for consulting fees

 

 

1,692,798

 

 

1,693

 

 

319,936

 

 

 

 

 

321,629

 

Share-based compensation for consulting services

 

 

 

 

 

 

 

 

25,789

 

 

 

 

 

25,789

 

Beneficial conversion feature on Fountainhead and Regent debt

 

 

 

 

 

 

 

 

708,131

 

 

 

 

 

708,131

 

Issuance for conversion of debt - Johannsen

 

 

2,032,520

 

 

2,032

 

 

247,968

 

 

 

 

 

250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for year ended December 31, 2008

 

 

 

 

 

 

 

 

 

 

$

(2,381,295

)

 

(2,381,295

)

 

 

   

 

   

 

   

 

   

 

   

 

Balance at December 31, 2008

 

 

25,463,455

 

$

25,463

 

$

2,788,415

 

$

(3,735,305

)

$

(921,427

)

 

 

   

 

   

 

   

 

   

 

   

 

Common stock issued in conjunction with Altcar Investments note payable

 

 

866,867

 

$

867

 

$

105,758

 

 

 

 

$

106,625

 

Issuance of stock for consulting fees

 

 

91,777

 

 

92

 

 

17,345

 

 

 

 

 

17,437

 

Share-based compensation for consulting services

 

 

 

 

 

 

 

 

8,911

 

 

 

 

 

8,911

 

Share-based compensation - employee options vesting

 

 

 

 

 

 

 

 

57,840

 

 

 

 

 

57,840

 

Share-based compensation - Coviello and Vinas, in accordance with FHC recapitalization transaction (see Note 5)

 

 

 

 

 

 

 

 

324,954

 

 

 

 

 

324,954

 

Beneficial conversion feature on Fountainhead debt

 

 

 

 

 

 

 

 

135,102

 

 

 

 

 

135,102

 

Retroactive change to par value (see Note 6)

 

 

 

 

 

(23,780

)

 

23,780

 

 

 

 

 

 

Retroactive reflection of conversion of Series A Preferred Shares in accordance with FHC recapitalization transaction (see Note 5)

 

 

531,376,500

 

 

53,138

 

 

246,862

 

 

 

 

 

300,000

 

Net loss for twelve months ended December 31, 2009

 

 

 

 

 

 

 

 

 

 

$

(1,141,383

)

 

(1,141,383

)

 

 

   

 

   

 

   

 

   

 

   

 

Balance at December 31, 2009

 

 

557,798,599

 

$

55,780

 

$

3,708,967

 

$

(4,876,688

)

$

(1,111,941

)

 

 

   

 

   

 

   

 

   

 

   

 

See accompanying notes to financial statements

F-5


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

1. FORMATION AND BUSINESS OF THE COMPANY

Business Description

Vycor Medical, LLC, (the “Company”) was formed in June 17, 2005 under the laws of the State of New York. The Company converted its entity form on August 14, 2007 from a New York Limited Liability Company to a Delaware Corporation with 16,048 of common stock exchange for each partnership unit with 1122 units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the earliest period presented; thus all are references to number of shares prior to the date of conversion are based upon the common stock equivalent of the units. The Company’s business plan is to develop and market a commercially feasible surgical access system for sale to hospitals and medical professionals.

2. ACCOUNTING POLICIES

Research and Development

The Company expenses all research and development costs as incurred. For the years ended December 31, 2009 and 2008, the amounts charged to research and development expenses were $4,761 and $33,686, respectively.

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. The Company's accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.

Fair Values of Financial Instruments

At December 31, 2009 and 2008, fair values of cash, accounts receivable, accounts payable, and accrued expenses short term promissory notes, approximate their carrying amount due to the short period of time to maturity. The fair value of the Company’s long term debt is based on the present value using a discount rate comparable with borrowing rates available to the Company along with various fair value model calculations used to value certain debt related securities.

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.

Income taxes

Based upon relevant FASB standard, deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The Company has provided a full valuation allowance against the gross deferred tax asset as of December 31, 2009 as it is more likely that this deferred tax asset will not be realized.

Uses of estimates in the preparation of financial statements

F-6


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Critical estimates include amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.

Patents

The Company capitalizes legal and related costs associated with the establishment of patents for its products. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The costs associated with the establishment of the patents are amortized over the life of the patent.

The Company reviews existing patents as well as those in the approval process for impairment on an annual basis using a present value, cash flow method based upon relevant FASB standard. Since the Company’s patents are either very new or still in the process of approval, the Company does not believe that any impairment of these amounts exists.

Revenue Recognition

The Company records revenue, based upon relevant FASB standard, when a completed contract for the sale exists, title transfers to the buyer and the product is invoiced and shipped to the customer. The Company sells a surgical access system which has already cleared the U.S. FDA 510(k) review process. It has been granted a 510(k) number for marketing the system to hospitals and other medical professionals. The Company does not expect the need to provide for product returns or warranty costs but will review such potential costs after the commencement of sales on an annual basis.

Educational and marketing expenses

The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will expense such costs as a component of selling, general and administrative costs as such costs are incurred.

Website Costs

The Company capitalizes the costs associated with the acquisition of hardware and development tools as well as the creation of database tools in connection with the Company’s website pursuant to the relevant FASB standard. Other costs including the development of functionality and identification of software tools are expensed as incurred.

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for stock-based compensation based upon the relevant FASB standards, under which compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price. Stock-based compensation determined under relevant FASB standards are recognized over the option vesting period.

Prior to the adoption of a stock option plan adopted on February 13, 2008, the Company only issued share based compensation to consultants for goods or services. The Company accounted for these transactions based upon the relevant FASB standards. Under these standards, options, warrants, and stock are recorded at their fair value on the measurement date. The Company remeasured the fair value of such instruments granted at each reporting period until performance under the consulting arrangements were completed and the measurement date was reached. The Company records the expense of such services on the estimate fair value of the equity instrument using the Black-Sholes pricing model. The initial expense is recognized over the term of the service agreement.

F-7


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

For future awards to employees, the Company will adopt the relevant FASB standard which requires the recognition of compensation expense for future stock-based compensation awards to employees. Using a fair-value-based method, for costs related to all share-based payments including stock options. These standards require companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants valued after January 1, 2006 will be expensed on a straight-line basis over the vesting period.

Fair Values of Assets and Liabilities

Effective January 1, 2008, the relevant FASB standards define the fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These standards require that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. These standards also establishe a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.

There are three general valuation techniques that may be used to measure fair value, as described below:

a) Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;

b) Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and

c) Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.

Financial assets and liabilities are valued using either level 1 inputs based on unadjusted quoted market prices within active markets or using level 2 inputs based primarily on quoted prices for similar assets or liabilities in active or inactive markets. For certain long-term debt, fair value is based on present value techniques using inputs derived principally or corroborated from market data. Using level 3 inputs using management’s assumptions 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’s convertible debentures are the only items that are subject to these standards as of December 31, 2009 as follows:

 

 

 

 

 

Unobservable inputs (level 3)

 

$

1,111,053

 

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

F-8


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

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, 2009

 

December 31, 2008

 

 

 

 

 

 

 

Stock options outstanding

 

 

1,050,000

 

 

1,707,894

 

 

 

 

 

 

 

 

 

Warrants to purchase common stock

 

 

38,510,584

 

 

6,460,920

 

 

 

   

 

   

 

Recent Accounting Pronouncements

Effective July 1, 2009, the Company adopted the FASB ASC 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

Effective January 1, 2008, the Company adopted FASB ASC 820-10, Fair Value Measurements and Disclosures – Overall (“ASC 820-10”) with respect to its financial assets and liabilities. In February 2008, the FASB issued updated guidance related to fair value measurements, which is included in the Codification in ASC 820-10-55, Fair Value Measurements and Disclosures – Overall – Implementation Guidance and Illustrations. The updated guidance provided a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company adopted the provisions of ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption did not have a material impact on the Company’s consolidated results of operations, financial condition or liquidity.

