10-K 1 form10-k.htm

 

 

 

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, 2019
   
Or
   
[  ] 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: 001-34932

 

 

VYCOR MEDICAL, INC.

(Exact name of registrant as specified in charter)

 

Delaware   20-3369218
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

951 Broken Sound Boulevard, Suite, 320 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 [X] No

 

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

 

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

 

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

 

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 [  ]   Accelerated Filer [  ]
     
Non-accelerated Filer [  ] (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 [X] No

 

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. $1,706,421 (assuming $0.16 per share)

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date 25,288,550 shares of common stock par value $0.0001 as of March 20, 2020

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Business 3
Item 1A Risk Factors 6
Item 1B Unresolved Staff Comments 6
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Mine Safety Disclosures 6
     
  PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities 6
Item 6 Selected Financial Data 7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 8
Item 7A Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 33
Item 9A. Controls and Procedures 33
Item 9B. Other Information 34
     
  PART III  
Item 10. Directors, Executive Officers, Promoters and Corporate Governance 34
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 38
Item 13. Certain Relationships and Related Transactions, and Director Independence 39
Item 14. Principal Accountant Fees and Services 39
     
  PART IV  
Item 15. Exhibits, Financial Statement Schedules 39
     
SIGNATURES 41

 

 2 
 

 

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

 

The Company was 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.”. The Company’s listing went effective on February 2009 and on November 29, 2010 Vycor completed the acquisition of substantially all of the assets of NovaVision, Inc. (“NovaVision”) and on January 4, 2012 Vycor, through its wholly-owned NovaVision subsidiary, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”), a previous competitor to NovaVision.

 

2. Overview of Business

 

Vycor is dedicated to providing the medical community with innovative and superior surgical and therapeutic solutions and operates two distinct business units within the medical device industry. Vycor Medical designs, develops and markets medical devices for use in neurosurgery. NovaVision provides non-invasive rehabilitation therapies for those who have vision disorders resulting from neurological brain damage such as that caused by a stroke. Both businesses adopt a minimally or non-invasive approach. Both technologies have strong sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has 64 issued or allowed patents and a further 9 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner.

 

The Company periodically engages in discussions with potential strategic partners for or purchasers of each or both of our operating divisions, and is evaluating its options regarding NovaVision.

 

Vycor Medical

 

Vycor Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medical’s ViewSite Brain Access System (“VBAS”) is a next generation retraction and access system that was fully commercialized in early 2010 and is the first significant technological change to brain tissue retraction in over 50 years in contrast to significant development in most other neuro-surgical technologies. Vycor Medical is ISO 13485:2016 and MDSAP (Medical Device Single Audit Program) certified, and VBAS has U.S. FDA 510(k) clearance and CE Marking for Europe (Class III) for brain and spine surgeries, and regulatory approvals in a number of other international markets. Vycor Medical has 26 granted and 9 pending patents.

 

NovaVision

 

NovaVision provides non-invasive, computer-based rehabilitation targeted at a substantial and largely un-addressed market of people who have lost their sight as a result of stroke or other brain injury, and has 38 granted patents.

 

 3 
 

 

Strategy

 

The Company is continuing to execute on a plan to achieve revenue growth and a reduction in cash operating losses1. For Vycor Medical this plan includes in particular: increasing market penetration in the US through broadening of the distribution network and programs to increase penetration in exiting hospitals; increasing international growth in territories where we are not represented or under represented; and continued new product development. The first phase of the modification of the existing VBAS product range to make it more compatible with the most common IGS systems was completed in September 2017 and has been well received by surgeons, resulting in increased hospital penetration and revenues particularly in the US. The second phase of the development of further IGS integration is in process and will then be subject to regulatory clearances and approvals. Upon regulatory approval and product release of this new VBAS the Company intends to conduct a multi-center study to provide additional clinical data on the product. We will also be exploring with surgeons and focus groups additional selected development work targeted at increasing the ease and applicability of our products to additional common procedures. For NovaVision, given the company’s resources, and the large size and diversity of its end markets, we believe that the most efficient way to tackle the distribution of its broad range of patient and professional products is by partnering with entities that have either direct access to the end users or a desire and financial wherewithal to leverage the NovaVision therapy platform. Management is determined to reduce the losses it is incurring in this division and is open to a broad range of alternatives which could comprise distribution and marketing partnerships, licensing, merger, sale and/or a significant restructuring of its activities including closure of part of its operations.

 

Manufacturing

 

Vycor Medical uses a sub-contract manufacturer to manufacture, package, label and sterilize its VBAS products. The Company has migrated all its VBAS manufacturing to Life Science Outsourcing, Inc. in Brea, California that is FDA-registered, ISO 13485:2016 certified and meets other applicable ISO standards and certifications.

 

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 26 granted/allowed and 9 pending 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 38 granted patents.

 

Trademarks

 

VYCOR MEDICAL is a registered trademark and VIEWSITE is a common law trademark.

 

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

 

3. Other Matters

 

Product Liability Insurance

 

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

 

 

1 Operating Loss before Depreciation, Amortization and non-cash Stock Compensation

 

 4 
 

 

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 13485:2016 Medical Devices — Quality Management Systems

 

The certification of a quality management system to ISO 1348:2016, 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 13485:2016 and from January 1, 2019 also be certified to MDSAP. The certification is also required for placement of branded devices into the European Union.

 

Vycor Medical has the following certification/licensing:

 

  ISO 13485.2016
     
  MDSAP (Medical Device Single Audit Program)
     
  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)

 

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 NeuroEyeCoach is registered as an exempt Class 1 device.

 

Vycor Medical has CE marking approval to allow for distribution of its VBAS products in Europe as a Class III device and has a Health Canada Medical Device License (MDL) for distribution in Canada as a Class II device. VBAS also has regulatory approvals in a number of other international markets. NovaVison’s VRT, NeuroEyeCoach and Sight Science’s NeET have CE mark registrations as Class I devices in Europe.

 

Vycor Medical has been undertaking a process of migrating its EU Notified Body for the last two years. While the audit and finding responses are complete, the final review and certification process has been delayed due to the intense level of activity being undertaken by EU Notified Bodies as a result of the replacement of the Medical Device Directive (MDD) with the Medical Device Regulation (MDR). Although Vycor’s process is nearly complete the delay has resulted in an inability to market the VBAS product in the EU as aggressively as the company would like.

 

Employees

 

We currently have 9 employees.

 

 5 
 

 

Website.

 

The Company operates websites at www.vycormedical.com, www.novavision.com, www.novavision.de and www.sightscience.com

 

ITEM 1A. RISK FACTORS

 

Smaller reporting companies are not required to provide the information required by this item. Notwithstanding, in addition to risk factors highlighted in previous reports, the Company adds the following additional risk factor:

 

We do not yet know the extent we could be affected by the Coronavirus (COVID-19) pandemic

 

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. While our operations are principally located in the United States, and our sub-contract manufacturers are located in the United States, we participate in a global supply chain, and the existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments around the world in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Although we have implemented business continuity plans for our offices and personnel to enable continuity of service remotely, if a critical number of our employees become too ill to work, or we are not able to access a sufficient quantity of our inventory for shipment due to enforced office closures, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Although neurosurgery is not generally an elective procedure, general hospital dislocation and diversion of resources could impact our revenues. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

N/A

 

ITEM 2. PROPERTIES

 

The Company leases office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2 L.P., for a gross rent of approximately $5,700 plus sales tax per month. The lease terminates September 30, 2020 and has been extended for a further three years to August 31, 2023. The Company’s subsidiary in Germany occupies premises on a short-term lease agreement of EUR1,650 per month (approximately $1,815).

 

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 the date of this Annual Report, 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

 

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”.

 

 6 
 

 

The market price of our common stock, like that of other early stage medical device companies, is highly volatile and is subject illiquidity and to fluctuations in response to variations in operating results, announcements of technological innovations or new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance.

 

Holders

 

As of March 21, 2020 there were 25,391,884 and 25,288,550 shares of common stock issued and outstanding, respectively, and approximately 150 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. The Company’s Series D Convertible Preferred Stock bears a 12% per annum dividend payable in cash or Series D Preferred Stock at the option of the Company.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

Below is a list of securities sold by us from January 1, 2019 through March 21, 2020 which were not registered under the Securities Act

 

Common Stock:

 

Issuance Type  Security   Shares 
FHC Management Fees   Common    2,142,856 
Issue of shares pursuant to consulting agreements   Common    5,000 
Total        2,147,856 

 

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.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable

 

 7 
 

 

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

 

RESULTS OF OPERATIONS

 

Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018

 

Revenue and Gross Margin:

 

Vycor Medical recorded revenue of $1,299,830 from the sale of its products for the year ended December 31, 2019, a decrease of $11,481 (or 1%) over 2018. The US continued to experience growth (increase of 28%), primarily as a result of increased adoption and usage following the introduction of the enhanced VBAS model in September 2017, however this was offset by two large international orders representing approximately $196,000 of revenue in the 2018 period which were not repeated during 2019.

