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
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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. Mine Safety Disclosures
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. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers 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 d31204_ex31-1.htm
EX-31.2 d31204_ex31-2.htm
EX-32.1 d31204_ex32-1.htm
EX-32.2 d31204_ex32-2.htm

Vycor Medical Earnings 2013-12-31

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 d31204.htm 10-K Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2013

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.)
 
6401 Congress Ave., Suite 140, Boca Raton, FL 33487
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone Number: (561) 558-2000
 
Securities registered pursuant to section 12(g) of the Act:
 
Common Stock par value $.0001
 

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

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

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. Yes x  No o

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). Yes o  No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $7,658,971 (assuming $2.68 per share)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 10,184,720 shares of common stock par value $0.0001 as of April 4, 2014

DOCUMENTS INCORPORATED BY REFERENCE: NONE



TABLE OF CONTENTS

 
           
 
         Page    
 
           
PART I
              
Item 1.
           
Business
          3    
Item 1A
           
Risk Factors
         12    
Item 1B
           
Unresolved Staff Comments
         12    
Item 2.
           
Properties
         12    
Item 3.
           
Legal Proceedings
         12    
Item 4.
           
Mine Safety Disclosures
         12    
 
 
           
PART II
              
Item 5.
           
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
         13    
Item 6
           
Selected Financial Data
         19    
Item 7.
           
Management’s Discussion and Analysis of Financial Condition and Results of Operation
         19    
Item 7A
           
Quantitative and Qualitative Disclosures About Market Risk
         24    
Item 8.
           
Financial Statements and Supplementary Data
         24    
Item 9.
           
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
         26    
Item 9A.
           
Controls and Procedures
         26    
Item 9B.
           
Other Information
         27    
 
 
           
PART III
              
Item 10.
           
Directors, Executive Officers, Promoters and Corporate Governance
         31    
Item 11.
           
Executive Compensation
         34    
Item 12.
           
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
         36    
Item 13.
           
Certain Relationships and Related Transactions, and Director Independence
         37    
Item 14.
           
Principal Accountant Fees and Services
         38    
 
 
           
PART IV
              
Item 15.
           
Exhibits, Financial Statement Schedules
         39    
SIGNATURES
           
         40    
 


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.

1. Organizational History

We were formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical LLC”. On August 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.” (“Vycor” or the “Company”). On November 29, 2010, Vycor, through its wholly-owned subsidiary NovaVision Acquisition, Inc., completed the acquisition of substantially all of the assets of the former NovaVision, Inc., a company that had been in the business of researching, developing and providing medical technologies to restore the vision of patients with neurological visual loss. Subsequent to the purchase, NovaVision Acquisition, Inc. changed its name to NovaVision, Inc. (“NovaVision”). On January 4, 2012 Vycor, through its wholly-owned subsidiary NovaVision, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”) a previous competitor to NovaVision, which provides an interactive computer-based therapy called Neuro-Eye Therapy (“NeET”).

2. Overview of Business

Vycor operates two distinct business units within the medical industry:

•  
  Vycor Medical manufactures and distributes the ViewSite Brain Access System (VBAS), a suite of clear cylindrical disposable devices used to access target sites such as tumors within the brain and which provide a working channel during neurosurgery for their removal. The FDA 510(k) cleared system provides a minimally invasive approach into the brain, offering clinical advantages that have been validated in various peer-reviewed articles and have enabled previously inoperable procedures to take place, thereby saving and changing lives.

3



•  
  NovaVision provides vision solutions targeted at a large and previously un-addressed market of people who have lost their sight as a result of Stroke or Traumatic Brain Injury (neurological brain damage). NovaVision addresses a significant target market, estimated at approximately $2 billion in the U.S. and over $13 billion globally, and has the only 510(k) cleared therapy targeted at the restitution of this type of vision loss. NovaVision has a broad portfolio of therapies that both restore lost vision and address other neurologically-induced vision issues. The Company’s lead Vision Restoration Therapy (VRT) while underpinned by significant clinical data is in development and not fully commercialized. Completion of the VRT development work is anticipated during 2014

Both businesses adopt a minimally or non-invasive approach. Both technologies have exceptional sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has a strong patent portfolio with 38 granted patents and a further 17 pending. The Company leverages joint resources across the divisions, to operate in a highly cost-efficient manner

Vycor Medical

Introduction

Vycor Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medical is ISO 13485:2003 compliant, has U.S. FDA 510(k) clearance and CE Marking for Europe (Class III) for brain and spine surgeries, as well as applicable full or partial regulatory approvals in Australia, Canada, China, Japan, Korea and Russia for sale of its brain access system. Vycor Medical’s first product, VBAS, is a next generation retraction and access system that was fully commercialized in early 2010. The VBAS device is the first significant technological change to brain tissue retraction. The incumbent blade retractor technology has not changed materially in over 50 years in stark contrast to significant development in most other neuro-surgical technologies.

Vycor Medical has a current product pipeline aimed at enhancing the ease of use and increasing the compatibility of its current VBAS range, and separately also expanding the applicable procedures it addresses by expanding its VBAS range. A second potential product range focused on spinal procedures is the Cervical Access System (VCAS), which requires further prototyping and market testing prior to reaching a decision to commercialize. This product is designed to assist surgeons in cervical surgeries, allowing the surgeon to gain access to the anterior cervical surgery site; the VCAS is covered by Vycor’s 510(k) clearance.

Vycor Medical’s Products

Viewsite Brain Access System (VBAS)

To access a surgical site in the brain, a surgeon usually needs to remove part of the skull (craniotomy) and then make an entry incision in the outer protective brain tissue (corticotomy); the soft brain tissue is then parted (retracted) to access the target site. The current standard of care utilizes a metal blade retractor to pull the tissue apart; to maintain the opening the blades are attached to a head frame and parting tension is applied to the tissue. In a typical procedure somewhere between 2 and 5 blades are used.

Many clinical studies have shown that retractors can cause excessive pressure on brain tissues, resulting in damage and a prolonged patient recovery. The incidence of contusions (tissue injuries) or infarctions (blockage of blood supply) from brain retraction is as great as 5-10% in cranial surgeries.

Vycor’s VBAS is a significant improvement over current technologies for accessing regions within the brain. A disposable product that can be used with neuro-navigation systems (IGS), the VBAS includes an introducer and working channel. Available in multiple sizes, the current series consists of 12 disposable products, offered in four different port diameters of 12mm, 17mm, 21mm, and 28 mm and a choice of three lengths: 3cm, 5cm, and 7cm.

4



The Market For Vycor Medical’s VBAS Product

The market for Vycor Medical’s VBAS product range is limited to craniotomy procedures. Based on statistics from the American Association of Neurological Surgeons (AANS), management estimates 700,000 such procedures were performed in the US in 2012. Of this, management believe approximately 200,000 (28 percent) are addressable by the VBAS range currently, with another 125,000 (total of 325,000 or 46 percent) addressable by an expanded future range. Management estimates, for the global market, there exists a current addressable market of approximately 1,000,000 procedures with another 600,000 addressable by an expanded VBAS range.

Competition

The VBAS device is both a brain access system and a retractor and is therefore unique with no direct competitors. Competitive manufacturers of brain retractors include Cardinal Health (V. Mueller line), Aesculap, Integra Life Science and Codman (Division of Johnson & Johnson). Nico Corporation has a brain access device specifically designed to work with its Myriad resection and suction product.

Cervical Access System competitors are more numerous and include Medtronic, Asculap/B. Braun, Cardinal and Nuvasive, Cloward Instruments, as well as the standard “blade retractors” distributed by the aforementioned companies. In addition companies such as Endius and EBI have announced cervical retractor systems.

Sales and Marketing

Domestic Sales Strategy

The VBAS sales strategy is focused on driving sales through leading neurosurgeons. In this regard, Vycor Medical has adopted a dual strategy of targeting both the neurosurgeons specializing in brain and the larger neurosurgical hospitals.

The surgeon is most interested in ease and simplicity of use, reduction in surgery times, less trauma to the patient and better overall outcomes; the surgeon is also interested in devices which can enable surgeries which would otherwise be difficult or possibly even inoperable. The Company believes there are approximately 3,500 neurosurgeons in the US, providing a well defined target audience. The hospital is most interested in reduction in surgery times, better outcomes, reduction in in-patient recovery times and the overall cost/benefit of the product. We believe VBAS targets the interests of both the surgeon and the hospital.

Vycor Medical sells to stocking regional distributors and direct to hospitals through independent representatives, all of whom have existing relationships with neurosurgeons and help drive sales at the target hospitals without the need for a large and costly dedicated Vycor regional sales team.

International Sales

Vycor Medical’s strategy is to target those countries or regions internationally where it has patent protection and either has or can obtain regulatory approval. Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. In Europe, the Company currently only has a limited number of distributors and is only now turning its focus to this geographic region. Vycor Medical has regulatory approvals for VBAS in Australia, Canada, China, Europe (Class III), Korea and Japan and is seeking or has partial regulatory approvals in Russia, India, Vietnam and Taiwan with distribution agreements in place or being sought.

Vycor Medical plans on focusing on the international markets and is actively pursuing new distribution agreements.

5



VBAS Market and the Hospital Adoption Process

The market for VBAS in the US is relatively concentrated. Teaching hospitals not only carry out more relevant procedures but also provide a natural way to drive adoption through the conversion of new surgeons. We focus our efforts initially on surgeons as the principle proponent within the hospital. Vycor has found that the learning curve is only 1-2 cases for surgeons, who like the simplicity of design and ease of use after trialing the product. However, Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation of the product in the hospital by the neurosurgeon and this is one of the key barriers to the speed of adoption as this process can take several month.

Experience has been that the approval process can take up to six months for each hospital, and in some cases may even be longer.

Peer Review and Other Clinical Studies

The publication of clinical papers in neurosurgery journals by surgeon-users of VBAS regarding their experiences with the products (peer review papers), and the publication of other clinical data, is important for the Company as it continues to evidence the clinical superiority of VBAS. During the last 3 years the following papers were published:

•  
  “Usage of a Minimally Invasive Tubular Retraction System for Deep-Seated Tumors in Pediatric Patients” in Journal of Neurosurgery in May 2011: Pediatrics. Co-authors Pablo Recinos, M.D., of the Cleveland Clinic and George Jallo, M.D., of Johns Hopkins University conclude that while access to deep-seated, intra-axial tumors is challenging, the ViewSite tubular retractor and frameless neuro navigation facilitated the surgical approach and the combination of these technologies adds to the surgeon’s armamentarium to safely approach tumors in deep locations.

•  
  “Vycor Viewsite TC: Endoscope-guided Intraparenchimal Brain Tumor Resection,” by Daniel Prevedello, M.D., Director of the Minimally Invasive Cranial Surgery Program at the Ohio State University. Dr Prevedello reported on a case with a patient taking Avastin®, which delays surgical wound healing. He said the Viewsite TC was essential to the surgery; otherwise, no procedure could have been performed on the patient.