Effective January 1, 2009, the Company adopted FASB ASC 805, Business Combinations (“ASC 805”). ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. ASC 805 changes the previous treatment of acquisition related costs, restructuring costs related to an acquisition that the acquirer expects but is not obligated to incur, contingent consideration associated with the purchase price and pre-acquisition contingencies associated with acquired assets and liabilities. Under ASC 805, acquisition costs associated with business combinations will be expensed as incurred, whereas, prior to the adoption of ASC 805, similar costs associated with a successful acquisition were capitalized. ASC 805 applies to business combinations for which the acquisition date is on or after the adoption date, thus the adoption of ASC 805 will have no effect on

F-9


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

prior acquisitions. The effect of the adoption of ASC 805 will depend upon the nature of any future business combinations.

In April 2009, the FASB issued updated guidance relating to intangible asset valuation, which is included in the Codification in ASC 350-30-55, General Intangibles Other Than Goodwill – Implementation (“ASC 350-30-55”). ASC 350-30-55 amends ASC 350-30, Intangibles – Goodwill and Other, to identify the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. ASC 350-30-55 is effective for fiscal years beginning after December 31, 2008. The Company adopted the amendment to ASC 350-30 effective January 1, 2009, and such amendment did not have a material effect on the Company’s results of operations, financial position or liquidity.

Effective April 1, 2009, the Company adopted FASB ASC 825-10-65, Financial Instruments – Overall – Transition and Open Effective Date Information (“ASC 825-10-65”). ASC 825-10-65 amends ASC 825-10 to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements and also amends ASC 270-10, Presentation – Interim Reporting – Overall, to require those disclosures in all interim financial statements. The adoption of ASC 825-10-65 did not have a material impact on the Company’s results of operations, financial position or liquidity.

Effective April 1, 2009, the Company adopted FASB ASC 320-10-65, Investments – Debt and Equity Securities – Overall – Transition and Open Effective Date Information (“ASC 320-10-65). ASC 320-10-65 amends the other-than-temporary impairment guidance in U.S. GAAP to make the guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. The adoption ASC 320-10-65 did not have a material impact on the Company’s results of operations, financial position or liquidity.

Effective April 1, 2009, the Company adopted FASB ASC 855-10, Subsequent Events – Overall (“ASC 855-10”). ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It required the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. In February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”). ASU 2010-09 amended the guidance on subsequent events to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. Adoption of ASC 855-10, as amended, did not have a material impact on the Company’s results of operations, financial position or liquidity.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations, financial position or liquidity.

The Company does not believe that any other recently issued, but not yet effective accounting standards will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

F-10


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

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 $1,141,383 for the year ended December 31, 2009, 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, 2009, the Company had a stockholders’ deficiency of $1,111,941 and cash and cash equivalents of $12,771. The Company is reliant on future funding in accordance with a recapitalization agreement it signed with Fountainhead Capital Management, Ltd. This agreement calls for the advancement to the Company of monthly operating proceeds through August 2010 subject to the Company meeting certain financial benchmarks. The Company believes it would not have enough cash to meet its various cash needs without this funding, and could not meet its obligations beyond August 2010 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. NOTES PAYABLE

As of December 31, 2009 and December 31, 2008, Notes Payable consists of:

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

December 31, 2008

 

 

 

 

 

 

 

On December 29, 2009, in conjunction with a debt restructuring (see Note 5) the Company issued a convertible debenture in the amount of $70,000 payable to Fountainhead Capital Management Limited. This debenture accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $21,427, which is being amortized over the life of the loan. The note reflects an unamortized discount of $21,252 as of $21,252 as of December 31, 2009.

 

 

48,748

 

 

 


F-11


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

 

 

 

 

On December 29, 2009, in conjunction with a debt restructuring (see Note 5), the Company issued a convertible debenture in the amount of $371,362 payable to Fountainhead Capital Management Limited. This debenture accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $113,675, which is being amortized over the life of the loan. The note reflects an unamortized discount of $112,747 as of December 31, 2009.

 

 

258,615

 

 

 

 

 

 

 

 

 

 

 

On December 29, 2009, the Company issued a convertible debenture in the amount of $350,000 payable Regent Private Capital, LLC (“Regent”). This debenture accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. On December 29, 2009, this debenture was amended to provide for automatic conversion, subject to the Company authorizing sufficient shares to convert this, and other existing instruments, and transferred to three parties. On January 11, 2010 (see Note 10), these notes were satisfied in accordance with the automatic conversion clause.

 

 

350,000

 

 

 

 

 

 

 

 

 

 

 

On December 29, 2009, the Company issued a convertible debenture in the amount of $453,690 payable Regent Private Capital, LLC (“Regent”). This debenture accrues interest rate of 6% per annum, is due August 31, 2010, is secured by a first priority security interest in all of the assets of the Company, and is senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.0125 per share, subject to adjustment and does not require bifurcation. On December 29, 2009, this debenture was amended to provide for automatic conversion, subject to the Company authorizing sufficient shares to convert this, and other 2010 (see Note 10), these notes were satisfied in accordance with the automatic conversion clause.

 

 

453,690

 

 

 

 

 

   

 

   

 

F-12


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Notes Payable:

 

$

1,111,053

 

$

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

As of December 31, 2009, the Company's entire long-term debt is secured by a first security interest in all of the assets of the Company.

4. LONG-TERM DEBT

As of December 31, 2009 and December 31, 2008, long-term debt consists of:

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

December 31, 2008

 

 

 

 

 

 

 

On December 15, 2006 the Company issued a convertible debenture in the amount of $172,500 payable to Fountainhead Capital Partners Limited (FCPL), with interest at the “Applicable Federal Rate” as defined in sec. 1274 (d) of the Internal Revenue Code, initially due June 21, 2007. The Debenture may be transferred or exchanged only in compliance with the Security Act of 1933, as amended and applicable state securities laws. The Holder is entitled at its option to convert debenture into a number of shares of common stock calculated to be equal to be ten percent of the issued and outstanding aggregate shares of the Company on the date of issuance of the Debenture. The following discloses the calculation the conversion price and the1,979,456 conversion shares:

 

 

 

 

 

 

 

 

 

 

 

 

Number of membership units outstanding at 12/21/2006

1,110.11

Units

 

 

 

 

 

The note was for 10% of Units post-money (1,110.11/90%):

1233.46

Units

 

 

 

 

 

 

 

 

 

FCPL is entitled to 10% of the units equal to

123.346

Units

 

 

 

 

 

 

 

 

 

Each unit converted into 16,048 shares

1,979,456

Shares

 

 

 

 

 

 

 

 

 

 

The Company has computed a beneficial conversion feature of $111,099 which resulted in a debt discount of such amount which is being amortized over the life of the loan to interest expense. The Company had used $0.19 per share in the computation of the beneficial conversion feature as it represents sales of private placements of the Company’s securities at the time of entering into the debenture. The Holder has the sole option to extend the due date of this debenture and

 

 

 

 

 

 

 

F-13


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

 

 

 

 

has extended principal and interest payments until February 15, 2009. On April 1, 2009, FCPL agreed to extend the maturity date of the debenture to August 15, 2009. In consideration for the extension, the Company agreed to modify the effective conversion price from $0.08715 to $0.07545 per share, and other additional anti-dilution provisions in favor of FCPL. In conjunction with the convertible debenture the Company issued a warrant to Fountainhead Capital Partners Limited to purchase 50.22 Membership Units of the Company (805,931 shares of common stock) at $.50 per share for five years. The warrant’s fair value of $0.13 per share was calculated using the Black- Scholes Valuation Model, using the following assumptions: volatility of 99%, dividend rate of 0%, approximate risk free interest rate of 4.5% and a five year warrant life. The warrant resulted in an additional debt discount of $61,401 which is being amortized over the term of the debt. In conjunction with this debt the Company also entered into an agreement with Fountain Capital Partners Limited (FCPL) which granted to FCPL an option to invest up to $1,850,000 for three years in exchange for issuing new convertible debentures due two years from the issuance of these new notes and included with the exercise of this option would be a warrant to purchase up to 3,017,409 shares at a price of $0.44 per share. The debenture is convertible into up to 5,652,954 shares of common stock. No value was assigned to the options as there was no acquired beneficial conversion feature or acquisition of the warrants. The note reflects an unamortized discount $3,450 as of December 31, 2008. On December 29, 2009, this note was satisfied in accordance with the recapitalization transaction with Fountainhead Capital Management, Ltd., (see Note 5).