 

Gross margin of 90% was recorded for the year ended December 31, 2019 compared to 88% in 2018.

 

NovaVision recorded revenues of $181,921 for the year ended December 31, 2019, a decrease of $16,098 from 2018, and gross margin of 90%, compared to 91% for 2018.

 

Research and Development Expense:

 

Research and development expenses were $0 in 2019 and 2018.

 

Selling, General and Administrative Expenses:

 

Selling, General and Administrative expenses decreased by $183,314 to $2,000,191 in 2019 from $2,183,505 in 2018. Included within Selling, General and Administrative Expenses are non-cash charges for share-based compensation as the result of amortizing employee and non-employee shares and options which have been issued by the Company over various periods. The charge for 2019 was $534,940, a decrease of $90,685 from $625,625 in 2018, as a result of the expensing of options in 2018. Also included within Selling, General and Administrative Expenses are Sales Commissions, which increased by $3,227 to $262,460, which was not a significant change from the prior year.

 

The remaining Selling, General and Administrative expenses decreased by $95,856 from $1,298,647 to $1,202,790. The reduction is primarily the result of personnel efficiencies and the curtailment of online marketing expenditure for NovaVision. The Company is in the process of migrating to a new EU Notified Body for VBAS, with a resultant significant increase in regulatory fees for this migration during 2019; patent fees were also higher due to the filing of 8 new patents for VBAS.

 

An analysis of the change in cash and non-cash G&A is shown in the table below:

 

   Cash G&A   Non-Cash G&A 
Regulatory   79,854    - 
Legal, patent, audit/accounting, insurance   19,219    - 
Sales, marketing and travel   (66,739)     
Board and Management   -    (85,814)
Payroll   (126,862)   (4,871)
Other G&A, Premises   (1,328)   - 
Commissions   3,227    - 
Total change   (92,629)   (90,685)

 

 8 
 

 

Impairment of Assets:

 

During the year ended December 31, 2018, and following the applicable guidance, the Company made a full provision of $307,576 against the NovaVision intangible assets and capitalized software, of which $256,790 was in respect of Trademarks and Website and $50,786 was in respect of unamortized software development costs.

 

Interest Expense:

 

Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for 2019 increased $9,213 following the issuance of related party notes during 2018 and 2019 to $20,647 from $11,434 for 2018. Other Interest expense for 2019 decreased by $764 to $48,036 from $48,800 for 2018.

 

Liquidity and Capital Resources

 

Liquidity

 

The following table shows cash flow and liquidity data for the periods ended December 31, 2019 and December 31, 2018:

 

   December 31,
2019
   December 31,
2018
   $ Change 
Cash  $72,239   $86,481   $(14,242)
Accounts receivable, inventory and other current assets  $584,193   $543,165   $41,028 
Total current liabilities  $(2,446,406)  $(1,812,604)  $(633,802)
Working capital  $(1,789,974)  $(1,182,958)  $(607,016)
Cash provided by (used in) financing activities  $40,091   $200,421   $(160,330)

 

Operating Activities. Cash used in operating activities comprises net loss adjusted for non-cash items and the effect of changes in working capital and other activities. The net repayment of normal insurance financing should also be taken into account when considering cash used in operating activities.

 

The following table shows the principal components of cash used in operating activities during the year ended December 31, 2019 and 2018, with a commentary of changes during the periods and known or anticipated changes:

 

   December 31,
2019
   December 31,
2018
   $ Change 
Net loss  $(796,202)  $(1,379,356)  $583,154 
                
Adjustments to reconcile net loss to cash used in operating activities:               
Amortization and depreciation of assets  $69,438   $177,351   $(107,913)
Impairment of assets   -    307,576   $(307,576)
Share based compensation  $534,940   $625,625   $(90,685)
Gain or loss on foreign exchange  $2,390   $1,387   $1,003 
Other  $12,558   $6,279   $6,279 
   $619,326   $1,118,218   $(498,892)
                
Net loss adjusted for non-cash items  $(176,876)  $261,138)  $84,262 
Changes in working capital               
Accounts receivable, accounts payable and accrued liabilities  $152,132   $(61,685)  $213,817 
Inventory  $(19,964)  $4,482   $(24,446)
Prepaid expenses and net insurance financing repayments  $(14,500)  $2,837   $(17,337)
Accrued interest (not paid in cash)  $68,647   $59,434   $9,213 
Other   -   $3,169   $(3,169)
   $186,315   $8,237   $178,078 
                
Cash provided by/(used in) operating activities, adjusted for net insurance repayments  $9,439   $(252,901)  $262,340 

 

 9 
 

 

The adjustments to reconcile net loss to cash used of $619,326 in the period have no impact on Liquidity. The decrease in net loss (as adjusted for non-cash items) by $84,262 to $176,876 was primarily due to a reduction in cash operating expenses during the period. The net change in accounts receivable, accounts payable and accrued liabilities is the result of an increase in accounts payable; this is mainly due to expenditure on regulatory and testing for the VBAS development occurring during the fourth quarter.

 

The Company is in the process of modifying the VBAS product suite to make it easier to integrate with IGS. The first phase of this project was completed in September 2017 and additional inventory of approximately $128,000 was purchased during 2019. The Company is progressing the second phase of this project and as a result of this and normal inventory management anticipates purchasing additional new inventory of approximately $95,000.

 

Investing Activities. Cash used in investing activities for the year ended December 31, 2019 was $58,253, which primarily reflected expenditure on the second phase of modifying the VBAS product suite to make it easier to integrate with IGS. The Company anticipates additional expenditures for this second phase, including work to obtain regulatory approvals, of approximately $75,000.

 

Financing Activities. During the year ended December 31, 2019 the Company received funds of $37,873 in respect of loans from Fountainhead.

 

Liquidity and Plan of Operations, Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $796,202 and $1,379,356 for the years ending December 31, 2019 and 2018 respectively and has not generated sufficient cash flows from operations. As at December 31, 2019 the Company had a working capital deficiency of $541,070, excluding related party liabilities of $1,248,904. As a result these conditions, among others, raise substantial doubt regarding our ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty

 

As described earlier in this ITEM 1 “Strategy”, the Company is continuing to execute on a plan to achieve revenue growth and a reduction in cash operating losses2. For Vycor Medical this plan includes in particular: increasing market penetration in the US through closer cooperation with complementary product manufacturers, broadening of the distribution network and programs to increase penetration in exiting hospitals; increasing international growth in territories where we are not represented or under represented; and continued new product development. The first phase of the modification of the existing VBAS product range to make it more compatible with the most common IGS systems was completed in September 2017 and has been well received by surgeons, resulting in increased hospital penetration and revenues particularly in the US. The second phase of the development of further IGS integration is in process and will then be subject to regulatory clearances and approvals. Upon regulatory approval and product release of this new VBAS the Company intends to conduct a multi-center study to provide additional clinical data on the product. We will also be exploring with surgeons and focus groups additional selected development work targeted at increasing the ease and applicability of our products to additional common procedures. For NovaVision, given the company’s resources, and the large size and diversity of its end markets, we believe that the most efficient way to tackle the distribution of its broad range of patient and professional products is by partnering with entities that have either direct access to the end users or a desire and financial wherewithal to leverage the NovaVision therapy platform. The Company is in the process of identifying and talking to such partners. Management is determined to reduce the losses it is incurring in this division and is open to a broad range of alternatives which could comprise distribution and marketing partnerships, licensing, merger, sale and/or a significant restructuring of its activities including closure of part or all of its operations.

 

However, the Company believes it may not have sufficient cash to meet its various cash needs through March 31, 2021 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. Included within the working capital deficiency above is a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”), together with accrued interest of $280,765, which has a maturity date of June 30, 2020, having been extended on a number of occasions from its initial due date of June 11, 2011. At this time it is not known whether any further extension of the note beyond June 30, 2020 will be available. Fountainhead, the Company’s largest shareholder, has provided working capital funding to the Company on an as-needed basis, although there is no guarantee that this will continue to be the case. The Company may consider seeking additional equity or debt funding, although there is no assurance that this would be available on acceptable terms or at all. If adequate funds are not available, the Company may have to delay or curtail development or commercialization of products, or cease some of its operations.