•  
  “Minimally Invasive Trans-Portal Resection of Deep Intracranial Lesions” in Minimally Invasive Neurosurgery, February 2011 a Johns Hopkins University paper by lead author A. Quinones Hinojosa. The authors reported a case series of 9 adult and pediatric patients with a variety of pathologies, including colloid cyst, DNET, papillary pineal tumor, anaplastic astrocytoma, toxoplasmosis and lymphoma. The locations of the lesions approached included: lateral ventricle, basal ganglia, pulvinar/posterior thalamus and insular cortex. Post-operative imaging was assessed to determine extent of resection and extent of white matter damage along the surgical trajectory. Satisfactory resection or biopsy was obtained in all patients. “VBAS lends itself well to minimally invasive microsurgical approaches and can be used in combination with modern navigational systems. The use of navigation permits not only the creation of a smaller craniotomy but also facilitates the creation of a trajectory that provides efficient and safe means for splitting white fiber tracts,” said the authors.

“3D Endoscpe-Assisted Transcallosal Approach to the Third Ventricle Using a Minimally Invasive Tubular Retractor System — A Feasability Study” by Alireza Shoakazemi , Alexander I. Evins , Philip E. Stieg , Antonio Bernardo Published in J Neurol Surg B 2014; 75 – A047. Weill Cornell Medical Center. Conclusion. Though some authors have advocated the benefits of retractorless microsurgical techniques in approaching the third ventricle, the use of routine retractors and their potential complications, in some cases, cannot be avoided. An increased incidence of cortical damage has been reported in a rat model, wherein retractors were held in place for more than 15 minutes at a pressure of 20 mmHg. We found the interhemispheric 3D endoscope-assisted trancallosal approach through tubular retractors to be feasible for the management of pathologies of the third ventricle

6



“3D Endoscopic Transtubular Anterior Petrosectomy for Petroclival Meningiomas: Assessment of Resection in Varying Tumor Volumes Utilizing a Synthetic Tumor Model” Alexander I. Evins , Alireza Shoakazemi , Justin C. Burrell , Rahul Kapoor , Philip E. Stieg , Antonio Bernardo Published J Neurol Surg B 2014; 75 – A036. Weill Cornell Medical Center. Conclusion. The application of 3D endoscopic transtubular anterior transpetrosal approaches in the treatment of medium and large petroclival meningiomas is both feasible and effective. Despite the demonstrated efficacy on those tumor types, resection of specific giant petroclival meningiomas still necessitate the use of traditional skull base microsurgical techniques. Further clinical studies are necessary to determine potential clinical complications

Manufacturing

Vycor Medical has an executed agreement with Lacey Manufacturing Company of Bridgeport, Connecticut (“Lacey”) to provide a full range of engineering, contract manufacturing and logistical support for our products. Lacey manufactures 6 of the VBAS 12 different sizes. Lacey is a recognized leader in the medical contract manufacturing sector, providing vertically integrated full services. Lacey is U.S. Food and Drug Administration registered and meets ISO standards and certifications. Lacey and C&J (C&J discussed below) each manufacture 6 of the VBAS 12 different sizes.

Vycor Medical had an executed agreement with C&J Industries, Meadville PA (“C&J”) to manufacture the remaining 6 of the VBAS 12 different sizes; this agreement formally expired in 2014. Vycor Medical holds sufficient inventory for its foreseeable needs and is in discussions with selected qualified sub-contract manufacturers to replace C&J.

Intellectual Property

Patents

Vycor Medical maintains a portfolio of patent protection on its methods and apparatus for its Brain and Spine products and technology in the form of issued patents and applications, both domestically and internationally, with a total of 8 granted and 8 pending patents.

Vycor Medical’s 8 granted patents are in the China (Brain), Hong Kong (Brain), Russia (Brain), Japan (Brain and Spine) and US (Brain (2) and Spine).

Vycor Medical’s 8 pending patents are in: Canada (Brain, Spine), Europe (Brain, Spine), India (Brain, Spine), Hong Kong (Spine), US (Navigation Arm).

Trademarks

VYCOR MEDICAL is a registered trademark.

Vycor Growth Strategy

Vycor Medical’s growth strategy is centered around:

1.  
  Increased U.S. market penetration through broader hospital coverage and targeted direct physician marketing.

2.  
  Provision of more Clinical and Scientific Data supporting not only the products superiority over the blade retractor but also to demonstrate the product’s potential for cost savings.

3.  
  International Market Growth Vycor Medical’s strategy is to target those countries or regions internationally where it has patent protection and either has or can obtain regulatory approval. Focus markets are: larger European markets, Russia, China, Japan and India.

4.  
  New Product Development New Product Development is targeted at both driving the use of its existing VBAS product range through ancillaries that will facilitate the product’s use and through new product extensions to broaden VBAS applicability to procedures currently not addressed by the existing product line, including an image-guided system fully compatible device.

NovaVision, Inc.

Introduction

NovaVision provides vision solutions targeted at a large and previously un-addressed market of people who have lost their sight as a result of Stroke or Traumatic Brain Injury (neurological brain damage). NovaVision addresses a significant target market, estimated at approximately $2 billion in the U.S. and over $13 billion globally.

NovaVision has a broad portfolio of therapies that both restore lost vision and address other neurologically-induced vision issues:

•  
  Restoration of Vision: NovaVision’s VRT and Sight Science’s Neuro-Eye Therapy (NeET), which aim to improve visual sensitivity. VRT delivers a series of light stimuli along the border of the patient’s visual field loss. These programmed light sequences stimulate the border zone between the “seeing” and “blind” visual fields, repetitively challenging the visual cortex in the border zone with mulitple stimuli over the course of time. NeET targets deep within the blind area by repeated stimulation, allowing patients to detect objects within the blind field. VRT is the only 510(k) cleared therapy targeted at the restitution of this type of Vision loss.

7



•  
  NeuroEyeCoach: re-trains ability of a patient to move their eyes, re-integrate left and right vision and to make the most of their remaining visual field

NovaVision operates in the US through our wholly-owned subsidiary, NovaVision, Inc., in Germany through our wholly-owned subsidiary, NovaVision GmbH and in the UK through our wholly-owned subsidiary, Sight Science Limited.

VRT is based on NovaVision’s platform technology which management believes induces neuroplasticity, the brain’s natural ability to compensate for damaged neural connections that cause vision loss.

The diagnostic algorithm in the VRT product first maps the visual field and defines the areas of defect in patients suffering vision loss. The therapeutic algorithm in the VRT product is then specifically designed for each patient based upon the results of the diagnostic program and it repetitively challenges the visual cortex with thousands of stimuli over the course of time. VRT is generally performed over a four to six month period, twice a day for approximately an hour total, six days a week. The Company maintains very broad IP protection. NovaVision has collected significant amounts of data from clinical studies and peer reviewed papers that support the Company’s claims about the benefits of its VRT platform technology for vision restoration and other indications. NovaVision has received 510(k) clearance and CE Marking for VRT and NeET also has CE Marking (both Class I). NovaVision’s VRT is the only medical device aimed at the restoration of vision for neurologically induced vision loss which has FDA 510 (K) clearance to be marketed in the U.S.

NovaVision’s recently launched NeuroEyeCoach in the U.S. This is also a computer based program providing eye-movement training to those who have suffered a visual field loss as a result of neurological damage and is complementary to its existing VRT and NeET therapies.

The Market For NovaVision’s Therapies

The market for NovaVision’s therapies comprises those suffering from vision loss resulting from neurological trauma such as Stroke and Traumatic Brain Injury (TBI). The U.S. Centers for Disease Control (CDC) estimates there are 8 million Americans who have previously had a stroke incident, with 740,000 additional cases occurring annually. Additionally, approximately 5.3 million Americans live with long term deficits resulting from a TBI. Based on published reports of industry specialists, A. Pambakian and C. Kennard, it is estimated that approximately 16% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living. NovaVision’s target market is this subset of patients who have suffered a permanent visual field deficit. Management estimates that NovaVision’s addressable target market is approximately 1.5 million people in the US, approximately 1.4 million people in Europe and approximately 6.4 million people throughout the rest of the world. The market potential is further increased by the introduction of NeuroEyeCoach which adds an additional 3.6m people in the US and Europe and 8m in the rest of the world

Competition

NovaVision provides restitution therapies for those suffering neurologically — induced vision loss, other therapies being substitution (optical aids such as prisms, which NovaVision does not really consider as competition) and compensation (eye movement training). Within compensation, competitors include RevitalVision, PositScience, Rehacom and NVT Systems. In restitution, competition has been reduced through NovaVision’s acquisition of Sight Science and really only leaves two small companies, Teltra and Visiontrainer in Germany. NovaVision believes that saccadic training (eye movement training) is complementary to its VRT and is in the advanced stage of developing its own saccadic therapy which will be called NeuroEyeCoach. This product will be sold as a standalone therapy or in the future as part of a NovaVision therapy regime with its VRT therapy.

8



Platform Technology

Although the exact mechanism by which VRT works has not been conclusively proven, management believes the light stimulation induces neuroplasticity, the brain’s natural ability to compensate for damaged neural connections that cause vision loss. Neuroplasticity has been discussed over the last 20 years or so and, as far back as 1990, Charles D. Gilbert and Torsten N Wiesel talked about the cortex not having a fixed functional architecture. The platform technology is comprised of proprietary algorithms that generate patient-specific therapies enabling NovaVision’s products to be used as both diagnostic and therapeutic tools. The platform technology generates light-based, or photic, stimulus programs. Patients are asked to focus on this fixation point, while at the same time a series of photic stimuli are delivered on the screen that are specific to the patient’s neurological requirements, and relayed directly to the brain using the eye as a conduit.

Management believes that it is these programmed light sequences that stimulate the border zone between the “seeing” and “blind” visual fields which induces neuroplasticity. While neuroplasticity for explaining VRT has never been conclusively demonstrated, a 2007 study by Randold S. Marshall, using MRI did demonstrate that VRT results in increased neural activity in the visual cortex. Irrespective of mechanism, patient studies and the Company’s ongoing experience point to significantly improved functional outcomes for patients who have done VRT treatment. This improvement manifests itself in greater confidence to move around and, according to data published by Romano JG et al (2008), an average shift of 4.9 degrees in the border between seeing and blind visual fields. The visual field is the portion of space surrounding an individual which is visible at any given time by that individual while their gaze is held stationary. To humans, the central 10o of visual field holds the greatest functional importance for focal and cognitive tasks.

Clinical Data

VRT

NovaVision has accumulated significant amounts of clinical data as a result of company-sponsored trials as well as studies conducted by independent third parties, of which some of the key findings can be summarized as:

•  
  Approximately 70% of patients experience positive outcome reflected by an increase in their visual field and studies have indicated an average increase of 4.9 degrees (Mueller I, Mast H, Sabel BA (2007), Romano JG 2008).

•  
  Elapsed time since injury does not seem to impact VRT and NeET therapies success. Therefore, a massive historical backlog of patients can potentially be treated (Romano JG, Schulz P, Kenkel S, Todd DP (2008)).

•  
  Improvements are permanent and do not appear to be age or gender dependent.

•  
  Age at the onset of the injury is not a critical factor, allowing access to the therapy by both young and older adults with brain injuries (Romano JG, Schulz P, Kenkel S, Todd DP (2008)).

NeuroEyeCoach

The PC-based treatment approach was originally developed by Prof. Zhl (1988, 1990) and has since been used with various modifications in 13 studies on a total of 556 patients with homonymous visual field loss and persistent visual disabilities.