 

 

 

 

169,050

 

 

 

 

 

 

 

 

 

On February 15, 2008 the Company entered into a $150,000 Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due but not paid, on or before February 15, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $81,707, which is being amortized over the life of the loan. The note reflects an unamortized discount $10,213 as of December 31, 2008. On December 29, 2009, this note was satisfied in accordance with the recapitalization transaction with Fountainhead Capital Management, Ltd., (see Note 5).

 

 

 

 

139,787

 

F-14


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

 

 

 

 

On February 15, 2008 the Company entered into a $500,000 Convertible Debenture, payable to Regent Private Capital, LLC, with interest at 6% per annum, due but not paid, on or before February 15, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $272,358, which is being amortized over the life of the loan. Subsequently, Regent assigned the principal amount of each note to Altcar Investments and Derek Johansen. On December 15, 2008, Johansen converted $250,000 of the debenture into 2,032,520 shares of common stock. This resulted in the recognition of unamortized beneficial conversion feature debt discount attributable to the debenture of $17,023. Further, on March 23, 2009, Altcar Investments converted $100,000 of the debenture plus accrued interest into 866,867 shares of common stock. The unamortized discount on the debt as of December 31, 2008 is $17,023. On December 29, 2009, this note was satisfied by the issuance of a short term debenture to the Holder for the principal and accrued interest to date (see Note 3).

 

 

 

 

232,977

 

 

 

 

 

 

 

 

 

On April 15, 2008 the Company entered into a $150,000 Convertible Debenture payable to Fountainhead Capital Partners Limited, with interest at 6% per annum, due but not paid, on or before April 15, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $81,707 which is being amortized over the life of the loan. The unamortized discount as of December 31, 2008 is $23,831. On December 29, 2009, this note was satisfied in accordance with the recapitalization transaction with Fountainhead Capital Management, Ltd., (see Note 5).

 

 

 

 

126,169

 

 

 

 

 

 

 

 

 

On April 22, 2008 the Company entered into a $500,000 Convertible Debenture, payable to Regent Private Capital, LLC, with interest at 6% per annum, due on or before April 22, 2009. In addition, the debenture accrues interest at the rate of 12% per annum while the Maker is in default of the stated repayment terms. The Holder is entitled to convert all or any amount of the principal face amount of the debenture then outstanding into shares of common stock of the Company at the Conversion price of $0.1230 per share, subject to adjustment and does not require bifurcation. The Company has computed a beneficial conversion feature debt discount of $272,358, which is being amortized over the life of the loan. The unamortized discount as of December 31, 2008 is $90,786. On December 29, 2009, this note was satisfied by the issuance of a short term debenture to the Holder for the principal and accrued interest to date (see Note 3).

 

 

 

 

409,214

 

 

 

   

 

   

 

 

 

 

 

 

 

 

F-15


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All discounts are being amortized on a straight line basis that approximates effective yield method based upon the relevant FASB standard.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt:

 

 

 

 

1,077,197

 

 

 

 

 

 

 

 

 

Less current portion of debt

 

 

 

 

1,077,197

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Long-term portion of debt

 

$

 

$

 

 

 

   

 

   

 

The following is a schedule of future minimum loan payments:

 

 

 

 

 

Twelve months ending December 31,

 

 

Amount

 

 

 

 

 

 

2011

 

$

 

2012

 

 

 

2013

 

 

 

2014

 

 

 

2015

 

 

 

Thereafter

 

 

 

 

 

   

 

Total

 

$

 

Less debt discount

 

 

 

 

 

   

 

 

 

$

 

 

 

   

 

Through December 29, 2009, the Company's entire long-term debt is secured by a first security interest in all of the assets of the Company.

5. EQUITY

Certain Equity Transactions

As prescribed in a previous agreement, in consideration for services provided to the Board of Directors, the Company issued 26,318 shares of its common stock to Steven Girgenti on March 23, 2009 and July 28, 2009, (52,636 shares in aggregate).

In accordance with an existing consulting agreement, in consideration for services provided, the Company issued 39,145 shares of its common stock to Dr. Konstantin Slavin on July 28, 2009.

F-16


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

Restructuring and recapitalization agreement with Fountainhead Capital Management Limited

Effective as of December 29, 2009, the Company entered into a restructuring and recapitalization (the “Recapitalization”) of certain outstanding loans by Fountainhead Capital Management Limited (“FHCM”), together with a funding commitment from FHCM, restructuring of Management’s compensation and matters related thereto. Separately, Regent Private Capital, LLC. (“Regent”) amended certain of its agreements with the Company and provided certain waivers in order to facilitate the Recapitalization.

Debt Restructuring (“Recapitalization”):

As of December 29, 2009, the Company and FHCM agreed to the Recapitalization which resulted in the following:

 

 

1)

At the Closing, FHCM converted FHCM Debentures with an aggregate value (including accrued interest) of $300,000 into a number of shares of a newly designated series of Vycor Preferred Stock—Series A Convertible Preferred Stock (“New Preferred Shares”) which are convertible into the equivalent of 85% of the total proforma, fully-diluted share capital of Vycor at the Closing.

 

 

2)

The remaining FHCM Debentures were replaced with debentures that have virtually the same terms as the New RPC Debentures (see item 1 below) although without automatic conversion and retaining limited anti-dilution rights.

Separately, as of December 29, 2009, the Company and Regent agreed to the following:

 

 

1)

The Regent Debentures, together with accrued interest thereon, with the exception of the Regent November 2009 Advance of $32,000, were consolidated and replaced by two new convertible debentures in the face amounts of $350,000 and $453,690 (aggregating $803,690), respectively (the “New RPC Debentures”). Among other matters, the New RPC Debentures have a maturity date of August 31, 2010, the conversion price was modified to $0.0125 per share and the anti-dilution provisions eliminated. The New RPC Debentures are convertible at any time at the sole option of the holder and automatically convert at such time as Vycor has sufficient authorized but unissued shares of its Common Stock to permit such conversion and the Series A Preferred Shares have converted to common shares. The New RPC Debentures are senior obligations of Vycor, which rank pari passu with the remaining outstanding portion of FHCM Debentures and a portion of the new funds to be advanced to Vycor by FHCM (or procured by FHCM) pursuant to the terms of the Recapitalization (see FHCM Funding Commitment, below) and senior to all other Vycor obligations. The existing security agreement was amended to preserve the first priority security interest of the Holders in Vycor’s assets.

 

 

2)

At the closing of the Recapitalization, Vycor repaid the Regent November Advance of $32,000.

 

 

3)

The minority approval rights held by Regent pursuant to Schedule 6.2 of the Convertible Debenture Purchase Agreement between Regent and Vycor dated as of February 15, 2008 were rescinded.

FHCM Funding Commitment:

 

 

1)

On specified terms and conditions, FHCM agreed to fund or procure funding for Vycor’s ongoing operating expenses for a period commencing on the Closing Date through August 31, 2010 (“FHCM New Funding”). The amount of funding to be provided at closing (the “Closing Funding”) included but was not limited to funds to repay the $32,000 Regent November Advance. It was agreed that such funding shall be made on a monthly basis and each advance shall be subject to FHCM’s confirmation that Vycor’s operations for the period commencing the Closing Date through the end of the immediately prior month meet certain financial benchmarks. FHCM has also advised the Company that they will reconsider their funding commitment in the event of a material adverse

F-17


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

change affecting the Company’s operations, such as, but not limited to, an impairment of the Company’s intellectual property rights.

 

 

2)

Funds advanced as a part of the FHCM New Funding are each evidenced or to be evidenced by a Debenture which has a maturity date which is co-terminus with FHCM Debentures and New RPC Debentures and bear interest at a rate of six percent (6%) per annum, payable at maturity. Funds advanced as a part of the FHCM New Funding shall be priority obligations of Vycor.