 

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. While our operations are principally located in the United States, and our sub-contract manufacturers are located in the United States, we participate in a global supply chain, and the existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments around the world in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Although we have implemented business continuity plans for our offices and personnel to enable continuity of service remotely, if a critical number of our employees become too ill to work, or we are not able to access a sufficient quantity of our inventory for shipment due to enforced office closures, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Although neurosurgery is not generally an elective procedure, general hospital dislocation and diversion of resources could impact our revenues. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

 

 

2 Operating Loss or Profit before Depreciation, Amortization and non-cash Stock Compensation

 

 10 
 

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, we had no off-balance sheet arrangements.

 

Seasonality

 

Our operating results are not affected by seasonality.

 

Inflation

 

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

 

Critical Accounting Policies 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 or chinrest at the end of therapy. At December 31, 2019 and 2018 patient deposits amounted to $46,191 and $44,605, respectively, and are included 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.

 

 11 
 

 

Leases

 

The Company has one leased building in Boca Raton, Florida that is classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet as per ASC 842. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.

 

The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated statements of comprehensive loss. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

 

Income taxes

 

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

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.

 

During the year ended December 31, 2018, and following the applicable guidance, the Company made a full provision of $307,576 against the NovaVision intangible assets and capitalized software, of which $256,790 was in respect of Trademarks and Website and $50,786 was in respect of unamortized software development costs.

 

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 over the estimated life of five years. As part of the impairment review referred to above, software development costs were written down by $50,786 to $0 during the year ended December 31, 2018.

 

 12 
 

 

Revenue Recognition

 

On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers and all the related amendments (new revenue standard) to all contracts. The adoption of the new accounting standard had no impact on company’s consolidated financial statements.

 

Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue from product sales when obligations under the terms of a contract with customers are satisfied. Generally, this occurs with the transfer of control of the goods to customers. Vycor Medical does not provide for product returns or warranty costs.

 

Vycor determines revenue recognition through the following steps:

 

  Identification of the contract, or contracts, with a customer
     
  Identification of the performance obligations in the contract
     
  Determination of the transaction price
     
  Allocation of the transaction price to the performance obligations in the contract
     
  Recognition of revenue when Vycor satisfy a performance obligation

 

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly for 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.

 

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.

 

 13 
 

 

Inventory

 

Inventories are stated at the weighted average cost method. 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. The provision for inventory for the years ended December 31, 2019 and 2018 was $12,558 and $6,279, respectively. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales.

 

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 stockholders’ equity (deficiency) in the accompanying Consolidated Balance Sheets.

 

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.

 

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”. 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.

 

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.

 

 14 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

Vycor Medical, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Vycor Medical, Inc. ("the Company") as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive loss, stockholders' equity (deficiency), and cash flows for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred net losses since inception, including a net loss of $796,202 and $1,379,356 for the years ended December 31, 2019 and 2018 respectively, and has not generated cash flows from its operations. As of December 31, 2019, the Company had working capital deficiency of $541,070, excluding related party liabilities of $1,248,904. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are described in Note 1 to the financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Prager Metis CPAs, LLC

 

We have served as the Company's auditor since 2018.

 

Hackensack, New Jersey

March 27, 2020

 

 15 
 

 

VYCOR MEDICAL, INC.

Consolidated Balance Sheets

 

   December 31,   December 31, 
   2019    2018 
ASSETS          
Current Assets          
Cash  $72,239   $86,481 
Trade accounts receivable   278,020    257,468 
Inventory   210,528    203,122 
Prepaid expenses and other current assets   95,645    82,575 
Total Current Assets   656,432    629,646 
           
Fixed assets, net   374,527    372,641 
           
Intangible and Other assets:          
Patents, net of accumulated amortization   23,326    35,303 
Website, net of accumulated amortization   -    187 
Security deposits   6,000    6,000 
Operating lease right-of-use assets   31,658    - 
Total Intangible and Other assets   60,984    41,490 
TOTAL ASSETS  $1,091,943   $1,043,777 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)          
Current Liabilities          
Accounts payable  $251,927   $92,955 
Accrued interest: Other   280,765    232,765 
Accrued interest: Related party   44,921    24,274 
Accrued liabilities - Other   308,768    295,056 
Accrued liabilities - Related Party   973,110    648,740 
Notes payable: Related Party   230,873    193,000 
Notes payable: Other   328,032    325,814 
Current operating lease liabilities   28,010    - 
Total Current Liabilities   2,446,406    1,812,604 
           
STOCKHOLDERS’ EQUITY (DEFICIENCY)          
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 270,306 and 270,306 issued and outstanding as at December 31, 2019 and December 31, 2018 respectively   27    27 
Common Stock, $0.0001 par value, 55,000,000 shares authorized at December 31, 2019 and 2018, 25,391,884 and 23,244,028 shares issued and 25,288,550 and 23,140,694 outstanding at December 31, 2019 and 2018 respectively   2,539    2,324 
Additional Paid-in Capital   28,306,592    27,771,868 
Treasury Stock (103,334 shares of Common Stock as at December 31, 2019 and 2018 respectively, at cost)   (1,033)   (1,033)
Accumulated Deficit   (29,790,258)   (28,669,686)
Accumulated Other Comprehensive Income (Loss)   127,670    127,673 
Total Stockholders’ Equity (Deficiency)   (1,354,463)   (768,827)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)  $1,091,943   $1,043,777 

 

See accompanying notes to consolidated financial statements

 

 16 
 

 

VYCOR MEDICAL, INC.

Consolidated Statements of Comprehensive Loss

 

   For the year ended December 31, 
   2019   2018 
         
Revenue  $1,481,751   $1,509,330 
Cost of Goods Sold   146,656    169,598 
Gross Profit   1,335,095    1,339,732 
           
Operating expenses:          
Depreciation and Amortization   60,033    166,386 
Selling, general and administrative   2,000,191    2,183,505 
Impairment of assets   -    307,576 
Total Operating expenses   2,060,224    2,657,467 
Operating loss   (725,129)   (1,317,735)
           
Other income (expense)          
Interest expense: Other   (48,036)   (48,800)
Interest expense: Related Party   (20,647)   (11,434)
Loss on foreign currency exchange   (2,390)   (1,387)
Total Other Income (expense)   (71,073)   (61,621)
           
Loss Before Credit for Income Taxes   (796,202)   (1,379,356)
Credit for income taxes   -    - 
Net Loss   (796,202)   (1,379,356)
Preferred stock dividends   (324,370)   (324,370)
Net Loss available to common shareholders   (1,120,572)   (1,703,726)
Comprehensive Loss          
Foreign Currency Translation Adjustment   3    (2,832)
 Comprehensive Loss  $(796,199)  $ (1,382,188)
           
Net Loss Per Share          
Basic and diluted  $(0.05)  $(0.08)
           
Weighted Average Number of Shares Outstanding – Basic and Diluted   23,958,999    21,599,118 

 

See accompanying notes to consolidated financial statements

 

 17 
 

 

VYCOR MEDICAL, INC.

Consolidated Statement of Stockholders’ Equity (Deficiency)

 

                                                    Additional           Accum.        
    Common Stock     Preferred C     Preferred D     Treasury Stock     Paid-in     Accumulated     Other Comp.      
    Number     Amount     Number     Amount     Number     Amount     Number     Amount     Capital     Deficit    

Income(Loss)
    Total  
Balance at December 31, 2017       19,925,322     $ 1,993            1     $     0         270,306     $   27         (103,334 )   $   (1,033 )   $   26,921,574     $    (26,965,960 )   $          124,841      $ 81,442  
Issuance of stock for board and consulting fees     2,204,770       220                                                       674,780                       675,000  
Directors deferred compensation granted                                                                     84,000                       84,000  
Share based compensation issued to management/employees                                                                     91,625                       91,625  
Issuance of shares pursuant to exercise of warrants     1,113,936       111                                                       (111 )                     0  
Accumulated Comprehensive Loss                                                                                     2,832       2,832  
Net loss for year ended December 31, 2018                                                                             (1,703,726 )             (1,703,726 )
Balance at December 31, 2018     23,244,028       2,324       1       0       270,306       27       (103,334 )     (1,033 )     27,771,868     (28,669,686 )     127,673       (768,826 )
Issuance of stock for board and consulting fees     2,147,856       215                                                       450,724                       450,939  
Directors deferred compensation granted                                                                     84,000                       84,000  
Accumulated Comprehensive Loss                                                                                     (3 )     (3 )
Net loss for year ended December 31, 2019                                                                             (1,120,572 )             (1,120,572 )
Balance at December 31, 2019     25,391,884     $ 2,539       1     $ 0       270,306     $ 27       (103,334 )   $ (1,033 )   $ 28,306,592     $ (29,790,258 )   $ 127,670     $   (1,354,463 )

 

See accompanying notes to consolidated financial statements

 

 18 
 

 

VYCOR MEDICAL, INC.