The main outcome of saccadic training is a significant improvement in visual search performance accompanied by more efficient oculomotor strategies, and a reduction in visual disability as assessed by standardized questionnaires and behavioral measures. These include measures of improvement in navigation skills and object finding. The efficacy of this treatment approach for the improvement of visual overview and visual exploration is superior to practice with reading (Schuett et al., 2012), non-specific visual training (Roth et al., 2009), standard occupational therapy (Mödden et al., 2012) or counseling with regards to coping strategies (Zihl, 2011). Importantly,

9




the treatment effect is not influenced by either the time since brain injury (Zihl, 2011) or the age of hemianopic patients (Schuett & Zihl, 2012) do not play a significant role in the treatment effect

Regulatory Matters

In the U.S., NovaVision’s products are regulated by the FDA; VRT is a Class U medical device subject to 510(k) clearances, and in Europe NovaVision has CE Marking for VRT and Sight Science for NeET, both as Class I devices. NovaVision received its 510(k) clearance for VRT specific to Stroke and TBI indications in 2003.

Intellectual Property

Patents

NovaVision maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically and internationally, with a total of 31 granted and 8 pending patents (including Sight Science).

NovaVision’s 31 granted patents are in the U.S. (12), Canada (3), Europe (7), Australia (2), China (2), Hong Kong (1), Singapore (1), India (1) and Japan (2).

NovaVision’s 8 pending patents are in the U.S. and Canada (3), Europe (5).

Trademarks

NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT and VRT VISION RESTORATION THERAPY amongst others, both in the US and internationally.

Manufacturing and Operations

NovaVision is based at the Vycor Medical, Inc. group headquarters at a 10,000 square foot leased facility in Boca Raton, Florida. NovaVision purchases electronics and custom fabricated hardware from third party vendors and assembles and tests all of its medical devices within the facility. NovaVision has an FDA Establishment Registration and the Company does not have any long-term contractual obligations with its vendors to purchase products from them, nor are suppliers contractually obligated to sell products to NovaVision.

Sight Science

In January 2012 NovaVision acquired Sight Science, which was established in 2009 based on the research of Professor Arash Sahraie at the University of Aberdeen, and which provides an interactive computer-based therapy called Neuro-Eye Therapy (“NeET”), which patients administer at home. To date, over 150 patients have utilized NeET. Sight Science has 6 patents granted in the UK, France, Germany, Switzerland Singapore and Canada, and 1 patent pending in the U.S., all of which are included under the NovaVision Patents section above. Prof. Sahraie has conducted extensive research on blindsight and residual visual processing after brain injury, and is highly regarded in the field.

Both NovaVision’s VRT and Sight Science’s NeET work on the basis that repeated stimulation of the blind or transition areas by either bright patches of light (VRT) or the specific spatial patterns (NeET) which can lead to increases in sensitivity of the blind areas. Patients progress after VRT appears to be initiated at the blind and sighted borders whereas NeET results in changes deep within the blind field. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living. The Company believes that these therapies are complementary.

NovaVision’s Growth Strategy

NovaVision’s strategy is centered around driving the adoption of its therapies, through:

1.  
  Reduced Cost and Greater scalability; enabled by a completely new therapy delivery mechanism moving away from hardware based to an asset light software solution allowing significant cost savings, which will be passed onto the patients. This different delivery mechanism and significant business process streamlining of currently largely manual tasks will enable NovaVision to provide an affordable and scalable therapy and thus service much a larger number of patients.

2.  
  Introduction of a new therapy module into the patient’s overall visual rehabilitation therapy regime that will provide additional functional benefits to patients who undergo the regime; this new therapy module, NeuroEyeCoach, is a new saccadic training program which is highly complementary to VRT and will ensure that more patients will receive greater benefit from the overall NovaVision therapy regime.

3.  
  New Potential Licensing model targeted at Rehabilitation Centers. Management is also in the advanced stages of exploring a leasing model under which NovaVision would lease a diagnostic-only VRT device to a rehabilitation center for a monthly fee. The center, be it in-patient or out-patient, would be able to efficiently screen its patients on their own for visual field deficits. NovaVision would receive leasing fees and benefit from incremental patient flow from referrals when they leave the center.

10



3. Other Matters

Product Liability Insurance

We presently have Product Liability insurance for both Vycor Medical and NovaVision.

Government Regulations

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

ISO 13485:2003 Medical Devices — Quality Management Systems

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

Vycor Medical has the following certification/licensing:

•  
  Fully Quality Assurance System Directive 93/42/EEC for Medical Devices, Annex II (3)

•  
  EC Design-Examination Certificate Directive 93/42/EEC for Medical Devices, Annex II (4)

•  
  ISO 13485.2003

Continuing Regulatory Requirements

Vycor Medical’s products have been classified as Class II products by the FDA and cleared for marketing through the 510(k) process. NovaVision’s VRT product has been cleared as a Class U product through the 510(k) while its HMP is registered as an exempt Class 1 device.

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, and failure to respond to requested corrective actions on an ongoing basis, can result in enforcement action by the FDA.

Medical device laws are also in effect in many of the countries outside of the United States in which we do business. These laws range from comprehensive device approval and quality system requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. In June 1998, the European Union Medical Device Directive became effective, and all medical devices must meet the Medical Device Directive standards and receive CE mark certification. CE mark certification involves a comprehensive Quality System program, and submission of data on a product to the Notified Body in Europe.

11



Vycor Medical has obtained the CE marking approval to allow for distribution of its VBAS products in Europe as a Class III device and has received HPB licensing approval for distribution in Canada. NovaVison’s VRT and Sight Science’s NeET have CE mark registrations as Class I devices in Europe. HMP does not have European regulatory clearance at this time.

Employees

We currently have 18 employees.

Website. The Company operates websites at www.vycormedical.com and www.novavision.com.

ITEM 1A. RISK FACTORS

Smaller reporting companies are not required to provide the information required by this item.

ITEM 1B. UNRESOLVED STAFF COMMENTS

N/A

ITEM 2. PROPERTIES

The Company leases approximately 10,000 sq. ft located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease is 5 years and 6 months terminating July, 2017. The Company’s subsidiaries in Germany and the UK occupy properties on short term lease agreements.

ITEM 3. LEGAL PROCEEDINGS

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of April 4, 2014, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

12



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 under the symbol “VYCO”.

The following table shows the high and low prices of our common shares on the OTC Bulletin Board for each quarter for fiscal years 2012 and 2013. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:

Period


  
High
  
Low
January 1, 2012 – March 31, 2012
              $ 3.00          $ 2.10   
April 1, 2012 – June 30, 2012
              $ 3.30          $ 1.50   
July 1, 2012 – September 30, 2012
              $ 3.30          $ 1.65   
October 1, 2012 – December 31, 2012
              $ 2.67          $ 1.12   
January 1, 2013 – March 31, 2013
              $ 2.10          $ 1.14   
April 1, 2013 – June 30, 2013
              $ 2.95          $ 2.00   
July 1, 2013 – September 30, 2013
              $ 2.69          $ 1.80   
October 1, 2013 – December 31, 2013
              $ 2.70          $ 1.90   
 

All stock prices are adjusted for a one for 150 reverse stock split which became effective January 15, 2013.

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 April 4, 2014 there were 10,184,720 shares of common stock outstanding and approximately 155 stockholders of record.

Transfer Agent and Registrar

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

Dividend Policy

We have never paid any cash dividends on our Common Stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

13



RECENT SALES OF UNREGISTERED SECURITIES

Below is a list of securities sold by us from January 1, 2013 through April 4, 2013 which were not registered under the Securities Act.

Common Stock:

Name of Purchaser


  
Issue Date
  
Security
  
Shares
  
Consideration
ALVARO PASCUAL-LEONE, M.D.
           
2/13/13
   
Common
         926        
Consulting Services
JOSEF ZIHL
           
2/13/13
   
Common
         926        
Consulting Services
SEAN CAMPBELL
           
4/5/13
   
Common
         7,408       
Conversion of Pref Stock
KENNETH T COVIELLO
           
4/5/13
   
Common
         15,864       
Conversion of Pref Stock
GREENBRIDGE CAPITAL PARTNERS IV LLC
           
4/5/13
   
Common
         22,223       
Conversion of Pref Stock
NEIL A WEISS
           
4/5/13
   
Common
         14,815       
Conversion of Pref Stock
JASON J S BARTON
           
4/12/13
   
Common
         1,646       
Consulting Services
OSCAR BRONSTHER
           
4/12/13
   
Common
         2,632       
Board Fees
STEVEN GIRGENTI
           
4/12/23
   
Common
         2,632       
Board Fees
JOSE ROMANO
           
4/12/13
   
Common
         1,646       
Consulting Services
ROBERT J NEBORSKY & SANDRA S NEBORSKY LIVING TRUST
           
4/19/13
   
Common
         29,630       
Conversion of Pref Stock
SKRILOFF FAMILY IRREVOCABLE TRUST FBO OLIVIA SKRILOFF
           
4/19/13
   
Common
         1,482       
Conversion of Pref Stock
SKRILOFF FAMILY IRREVOCABLE TRUST FBO SAMUEL SKRILOFF
           
4/19/13
   
Common
         1,482       
Conversion of Pref Stock
ONE EAST PARTNERS MASTER LP
           
4:23/13
   
Common
         10,370       
Conversion of Pref Stock
HEATHER VINAS
           
4/26/13
   
Common
         32,152       
Stock Option Exercise
KENNETH T COVIELLO
           
4/29/13
   
Common
         15,863       
Stock Option Exercise
RED SQUARE FUND ONE (SPC)
           
4/29/13
   
Common
         88,889       
Conversion of Pref Stock
ALVARO PASCUAL-LEONE, M.D.
           