 

 

3)

Vycor and FHCM entered into a Shareholder’s Agreement (“Shareholder’s Agreement”) which provided FHCM with certain rights and rights approval with respect to various aspects of Vycor’s operation and governance.

 

 

4)

The parties acknowledge that Vycor may enter into a Consulting Agreement with FHCM at some time after the Closing whereby Vycor will compensate FHCM for certain services provided to the Company (see Note 10).

Restructuring of Agreements with Vycor Management:

 

 

1)

Effective the Closing Date, Vycor entered into new employment agreements with Kenneth T. Coviello and Heather Vinas, respectively the Chief Executive Officer and President of the Company.

 

 

2)

At the Closing of the Recapitalization, Kenneth T. Coviello and Heather Vinas were granted new Warrants (“New Management Warrants”) to purchase an aggregate of 161,262,706 Common Shares of Vycor at an exercise price of $0.00717 per share. It is assumed that the New Management Warrants (which vest over a period of approximately two (2) years), when fully vested, will result in such Management ownership of approximately twenty-two percent (22%) of the Common Shares of the company on a fully diluted basis under the pro-forma capital structure based on the Recapitalization (see Note 10).

 

 

3)

Certain management accrued salaries were converted into a contingent retention bonus payable on the satisfaction of certain conditions.

 

 

4)

Management agreed that for the 12 months following Closing of the Recapitalization, all shares of Vycor Common Stock held by Management are subject to a lock-up agreement which was entered into at Closing of the Recapitalization.

6. AMENDMENTS TO ARTICLES OF INCORPORATION OR BY-LAWS

 

 

 

1)

On December 1, 2009, the Board of Directors of the Company unanimously adopted a resolution to seek stockholder approval to (a) an amendment of the Company's Certificate of Incorporation to increase the Company's authorized capital to 1,010,000,000 shares comprising 1,000,000,000 shares of Common Stock par value $.0001 per share and 10,000,000 shares of Preferred Stock par value $0.0001 per share and (b) a decrease in the par value of the Company’s Common Stock and Preferred Stock from $.001 per share to $.0001 per share. Thereafter, on December 7, 2009, pursuant to the By-Laws of the Company and applicable Delaware law, this resolution was ratified.

 

 

 

 

 

An Information Statement was mailed to the Company’s stockholders on or about December 21, 2009 and the action will became effective on January 11, 2010, 20 days after this Information Statement was first mailed to stockholders and upon the filing of a Certificate of Amendment with the Delaware Secretary of State.

 

 

 

 

2)

On December 17, 2009, the Company’s board of directors approved resolutions authorizing two new series of the Company’s Preferred Stock par value $.0001:

 

F-18


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

a.

Series A Convertible Preferred Stock. The Company’s board of directors authorized the filing of a Certificate of Designation with respect to 1,000,000 shares of Series A Convertible Preferred Stock. A copy of such Certificate of Designation is attached to this Report as an Exhibit and incorporated herein in its entirety by this reference.

 

 

 

 

b.

Series B Convertible Preferred Stock. The Company’s board of directors authorized the filing of a Certificate of Designation with respect to 1,000,000 shares of Series B Convertible Preferred Stock. A copy of such Certificate of Designation is attached to this Report as an Exhibit and incorporated herein in its entirety by this reference.

7. SHARE-BASED COMPENSATION

Under relevant FASB standard, options are recorded at their fair value on the measurement date. The Company remeasured the fair value of the options or warrants granted at each reporting period until performance under the consulting agreement was completed and the measurement date was reached. The Company expensed the fair value of the instrument granted over the requisite service period which was the term of the consulting agreement, or one year.

For employee based awards which consist only of awards made under the “Stock Option Plan” described below, the company follows relevant FASB standards which require companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. 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. There were no employee stock options granted for the year ended December 31, 2009.

Stock Option Plan

The Company has adopted the Vycor Medical, Inc Employee, Director, and Consultant Stock Plan as of February 13, 2008, that includes both incentive stock options and nonqualified stock options to be granted to employees, officers, and consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock options grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Company’s outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options expire on the date determined by the board of directors, but may not extend mare than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Company’s outstanding voting stock expire five years from the grant date. The vesting period for employees is generally over three years. The vesting Period for nonemployees is determined based on the services being provided.

Initial grants totaling 500,000 shares each were issued on February 13, 2008 to Kenneth T. Coviello, Chief Executive Officer and Heather N. Vinas, President at an exercise price of $.135 per share. The options vest 33 1/3 % on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Accordingly, for the nine months ended September 30, 2009, the Company recognized share-based compensation amounts of $28,920 and $28,920, for each of the respective grants.

F-19


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

The maximum number of shares of stock which maybe delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.

Stock appreciation rights may be granted either on a stand alone basis or in conjunction with all or part of any other stock options granted under the plan. As of December 31, 2009 there were no awards of any stock appreciation rights.

Consulting Agreements

The Company entered into no new consulting agreements during the year ended December 31, 2009.

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

 

 

 

 

 

 

 

Balance, January 1, 2006

 

 

 

 

 

 

 

Granted

 

 

4,144,300

 

$

0.43

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2006

 

 

4,144,300

 

 

0.43

 

 

 

 

 

 

 

 

 

Granted

 

 

1,143,408

 

 

0.32

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2007

 

 

5,287,708

 

 

0.41

 

 

 

 

 

 

 

 

 

Granted

 

 

1,365,788

 

 

0.31

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

(192,576

)

 

0.24

 

 

 

   

 

   

 

F-20


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

 

 

 

 

Outstanding at December 31, 2008

 

 

6,460,920

 

$

0.39

 

 

 

 

 

 

 

 

 

Granted

 

 

32,900,132

 

 

0.01

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

(850,468

)

 

0.26

 

 

 

   

 

   

 

Outstanding at December 31, 2009

 

 

38,510,581

 

$

0.03

 

 

 

   

 

   

 

STOCK OPTIONS:

 

 

 

 

 

 

 

 

 

 

Number of shares

 

Weighted average exercise price per share

 

 

 

 

 

 

 

Balance, January 1, 2006

 

 

 

 

 

 

 

Granted

 

 

 

$

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,050,000

 

 

0.14

 

Exercised

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2008

 

 

1,050,000

 

$

0.14

 

F-21


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2009

 

 

1,050,000

 

$

0.14

 

 

 

   

 

   

 

In consideration for providing consulting services, the Company granted to GC Advisors LLC three warrants, each to purchase of 192,576 shares of the Company's common stock for a purchase price of $.24, .389, and .549 per share, respectively. The warrants expire on January 9, 2008, 2009, and 2010, respectively and were fair valued under the Black-Scholes Model.

In consideration for being the Company's strategic business advisor, in 2007 the Company issued a warrant to Martin Magida to purchase up to 160,480 shares of the Company's common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. This warrant was fair valued under the Black-Scholes Model and amortized over the life of the agreement. For the year ended December 31, 2009, $4,456 was recognized as share-based compensation in connection with this agreement.

In consideration for providing advisory services in 2007, the Company issued a warrant to Robert Guinta to purchase up to 160,480 shares of the Company's common stock at $.24 per share. The warrant is valid from September 1, 2007 for a period of five years. This warrant was fair valued under the Black-Scholes Model and amortized over the life of the agreement. For the year ended December 31, 2009, $4,456 was recognized as share-based compensation in connection with this agreement.

As of December 31, 2009, there was approximately $141,000 of total unrecognized compensation costs related to non-vested stock options awards, which are expected to be recognized over a weighted average period of approximately 1.25 years.

Stock-based compensation expenses related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of the stock options granted is calculated at each reporting date, using the Black-Scholes option-pricing model, until the award vests or there is substantial disincentive for the non-employee not to perform the required services. The following assumptions were used in calculations of the Black Scholes option pricing model:

 

 

 

 

 

Risk-free interest rates

4 - 5%

 

 

 

 

 

 

Expected life

3 years

 

 

 

 

 

 

Expected dividends

0%

 

 

 

 

 

 

Expected volatility

99%

 

Stock-based compensation expense charged to operations on options and warrants granted to the above non-employees for the year ended December 31, 2009 is $8,911.