Consolidated Statements of Cash Flows

 

   For the year ended 
    December 31, 
    2019    2018 
Cash flows from operating activities:          
Net loss  $(796,202)  $ (1,379,356)

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

          
Amortization of intangible assets   12,164    50,331 
Depreciation of fixed assets   57,274    127,020 
Inventory provision and write-off   12,558    6,279 
Share based compensation   534,940    625,625 
(Gain) loss on foreign exchange   2,390    1,386 
Impairment of assets   -    307,576 
           
Changes in assets and liabilities:          
Accounts receivable   (20,552)   (147,046)
Inventory   (19,964)   4,482 
Prepaid expenses   (16,718)   (4,584)
Accrued interest – Related Party   20,647    11,434 
Accrued interest - Other   48,000    48,000 
Accounts payable   158,972    (48,364)
Accrued liabilities   13,712    133,726 
Security Deposit   -    3,169 
Cash provided by/(used in) operating activities   7,221    (260,322)
Cash flows from investing activities:          
Purchase of fixed assets   (58,253)   (63,523)
Cash used in investing activities   (58,253)   (63,523)
Cash flows from financing activities:          
Proceeds from issuance of Notes Payable - Related Party   37,873    193,000 
Proceeds from and (repayment of) Notes Payable - Other   2,218    7,421 
Cash provided by financing activities   40,091    200,421 
Effect of exchange rate changes on cash   (3,301)   3,692 
Net decrease in cash   (14,242)   (119,732)
Cash at beginning of year   

86,481

    206,213 
Cash at end of year  $72,239   $ 86,481 
           
Supplemental Disclosures of Cash Flow information:          
Cash paid for interest  $0   $0 
Cash paid for income tax  $0   $0 
Non-Cash Transactions:          
Common stock issued to related party for payment of accrued liabilities  $0   $225,000 

 

See accompanying notes to consolidated financial statements

 

 19 
 

 

VYCOR MEDICAL, INC.

Notes to Consolidated Financial Statements

 

1. BUSINESS OF THE COMPANY AND GOING CONCERN

 

Business Description

 

Vycor Medical, Inc. (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.

 

Ability to continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $796,202 and $1,379,356 for the years ending December 31, 2019 and 2018, respectively, and has not generated sufficient cash flows from operations. As at December 31, 2019 the Company had a working capital deficiency of $541,070, excluding related party liabilities of $1,248,904. These conditions, among others, raise substantial doubt regarding our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

The Company is executing on a plan to achieve a reduction in cash operating losses for both the Vycor Medical and NovaVision divisions. Included within the working capital deficiency above is a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”), together with accrued interest of $280,765, which has a maturity date of June 30, 2020, having been extended on a number of occasions from its initial due date of June 11, 2011. At this time, it is not known whether any further extension of the note beyond June 30, 2020 will be available. However, the Company believes it may not have sufficient cash to meet its various cash needs through March 31, 2021 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. Fountainhead, the Company’s largest shareholder, has provided working capital funding to the Company on an as-needed basis, although there is no guarantee that this will continue to be the case. The Company may consider seeking additional equity or debt funding, although there is no assurance that this would be available on acceptable terms or at all. If adequate funds are not available, the Company may have to delay or curtail development or commercialization of products, or cease some of its operations

 

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. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions, and balances have been eliminated in consolidation.

 

Revenue Recognition

 

On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers and all the related amendments (new revenue standard) to all contracts. The adoption of the new accounting standard had no impact on company’s consolidated financial statements.

 

Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue from product sales when obligations under the terms of a contract with customers are satisfied. Generally, this occurs with the transfer of control of the goods to customers. Vycor Medical does not provide for product returns or warranty costs.

 

Vycor determines revenue recognition through the following steps:

 

  Identification of the contract, or contracts, with a customer
     
  Identification of the performance obligations in the contract
     
  Determination of the transaction price
     
  Allocation of the transaction price to the performance obligations in the contract
     
  Recognition of revenue when Vycor satisfy a performance obligation

 

NovaVision generates revenues from various programs, therapy services and other sources such as software license sales. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, eye movement training software, diagnostic software, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision provides vision restoration therapy directly to patients. The typical therapy program consists of NeuroEyeCoach, performed over 2-4 weeks, and six modules of Vision Restoration Therapy, performed over 6 months. 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.

 

As part of the adoption of ASC 606, see Note 6 to the Consolidated Financial Statements for further disaggregation of revenue.

 

Cash and cash equivalents

 

The Company maintains cash balances at various financial institutions. Accounts at each institution in the U.S. 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 or chinrest at the end of therapy. At December 31, 2019 and 2018 patient deposits amounted to $46,191 and $44,605, respectively, and are included in Accrued Liabilities.

 

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Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly for therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to exceed the therapy period. The outstanding balances are stated net of an allowance for doubtful accounts.

 

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 consist of raw materials, work in process and finished goods that are stated at the lower of cost determined using the weighted average cost method, or 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. The provision for inventory obsolescence for the years ended December 31, 2019 and 2018 was $12,558 and $6,279, respectively. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s consolidated statements of comprehensive loss.

 

Leases

 

The Company has one leased building in Boca Raton, Florida that is classified as operating lease right-of use (“ROU”) assets and operating lease liabilities in the Company’s consolidated balance sheet as per ASC 842. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of Selling, General and Administrative expenses.

 

The standard was effective for us beginning January 1, 2019. The Company elected the available practical expedients on adoption. The adoption had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated statements of comprehensive loss. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

 

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 stockholders’ equity (deficiency) in the accompanying Consolidated Balance Sheets.

 

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.

 

Income taxes

 

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

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Fixed assets

 

Fixed assets 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.

 

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.

 

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.

 

During the year ended December 31, 2018, and following the applicable guidance, the Company made a full provision of $307,576 against the NovaVision intangible assets and capitalized software, of which $256,790 was in respect of Trademarks and Website and $50,786 was in respect of unamortized software development costs.

 

Research and Development

 

The Company expenses all research and development costs as incurred. For the years ended December 31, 2019 and 2018, the amounts charged to research and development expenses were $0 for both years, respectively.

 

Software Development Costs

 

The Company accounts for software development costs in accordance with ASC 350-40, whereby all costs incurred during the preliminary stage of a development project should be charged to expense as incurred. Capitalization of costs begins after the preliminary stage has been completed, management commits to funding the project, it is probable that the project will be completed, and the software will be used for its intended function. All post-implementation costs are charged to expense as incurred. 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. There was no capitalized for software development during the years ended December 31, 2019 and 2018. As part of the impairment review referred to above, software development costs were written down by $50,786 to $0 during the year ended December 31, 2018.

 

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, provision for inventory obsolescence, useful life 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”. 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.

 

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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)

 

The Company has no Financial instruments measured at Fair value on a recurring basis.

 

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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,   December 31, 
   2019   2018 
Stock options outstanding   700,000    1,380,000 
Warrants to purchase common stock   3,717,826    3,717,826 
Debentures convertible into common stock   2,765,548    2,652,568 
Preferred shares convertible into common stock   1,272,052    1,272,052 
Directors Deferred Compensation Plan   1,175,907    775,911 
Total   9,631,333    9,798,357 

 

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 other 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. INVENTORY

 

   December 31, 2019   December 31, 2018 
         
Raw materials and work in process  $82,142   $59,325 
Finished goods   128,386    143,797 
Total Inventory  $210,528   $203,122 

 

4. LEASE

 

The Company recognized the following related to a lease in its consolidated balance sheet at December 31, 2019:

 

    Year Ended December 31,  
    2019     2018  
Operating Lease ROU Assets   $ 31,658     $ -  
    $ 31,658     $ -  
Operating Lease Liabilities                
Current portion   $ 28,010     $ -  
    $ 28,010     $ -  

 

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5. NOTES PAYABLE

 

Related Party Notes Payable consists of:

 

  

December 31,

2019

  

December 31,

2018

 
On June 25, 2018 the Company issued promissory notes to Peter Zachariou for $30,000. The notes bear interest at 10% per annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the Payee. The note was extended for another twelve months on its due date to June 25, 2020 or on demand by the Payee   30,000    30,000 
Between March 26, 2018 and December 31, 2019 the Company issued various promissory notes to Fountainhead Capital Management Limited for $200,873. The notes bear interest at 10% per annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the Payee. Five notes were extended for another twelve months on their due dates which will be due between April 2020 and March 2021 or on demand by the Payee.    200,873    163,000 
           