5/1/13
   
Common
         662        
Consulting Services
JOSEF ZIHL
           
5/1/13
   
Common
         1,335       
Consulting Services
ALEX PARTNERS LLC
           
5/3/13
   
Common
         93,333       
Consulting Services
PETER BUBENZER
           
5/9/13
   
Common
         36,000       
Warrant Exercise
STEPHEN KUPPERSERG
           
5/9/13
   
Common
         12,625       
Warrant Exercise
ONE EAST PARTNERS MASTER LP
           
5/16/13
   
Common
         5,926       
Conversion of Pref Stock
ONE EAST PARTNERS OPPORTUNITY LP
           
5/16/13
   
Common
         7,400       
Conversion of Pref Stock
DANIEL SCHNEIDERMAN
           
5/21/13
   
Common
         6,667       
Conversion of Pref Stock
KENNETH T COVIELLO
           
5/29/13
   
Common
         15,863       
Stock Option Exercise
ONE EAST PARTNERS MASTER LP
           
6/4/13
   
Common
         10,371       
Conversion of Pref Stock
ONE EAST PARTNERS OPPORTUNITY LP
           
6/4/13
   
Common
         5,187       
Conversion of Pref Stock
MILLENNIUM TRUST COHPANY LLC FB0 HERBERT KLEI IRA
           
6/5/13
   
Common
         25,250       
Warrant Exercise
RB BRILL ZW BRILL JTTEN
           
6/10/13
   
Common
         25,250       
Warrant Exercise
 

14



Name of Purchaser


  
Issue Date
  
Security
  
Shares
  
Consideration
MARC COHEN
           
6/10/13
   
Common
         50,500       
Warrant Exercise
ONE EAST PARTNERS MASTER LP
           
6/16/13
   
Common
         13,334       
Conversion of Pref Stock
ONE EAST PARTNERS OPPORTUNITY LP
           
6/10/13
   
Common
         7,408       
Conversion of Pref Stock
CORE CAPITAL IV TRUST
           
6/11/13
   
Common
         22,222       
Conversion of Pref Stock
CORE CAPITAL IV TRUST
           
6/11/13
   
Common
         22,223       
Conversion of Pref Stock
JASON J S BARTON
           
6/13/13
   
Common
         926        
Consulting Services
OSCAR BRONSTHER
           
6/13/13
   
Common
         1,482       
Board Fees
STEVEN GIRGENTI
           
6/13/13
   
Common
         1,482       
Board Fees
JOSE ROMANO
           
6/13/13
   
Common
         926        
Consulting Services
ROBERT M BERNSTEIN
           
6/20/13
   
Common
         7,408       
Conversion of Pref Stock
ROBERT J KOCH
           
7/1/13
   
Common
         12,625       
Conversion of Pref Stock
JASON J S BARTON
           
7/3/13
   
Common
         673        
Consulting Services
OSCAR BRONSTHER
           
7/3/13
   
Common
         2,155       
Board Fees
STEVEN GIRGENTI
           
7/3/13
   
Common
         2,155       
Board Fees
JOSE ROMANO
           
7/3/13
   
Common
         673        
Consulting Services
LOWELL RUSH
           
7/3/13
   
Common
         1,078       
Board Fees
GARDEN STATE SECURITIES INC
           
7/8/13
   
Common
         15,000       
Consulting Services
ANDREW MITCHELL
           
7/31/13
   
Common
         7,403       
Conversion of Pref Stock
ALVARO PASCUAL-LEONE, H.D.
           
8/2/13
   
Common
         659        
Consulting Services
JOSEF ZIHL
           
8/2/13
   
Common
         1,319       
Consulting Services
THE DEL MAR CONSULTING GROUP INC
           
8/7/13
   
Common
         7,200       
Consulting Services
ALEX PARTNERS LLC
           
8/7/13
   
Common
         4,800       
Consulting Services
THE DEL MAR CONSULTING GROUP INC
           
9/13/13
   
Common
         3,600       
Consulting Services
ALEX PARTNERS LLC
           
9/13/13
   
Common
         2,400       
Consulting Services
DUANE J RENFRO
           
9/16/13
   
Common
         14,815       
Conversion of Pref Stock
ONE EAST PARTNERS MASTER LP
           
9/23/13
   
Common
         13,334       
Conversion of Pref Stock
ONE EAST PARTNERS OPPJRTUNITY LP
           
9/23/13
   
Common
         7,408       
Conversion of Pref Stock
ONE EAST PARTNERS MASTER LP
           
9/27/13
   
Common
         13,334       
Conversion of Pref Stock
ONE EAST PARTNERS OPPORTUNITY LP
           
2/27/13
   
Common
         7,403       
Conversion of Pref Stock
JASON J S BARTON
           
10/3/13
   
Common
         756        
Consulting Services
OSCAR BRONSTHER
           
10/3/13
   
Common
         2,419       
Board Fees
STEVEN GIRGENTI
           
10/3/13
   
Common
         2,419       
Board Fees
JOSE ROMANO
           
10/3/13
   
Common
         756        
Consulting Services
LOWELL RUSH
           
10/3/13
   
Common
         1,814       
Board Fees
EDWARD KIMMELMAN
           
10/18/13
   
Common
         15,189       
Conversion of Pref Stock
 

15



Name of Purchaser


  
Issue Date
  
Security
  
Shares
  
Consideration
ALVARO PASCUAL-LEONE, M.D.
           
11/1/13
   
Common
         744        
Consulting Services
JOSEF ZIHL
           
11/1/13
   
Common
         1,488       
Consulting Services
ONE EAST PARTNERS OPPORTUNITIES LP
           
11/18/13
   
Common
         5,186       
Conversion of Pref Stock
ONE EAST PARTNERS OPPORTUNITIES LP
           
12/5/13
   
Common
         11,852       
Conversion of Pref Stock
THE DEL MAR CONSULTING GROUP INC
           
12/9/13
   
Common
         33,000       
Consulting Services
ALEX PARTNERS LLC
           
12/9/13
   
Common
         27,000       
Consulting Services
JASON J S BARTON
           
1/2/14
   
Common
         717        
Consulting Services
OSCAR BRONSTHER
           
1/2/14
   
Common
         2,294       
Board Fees
STEVEN GIRGENTI
           
1/2/14
   
Common
         2,294       
Board Fees
JOSE ROMANO
           
1/2/14
   
Common
         717        
Consulting Services
LOWELL RUSH
           
1/2/14
   
Common
         1,720       
Board Fees
MARK ABRAMS
           
1/3/14
   
Common
         83,334       
$150,000
THEODORE SISLEY JR
           
1/3/14
   
Common
         11,112       
$20,000
BOB BRIDGES
           
1/3/14
   
Common
         13,889       
$25,000
MARIO DELL’AERA
           
1/3/14
   
Common
         83,334       
$150,000
FOUNTAINHEAD CAPITAL MANAGEMENT LTD
           
1/3/14
   
Common
         792,523       
Debt Conversion
NICHOLAS P GIORDANO
           
1/3/14
   
Common
         33,334       
$60,000
DALE E HERBRANSON
           
1/3/14
   
Common
         11,112       
$20,000
PAUL IACOBELLO & GINA IACOBELLO JT TEN
           
1/3/14
   
Common
         11,112       
$20,000
WILLIAM MATHIAS
           
1/3/14
   
Common
         13,889       
$25,000
MICK MCLOUGHLIN
           
1/3/14
   
Common
         111,112       
$200,000
LOBERT MORONEY & CAROLE R MORONEY JTTN
           
1/3/14
   
Common
         13,889       
$25,000
RBC CAPITAL MARKETS CORP FBO MICHAEL BEHAR ROTH IRA
           
1/3/14
   
Common
         40,000       
$72,000
RBC CAPITAL MARKETS LLC CUST FB0 DENNIS ABRAMS IRA
           
1/3/14
   
Common
         22,223       
$40,000
RBC CAPITAL MARKETS LLC CUST FB0 FRANCIS ALTIERI IRA
           
1/3/14
   
Common
         10,000       
$18,000
RBC CAPITAL MARKETS LLC FB0 STEVEN JENKINS IRA
           
1/3/14
   
Common
         19,445       
$35,000
RBC CAPITAL MARKETS LLC FBO KENNETH W PILEGGI IRA
           
1/3/14
   
Common
         8,000       
$14,400
RBC CAPITAL MARKETS LLC FBO DENNIS ABBOTT IRA
           
1/3/14
   
Common
         13,889       
$25,000
DONALD J RICHARDS
           
1/3/14
   
Common
         50,000       
$90,000
DUNCAN SCOTT
           
1/3/14
   
Common
         16,667       
$30,000
 

16



Name of Purchaser


  
Issue Date
  
Security
  
Shares
  
Consideration
GLENN RICHARD SKUTT & LESLEY HOWARD JT TEN
           
1/3/14
   
Common
         13,889       
$25,000
HIDEO TAKADA
           
1/3/14
   
Common
         100,000       
$180,000
HOWARD TEICHER
           
1/3/14
   
Common
         4,167       
$7,500
TIMOTHY H SHEAR DEC OF TRUST DTD 1974
           
1/3/14
   
Common
         8,334       
$15,000
STEVEN WALLITT
           
1/3/14
   
Common
         16,667       
$30,000
THE DEL MAR CONSULTING GROUP INC
           
1/15/14
   
Common
         6,000       
Consulting Services
ALEX PARTNERS LLC
           
1/15/14
   
Common
         4,000       
Consulting Services
ALVARO PASCUAL-LEONE, M.D.
           
2/3/14
   
Common
         710        
Consulting Services
JOSEF ZIHL
           
2/3/14
   
Common
         1,420       
Consulting Services
STEVEN R ANTICO
           
2/4/14
   
Common
         13,889       
$25,000
ALAN ANTOKAL
           
2/4/14
   
Common
         55,556       
$100,000
THE APREGAN FAMILY TRUST DTD 2/11/98
           
2/4/14
   
Common
         27,778       
$50,000
PETER BACKUS
           
2/4/14
   
Common
         72,223       
$130,000
MICHAEL G CADWELL
           
2/4/14
   
Common
         41,667       
$75,000
RICHARD A CLOYD
           
2/4/14
   
Common
         30,000       
$54,000
JASON COHEN
           
2/4/14
   
Common
         63,334       
$114,000
CHAD CRITCHLEY
           
2/4/14
   
Common
         27,778       
$50,000
SCOTT CUNNINGHAM
           
2/4/14
   
Common
         16,667       
$30,000
DONALD P FARE
           
2/4/14
   
Common
         27,778       
$50,000
STEPHAN FORSTMANN
           
2/4/14
   
Common
         11,112       
$20,000
CHRIS HAYDEN
           
2/4/14
   
Common
         22,223       
$40,000
ALISTAIR ERIC MACCALLUM LABAND
           
2/4/14
   
Common
         55,556       
$100,000
STEVEN L LEW
           
2/4/14
   
Common
         3,889       
$7,000
JAMES P LITTLE
           
2/4/14
   
Common
         22,223       
$40,000
RAYLAN LOGGINS
           
2/4/14
   
Common
         16,667       
$30,000
MICHAEL LOTZE
           
2/4/14
   
Common
         70,000       
$126,000
ULRICH OTTO
           
2/4/14
   
Common
         41,667       
$75,000
RBC CAPITAL MARKETS CORP FBO SUSAN A IZARD IRA
           
2/4/14
   
Common
         13,889       
$25,000
DAVID RUSH
           
2/4/14
   
Common
         111,112       
$200,000
DUNCAN SCOTT
           
2/4/14
   
Common
         27,778       
$50,000
WILLIAM C SLATER
           
2/4/14
   
Common
         5,556       
$10,000
TIMOTHY A SHEAR DEC OF TRUST DTD 1 6 1974
           
2/4/14
   
Common
         14,000       
$25,200
SALMAN WAKIL
           
2/4/14
   
Common
         40,000       
$72,000
HUGO WERE
           
2/4/14
   
Common
         83,334       
$150,000
 

17



Name of Purchaser


  
Issue Date
  
Security
  
Shares
  
Consideration
ORVILLE A WHITE
           
2/4/14
   
Common
         55,556       
$100,000
FRASER CAMPBELL
           
2/25/14
   
Common
         2,963       
Exchange for Pref Stock
HUGH SCOTT CAMPBELL
           
2/25/14
   
Common
         2,963       
Exchange for Pref Stock
THOMAS VARGA TTEE THE PRAG CHILDREN’S TRUST FBO ANDREW J PRAG
           
2/25/14
   
Common
         8,149       
Exchange for Pref Stock
THOMAS VARGA TTEE THE PRAG CHILDREN’S TRUST FBO ROBERT B. PRAG
           
2/25/14
   
Common
         8,149       
Exchange for Pref Stock
GURI DAUTI
           
2/25/14
   
Common
         14815        
Exchange for Pref Stock
RICHARD HOFFMAN
           
2/25/14
   
Common
         6,667       
Exchange for Pref Stock
NADEJDA KASSATKINA
           
2/25/14
   
Common
         29,630       
Exchange for Pref Stock
APEX TECHNOLOGY VENTURES LLC
           