          Expected Life. The expected life is based on the “simplified” method described in the SEC Staff Accounting Bulletin, Topic 14: Share-Based Payment.

F-22


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

          Volatility. Since the Company was a private entity for most of 2007 with no historical data regarding the volatility of its common stock, the expected volatility used for 2006 and 2007 is based on volatility of similar entities, referred to as “guideline” companies. In evaluation similarity, the Company considered factors such as industry, stage of life cycle and size.

          Risk-Free Interest Rate. The risk-free rate is based on rates approximating U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

          Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation method.

          Forfeitures. The relevant FASB standards require the Company to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data, however limited to date, to estimate pre-vesting options forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of awards, which are generally the vesting periods. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

The weighted-average remaining contractual life of outstanding warrants and options is 1.25 and 1.25 years, respectively. All of the warrants outstanding are currently exercisable.

8. INCOME TAXES

The Company has incurred net operating losses since inception. The Company has not reflected any benefit of such net operating loss carry forward in the financial statements. Prior to August 15, 2007 the Company was a limited liability company and losses were flowed through to the individual members, therefore the Company only has potential tax benefits from the date it became 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.

Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as follows:

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

December 31, 2008

 

 

 

 

 

 

 

Gross deferred tax assets

 

 

1,032,500

 

 

647,500

 

Valuation allowance

 

 

(1,032,500

)

 

(647,500

)

 

 

   

 

   

 

Net deferred tax asset

 

 

 

 

 

 

 

   

 

   

 

As of December 31, 2009 and 2008, the Company has U.S. federal net operating loss carryforwards of approximately $2,950,000 and $1,850,000, respectively. The federal net operating loss carryforwards expire in the tax years 2027 through 2029.

F-23


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards and research and development credits in the event of a change in ownership of the Company, as defined by the Internal Revenue Code Section 382. The Company’s net operating loss carryforwards and research and development credits may be subject to the above limitations.

The relevant FASB standard resulted in no adjustments to the Company’s liability for unrecognized tax benefits. As of both the date of adoption and as of December 31, 2008 there were no unrecognizable tax benefits. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. The Company will classify any future interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits. The Company is subject to federal and state examinations for the year 2006 forward. There are no tax examinations currently in progress.

9. COMMITMENTS AND CONTINGENCIES

Lease

As of December 31, 2009, the Company was leasing its office space on a month to month basis. Rental expense for the year ended December 31, 2009 and 2008 were $20,351 and $28,076, respectively.

10. SUBSEQUENT EVENTS

Debenture Conversion

As depicted in Note 4, on December 29, 2009, the Amended RPC Debentures were transferred from Regent to eight parties. In accordance with their terms, on January 11, 2010 the debentures were automatically converted to common shares at the rate of $0.0125 per share, causing the issuance to the parties of 64,295,200 shares of Common Stock in aggregate.

FCML Operating Funds Advances

In accordance with the Recapitalization agreement (see Note 5), FCML has advanced the Company operating funds on various dates. Currently, the Company has received $228,500 in funds during fiscal year 2010, and has issued convertible debentures in like amounts. These debentures bear an interest rate of 6% per annum, are due August 31, 2010, and $154,000 of which are convertible into shares of the Company’s Common Stock at the rate of $0.0125 per share at the Holder’s option.

Authorized Shares and Par Value Change

On January 11, 2010, a Certificate of Amendment was filed with the Delaware Secretary of State, effecting the change in the Company’s authorized capital from 110,000,000 shares to 1,010,000,000 shares and par value of said shares from $0.001 per share to $0.0001 per share (see Note 6).

FCML Consulting Agreement

On February 10, 2010, the Company entered into a Consulting Agreement with Fountainhead Capital Management Limited (“FCML”) pursuant to which FCML will provide a number of services to the Company. These services include, but are not limited to, certain strategic advisory services, certain financial services, identifying and evaluating potential investors and or potential merger and acquisition candidates for the Company, and other advisory services.

F-24


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

The term of the Consulting Agreement is two years. In consideration for the above, FCML will be paid a monthly retainer of $8,500, which shall be accrued and paid (at the option of FCML) in cash (following Vycor completing an additional funding of at least $1.5 million) or in Company stock valued at $0.0125 per share. In addition, upon execution of the Consulting Agreement, the Company shall issue to FCML warrants to purchase 39,063,670 shares of the Company’s Common Stock, at a price of $0.0125 per share and is obligated to issue to FCML warrants to purchase an additional 39,063,670 shares of the 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. All warrants are exercisable over a five-year term. Vycor has the right to terminate this agreement one year commencing with the date of this Agreement if the funding (as defined above) has not occurred by that date.

Amendment to Management Employment Agreements, Warrant Agreements

On February 10, 2010, Kenneth T. Coviello, Chief Executive Officer and Heather N. Vinas, President and Chairwoman executed amendments to their existing employment agreements. Each agreed to a modification of monthly compensation from $8,500 to $12,500, and further agreed to forego a provision for potential cash bonus in excess of base compensation. All other terms and conditions of the existing agreements remain in full force. Concurrent with this amendment, Coviello and Vinas each executed amendments to their existing warrants to purchase common stock. These amendments reduce the total number of shares subject to purchase from 80,631,353 to 48,540,708 for each officer. All other terms and conditions of these agreements remain in full force.

Series B Preferred Stock Sales

In accordance with the Certificate of Designation as noted above (see Note 6), the Company has sold 140,000 shares of Series B Preferred Stock during the current fiscal year for an aggregate amount of $140,000. These shares yield dividends of 8% per annum, payable in cash or stock at the Company’s sole discretion. Series B Preferred Stock can be converted into the Company’s Common Stock at a multiple of 80 common shares per Series B share at the holder’s discretion, or can be redeemed by the Company using the equivalent multiple after the issue’s one year anniversary.

Media Relations Consulting Agreement

On February 17, 2010, the Company executed an agreement with Market Media Connect, LLC, (“MMC”), whereby MMC will act as a media relations consultant for the Company. The term of the agreement is six months, cancellable by either party upon 30 days notice. Compensation calls for a monthly retainer of $5,000, reimbursement for certain out of pocket expenses, warrants for the purchase of 500,000 shares of the Company’s Common Stock at a price not less than $0.07 per share, and certain rights on future funding issues.

Sales, Marketing, and Investor Relations Consulting Agreement

On March 9, 2010, the Company entered into an agreement with Joe Simone for consulting services relating to identifying sales and marketing opportunities, increase investor awareness of the Company, identify potential new investors who might have an interest in investing in the Company, and other activities in the furtherance of the above. The term of the agreement is one year, cancellable by the Company upon the providing on notice. In consideration of the above, the Company has issued 750,000 shares of its Common Stock. In addition, at the Company’s sole and absolute discretion, based on its assessment of Consultant’s performance for the preceding month, may issue warrants to Consultant to purchase up to 250,000 shares of the Company’s Common Stock at an

F-25


VYCOR MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009

exercise price based on the greater of (a) the per share price of the Company’s most recent capital raise or (b) $0.0125 per share. All Warrants shall be exercisable for a period of two years from their date of issuance.

Office Lease Agreement

The Company executed a lease agreement with Regus Management Group, LLC dated January 4, 2010, for administrative office space at its current location at 80 Orville Drive, Bohemia, New York. The lease term is nine months ending October 31, 2010. Payments under this lease include $3,050 per month for occupancy, plus additional charges for common area, phone equipment, phone usage, secure inventory storage area, office services, and other consumables.

Girgenti Shares Issued

On February 23, 2010, in accordance with an existing agreement, the Company issued 800,000 shares of its Common Stock to Steven Girgenti for services rendered during the period of July 1, 2009 and December 31, 2009. These shares were valued by the Company at $0.0125 per share, and the attributable expense reflected in the statements herein.