Total Related Party Notes Payable  $230,873   $193,000 

 

Other Notes Payable consists of:

 

  

December 31,

2019

  

December 31,

2018

 
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, and has been extended on a number of occasions. On the note’s most recent due date, the note was amended and extended to June 30, 2020. The note is personally guaranteed by certain officers and directors of the Company See further note below.  $300,000   $300,000 
Insurance policy finance agreements.   28,032    25,814 
Total Other Notes Payable  $328,032   $325,814 

 

On January 24, 2018 the Company entered into an amendment agreement (the “Amendment”) with EuroAmerican Investments (“EuroAmerican”) regarding its $300,000 loan note (the “Note”). Under the Amendment, the Note was extended and the conversion terms of the Note reduced to $0.21, the same as the offering price of the 2018 Offering. Conversion of the Note and accrued interest would result in the issuance of 2,765,548 shares of Common Stock. Notwithstanding, EuroAmerican agreed that the Note could not be converted without first offering the Company the right to redeem the Note at principal and accrued interest, and secondly Fountainhead the right to purchase the Note, which cannot be converted prior to such offer and the failure of the Company and Fountainhead to exercise such option in accordance with the amendment terms. In addition, the Company agreed to issue warrants to purchase 2,308,405 shares of Common Stock at $0.27, the same terms as the 2018 Offering, exercisable for three years from January 1, 2018, if and when the conversion option is exercised. The amendment was recognized as a modification, based on the guidance in ASC 470-50.

 

The Company routinely finances all their insurance policies through a third party finance company which requires a down payment and subsequent monthly payments, the time periods vary from 10 months to 12 equal monthly payments.

 

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6. 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.

 

   Twelve Months Ended December 31, 
   2019   2018 
Revenue:          
Vycor Medical  $1,299,830   $1,311,311 
NovaVision  $181,921   $198,019 
   $1,481,751   $1,509,330 
Gross Profit          
Vycor Medical  $1,171,149   $1,160,118 
NovaVision  $163,946   $179,614 
   $1,335,095   $1,339,732 

 

   December 31,   December 31, 
   2019    2018 
Total Assets:          
Vycor Medical  $1,036,857   $981,553 
NovaVision   55,086    62,224 
Total Assets  $1,091,943   $1,043,777 

 

(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.

 

   Twelve Months Ended December 31, 
   2019   2018 
Revenue:          
United States  $1,380,209   $1,406,101 
Europe  $101,542   $103,229 
   $1,481,751   $1,509,330 
Gross Profit          
United States  $1,246,464   $1,248,257 
Europe  $88,631   $91,475 
   $1,335,095   $1,339,732 

 

   December 31,   December 31, 
   2019    2018 
Total Assets:          
United States  $1,055,312   $981,553 
Europe   36,631    62,224 
Total Assets  $1,091,943   $1,043,777 

 

7. FIXED ASSETS

 

Fixed Assets and the estimated lives used in the computation of depreciation are as follows:

 

   Estimated  December 31,   December 31, 
   Useful Lives  2019   2018 
            
Machinery and equipment  3 years  $137,566   $137,503 
Leasehold Improvements  3 years   8,063    7,989 
Purchased Software  3 years   27,706    27,706 
Molds and Tooling  5 years   715,463    660,798 
Furniture and fixtures  7 years   26,120    26,120 
Therapy Devices  3 years   134,002    130,415 
Internally Developed Software  5 years   379,782    379,782 
       1,428,702    1,370,313 
Less: Accumulated depreciation and amortization      (1,054,175)   (997,670)
Property and Equipment, net      374,527    372,643 

 

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Depreciation expense for the years ended December 31, 2019 and 2018 was $57,274 and $127,020 respectively, including $9,454 and $10,965 respectively for Therapy Devices which is allocated to Cost of Sales.

 

As part of the impairment review referred to in Note 8, software development costs were written down by $50,786 to $0 during the year ended December 31, 2018.

 

8. INTANGIBLE ASSETS

 

Intangible Assets consists of:

 

   December 31, 
   2019   2018 
Amortized intangible assets: Patent (8 years useful life)          
Gross carrying Amount  $865,639   $865,639 
Accumulated Amortization   (842,313)   (830,336)
   $23,326   $35,303 
Amortized intangible assets: Website (5 years useful life)          
Gross carrying Amount  $20,382   $20,382 
Accumulated Amortization  $(20,382)  $(20,195)
   $0   $187 

 

Intangible asset amortization expense for the periods ended December 31, 2019 and 2018 was $12,164 and $50,331, respectively.

 

During the year ended December 31, 2018, and following the applicable guidance, the Company made a full provision of $307,576 against the NovaVision intangible assets and capitalized software, of which $256,790 was in respect of Trademarks and Website and $50,786 was in respect of unamortized software development costs.

 

9. EQUITY

 

Equity Transactions

 

From January to December 2019 and 2018, the Company granted 399,996 and 265,384 shares, respectively) of Common Stock (valued at $84,000 during each period) to non-employee Directors. Under the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until January 15th of the year following termination of their services as a director. As of December 31, 2019 these shares have yet to be issued.

 

During January to December 2019 and 2018, under the terms of the Consultancy Agreement referred to in Note 13, the Company issued 2,142,856 and 2,204,770 shares, respectively, of Common Stock to Fountainhead for fees of $450,000 and $675,000, respectively, of which $225,000 in 2018 was in respect of fees accrued at December 31, 2017.

 

On April 4, 2019 the Company issued 5,000 shares of Common Stock to Robert Anderson in accordance with the terms of a consulting agreement.

 

On April 20, 2018, the Company issued an aggregate of 1,113,936 shares of Company Common Stock on the cashless exercise of an aggregate of Warrants to purchase 3,111,560 shares of Common Stock.

 

Increase in Authorized Share Capital

 

On February 9, 2018, the Board of Directors of the Company unanimously adopted a resolution seeking stockholder approval to (a) amend the Company’s Certificate of Incorporation to increase the number of authorized Company Common Shares from 25,000,000 to 55,000,000 and (b) to adopt the Company’s 2018 Stock Incentive Plan. Thereafter, on February 9, 2018, pursuant to the By-Laws of the Company and applicable Delaware law, stockholders holding in excess of fifty percent (50%) of the votes entitled to be cast on the aforementioned two matters (identified in the section entitled “Voting Securities and Principal Holders Thereof”) adopted a resolution to authorize the Board of Directors, in its sole discretion, to increase the number of authorized shares of Company Common Stock from 25,000,000 to 55,000,000 and adopt the Company’s 2018 Stock Incentive Plan.

 

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Warrants and Options

 

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

 

STOCK WARRANTS:

 

       Weighted average 
      exercise price 
   Number of shares   per share 
Outstanding at December 31, 2017   6,929,386   $0.31 
Granted   -    - 
Exercised   (3,111,560)  $0.28 
Cancelled or expired   (100,000)  $2.56 
Outstanding at December 31, 2018   3,717,826   $0.27 
Granted   -    - 
Exercised   -    - 
Cancelled or expired   -    - 
Outstanding at December 31, 2019   3,717,826   $0.27 

 

STOCK OPTIONS:

 

       Weighted average 
      exercise price 
   Number of shares   per share 
Outstanding at December 31, 2017   725,557   $0.95 
Granted   680,000   $0.28 
Exercised   -    - 
Cancelled or expired   (25,557)   5.97 
Outstanding at December 31, 2018   1,380,000   $0.53 
Granted   -    - 
Exercised   -    - 
Cancelled or expired   (680,000)   0.79 
Outstanding at December 31, 2019   700,000   $0.28 

 

As of December 31, 2019, the weighted-average remaining contractual life of outstanding warrants and options is 0.11 and 1.45 years, respectively.

 

10. SHARE-BASED COMPENSATION

 

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.

 

Stock Option Plan

 

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.

 

For the years ended December 31, 2019 and 2018, the Company recognized share-based compensation of $0 and $4,871, respectively for the issuance of stock options to management and employees.

 

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, 2019 there were no awards of any stock appreciation rights.

 

Non-Employee Stock Compensation

 

Aggregate stock-based compensation for stock and warrants granted to non-employees for the years ended December 31, 2019 and 2018 was $534,940 and $620,754. The expense related to stock not issued during the years ended December 31, 2019 and 2018 comprise: $84,000, respectively for both years, related to stock granted but not issued to directors under the Directors Deferred Compensation Plan; and $0 and $86,754 related to the issuance of 660,000 options in the year ended December 31, 2018 discussed below. As of December 31, 2019, there was $0 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.