2/25/14
   
Common
         14,815       
Exchange for Pref Stock
JSL KIDS PARTNERS
           
2/25/14
   
Common
         38,519       
Exchange for Pref Stock
IRINA PAVLOVA
           
2/25/14
   
Common
         14,315       
Exchange for Pref Stock
ROBERT B PRAG
           
2/25/14
   
Common
         23,705       
Exchange for Pref Stock
RBC CAPITAL MARKETS FBO JANE ELLIS
           
2/25/14
   
Common
         27,630       
Exchange for Pref Stock
BORIS SMIRNOV & ALEXANDRA I SMIRNOV JT TEN
           
2/25/14
   
Common
         29,630       
Exchange for Pref Stock
RBC CAPITAL MARKETS CORP FBO MICHAEL BEHAR ROTH IRA
           
3/3/14
   
Common
         15,000       
Exchange for Pref Stock
FRASER CAMPBELL
           
3/6/14
   
Common
         2,593       
Exchange for Pref Stock
HUGH SCOTT CAMPBELL
           
3/6/14
   
Common
         2,593       
Exchange for Pref Stock
THOMAS VARGA TTEE THE PRAG CHILDREN’S TRUST FBO ANDREW J PRAG
           
3/6/14
   
Common
         7,129       
Exchange for Pref Stock
THOMAS VARGA TTEE THE PRAG CHILDREN’S TRUST FBO ROBERT B. PRAG JR
           
3/6/14
   
Common
         7,129       
Exchange for Pref Stock
GURI DAUTI
           
3/6/14
   
Common
         12,963       
Exchange for Pref Stock
RICHARD HOFFMAN
           
3/6/14
   
Common
         5,833       
Exchange for Pref Stock
NADEJDA KASSATKINA
           
3/6/14
   
Common
         25,926       
Exchange for Pref Stock
APEX TECHNOLOGY VENTUERES LLC
           
3/6/14
   
Common
         12,963       
Exchange for Pref Stock
JSL KIDS PARTNERS
           
3/6/14
   
Common
         33,704       
Exchange for Pref Stock
IRINA PAVLOVA
           
3/6/14
   
Common
         12,963       
Exchange for Pref Stock
ROBERT B PRAG
           
3/6/14
   
Common
         20,740       
Exchange for Pref Stock
RBC CAPITAL MARKETS FBO JANE ELLIS
           
3/6/14
   
Common
         25,926       
Exchange for Pref Stock
BORIS SMIRNOV & ALEXANDRA I SMIRNOV JT TEN
           
3/6/14
   
Common
         25,926       
Exchange for Pref Stock
GARDEN STATE SECURITIES
           
3/11/14
   
Common
         30,000       
Consulting services
ALTSHULER, HOWARD
           
3/31/14
   
Common
         13,889       
$25,000
RBC CAPITAL MARKETS FBO MICHAEL A BOULUS IRA
           
3/31/14
   
Common
         27,778       
$50,000
BRICKLEY, ROBERT
           
3/31/14
   
Common
         8,334       
$15,000
DIBENEDETTO, ROBERT D.
           
3/31/14
   
Common
         5,556       
$10,000
FOGLE, RICHARD
           
3/31/14
   
Common
         13,889       
$25,000
KASPER, MARK
           
3/31/14
   
Common
         27,778       
$50,000
MACKENZIE, KEVIN M.
           
3/31/14
   
Common
         27,778       
$50,000
NESLAND, BRETT
           
3/31/14
   
Common
         15,000       
$27,000
REY 1998 FAMILY TRUST
           
3/31/14
   
Common
         55,556       
$100,000
GLENN RICHARD SKUTT & LESLIE HOWARD
           
3/31/14
   
Common
         13,889       
$25,000
STEVEN JENKINS IRA RBC CAPITAL MARKETS CORP.
           
3/31/14
   
Common
         13,889       
$25,000
SWEENEY, DAVID
           
3/31/14
   
Common
         2,800       
$5,040
TRAFFORD, JOHN
           
3/31/14
   
Common
         41,667       
$75,000
UFHEIL, DAVID A.
           
3/31/14
   
Common
         27,778       
$50,000
BACKUS, PETER
           
3/31/14
   
Common
         27,778       
$50,000
SIMON, MICHAEL & MARY
           
3/31/14
   
Common
         27,778       
$50,000
BOLTZ, WILLLIAM
           
3/31/14
   
Common
         41,667       
$75,000
SEDBERRY, ERICA PITMAN
           
3/31/14
   
Common
         41,667       
$75,000
APGAR, CHRISTOPHER
           
3/31/14
   
Common
         41,667       
$75,000
SHANKARA, SRINIVAS
           
3/31/14
   
Common
         11,112       
$20,000
SCHEUER, RICORDON & SILVIA SUEREZ
           
3/31/14
   
Common
         75,000       
$135,000
JASON J S BARTON
           
3/31/14
   
Common
         694        
Consulting Services
JOSE ROMANO
           
3/31/14
   
Common
         694        
Consulting Services
OSCAR BRONSTHER
           
3/31/14
   
Common
         2,222       
Board Fees
LOWELL RUSH
           
3/31/14
   
Common
         2,222       
Board Fees
FOUNTAINHEAD CAPITAL MANAGEMENT LIMITED
           
3/31/14
   
Common
         6,276       
Consulting Services
J AND M GROUP LLC
           
3/31/14
   
Common
         2,500       
Consulting Services
STEVEN GIRGENTI
           
1/4/14
   
Common
         2,222       
Board Fees
 

The securities issued in the above mentioned transactions were issued in connection with private placements exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act and Rule 506 of Regulation D.

18



ITEM 6. SELECTED FINANCIAL DATA

        12/31/13
    12/31/12
    12/31/11
Revenues
              $ 1,089,374          $ 1,205,263          $ 971,367   
Net comprehensive loss
              $ (2,444,491 )         $ (2,926,210 )         $ (4,778,541 )  
Net comprehensive loss per share
              $ (0.39 )         $ (0.52 )         $ (0.92 )  
Weighted average no. shares
                 6,324,175             5,637,690             5,200,645   
Stockholders’ equity (deficit)
              $ (3,315,243 )         $ (1,457,650 )         $ 875,324   
Total assets
              $ 2,115,250          $ 2,561,161          $ 3,571,640   
Total liabilities
              $ 5,430,493          $ 4,018,810          $ 2,696,316   
 

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 consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.

Cash and cash equivalents

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up to 105% of the account balance. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Included within cash are deposits paid by patients, held by the Company until the patient returns the VRT device at the end of therapy. At December 31, 2013 and 2012 patient deposits amounted to $25,467 and $35,000, respectively, and are reserved against in Other Current Liabilities.

Fixed assets

The Company records fixed assets at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and seven years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized

19



Income taxes

The Company accounts for income taxes in accordance with the current authoritative guidance. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when it is more likely than not that such benefit will not be realized.

Patents and Other Intangible Assets

The Company capitalizes legal and related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The capitalized costs are amortized over the life of the patent. The Company reviews intangible assets on an annual in accordance with the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative guidance.

Software Development Costs

The authoritative accounting guidance requires software development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line method of the estimated life of five years.

Revenue Recognition

Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.

NovaVision generates revenues from various programs, therapy services and other sources such as license sales. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Company’s work effort is expended. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average over 6 months in the U.S. and U.K. and 10 months in Germany. A patient contract comprises set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a specified time frame.

Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.

Accounts Receivable

The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to exceed the 9 or 10 month therapy period. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customer’s ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.

20



Inventory

Inventories are comprised of Vycor Medical VBAS devices, components ancillary to NovaVision’s medical device provided to patients and centers and diagnostic products, and are stated at the lower of cost or market, determined under the first-in, first-out method. The inventory is charged to cost of revenue at the time that a device is shipped to a customer or patient.

Foreign Currency

The Euro is the local currency of the country in which NovaVision GmbH conducts its operations and is considered the functional currency of this entity; the GB Pound is the local currency of the country in which Sight Science Limited conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated as part of the accumulated other comprehensive income (loss) and included in shareholders’ (deficit) in the accompanying Consolidated Balance Sheet.

Educational marketing and advertising expenses

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

RESULTS OF OPERATIONS

Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012

Revenue and Gross Margin:

        2013
    2012
    %
Change
Revenue:
                                                    
Vycor Medical
              $ 724,367          $ 770,676             (6 )%  
NovaVision
              $ 365,007          $ 434,587             (16 )%  
 
              $ 1,089,374          $ 1,205,263             (10 )%  
Cost of Revenue:
                                                    
Vycor Medical
              $ (95,528 )         $ (101,947 )            (6 )%  
NovaVision
              $ (58,304 )         $ (77,583 )            (25 )%  
 
              $ (153,832 )         $ (179,530 )            (14 )%  
Gross Profit
                                                    
Vycor Medical
              $ 628,839          $ 668,729             (6 )%  
NovaVision
              $ 306,703          $ 357,004             (14 )%  
 
              $ 935,542          $ 1,025,733             (9 )%  
 

21



Vycor Medical recorded revenue of $724,367 from the sale of its products for the year ended December 31, 2013, a decrease of $46,309 from 2012. Management believes that a decline in sales during February 2013 may have partially been the result of the posting by the FDA in late January 2013 of a Class 1 classification to the recall which the Company had completed in November 2012, and which created some short-term customer instability. Notwithstanding, for the period commencing March 1, 2013 and continuing through December 2013, Vycor Medical’s sales returned to pre-February 2013 levels. Gross margin of 87% was achieved in 2013 and 2012.

NovaVision recorded revenues of $365,007 for the year ended December 31, 2013, a decrease of $69,580 from 2012, and gross margin of 84%, compared to 82% for 2012. $10,730 of the revenue decrease was due to the sale of HMP-200 units in 2012, a legacy pre-acquisition product; NovaVision has ceased sales of this unit pending further development. NovaVision’s therapy suite has been undergoing significant development to: substantially reduce costs of delivery; as a result drive down the price of VRT therapy to make it affordable; streamline business processes to make the therapy scalable; add a new saccadic program to broaden the range of benefits to patients from the therapy suite. As a result the Company is not intensively marketing its existing VRT program model and this, together with NovaVision’s intense focus on development particularly in the second half of 2013, impacted revenues.

Research and Development Expense:

Research and development expenses were $53,451 in 2013 compared to $126,042 for 2012. The expense reduction partly reflects the capitalization of costs related to NeuroEyeCoach once it passed commercial feasibility.

General and Administrative Expenses:

General and administrative expenses decreased by $599,963 to $2,813,041 in 2013 from $3,413,004 in 2012. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for 2013 was $450,447, an increase of $153,443 over $297,004 in 2012. Also included within General and Administrative Expenses are Sales Commissions, which increased by $15,849 to $90,552 reflecting higher levels of sales.

The remaining General and Administrative decrease of $769,255 reflects: reduced investor relations, public relations and related costs, including video production ($100,239); reduced scientific advisory costs, in part due to capitalization costs related to NeuroEyeCoach once it passed commercial feasibility ($96,529); reduced professional and consulting fees ($32,848); reduced legal costs including patent ($25,753); reduced premises costs ($71,363); reduced payroll costs ($382,071); reduced sales, marketing and travel costs ($65,741); and increased other costs ($5,289). The reduced payroll cost is as a result of the outsourcing of software development activities, the reassignment of executive responsibilities and general rationalization and staffing efficiency improvements.