F-26


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

ITEM 9A(T). CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

          The Company’s Chief Executive Officer and Chief Financial Officer performed an evaluation of the Company’s disclosure controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of December 31, 2009.

Management’s Report on Internal Control over Financial Reporting

          Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a - 15(f). Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. 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. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework - Guidance for Smaller Public Companies (the COSO criteria). Based on our assessment we believe that, as of December 31, 2009, our internal control over financial reporting is effective based on those criteria.

          This report does not include an attestation report by our independent registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permits the Company to only provide management’s report in this Form 10-K.

Changes in Internal Control over Financial Reporting

          There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

Restructuring and recapitalization agreement with Fountainhead Capital Management Limited

          Effective as of December 29, 2009, the Company entered into a restructuring and recapitalization (the “Recapitalization”) of certain outstanding loans by Fountainhead Capital Management Limited (“FHCM”), together with a funding commitment from FHCM, restructuring of Management’s compensation and matters related thereto. Separately, Regent Private Capital, LLC. (“Regent”) amended certain of its agreements with the Company and provided certain waivers in order to facilitate the Recapitalization.

 

Debt Restructuring (“Recapitalization”):

 

 

 

 

 

 

As of December 29, 2009, the Company and FHCM agreed to the Recapitalization which resulted in the following:

 

 

 

 

1)

At the Closing, FHCM converted FHCM Debentures with an aggregate value (including accrued interest) of $300,000 into a number of shares of a newly designated series of Vycor Preferred Stock—Series A Convertible Preferred Stock (“New Preferred Shares”) which are convertible into the equivalent of 85% of the total proforma, fully-diluted share capital of Vycor at the Closing.

 

2)

The remaining FHCM Debentures were modified to have virtually the same terms as the Amended RPC Debentures (see item 1 below) although without automatic conversion and retaining limited anti-dilution rights.

 

 

 

 

Separately, as of December 29, 2009, the Company and Regent agreed to the following:

 

 

 

 

1)

The Regent Debentures, together with accrued interest thereon, with the exception of the Regent November 2009 Advance of $32,000, were consolidated, amended and replaced by two new convertible debentures in the face amounts of $350,000 and $453,690 (aggregating $803,690), respectively (the “Amended RPC Debentures”). Among other matters, the New RPC Debentures have a maturity date of August 31, 2010, the conversion price was modified to $0.0125 per share and the anti-dilution provisions eliminated. The Amended RPC Debentures are convertible at any time at the sole option of the holder and automatically

27



 

 

 

 

 

convert at such time as Vycor has sufficient authorized but unissued shares of its Common Stock to permit such conversion and the Series A Preferred Shares have converted to common shares. The Amended RPC Debentures are senior obligations of Vycor, which rank pari passu with the remaining outstanding portion of FHCM Debentures and a portion of the new funds to be advanced to Vycor by FHCM (or procured by FHCM) pursuant to the terms of the Recapitalization (see FHCM Funding Commitment, below) and senior to all other Vycor obligations. The existing security agreement was amended to preserve the first priority security interest of the Holders in Vycor’s assets.

 

 

 

 

2)

At the closing of the Recapitalization, Vycor repaid the Regent November Advance of $32,000.

 

 

 

 

3)

The minority approval rights held by Regent pursuant to Schedule 6.2 of the Convertible Debenture Purchase Agreement between Regent and Vycor dated as of February 15, 2008 were rescinded.

FHCM Funding Commitment:

 

 

 

 

1)

On specified terms and conditions, FHCM agreed to fund or procure funding for Vycor’s ongoing operating expenses for a period commencing on the Closing Date through August 31, 2010 (“FHCM New Funding”). The amount of funding to be provided at closing (the “Closing Funding”) included but was not limited to funds to repay the $32,000 Regent November Advance. It was agreed that such funding shall be made on a monthly basis and each advance shall be subject to FHCM’s confirmation that Vycor’s operations for the period commencing the Closing Date through the end of the immediately prior month meet certain financial benchmarks. FHCM has also advised the Company that they will reconsider their funding commitment in the event of a material adverse change affecting the Company’s operations, such as, but not limited to, an impairment of the Company’s intellectual property rights.

 

 

 

 

2)

Funds advanced as a part of the FHCM New Funding are each evidenced or to be evidenced by a Debenture which has a maturity date which is co-terminus with FHCM Debentures and Amended RPC Debentures and bear interest at a rate of six percent (6%) per annum, payable at maturity. Funds advanced as a part of the FHCM New Funding shall be priority obligations of Vycor.

 

 

 

 

3)

Vycor and FHCM entered into a Shareholder’s Agreement (“Shareholder’s Agreement”) which provided FHCM with certain rights and rights approval with respect to various aspects of Vycor’s operation and governance.

 

 

 

 

4)

The parties acknowledge that Vycor may enter into a Consulting Agreement with FHCM at some time after the Closing whereby Vycor will compensate FHCM for certain services provided to the Company, (See Note 10).

Restructuring of Agreements with Vycor Management:

 

 

 

 

1)

Effective the Closing Date, Vycor entered into new employment agreements with Kenneth T. Coviello and Heather Vinas, respectively the Chief Executive Officer and President of the Company.

 

 

 

 

2)

At the Closing of the Recapitalization, Kenneth T. Coviello and Heather Vinas were granted new Warrants (“New Management Warrants”) to purchase an aggregate of 161,262,706 Common Shares of Vycor at an exercise price of $0.00717 per share. It is assumed that the New Management Warrants (which vest over a period of approximately two (2) years), when fully vested, will result in such Management ownership of approximately twenty-two percent (22%) of the Common Shares of the company on a fully diluted basis under the pro-forma capital structure based on the Recapitalization, (See Note 10).

 

 

 

 

3)

Certain management accrued salaries were converted into a contingent retention bonus payable on the satisfaction of certain conditions.

 

 

 

 

4)

Management agreed that for the 12 months following Closing of the Recapitalization, all shares of Vycor Common Stock held by Management are subject to a lock-up agreement which was entered into at Closing of the Recapitalization.

Amendment of the Company’s Certificate of Incorporation

 

 

 

 

1)

On December 1, 2009, the Board of Directors of the Company unanimously adopted a resolution to seek stockholder approval to (a) an amendment of the Company’s Certificate of Incorporation to increase the Company’s authorized capital to 1,010,000,000 shares comprising 1,000,000,000 shares of Common Stock par value $.0001 per share and 10,000,000 shares of Preferred Stock par value $0.0001 per share and (b) a decrease in the par value of the Company’s Common Stock and Preferred Stock from $.001 per share to $.0001 per share. Thereafter, on December 7, 2009, pursuant to the By-Laws of the Company and applicable Delaware law, this resolution was ratified.

28



 

 

 

 

 

An Information Statement was mailed to the Company’s stockholders on or about December 21, 2009 and the action became effective on January 11, 2010, 20 days after this Information Statement was first mailed to stockholders and upon the filing of a Certificate of Amendment with the Delaware Secretary of State.

 

 

 

 

2)

On December 17, 2009, the Company’s board of directors approved resolutions authorizing two new series of the Company’s Preferred Stock par value $.0001:

 

 

 

 

 

 

 

a.

Series A Convertible Preferred Stock. The Company’s board of directors authorized the filing of a Certificate of Designation with respect to 1,000,000 shares of Series A Convertible Preferred Stock. A copy of such Certificate of Designation is attached to this Report as an Exhibit and incorporated herein in its entirety by this reference.

 

 

 

 

 

 

b.

Series B Convertible Preferred Stock. The Company’s board of directors authorized the filing of a Certificate of Designation with respect to 1,000,000 shares of Series B Convertible Preferred Stock. A copy of such Certificate of Designation is attached to this Report as an Exhibit and incorporated herein in its entirety by this reference.

Subsequent Events

Debenture Conversion

          On various dates between their issue date (December 29, 2009) and January 11, 2010, the Amended Regent Private Capital Debentures (see Financial Statements, Note 5) were transferred from Regent to eight separate parties. In accordance with their terms, the debentures were automatically converted to common shares at the rate of $0.0125 per share, causing the issuance to the parties of 64,295,200 shares of Common Stock in aggregate.