 

During the year ended December 31, 2019 and 2018, options with a value of $0 and $86,754, respectively, were granted to Fountainhead with performance vesting conditions, (see Note 13). The performance conditions of the options granted during 2018 were met and these options became fully vested in June 2018 and recognized as stock compensation during the period.

 

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Stock-based Compensation Valuation Methodology

 

Stock-based compensation resulting from the issuance of Common Stock is calculated by reference to the valuation of the Stock on the date of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. The fair value of the common stock is determined by the then-prevailing private placement purchase price. Expected volatility was based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the life of the option, and the risk-free rate used was based on the U.S. Treasury Constant Maturity rate.

 

The stock compensation expensed during the year ended December 31, 2019 resulted from the issuance of Common Stock on the date of vesting, valued on the date of issuance and options. The following assumptions were used in calculations of the Black-Scholes option pricing model for option-based stock compensation in year ended December 31, 2018:

 

   Year ended December 31, 
   2019   2018 
Risk-free interest rates   -%   1.72-2.41
Expected life   -    1.5 – 4.0 years  
Expected dividends   -%   0%
Expected volatility   -%   102-107 %
Vycor Common Stock fair value  $-    $ 0.20 - 0.49   

 

11. INCOME TAXES

 

Loss Before Taxes

 

   December 31, 2019   December 31, 2018 
Domestic  $675,687   $1,077,557 
Foreign   120,515    301,799 
   $796,202   $1,379,356 

 

The reconciliation of income tax expense at the U.S. statutory rate of 21%, to the Company’s effective tax rate is as follows:

 

   Year Ended December 31, 
   2019   2018 
         
US statutory rate  $(167,235)  $(289,665)
Tax difference between foreign and U.S.   (13,341)   (12,732)
Change in Valuation Allowance   (180,576)   (302,396)
Tax Provision  $-   $- 

 

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Deferred Income Taxes

 

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

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company and its subsidiaries’ deferred tax assets at December 31, 2019 and December 31, 2018 are as follows:

 

   December 31, 2019   December 31, 2018 
Operating loss carry-forward  $18,600,000   $18,600,000 
Deferred tax asset before Valuation allowance   3,906,000    3,906,000 
Valuation allowance   (3,906,000)   (3906,000)
Net deferred tax asset  $   $ 

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.

 

The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable losses and projections of future taxable income (losses) over the periods in which the deferred tax assets can be realized, management currently believes that it is more likely than not that the Company will not realize the benefits of these deductible differences. Accordingly, management has determined that a 100% valuation allowance is appropriate at December 31, 2019 and December 31, 2018.

 

The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. Since the Company’s foreign subsidiaries have not generated income and have no accumulated earnings, the Company believes that the Tax Act will not have a significant impact on the Company’s consolidated financial statements.

 

Net Operating Loss Carry-Forwards

 

Under the Tax Act, net operating loss carryforwards generated for tax years beginning after December 31, 2018, will have an indefinite carryforward period.

 

As of December 31, 2019 and 2018, the Company had U.S. accumulated losses for tax purposes of approximately $18,600,000 and $18,600,000 respectively, which may be carried forward and offset against U.S. taxable income. $18,320,000 expires during the tax years 2027 through 2037 and $280,000 can be carryforward indefinitely.

 

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

 

As of December 31, 2019 and 2018, the Company had German accumulated losses for tax purposes of approximately $1,435,763 and $1,195,915 respectively, which may be carried forward and offset against German taxable income subject to certain restrictions and limitations in the event of changes in the NovaVision GmbH’s ownership.

 

As of December 31, 2019 and 2018, the Company had UK accumulated losses for tax purposes of approximately $200,010 and $234,000 respectively, which may be carried forward and offset against UK taxable income subject to certain restrictions and limitations.

 

Tax Rates

 

The applicable US income tax rate for the Company for both of the years ended December 31, 2019 and 2018 was 21% and 21%, respectively. Non-US subsidiaries are taxed according to the tax laws in their respective country of residence. The German applicable rate for both of the years ended December 31, 2019 and 2018 was 31.58%; the UK applicable rate for both the years ended December 31, 2019 and 2018 was 19%.

 

US income taxes and foreign withholding taxes were not provided for on undistributed earnings of the Company’s foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to US in the form of dividends or otherwise, after the repayment of intercompany debt, the Company would be subject to additional US income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

 

Uncertain Tax Position

 

The Company has recorded no liability for income taxes associated with unrecognized tax benefits at the date of adoption and has not recorded any liability associated with unrecognized tax benefits during 2019 and 2018. Accordingly, the Company has not recorded any interest or penalty in regard to any unrecognized benefit.

 

12. COMMITMENTS AND CONTINGENCIES

 

Lease

 

Effective August 1, 2017 the Company leased office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2L.P., for a gross rent of approximately $5,700 plus sales tax per month. The lease terminates September 30, 2020. The Company’s subsidiary in Germany occupies premises on a short-term lease agreement. Rent expense for the year ended December 31, 2019 and 2018 was $98,682 and $99,458 respectively.

 

Potential German tax liability

 

In June 2012 the Company’s NovaVision German subsidiary received a preliminary assessment for Magdeburg City trade tax of €75,000 (approximately $82,000), with an additional interest charge of €12,000 (approximately $13,200). This assessment is for the 2010 fiscal year and relates to the Company’s acquisition of the assets of the former NovaVision, Inc. An initial assessment for corporate tax for the same period was preliminarily reduced to zero. The Company did not accept this trade tax assessment and appealed against it to the relevant tax authorities with a view to its reduction. The relevant tax authorities agreed to suspend the assessment pending the outcome of certain court hearings and proposed tax legislation, and the Company agreed to make monthly payments on account totaling €75,000 (approximately $82,000) which were completed in October 2016 and fully expensed. At that time the Company appealed against the interest charge of €12,000 (approximately $13,200) which the tax authorities did not accept but also agreed to suspend pending the outcome of the hearings and proposed legislation outlined above. Accordingly, the Company has made no provision for this liability in the year ended December 31, 2019 and 2018 respectively.

 

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13. CONSULTING AND OTHER AGREEMENTS

 

The following agreement remained in force during the year ended December 31, 2019:

 

Consulting Agreement with Fountainhead

 

In March 2017 and effective April 1, 2017, the Company amended the Fountainhead Consulting Agreement (“the Amended Agreement”). Under the Amended Agreement, fees of $450,000 are payable to Fountainhead, with an option to receive $5,000 per month in cash and the remainder payable in Company Common Stock issued at the higher of $0.21 and the average price for the 30 days prior to issuance, and deliverable at the end of each fiscal quarter. The Consulting Agreement also contains provisions for Fountainhead to receive a higher proportion of its fees in cash subject to certain future liquidity events and Board approval. Under the terms of the Amended Agreement, Fountainhead provides the executive management team of the Company, including the positions of CEO, President and CFO, whose employment agreements with the Company stipulate they receive no remuneration from the Company.

 

14. RELATED PARTY TRANSACTIONS AND BALANCES

 

Peter Zachariou, and David Cantor, directors of the Company, are investment managers of Fountainhead which owned, at December 31, 2019, 57% of the Company’s Common Stock and 95% of the Company’s Series D Preferred Stock. Adrian Liddell, Chairman is a consultant to Fountainhead.

 

During January to December 2019 and 2018, under the terms of the Consultancy Agreement referred to in Note 13, the Company issued 2,142,856 and 2,204,770 shares, respectively, of Common Stock to Fountainhead for fees of $450,000 and $675,000, respectively, of which $225,000 in 2018 was in respect of fees accrued at December 31, 2017.

 

During the year ended December 31, 2019 and 2018, respectively, the Company issued unsecured loan notes to Fountainhead for a total of $37,873 and $163,000, respectively. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary. During year ended December 31, 2019 and 2018, the Company issued unsecured loan notes to Peter Zachariou for a total of $0 and $30,000, respectively. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary.

 

During each of the years ended December 31, 2019 and 2018, the Company accrued an aggregate of $324,370 of Preferred D Stock dividends, of which $226,037 was in respect of Fountainhead and $83,386 was in respect of Peter Zachariou.

 

As referred to in Note 5, on January 24, 2018 the Company entered into the Amendment with EuroAmerican. regarding its $300,000 Note. Under the Amendment, EuroAmerican granted a right of first refusal prior to converting or selling the Note a) first to Vycor to redeem the Note and accrued interest at face value and b) if not exercised second to Fountainhead to purchase the Note and accrued interest at face value on the same terms. The note is personally guaranteed by certain officers and directors of the Company.

 

There were no other related party transactions during the years ended December 31, 2019 and 2018.

 

15. CONCENTRATION

 

Vycor Medical sells its neurosurgical devices in the US primarily direct to hospitals, and internationally through distributors who in turn sell to hospitals.