Interest Expense:

Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for 2013 increased by $44,132 to $131,400 from $87,268 for 2012. Other Interest expense for 2013 increased by $9,234 to $59,897 from $50,663 for 2012.

22



Liquidity and Capital Resources

Liquidity

The following table shows cash flow and liquidity data for the periods ended December 31, 2013 and December 31, 2012:

        December 31,
2013
    December 31,
2012
    $ Change
Cash
              $ 31,303          $ 59,821          $ (28,518 )  
Accounts receivable, inventory and other current assets
              $ 627,649          $ 863,957          $ (236,308 )  
Total current liabilities
              $ (5,430,493 )         $ (4,018,810 )         $ (1,411,684 )  
Working capital (deficit)
              $ (4,771,541 )         $ (3,095,032 )         $ (1,676,510 )  
Cash provided by financing activities
              $ 1,089,071          $ 728,368          $   
 

As of December 31, 2013 we had $31,303 cash, a working capital deficit of $4,771,541 and an accumulated deficit of $17,032,405. The Stockholders’ deficit at December 31, 2013 was $3,315,243, compared to a deficit of $1,457,649 at December 31, 2012, a change of $1,857,594. Debt at December 31, 2013 was $2,951,742 compared to $2,195,502 at December 31, 2012.

In January to March 2014 the Company completed the four separate closings (the “Closings”) of the sale of $4,010,140 in Units (the “Units”) comprising shares of common stock (“Common Stock”) and Series A and Series B Warrants (collectively, the “Warrants”) to accredited investors (the “Investors”) in a continuing offering (the “Offering”) which allows for maximum proceeds of $5,000,000. These Closings raised net proceeds, after expenses, of $3,638,651. At the same time Fountainhead Capital Management Limited (“Fountainhead”) converted a total of $1,426,542 of accrued consulting fees into an investment in Units under the Initial Closing. Management has evaluated the effects on the Company’s financial condition following the closings and the conversion of accrued fees in 2014 and is of the opinion that any potential going concern uncertainty that previously existed has been remediated.

Off-Balance Sheet Arrangements

As of December 31, 2013, we had no off-balance sheet arrangements.

Seasonality

Our operating results are not affected by seasonality.

23



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. See “Uses of estimates in the preparation of financial statements” above.

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.

24





 

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

Board of Directors
Vycor Medical Inc. and Subsidiaries
Boca Raton, Florida

We have audited the accompanying consolidated balance sheets of Vycor Medical Inc. and Subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vycor Medical Inc. and Subsidiaries as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Hackensack, New Jersey
April 7, 2014

25



VYCOR MEDICAL, INC.
Consolidated Balance Sheets

        December 31,
2013
    December 31,
2012
ASSETS
                                     
 
Current Assets
                                     
Cash
              $ 31,303          $ 59,821   
Trade accounts receivable, net of allowance for doubtful accounts of $6,474 and $2,754
                 212,660             144,347   
Inventory
                 206,926             290,508   
Prepaid expenses and other current assets
                 208,063             429,102   
Total Current Assets
                 658,952             923,778   
 
Fixed assets, net
                 706,197             827,389   
 
Intangible and Other assets:
                                     
Trademarks
                 251,157             251,157   
Patents, net of accumulated amortization
                 444,095             502,895   
Website, net of accumulated amortization
                 1,680             2,772   
Security deposits
                 53,169             53,169   
Total Intangible and Other assets
                 750,101             809,993   
 
TOTAL ASSETS
              $ 2,115,250          $ 2,561,160   
 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
                                     
 
Current Liabilities
                                     
Accounts payable
              $ 254,024          $ 187,789   
Accrued interest: Related Party
                 238,299             107,176   
Accrued interest: Other
                 147,984             87,962   
Accrued liabilities
                 1,776,867             1,198,463   
Other current liabilities
                 61,576             241,918   
Notes payable: Related Party
                 2,373,556             1,732,812   
Notes payable: Other
                 578,186             462,690   
 
TOTAL CURRENT AND TOTAL LIABILITIES
                 5,430,492             4,018,810   
 
STOCKHOLDERS’ DEFICIENCY
                                       
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 16.2 and 39.3 issued and outstanding as at December 31, 2013 and 2012 respectively
              $ 1           $ 1    
Common Stock, $0.0001 par value, 25,000,000 shares authorized at December 31, 2013 and 2012, 6,757,225 and 6,020,555 shares issued and outstanding at December 31, 2013 and 2012 respectively
                 675              602    
Additional Paid-in Capital
                 13,762,689             13,141,489   
Treasury Stock (103,334 and 68,889 shares of Common Stock as at December 31, 2013 and 2012 respectively, at cost)
                 (1,033 )            (1,033 )  
Accumulated Deficit
                 (17,032,405 )            (14,587,914 )  
Accumulated Other Comprehensive Income
                 (45,170 )            (10,795 )  
Total Stockholders’ Deficiency
                 (3,315,243 )            (1,457,650 )  
 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
              $ 2,115,250          $ 2,561,160   
 

See accompanying notes to financial statements.

F-1



VYCOR MEDICAL, INC.
Consolidated Statement of Comprehensive Loss

        For the year ended
December 31,
   
        2013
    2012
Revenue
              $ 1,089,374          $ 1,205,263   
Cost of Goods Sold
                 153,832             179,530   
Gross Profit
                 935,542             1,025,733   
 
Operating expenses:
                                     
Research and development
                 53,451             126,042   
Depreciation and Amortization
                 350,526             328,890   
General and administrative
                 2,813,041             3,413,004   
Negative Goodwill on Acquisition of Subsidiary
                              (66,394 )  
Costs related to Acquisition of Subsidiary
                              18,285   
Total Operating expenses
                 3,217,018             3,819,827   
 
Operating loss
                 (2,281,476 )            (2,794,094 )  
 
Other income (expense)
                                     
Other income (expense)
                              719    
Interest expense: Related Party
                 (131,400 )            (87,268 )  
Interest expense: Other
                 (59,897 )            (50,663 )  
Total Other Income (expense)
                 (191,297 )            (137,212 )  
 
Net Loss
              $ (2,472,773 )         $ (2,931,306 )  
 
Comprehensive Income
                                     
Foreign Currency Translation Adjustment
                 28,282             5,096   
Net Comprehensive Loss
              $ (2,444,491 )         $ (2,926,210 )  
 
Comprehensive Loss Per Share
                                     
Basic and diluted
              $ (0.39 )         $ (0.52 )  
 
Weighted Average Number of Shares Outstanding
                 6,324,175             5,637,690   
 

See accompanying notes to financial statements.

F-2



VYCOR MEDICAL, INC.
Statement of Stockholders’ Equity (Deficiency)

        Common Shares
        Treasury Shares
                   
        Number
    Amount
    Preferred
Stock -
Series C
    Number
    Amount
    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
OCI (Loss)
    Total
Balance at January 1, 2012
                 5,381,358          $ 538          $ 1             0          $ 0             12,512,297             (11,661,704 )            24,192          $ 875,324   
Issuance of stock for board and consulting fees
                 267,969             27                                                           379,354                                           379,381   
Share-based compensation for consulting services
                                                                                            8,708                                           8,708   
Cancellation of share-based compensation
                                                                                            (232,499 )                                          (232,499   
Purchases of equity — Common stock
                 50,372             5                                                           169,995                                           170,000   
Settlement — Common Stock
                 (137,778 )            (14 )                                                         14                                            0    
Repurchase of equity into Treasury Stock
                                                              (68,889 )            (1,033 )                                                         (1,033   
Common stock issuance for conversion of preferred shares
                 348,152             35                                                           (35 )                                          0    
Common stock issuance for charitable donation
                 14,815             1                                                           16,665                                           16,666   
Issuance of stock for acquisition
                 95,667             10                                                           286,990                                           287,000   
Accumulated Comprehensive Loss
                                                                                                                          (34,987 )            (34,987 )  
Net comprehensive loss for twelve months ended December 31, 2012
                                                                                                        $ (2,926,210 )                           (2,926,210 )  
Balance at December 31, 2012
                 6,020,555          $ 602          $ 1             (68,889 )         $ (1,033 )         $ 13,141,489          $ (14,587,914 )         $ (10,795 )         $ (1,457,650 )  
Issuance of stock for board and consulting fees
                 136,449             13                                                           288,424                                           288,437   
Return of equity into Treasury Stock
                                                              (34,445 )                                                                             
Common stock issuance for conversion of preferred shares
                 342,974             34                                                           (34 )                                          0    
Common stock issuance for warrant exercises
                 257,181             26                                                           332,810                                           332,836   
Common stock issuance for split round-up
                 66                                                                                                                            
Accumulated Comprehensive Loss
                                                                                                                          (34,375 )            (34,375 )  
Net comprehensive loss for twelve months ended December 31, 2013
                                                                                                        $ (2,444,491 )                           (2,444,491 )  
Balance at December 31, 2013
                 6,757,225          $ 675          $ 1             (103,334 )         $ (1,033 )         $ 13,762,689          $ (17,032,405 )         $ (45,170 )         $ (3,315,243 )  
 

See accompanying notes to financial statements.

F-3



VYCOR MEDICAL, INC.
Statement of Cash Flows

        For the year ended
December 31,
   
        2013
    2012
Cash flows from operating activities:
                                     
Net loss
              $ (2,444,491 )         $ (2,926,210 )  
Adjustments to reconcile net loss to cash used in operating activities:
                                     
Amortization of intangible assets
                 127,316             104,344   
Depreciation of fixed assets
                 248,877             247,156   
Inventory provision
                 35,000                
Share based compensation
                 450,447             297,004   
Change in accrued interest: Related Party
                 131,401             87,268   
Change in accrued interest: Other
                 59,745             50,877   
 
Changes in assets and liabilities:
                                       
Accounts receivable
                 (67,868 )            169,729   
Inventory
                 48,651             (106,396 )  
Prepaid expenses
                 60,256             256,095   
Security deposit
                              3,100   
Accounts payable
                 65,820             11,477   
Accrued liabilities
                 574,757             431,700   
Other current liabilities
                 (20,054 )            2,926   
Cash used in operating activities
                 (730,143 )            (1,370,930 )  
 
Cash flows used in investing activities:
                                     
Purchase of fixed assets
                 (128,054 )            (28,177 )  
Purchase of website
                                   
Acquisition of subsidiary, net of cash acquired
                 (163,201 )            (153,641 )  
Acquisition of patents
                 (66,752 )            (33,333 )  
Cash used in investing activities
                 (358,007 )            (215,151 )  
 
Cash flows from financing activities:
                                     
Net proceeds from issuance of Common stock
                 332,832             170.000   
Purchase of Treasury Stock
                              (1,033 )  
Net proceeds from issuance of Notes Payable: Related Party
                 640,744             416,450   
Net proceeds from issuance of Notes Payable: Other
                 187,043             194,144   
Repayment of Notes Payable: Other
                 (71,548 )            (51,193 )  
Cash provided by (used in) financing activities
                 1,089,071             728,368   
Effect of exchange rate changes on cash
                 (29,439 )            (33,307 )  
Net decrease in cash
                 (28,518 )            (891,020 )  
Cash at beginning of year
                 59,821             950,841   
Cash at end of year
              $ 31,303          $ 59,821   
Supplemental Disclosures of Cash Flow information:
                                     
Interest paid:
              $ 156           $ 207    
Non-Cash Transactions:
                                     
Common Stock issued on conversion of Preferred C Shares
              $ 1,157,500          $ 1,175,000   
 
Acquisition of newly acquired subsidiary, net of cash
                                     
Trademarks and Tradenames
                           $ 121,157   
Patents
                              180,183   
Internally Developed Software
                              363,472   
Other Net Assets
                              (758 )  
Negative Goodwill on Acquisition
                              (66,394 )  
 
                           $ 597,660   
Warrants, options and common stock issued for acquisition of subsidiary
                              (287,000 )  
Deferred consideration payable
                 161,530             (161,530 )  
Foreign exchange difference on deferred consideration
                 1,671             4,511   
 
              $ 163,201          $ 153,641   
 

See accompanying notes to financial statements.