Fountainhead Capital Management Limited Operating Funds Advances

          In accordance with the Recapitalization agreement (see Financial Statements, Note 5), Fountainhead Capital Management Limited has advanced the Company additional operating funds on various dates. Currently, the Company has received $228,500 in funds during fiscal year 2010, and has issued debentures and convertible debentures in the like amount in aggregate. These debentures bear an interest rate of 6% per annum, are due August 31, 2010, and $154,000 of which are convertible into shares of the Company’s Common Stock at the rate of $0.0125 per share.

Authorized Shares and Par Value Change

          On January 11, 2010, a Certificate of Amendment was filed with the Delaware Secretary of State, effecting the change in the Company’s authorized capital from 110,000,000 shares to 1,010,000,000 shares and par value of said shares from $0.001 per share to $0.0001 per share.

FCML Consulting Agreement

          On February 10, 2010, the Company entered into a Consulting Agreement with Fountainhead Capital Management Limited pursuant to which Fountainhead will provide a number of services to the Company. These services include, but are not limited to, certain strategic advisory services, certain financial services, identifying and evaluating potential investors and or potential merger and acquisition candidates for the Company, and other advisory services.

          The term of the Consulting Agreement is two years. In consideration for the above, Fountainhead will be paid a monthly retainer of $8,500.00, which shall be accrued and paid (at the option of Fountainhead) in cash (following Vycor completing an additional funding of at least $1.5 million) or in Company stock valued at $0.0125 per share. In addition, upon execution of the Consulting Agreement, the Company shall issue to Fountainhead warrants to purchase 39,063,670 shares of the Company’s Common Stock, at a price of $0.0125 per share and is obligated to issue to Fountainhead 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. All warrants are exercisable over a five-year term.

Management Employment Agreements Amendment

          Effective December 29, 2009, the Company entered into new employment agreements with each of our Chief Executive Officer, Mr. Kenneth Coviello and with our President, Ms. Heather Vinas. These new employment agreements supersede all prior

29


employment agreements or arrangements between the Company and these individuals. Copies of the new employment agreements were attached as Exhibits 10.3 and 10.4 to the Company’s Form 8-K Current Report filed with the U.S. Securities and Exchange Commission on January 6, 2010.

Series B Preferred Stock Sales

          In accordance with the Certificate of Designation for Series B Preferred Stock, the Company has sold 140,000 shares of Series B Preferred Stock during fiscal year 2010 for an aggregate amount of $140,000. These shares yield dividends of 8% per annum, payable in cash or stock at the Company’s sole discretion. Series B Preferred Stock can be converted into the Company’s Common Stock at a multiple of 80 common shares per Series B share at the holder’s discretion, or can be redeemed by the Company using the equivalent multiple after the issue’s one-year anniversary.

New Board of Directors Appointees

          On February 10, 2010, the Board of Directors of the Company appointed Adrian Christopher Liddell and David Marc Cantor as directors of the Company, bringing the total number of directors serving the Company to six. Both directors will serve until their successors are appointed or the next stockholders’ meeting where directors are elected. Each of Messrs. Liddell and Mr. Cantor are principals of Fountainhead Capital Management Limited, the largest stockholder of the Company, which at the time held approximately 85% of the issued and outstanding shares of the Company’s Common Stock. In addition, Fountainhead is a holder of the Company’s Debentures and is party to a Shareholder’s Agreement and Consulting Agreement with the Company.

Media Relations Consulting Agreement

          On February 17, 2010, the Company executed an agreement with Market Media Connect, LLC, (“MMC”), whereby MMC will act as a media relations consultant for the Company. The term of the agreement is six months, cancellable by either party upon 30 days notice. Compensation calls for a monthly retainer of $5,000, reimbursement for certain out of pocket expenses, warrants for the purchase of 500,000 shares of the Company’s Common Stock at a price not less than $0.07 per share, and certain rights on future funding issues.

Sales, Marketing, and Investor Relations Consulting Agreement

          On March 9, 2010, the Company entered into an agreement with Joe Simone for consulting services relating to identifying sales and marketing opportunities, increase investor awareness of the Company, identify potential new investors who might have an interest in investing in the Company, and other activities in the furtherance of the above. The term of the agreement is one year, cancellable by the Company upon the providing on notice. In consideration of the above, the Company has issued 750,000 shares of its Common Stock. In addition, at the Company’s sole and absolute discretion, based on its assessment of Consultant’s performance for the preceding month, may issue warrants to Consultant to purchase up to 250,000 shares of the Company’s Common Stock at an exercise price based on the greater of (a) the per share price of the Company’s most recent capital raise or (b) $0.0125 per share. All Warrants shall be exercisable for a period of one (1) year from their date of issuance.

Office Lease Agreement

          The Company executed a lease agreement with Regus Management Group, LLC dated January 4, 2010, for administrative office space at its current location at 80 Orville Drive, Bohemia, New York. The lease term is nine months ending October 31, 2010. Payments under this lease include $3050 per month, plus additional charges for common area, phone equipment, phone usage, secure inventory storage area, office services, and other consumables.

30


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, 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

 

 

 

 

 

Kenneth T. Coviello

 

Chief Executive Officer and a Director

 

59

Heather N. Vinas

 

President and a Director

 

30

Pascale Mangiardi

 

Director

 

37

Steven Girgenti

 

Director

 

64

Adrian Christopher Liddell

 

Director

 

51

David Marc Cantor

 

Director

 

43

          Kenneth Coviello, 59, is our Chief Executive Officer and a director and will oversee strategic planning as well as directing manufacturing, marketing and product development. Mr. Coviello has more than 25 years of experience in successfully developing, selling and marketing medical devices and managing medical device and healthcare product companies. Mr. Coviello has held positions of Vice President, Senior Vice President and President of medical device companies, including Lumex and Graham Field. From 2000-2005, he was Senior Vice President at Misonix Inc., a public NASDAQ-listed medical device company that specializes in the design, manufacture and sale of ultrasonic surgical devices for orthopedic, neurosurgical, wound and urological applications. Mr. Coviello was responsible for Misonix medical device revenues and profitability, distribution partner contracts and factory operations in Farmingdale, NY. During his association with Misonix, Inc., Misonix increased its medical devices line from a single product to nine, grew medical device revenue, acquired and developed medical technology. While he was with Misonix, Inc, he was also appointed by Misonix, Inc. to the position of Chief Executive Officer of Hearing Innovations, Inc., a major funding entity and senior debt holder of Misonix, Inc. from August 2002 – November 2005. Mr. Coviello joined us on January 1, 2006 after leaving Misonix, Inc. in November 2005. Previous associations were:

 

 

 

1999-2000 FNC Medical- manufacturer and distributor of diabetic skin care supplies,

 

 

 

1992-1998 Graham Field- manufacturer and distributor of Medical devices, equipment and supplies

 

 

 

1972-1991 Lumex Inc. - manufacturer of medical devices and healthcare products

          Heather N. Vinas, 30, is our founder, our President and a director and is involved in the strategic planning as well as directing Global Business Development and Sales. Ms. 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, 37, 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, 64, 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

31


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.

          Adrian Christopher Liddell, 51, is a principal of Fountainhead Capital Partners 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, 43, is a founding principal of Fountainhead Capital Partners 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.

          All of our directors hold office until the next annual meeting of stockholders and until their respective successors have been elected or qualified. Officers serve at the discretion of the board of directors. There are no family relationships among our directors or executive officers. There is no arrangement or understanding between or among our officers and directors pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current board of directors.

          Except for Mr. Coviello, our directors and executive officers have not during the past five years:

 

 

had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;

 

 

been convicted in a criminal proceeding and is not subject to a pending criminal proceeding;

 

 

been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities;

 

 

or been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

          Mr. Coviello was Senior Vice President of Misonix Inc., a major funding entity and senior debt holder for Hearing Innovations Inc. Mr. Coviello was appointed Chief Executive Officer and an officer of Hearing Innovations after a resignation of senior management at Hearing Innovations. He was Chief Executive Officer from August 2002 – November 2005.