 

 

Sales Concentration  Year ended December 31, 
   2019   2018 
        
Number of customers over 10%   0    0 
Percentage of sales   0%   0%

 

Accounts Receivable Concentration

 

   At December 31, 
   2019   2018 
         
Number of customers over 10%   1    2 
Percentage of accounts receivable   37%   13% and 40 %

 

We have three sub-contract manufacturers who both represent over 10% of purchased on an annual basis.

 

16. SUBSEQUENT EVENTS

 

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. While our operations are principally located in the United States, and our sub-contract manufacturers are located in the United States, we participate in a global supply chain, and the existence of a worldwide pandemic, the fear associated with COVID-19, or any, pandemic, and the reactions of governments around the world in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing output and delivery schedule. Although we have implemented business continuity plans for our offices and personnel to enable continuity of service remotely, if a critical number of our employees become too ill to work, or we are not able to access a sufficient quantity of our inventory for shipment due to enforced office closures, our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid manner. Although neurosurgery is not generally an elective procedure, general hospital dislocation and diversion of resources could impact our revenues. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.

 

Other than the above stated Subsequent Event, the Company has evaluated the existence of events and transactions subsequent to the balance sheet date through the date the consolidated financial statements were issued and has determined that there were no significant subsequent events or transactions that would require recognition or disclosure in the financial statements.

 

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

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

a) Disclosure Controls and Procedures

 

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

b) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
   
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
   
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

We carried out an assessment, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on that assessment and on those criteria, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2019.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the management’s report in this annual report.

 

c) Changes in Internal Controls

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

The Company’s management, including the Company’s CEO and CFO, do not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

 

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ITEM 9B. OTHER INFORMATION.

 

None

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our Directors and Executive Officers

 

Set forth below is certain biographical information concerning our current executive officers and directors. We currently have two executive officers as described below.

 

Directors and Executive Officers   Position/Title   Age
Peter C. Zachariou   Chief Executive Officer and a Director   58
David Marc Cantor   President and a Director   53
Adrian Christopher Liddell   Chairman of the Board, Chief Financial Officer and a Director   61
Steven Girgenti   Director   74
Oscar Bronsther, M.D.(1)   Director   67
Lowell Rush   Director   63

 

(1)On March 23, 2020, Mr. Bronsther submitted his resignation from the Board of Directors to be effective as of July 1, 2020, which was accepted by the Board of Directors on March 23, 2020.

 

Peter C. Zachariou was appointed a Director of the Company in May 2010, Executive Vice President in September 2010 and Chief Executive Officer on January 2, 2014. He is an investment manager for Fountainhead Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to growth companies in healthcare and other sectors. For the past 20 years, Mr. Zachariou has been an active investor in a variety of companies and industries, both public and private, specializing in workouts and capital formation. Mr. Zachariou’s investments and activities have predominantly been in U.S. emerging and growth companies across a broad range of industry sectors. He has also been proprietor and operator of several businesses in the U.K. and U.S. in the manufacturing, retail and leisure industries.

 

David Marc Cantor has been President of the Company since September 2010 and a Director since January 2010. He is an investment manager of Fountainhead Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to growth companies across a broad range of sectors. Mr. Cantor has over 22 years experience in Investment Banking with a focus on Mergers and Acquisitions and Equity Capital Raisings. Prior to Fountainhead from 2001 – 2005 he was at Citigroup Capital Markets where he was Co-head of its European Business Development Group and subsequently European Head of its Diversified Industrials and Aerospace activities. Prior to Citigroup he was a Managing Director in M&A at Donaldson Lufkin & Jenrette and worked at Lehman Brothers both in New York and London in both the Equity Capital and M&A groups. Mr. Cantor has a BSc with Honours from City Business School, London.

 

Adrian Christopher Liddell has been Chairman of the Board and a Director of the Company since January 2010, and serves as the Company’s CFO. He is also an advisor to Fountainhead Capital Management Limited, an investment company based in Jersey, Channel Islands, which invests in, raises capital for and provides strategic advice to growth companies in healthcare and other sectors. Mr. Liddell has over 30 years of strategic, corporate and financial advisory and company investment experience. From 2003-2006, Mr. Liddell was an investment advisor at Phoenix Equity Partners, a European private equity fund. From 1998 to 2003, Mr. Liddell served as Managing Director, Mergers & Acquisitions at Donaldson Lufkin & Jenrette and then Citigroup in London. From 1984 to 1998, Mr. Liddell held various positions in corporate finance and mergers & acquisitions at Lehman Brothers and Samuel Montagu & Co, in London. Mr. Liddell qualified as a Chartered Accountant in 1984 and holds an MA, Hons. from Christ’s College, University of Cambridge.

 

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Steven Girgenti has been a Vycor Medical director since November 2008 and is Chairman of the Nominating and Governance Committee and of the Compensation Committee. He is presently the Managing Partner of Medi-Pharm Consulting, LLC providing strategic services to a number of medical device, pharmaceutical and diagnostic businesses, and Executive Chairman of BioAffinity Technologies, Inc Steve was formerly CEO and co-founder of DermWorx Incorporated a specialty pharmaceutical company dedicated to solutions for dermatological conditions. Steve was also the Worldwide Chairman and CEO of Ogilvy Healthworld, a leading global healthcare communications network with 55 offices in 36 countries. The network has more than 1,000 brand assignments from nearly 200 clients worldwide, providing strategic marketing and communications services to many of the world’s leading healthcare companies. Mr. Girgenti founded Healthworld in 1986 and, under his leadership, the company made numerous acquisitions to expand and diversify the business. Healthworld went public in 1997. In 1998, and again in 1999, Business Week named Healthworld one of the “Best Small Corporations in America”. In 1999, Forbes listed Healthworld as one of the “200 Best Small Companies”. Mr. Girgenti was recognized as “Entrepreneur of the Year” by NASDAQ in 1999, and was named Med Ad News’ first “Medical Advertising Man of the Year” in 2000. In 2010 he was inducted into the Medical Advertising Hall of Fame. Mr. Girgenti is also Vice Chairman of the Board of Governors for the Mt. Sinai Hospital Prostate Disease and Research Center in New York City, and is on the Board of Directors for Jack Martin Fund, a Mt. Sinai Hospital affiliated charitable organization devoted to pediatric oncology research. He graduated from Columbia University and has worked in the pharmaceutical industry since 1968 for companies such as Bristol-Myers Squibb, Carter Wallace and DuPont, as well as advertising agencies that specialize in healthcare. During his career, Steve has held positions in marketing research, product management, new product planning and commercial development.

 

Oscar Bronsther, M.D., F.A.C.S has been a director since November 2011. Dr. Bronsther is Chief Executive Officer of ERAD Therapeutics, LLC, a pre-clinical Orphan Drug company focusing on treating Cystic Fibrosis and Gaucher disease since 2016. He was formerly Chief Executive Officer of MetaStat, Inc. (OTCBB: MTST), a development stage life sciences company that develops and commercializes diagnostic products for the early and reliable prediction and treatment of systemic metastasisis. Dr Bronsther is also currently Clinical Professor at George Washington University, Washington, DC and has served in that capacity since 2002. He had previously served as an Associate Professor at the University of Rochester, Rochester, NY (1994-2001), University of Pittsburgh, Pittsburgh, PA (1989-1994) and University of California San Diego (1984), and Chairman, Section of General Surgery at Inova Fairfax Hospital. Since 2002, he has served as a Board Member, National Board Member and Director of Transplant Services of Kaiser Permanente Medical Group. Dr. Bronsther is a graduate of the University of Rochester (B.A. 1973) and Downstate Medical Center, Brooklyn, N.Y. (M.D. 1978). He did post-graduate work at Downstate Medical Center (Research Assistant 1975; Kidney Transplant Fellowship 1983-1984), Mount Sinai Medical Center, New York, N.Y (Residency 1978-1983) and Children’s Hospital Medical Center, Boston, MA (Research Fellowship 1980-1981). He resides in Potomac, MD.

 

Lowell Rush was appointed a Director in April 2013 and is Chairman of the Audit Committee. Mr. Rush has extensive experience in financial management and operational development, and since April 2017 has been Chief Financial Officer of Coral Gables-based The Revenue Optimization Companies (T-ROC), a leading provider of retail services. Previously, he was Chief Financial Officer of Ft. Lauderdale-based Paybox Corp. (OTCQB:PBOX) (2013-2017), and held positions as: Chief Operating Officer of Miami-based Cosmetic Dermatology, Inc. , CFO of Bijoux Terner, LLC (2008-2010); CFO of Little Switzerland, Inc. (2006-2008); and VP Sales Operations of Rewards Network, Inc. Mr. Rush sits on the Board of the Florida Breast Cancer Foundation. He is a CPA with an MBA in International Business, who has also held financial management roles at multi-national companies Sunglass Hut International, Burger King Corporation and Knight-Ridder, Inc. He began his career with the accounting firms Ernst & Young and Deloitte & Touche.