F-4



1. FORMATION AND BUSINESS OF THE COMPANY

Business Description

Vycor Medical, LLC was formed on June 17, 2005 as a New York Limited Liability Company. The Company changed its name to Vycor Medical, Inc. and converted to a Delaware Corporation on August 14, 2007 and issued 16,048 shares of common stock in exchange for each of the 1,122 partnership units outstanding at date of conversion. The assets, liabilities and operations of the Company did not change pursuant to this reorganization, and the accompanying financial statements are presented as if the change occurred on the first day of the earliest period presented. Accordingly, all references to number of shares prior to the date of conversion are based upon the common stock equivalent of the partnership units outstanding on such dates.

The Company designs, develops and markets neurological medical devices and therapies through two operating divisions: Vycor Medical and NovaVision. Vycor Medical focuses on brain and cervical surgical access systems for sale to hospitals and medical professionals; NovaVision focuses on neuro-stimulation therapies and diagnostic devices for the treatment and screening of vision field loss resulting from neurological damage.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and basis of presentation

The consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation), NovaVision GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision, Inc. NovaVision GmbH was converted from an AG on July 4, 2012. The Company is headquartered in Boca Raton, FL. The operations of Sight Science have been consolidated since January 4, 2012 the date of the completion of the acquisition of all the shares of Sight Science. All material inter-company accounts, transactions, and profits have been eliminated in consolidation. Certain reclassifications and format changes have been made to prior year amounts to conform to the correct year presentation.

Revenue Recognition

Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.

NovaVision generates revenues from various programs, therapy services and other sources such as license sales. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, diagnostic software, medical devices, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision recognizes revenue for providing the vision restoration therapy as the Company’s work effort is expended. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average over 6 months in the U.S. and U.K. and 10 months in Germany. A patient contract comprises set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a specified time frame. Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.

Accounts Receivable and Allowance for Doubtful Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.

Inventories

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s consolidated statements of operations.

F-5



Fixed assets

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

Impairment of long-lived assets

Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

Research and Development

The Company expenses all research and development costs as incurred. For the years ended December 31, 2013 and 2012, the amounts charged to research and development expenses were $53,451 and $126,042, respectively.

Software Development Costs

The authoritative accounting guidance requires software development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line method of the estimated life of five years. The Company acquired internally developed software valued at $540,000 as part of the acquisition of the assets of NovaVision, Inc. on November 30, 2010 and $363,472 as part of the acquisition of the assets of Sight Science Limited on January 4, 2012. During the year ended December 31, 2013 the Company’s NeuroEyeCoach program completed the preliminary project stage, following which there was a capitalization of $97,643 of software development costs.

Uses of estimates in the preparation of financial statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrants included in the determination of debt discounts and share based compensation.

Stock Compensation

The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance.

F-6



Convertible Instruments

We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The embedded conversion option in connection with our convertible debt could not be exercised unless and until we completed a Qualifying Financing transaction. Accordingly, we determined based on authoritative guidance that the embedded conversion option is deemed to be a contingent conversion rather than active conversion option that did not require accounting recognition at the commitment dates of the issuances of the Notes.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Fair Value Measurements

We adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

  Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

F-7



Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock and convertible debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. No dilution adjustment has been made to the weighted average outstanding common shares in the periods presented because the assumed exercise of outstanding options and warrants and the conversion of preferred stock and debt would be anti-dilutive.

The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share:

        December 31,
2013
    December 31,
2012
Stock options outstanding
                 5,557             5,557   
Warrants to purchase common stock
                 1,404,599             1,749,874   
Debentures convertible into common stock
                 441,768             368,726   
Preferred shares convertible into common stock
                 239,265             582,233   
Total
                 2,091,189             2,706,390   
 

Recent Accounting Pronouncements

From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

3. NOTES PAYABLE

Related Party Notes Payable

As of December 31, 2013 and December 31, 2012 Related Party Notes Payable consists of:

        December 31,
2013
    December 31,
2012
On December 29, 2009 and February 3, 2010, the Company issued convertible debentures in the amount of $371,362 and $70,000, respectively, payable to Fountainhead Capital Management (“Fountainhead”), the beneficial owner of more than 50% of the Company’s common stock. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to 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 debentures then outstanding into shares of common stock of the Company at the conversion price of $1.88 per share, subject to adjustment and does not require bifurcation. These debentures were originally due August 31, 2010 and the due date has been extended over time to December 31, 2013 (On January 2, 2014 the holder agreed to remove the security interest and extend the note to January 2, 2017, subject to certain conditions).
                 441,362             441,362   
 

F-8



        December 31,
2013
    December 31,
2012
On September 30, 2010 and October 14, 2010, the Company issued convertible debentures payable to Fountainhead in the amount of $85,000 and $90,000, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to 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 debentures then outstanding into shares of common stock of the Company at the conversion price of $2.63 per share, subject to adjustment and does not require bifurcation. The debentures were originally due August 31, 2011, and the due date has been extended over time to December 31, 2013. (On January 2, 2014 the holder agreed to remove the security interest and extend the note to January 2, 2017, subject to certain conditions).
                 175,000             175,000   
 
                                     
On October 26, 2010 and November 15, 2010, the Company issued debentures payable to Fountainhead in the amount of $77,500 and $322,500, respectively. These debentures accrue interest at a rate of 6% per annum, are secured by a first priority security interest in all of the assets of the Company, and are senior to or pari passu with, all other obligations of the Company, subject to certain conditions. The debentures were originally due August 31, 2011, and the due date has been extended over time to December 31, 2013. (On January 2, 2014 the holder agreed to remove the security interest and extend the note to January 2, 2017, subject to certain conditions).
                 400,000             400,000   
 
                                     
On November 15, 2010, the Company issued a convertible debenture in the amount of $350,000 payable to Peter Zachariou, a Director of the Company. This debenture accrues interest rate of 6% per annum, is 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 $2.85 per share, subject to adjustment and does not require bifurcation. On December 20, 2010, the Company repaid $50,000 of this debenture and removed the convertible rights. The debentures were originally due December 31, 2012 and the due date has been extended over time to December 31, 2013. (On January 2, 2014 the holder agreed to remove the security interest and extend the note to January 2, 2017, subject to certain conditions).
                 300,000             300,000   
 
                                     
In the period July to December 2012 the Company issued short term, unsecured notes payable to Fountainhead in the aggregate amount of $300,900. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 300,900             300,900   
 
                                     
In the period August to December 2012 the Company issued short term, unsecured notes payable to Peter Zachariou in the aggregate amount of $115,550. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 115,550             115,550   
 

F-9



        December 31,
2013
    December 31,
2012
In the period January to August 8, 2013 the Company issued short term, unsecured notes payable to Fountainhead in the aggregate amount of $324,225. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 324,225                
 
                                     
In the period August 9 to December 2013 the Company issued short term, unsecured notes payable to Fountainhead in the aggregate amount of $91,519. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (The notes were repaid in January and February 2014).
                 91,519                
 
                                     
In the period January to August 8 2013 the Company issued short term, unsecured notes payable to Peter Zachariou in the aggregate amount of $190,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 190,000                
 
                                     
In the period August 9 to December 2013 the Company issued short term, unsecured notes payable to Peter Zachariou in the aggregate amount of $20,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (The notes were repaid in February 2014).
                 20,000                
 
                                     
In the period August 9 to December 2013 the Company issued short term, unsecured notes payable to David Cantor, in the aggregate amount of $15,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (The notes were repaid in February 2014).
                 15,000                
 
                                     
Total Related Party Notes Payable:
              $ 2,373,556          $ 1,732,812   
 

Other Notes Payable

As of December 31, 2013 and 2012 Other Notes Payable consists of:

        December 31,
2013
    December 31,
2012
On March 25, 2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the Company’s common stock at an exercise price of $4.50 per share for a period of three (3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares of common stock of the Company at the conversion price of $4.50 per share, subject to adjustment and does not require bifurcation. The due date for this note has been extended over time to November 30, 2013. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2015, subject to certain conditions).
                 300,000             300,000   
 

F-10



        December 31,
2013
    December 31,
2012
In the period August to December 2012 the Company issued short term, unsecured notes payable to Craig Kirsch in the aggregate amount of $98,550. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 98,550             98,550   
 
                                     
In September 2012 the Company issued short term, unsecured notes payable to Osbaldo Trading Limited in the amount of $42,900. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 42,900             42,900   
 
                                     
In the period June to August 8 2013 the Company issued short term, unsecured notes payable to Craig Kirsch in the aggregate amount of $13,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (On January 2, 2014 the holder agreed to extend the notes to January 2, 2017, subject to certain conditions).
                 10,000                
 
                                     
In the period August 9 to December 2013 the Company issued short term, unsecured notes payable to Craig Kirsch in the aggregate amount of $13,000. The notes accrue interest at a rate of 6% per annum, are due on demand or one year after the issue date and are junior to the secured debentures and Preferred C Stock of the Company. (The notes were repaid in February 2014).
                 3,000                
 
                                     
On October 22, 2013 the Company issued a term note for $100,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and was due November 30, 2013. (The note was repaid in January 2014).
                 100,000                
 
                                     
Insurance policy finance agreements. During the year ended December 31, 2013 the Company received proceeds from Insurance policy finance agreement of $74,044 and made repayments of $71,548
                 23,736             21,240   
 
                                     
Total Other Notes Payable:
              $ 578,186          $ 462,690   
 

As of December 2013, $1,316,362 of Company’s Related Party Notes Payable were secured by a security interest in all of the assets of the Company.

In January 2014 the Company completed the Initial and Second Closings (the “Closings”) of the sale of $3,061,100 in Units (the “Units”) comprising shares of common stock (“Common Stock”) and Series A and Series B Warrants (collectively, the “Warrants”) to accredited investors (the “Investors”) in a continuing offering (the “Offering”) which allows for maximum proceeds of $5,000,000. In connection with the Closings, the Company entered into amendment agreements with the relevant note holders to: remove the security interest on the secured notes; repay certain notes; and extend the maturity of the remaining notes, all as detailed in the tables above.

The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of each of the convertible debt instruments set out above, the fair value of the stock was either the same or less than the conversion price, and so there was no value attributable to any beneficial conversion feature.