          On July 14, 2004, Hearing Innovations Inc. sent all shareholders and creditors a plan for reorganization and disclosure statement. Misonix Inc. was committed to fund Hearing Innovations Inc. up to $150,000 for the reorganization plan. Hearing Innovations Inc. filed for relief under Chapter 11 of the U.S. Bankruptcy Code in September 2004. The Plan of Reorganization of Hearing Innovations Inc. was confirmed by the court on January 13, 2005. Based upon the final decree, and the approval by the court of the Bankruptcy Plan, Misonix Inc. became the sole shareholder of Hearing Innovations Inc.

Committees of the Board of Directors

          Our Board of Directors does not have any committees.

Compensation Committee Interlocks and Insider Participation

32


          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 three years ended December 31, 2009, 2008 and 2007, respectively (i) to the persons who acted as our principal executive officer during our fiscal year ended December 31, 2007 and (ii) to the person who acted as our next most highly compensated executive officer other than our principal executive officer who was serving as our executive officer as of the end of our last fiscal year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and
Principal
Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
($) (1)

 

Option
Awards
($)

 

Non-Equity
Incentive Plan
Compensation

 

Non-
Qualified
Deferred
Compensation
Earnings
($)

 

All other
Compensation
($)

 

Total
($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kenneth T. Coviello

 

 

2009

 

$

102,230

 

 

 

$

162,477

 

$

29,212

 

`

 

 

 

$

21,813

 

$

315,732

 

(Chief Executive Officer)

 

 

2008

 

$

165,000

 

 

 

 

 

$

29,212

 

 

 

 

 

$

18,150

 

$

212,362

 

 

 

 

2007

 

$

137,433

 

 

 

 

 

 

 

 

 

 

 

$

17,302

 

$

154,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heather N. Vinas

 

 

2009

 

$

102,230

 

 

 

$

162,477

 

$

29,212

 

 

 

 

 

$

26,644

 

$

320,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(President)

 

 

2008

 

$

165,000

 

 

 

 

 

$

29,212

 

 

 

 

 

$

19,204

 

$

213,416

 

 

 

 

2007

 

$

117,000

 

 

 

 

 

 

 

 

 

 

 

$

17,302

 

$

134,302

 

(1) Management Warrants

OUTSTANDING EQUITY AWARDS

Grants of Plan-Based Awards

          Initial grants under the 2008 Stock Plan were to Kenneth T. Coviello and Heather N. Vinas of options to purchase 1,000,000 shares in the aggregate. There were no option exercises by or stock vested in fiscal 2008 or 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

500,000

 

$

0.135

 

 

2/12/2018

 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33



 

 

 

 

 

 

 

 

 

 

 

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

 

 

0.190

 

 

 

 

 

   

 

   

 

   

 

Total

 

 

1,050,000

 

$

0.138

 

 

2,651,345

 

 

 

   

 

   

 

   

 

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

 

 

 

 

80,631,353

 

$

0.00717

 

 

12/29/2014

 

Heather N. Vinas

 

 

12/29/2009

 

 

 

 

80,631,353

 

$

0.00717

 

 

12/29/2014

 

Total

 

 

 

 

 

 

 

161,262,706

 

$

0.00717

 

 

 

 

(1) As of December 31, 2009

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 President, Ms. Heather Vinas. These new employment agreements supersede all prior employment agreements or arrangements between the Company and these individuals. Copies of the new employment agreements were attached as Exhibits 10.3 and 10.4 to the Company’s Form 8-K Current Report filed with the U.S. Securities and Exchange Commission on January 6, 2010.

Compensation of Directors

          In 2009, we granted Steven Girgenti a total of 52,632 shares of the Company’s Common Stock for Mr. Girgenti’s service to the Board of Directors in 2009. In 2010, Mr. Girgenti will be entitled to receive $5,000 in cash or stock at the option of the company per quarter and $1,500 per board meeting

34


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 24, 2010. Unless noted, the address for the following beneficial owners and management is 80 Orville Drive, Suite 100, Bohemia, New York 11716.

 

 

 

 

 

 

 

 

 

 

 

Title of Class

 

Name and Address of Beneficial Owner

 

Amount and Nature of
Beneficial Owner (1)

 

Percent of
Class (2)

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Kenneth Coviello

 

 

10,934,609

 

 

1.74

%

Common Stock

 

 

Heather N. Vinas

 

 

10,934,609

 

 

1.74

%

Common Stock

 

 

Pascale Mangiardi

 

 

 

 

0.00

%

Common Stock

 

 

Steven Girgenti

 

 

878,948

 

 

*

 

Common Stock

 

 

Adrian Christopher Liddell

 

 

 

 

0.00

%

Common Stock

 

 

Marc David Cantor

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

All executive officers and directors as a group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,748,166

 

 

3.59

%

Common Stock

 

 

Fountainhead Capital Management

 

 

 

 

 

 

 

 

 

 

Limited Portman House

 

 

 

 

 

 

 

 

 

 

Hue Street, St,Helier, Jersey JB4 5RP

 

 

612,872,095

 

 

87.01

%

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Sawmill Trust c/o Mitchell Greene Robinson Brog Greene 1345 Avenue of the Americas

 

 

 

 

 

 

 

 

 

 

New York, NY 10105

 

 

5,117,921

 

 

 

*

 

 

 

*

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 24, 2010, (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 24, 2010 (622,893,799 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 24, 2010, (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 24, 2010 (622,893,799 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.

35


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

          The Company is currently not party to any related party transactions.

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, 2009 and December 31, 2008, respectively, were approximately $15,000 and $13,754.

Tax Fees

          The aggregate 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, 2009 and December 31, 2008, respectively, were $0 and $0. These fees related to the preparation of federal income and state franchise tax returns.

All Other Fees

          There were no other fees billed for products or services provided by our principal accountant for the fiscal years ended December 31, 2009 and December 31, 2008.

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, 2009 and 2008 (audited)

 

 

 

 

Statements of Operations for the years ended December 31, 2009 and 2008 (audited)

 

 

 

 

Statements of Stockholders’ Deficit from January 1, 2007 to December 31, 2009 (audited)

 

 

 

 

Statement of Cash Flows for the years ended December 31, 2009 and 2008 (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 Chief 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 Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.

36



 

 

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/ Kenneth T. Coviello

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kenneth T. Coviello

 

 

 

 

 

Chief Executive Officer and Director (Principal Financial Officer)

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

 

 

 

 

By:

 

 

 

 

 

 

/s/ Heather N. Vinas

 

 

 

 

 

 

 

 

Heather N. Vinas

 

 

 

 

 

President and Director (Principal Executive Officer)

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity and on the date indicated.

 

 

 

 

By:

 

 

 

 

 

 

/s/ Kenneth T. Coviello

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kenneth T. Coviello

 

 

 

 

 

Chief Executive Officer and Director (Principal Financial Officer)

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

 

 

 

 

By:

 

 

 

 

 

 

/s/ Heather N. Vinas

 

 

 

 

 

 

 

 

 

37



 

 

 

 

 

Heather N. Vinas

 

 

 

 

 

President and Director (Principal Executive Officer)

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

 

 

 

 

By:

 

 

 

 

 

 

/s/ Pascale Mangiardi

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pascale Mangiardi

 

 

 

 

 

Director

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

 

 

 

 

By:

 

 

 

 

 

 

/s/ Steven Girgenti

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven Girgenti

 

 

 

 

 

Director

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

 

 

 

 

By:

 

 

 

 

 

 

/s/ Adrian Christopher Liddell

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adrian Christopher Liddell

 

 

 

 

 

Director

 

 

 

 

Date

 

 

 

March 31, 2010

 

 

 

 

By:

 

 

 

/s/ David Marc Cantor

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David Marc Cantor

 

 

 

 

 

Director

 

 

 

 

Date

 

 

 

 

 

 

March 31, 2010

38