F-11



4. SEGMENT REPORTING, GEOGRAPHICAL INFORMATION

(a) Business segments

The Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses on neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss. Set out below are the revenues, gross profits and total assets for each segment.

        December 31,
   
 
                 2013              2012    
Revenue:
                                     
Vycor Medical
              $ 724,367          $ 770,676   
NovaVision
                 365,007             434,587   
Total Revenue
              $ 1,089,374          $ 1,205,263   
Gross Profit:
                                     
Vycor Medical
              $ 628,839          $ 668,729   
NovaVision
                 306,703             357,004   
Total Gross Profit
              $ 935,542          $ 1,025,733   
Total Assets:
                                     
Vycor Medical
              $ 799,120          $ 1,055,026   
NovaVision
                 1,316,130             1,506,134   
Total Assets
              $ 2,115,250          $ 2,561,160   
 

(b) Geographic information. The Company operates in two geographic segments, the United States and Europe. Set out below are the revenues, gross profits and total assets for each segment.

        December 31,
   
 
                 2013              2012    
Revenue:
                                     
United States
              $ 858,751          $ 952,256   
Europe
                 230,623             253,007   
Total Revenue
              $ 1,089,374          $ 1,205,263   
Gross Profit:
                                     
United States
              $ 732,404          $ 810,809   
Europe
                 203,138             214,924   
Total Gross Profit
              $ 935,542          $ 1,025,733   
Total Assets:
                                     
United States
              $ 1,604,142          $ 1,935,638   
Europe
                 511,108             625,522   
Total Assets
              $ 2,115,250          $ 2,561,160   
 

F-12



5. FIXED ASSETS

As of December 31, 2013 and 2012, Fixed Assets and the estimated lives used in the computation of depreciation are as follows:

        Estimated
Useful Lives
    December 31,
2013
    December 31,
2012
Machinery and equipment
           
3 years
      $ 146,344          $ 123,355   
Leasehold Improvements
           
5 years
         6,206             6,206   
Purchased Software
           
3 years
         17,833             17,833   
Molds and Tooling
           
5 years
         234,230             234,230   
Furniture and fixtures
           
7 years
         22,288             21,533   
Therapy Devices
           
3 years
         87,906             76,513   
Internally Developed Software
           
5 years
         1,021,681             923,215   
 
           
 
         1,536,488             1,402,885   
Less: Accumulated depreciation and amortization
           
 
         (830,291 )            (575,496 )  
Property and Equipment, net
           
 
      $ 706,197          $ 827,389   
 

Depreciation expense for the years ended December 31, 2013 and 2012 was $248,877 and $247,155 respectively, including $25,667 and $22,610 respectively for Therapy Devices which is allocated to Cost of Sales.

6. INTANGIBLE ASSETS

As of December 31, 2013 and 2012, Intangible Assets consists of:

        December 31,
   
        2012
    2011
Amortized intangible assets: Patent (8 years useful life)
                                     
Gross carrying Amount
              $ 772,414          $ 705,662   
Accumulated Amortization
                 (328,319 )            (202,767 )  
 
              $ 444,095          $ 502,895   
Amortized intangible assets: Website (5 years useful life)
                                     
Gross carrying Amount
              $ 18,908          $ 18,908   
Accumulated Amortization
              $ (17,228 )            (16,136 )  
 
              $ 1,680          $ 2,772   
Intangible assets not subject to amortization
                                     
Trademarks
              $ 251,157          $ 251,157   
 

Intangible asset amortization expense for the periods ended December 31, 2013 and 2012 was $127,316 and $104,344, respectively.

F-13



7. EQUITY

Certain Equity Transactions

On January 4, 2012, an aggregate of 95,667 restricted shares of the Company were issued to Prof. Sahraie and the University of Aberdeen, relating to the acquisition of all of the shares of Sight Science, Ltd. (“Sight Science”) by NovaVision.

During the period from January 1, 2012 through December 31, 2012, the Company issued 5,928 shares of Common Stock (valued at $20,000) to each of Steven Girgenti and Dr Oscar Bronsther in consideration for services provided to the Board of Directors, 3,704 shares of Common Stock (valued at $12,500) to each of Alvaro Pasual-Leone, Jason Barton and Jose Romano, and 2,778 shares of Common Stock (valued at $9,375) to Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

In April 2012 the Company issued 8,889 shares of Common Stock (valued at $30,000) to Brunella Jacs, LLC in respect of consultancy services provided the Company.

In June 2012, following the exercise of the Company’s option to repurchase shares of Common Stock from Greenbridge Capital Partners, IV, LLC, a total of 68,889 shares were repurchased into Treasury Stock at $1,033.33.

In August 2012, 137,778 shares of Common Stock previously issued to Mr. Jerrald Ginder under the terms of Consulting Agreement were returned to the Company in consideration of a full settlement of performance and amounts due under the Consulting Agreement; the shares were retired.

During the period from January 1, 2012 through December 2012, the Company issued a total of 348,149 shares of Common Stock in respect of conversion of Series C Preferred Stock.

During the period from May 1, 2012 through December 31 2012, the Company issued a total of 50,371 shares of Common Stock at $3.375 for a total consideration of $170,000 to four investors.

On November 30, 2012 the Company made a charitable donation of 14,815 shares of Common Stock valued at $16,667 to The Fiducuary Foundation.

On November 30, 2012 the Company entered into 12 month consulting agreements with Del Mar Consulting, Inc and Alex Partners, LLC to provide investor relations and investor awareness consultancy services. Under these agreements, Del Mar and Alex Partners received shares 140,000 and 93,334 Common Shares valued at $157,500 and $105,000 respectively.

During January to December 2013 the Company issued: 8,688 shares of Common Stock (valued at $20,000) to Steven Girgenti, 9,500 shares of Common Stock (valued at $20,000) to Dr. Oscar Bronsther and 4,612 shares of Common Stock (valued at $10,000) to Lowell Rush in consideration for services provided to the Board of Directors; and 2,997 shares of Common Stock (valued at $7,813) to Alvaro Pascual-Leone, 5,068 shares of Common Stock (valued at $12,500) to Josef Zihl and 3,792 shares of Common Stock (valued at $7,812) to Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.

On January 11, 2013, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of 1 for 150 on the issued and outstanding Common Stock par value $0.0001 (“Common Stock”). On January 15, 2013 (the “Effective Date”), the Company effectuated its reverse stock split. On the Effective date, the Company implemented a one for 150 share reverse split of its Common Stock. On the Effective Date, the Company’s pre-split 892,749,897 shares of Common Stock became 5,951,744 post-split shares of Common Stock, including the issuance of 66 shares of Common Stock for the round-up of partial shares. On February 28, 2014, the Company filed a Certificate of Correction (“Certificate of Correction”) with the Secretary of State of the State of Delaware which corrected the previously-filed Certificate of Amendment by reducing the total number of shares of all classes of stock which the Company shall have the authority to issue to 35,000,000 shares, of which 25,000,000 shares, par value $0.0001 are designated as Common Stock and 10,000,000 shares, par value $0.0001 are designated as Preferred Stock, with such reduction effective concurrent with the effectiveness of the Reverse Split. All relevant information relating to the number of shares and per share information has been retrospectively adjusted to reflect the reverse stock split for all periods presented.

F-14



In March 2013 GreenBridge Capital Partners, IV, LLC returned to Vycor all of the 34,445 shares being sought by the Company under an action filed by the Company in July 2012. These shares have been taken into Treasury Stock.

During April and May 2013, the Company issued 47,590 and 32,152 shares of Common Stock respectively on exercise of warrants by Kenneth Coviello and Heather Vinas. The warrants had an exercise price of $1.08 and were exercisable on a cashless basis.

During April to September 2013, Fountainhead Capital Management sold 177,439 warrants to purchase Vycor Common Stock at an exercise price of $1.88 per share. These warrants were granted to Fountainhead by the Company in February 2010 and were sold by Fountainhead to 7 investors at a price of $0.10 per warrant. The warrants were immediately exercised by the investors and the Company issued 177,439 shares of Common Stock in respect of the exercise and received cash proceeds of $332,832.

During April to December 2013, the Company issued a total of 342,974 shares of Common Stock in respect of conversion of Series C Preferred Stock.

On July 2, 2013, the Company entered into an advisory agreement with a registered broker-dealer to provide certain financial advisory services to the Company. Under the terms of the advisory agreement, the Company issued 15,000 restricted shares of Company Common Stock to the broker-dealer on execution

During July to September 2013, Del Mar and Alex Partners were issued 10,800 and 7,200 shares of Common Stock, respectively, in lieu of cash consulting fees for the months of July to September 2013. In November 2013, the Company entered into extension amendments to the existing agreements with Del Mar and Alex Partners, under which 33,000 and 27,000 shares of Company Common Stock respectively were issued. Under the extension agreements, the Company has the option to pay all or part of the monthly fees in cash and for December 3,000 shares were issued to Del Mar and 2,000 share were issued to Alex Partners.

8. SHARE-BASED COMPENSATION

The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance.

Stock Option Plan

The Company adopted the Vycor Medical, Inc. Employee, Director, and Consultant Stock Plan (the “Plan”) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Company’s outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options expire on the date determined by the board of directors, but may not extend mare than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Company’s outstanding voting stock expire five years from the grant date. The vesting period for employees is generally over three years. The vesting Period for non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.

F-15



Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. No employee stock options were granted for the years ended December 31, 2012 and 2011.

Initial grants of options to purchase 3,334 shares were issued under the Plan on February 13, 2008 to each of Kenneth T. Coviello, the Company’s Chief Executive Officer and Heather N. Vinas, the Company’s President at an exercise price of $20.25 per share. The options vested 33-1/3% on each of the first, second, and third anniversary of the grant and expire February 12, 2018. Following Heather Vinas’ resignation as President of the Company in May 2010, 667 unvested options were cancelled. For the years ended December 31, 2013 and 2012, the Company recognized share-based compensation of $0 and $0, respectively.

Stock appreciation rights may be granted either on a stand alone basis or in conjunction with all or part of any other stock options granted under the plan. As of December 31, 2013 there were no awards of any stock appreciation rights.

The Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the “measurement date” using an option pricing model. The “measurement date” for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.

The details of the outstanding rights, options and warrants and value of such rights, options and warrants are as follows:

STOCK WARRANTS:
        Number
of shares
    Weighted average
exercise price
per share
Outstanding at December 31, 2011
                 1,747,347          $ 3.07   
 
                                     
Granted
                 4,667             4.50   
Exercised
                                 
Cancelled or expired
                 (2,140 )            36.00   
 
                                     
Outstanding at December 31, 2012
                 1,749,874          $ 3.03   
 
                                     
Granted
                                 
Exercised
                 (341,941 )         $ 1.49   
Cancelled or expired
                 (3,334 )         $ 10.50   
 
                                     
Outstanding at December 31, 2013
                 1,404,599          $ 3.39   
 

F-16



STOCK OPTIONS:
        Number
of shares
    Weighted average
exercise price
per share
Outstanding at December 31, 2011
                 5,557          $ 20.25   
 
Granted
                                 
Exercised
                                 
Cancelled or expired
                                 
 
Outstanding at December 31, 2012
                 5,557          $ 20.25   
 
Granted
                                 
Exercised
                                 
Cancelled or expired
                                 
Outstanding at December 31, 2013