 

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

 

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None of our directors and executive officers have during the past five years:

 

had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
   
been convicted in a criminal proceeding and is not subject to a pending criminal proceeding;
   
been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities;
   
or been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

Committees of the Board of Directors

 

Our Company has three committees of its Board of Directors—(a) a Nominating and Governance Committee (b) a Management Compensation Committee and (c) an Audit Committee. The Board of Directors has approved charters for each committee. Steven Girgenti is Chairman of the Nominating and Governance Committee and the Management Compensation Committee, and Lowell Rush is a member. Lowell Rush is Chairman of the Audit Committee and Steven Girgenti and Adrian Liddell are members. The Board has determined that Lowell Rush qualifies as an Audit Committee financial expert, as that term is defined in applicable regulations of the SEC. The Committees are intended to operate consistent with applicable NASDAQ governance requirements.

 

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers serves as a member of the Board of Directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our Board of Directors.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Pursuant to Section 16(a) of the Exchange Act and the rules thereunder, the Company’s executive officers and directors and persons who own more than 10% of a registered class of the Company’s equity securities are required to file with the SEC reports of their ownership of, and transactions in, the Company’s common stock.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following is a summary of the compensation we paid for each of the last two years ended December 31, 2019 and 2018, respectively (i) to the persons who acted as our principal executive officer during our fiscal year ended December 31, 2019 and (ii) to the person who acted as our next most highly compensated executive officer other than our principal executive officer who was serving as an executive officer as of the end of our last fiscal year.

 

Name and Principal Position   Year   Salary($)    Bonus($)    Stock Awards($)    Option Awards($)    Non-
Equity Incentive
Plan Compensation
    Non-Qualified
Deferred Compensation
Earnings($)
    All
other
Compensation($)
    Total($) 
Peter Zachariou   2019   $                                    
CEO   2018   $                             
David Cantor   2019   $                             
President   2018   $                             

 

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OUTSTANDING EQUITY AWARDS

 

Grants of Plan-Based Awards

 

Equity Compensation Plan Information
Plan category   Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights(1)
    Weighted-
average exercise
price of
outstanding
options, warrants
and rights
    Number of
securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected
in column (1)
 
Equity compensation plans approved by security holders   3,200,000   $0.28    2,540,000 
Equity compensation plans not approved by security holders   -    -    - 
Total   

3,200,000

   $0.28    2,540,000 

 

(1) As of December 31, 2019.

 

Warrants Issued to Management

 

Name   Grant Date   Number of Securities
Underlying
Unexercised
Exercisable Warrants
   Number of Securities
Underlying
Unexercised
Exercisable Warrants
   Warrant Exercise
Price($)
   Warrant Expiration
Date
 
None                                    
                           
Total                 -                    

 

Employment Agreements

 

Effective January 2, 2014, the Company entered into: amended employment agreements with Peter Zachariou and David Cantor to serve as the Company’s Chief Executive Officer and President respectively; and an employment agreement with Adrian Liddell to serve as the Company’s Chief Financial Officer. Each agreement continues for a period of twelve months and is then automatically extended unless terminated by either party. The agreements provided for no monthly compensation to be payable, but a deferred compensation payable of $110,000 for each individual, subject to certain conditions and milestones being met. The compensation was payable in cash or Restricted Shares of the Company’s Common Stock. In March 2017 the Company amended the employment agreement such that no compensation would be payable under the agreements. The same level of compensation would instead be payable to Fountainhead under an amended consulting agreement. These changes had no financial impact on the Company but streamlines the shareholding structure.

 

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Compensation of Directors

 

During the period January 1, 2019 through December 31, 2019, we granted Steven Girgenti, Oscar Bronsther, M.D. and Lowell Rush a total of 99,999 each shares of the Company’s Common Stock for their service to the Board of Directors under the Company’s Deferred Compensation Plan. Under this Plan, the directors may defer their director’s compensation to the January 15th following the termination of their service as a director. All of the above-mentioned Stock was granted under the Plan. Each of Mr. Girgenti, Dr. Bronsther and Mr. Rush are entitled to receive $7,000 in cash or stock at the option of the company per quarter. No other directors of the Company receive compensation for their service to the Company other than as disclosed under Employment Agreements above.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of any class of voting securities, (ii) each director, (iii) our chief executive officer and president and (iv) all executive officers and directors as a group as of March 20, 2020. Unless noted, the address for the following beneficial owners and management is 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487.

 

Title of Class  Name and Address of Beneficial Owner  Amount and Nature
of Beneficial
Owner (1)
  

Percent of

Class (2)

 
Common Stock  Steven Girgenti   458,856    1.79%
Common Stock  Oscar Bronsther, M.D   440,283    1.71%
Common Stock  Lowell Rush   428,320    1.67%
Common Stock  Peter C. Zachariou   48,856    0.19%
Series D Preferred Stock  Peter C. Zachariou   69,487    25.71%
Common Stock  All executive officers and directors as a group   1,376,243    5.19%
Series D Preferred Stock  All executive officers and directors as a group   69,487    25.71%
Common Stock  Fountainhead Capital Management Limited 17 Bond Street, St. Helier, Jersey JE2 3NP   14,447,666    58.22%
Series D Preferred Stock  Fountainhead Capital Management Limited 17 Bond Street, St. Helier, Jersey JE2 3NP   188,363    69.7%

 

(1) In determining beneficial ownership of our Common Stock and Series D Preferred Stock, the number of shares shown includes shares which the beneficial owner may acquire upon exercise of debentures, warrants and options which may be acquired within 60 days. In the case of directors, the number of shares includes shares granted but not issued under the director’s Deferred Compensation Plan. In determining the percent of Common Stock or Series D Preferred Stock owned by a person or entity on March 21, 2020, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which the beneficial ownership may acquire within 60 days of exercise of debentures, warrants and options, and the issuance of shares granted but not issued under the director’s Deferred Compensation Plan; and (b) the denominator is the sum of (i) the total shares of that class outstanding on March 21, 2020 (25,288,550 shares of Common Stock and 270,307 shares of Series D Preferred Stock) and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the debentures, warrants and options or that can be issued under the director’s Deferred Compensation Plan. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares

 

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

 

Related Party Transactions

 

Please refer to Financial Statement, Note 14, which is incorporated in its entirety by this reference.

 

Director Independence

 

As of March 21, 2020, of our six (6) directors, Steven Girgenti, Oscar Bronsther and Lowell Rush are considered “independent” in accordance with Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The remaining three (3) directors are not considered “independent”.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2019 and December 31, 2018, respectively, were approximately $53,500 and $51,000.

 

Tax Fees

 

The fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2019 and 2018 were $1,500 and $1,500 respectively.

 

All Other Fees

 

There were no fees billed for other products or services provided by our principal accountant for 2019 or 2018.

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

The following documents are filed as part of this 10-K:

 

1. FINANCIAL STATEMENTS

 

The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:

 

  Reports of Prager Metis CPAs, LLC., Independent Registered Certified Public Accounting Firm
     
  Balance Sheets as of December 31, 2019 and 2018 (audited)
     
  Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019 and 2018 (audited)
     
  Statements of Stockholders’ Deficit from January 1, 2018 to December 31, 2019 (audited)
     
  Statement of Cash Flows for the years ended December 31, 2019 and 2018 (audited)
     
  Notes to Financial Statements (audited)

 

 39 
 

 

2. FINANCIAL STATEMENT SCHEDULES

 

All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.

 

3. EXHIBITS

 

The exhibits listed below are filed as part of or incorporated by reference in this report.

 

Exhibit No.   Identification of Exhibit
     
31.1   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Vycor Medical, Inc.
  (Registrant)
     
  By: /s/ Peter C. Zachariou
    Peter C. Zacharion
    Chief Executive Officer and Director (Principal Executive Officer)
     
  Date March 27, 2020
     
  By: /s/ Adrian Liddell
    Adrian Liddell
    Chairman of the Board and Director
    (Principal Financial and Accounting Officer)
     
  Date March 27, 2020

 

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

 

  By: /s/ Peter C. Zachariou
    Peter C. Zachariou
    Chief Executive Officer and Director
     
  Date March 27, 2020
     
  By: /s/ David Marc Cantor
    David Marc Cantor
    President and Director (Principal Executive Officer)
     
  Date March 27, 2020

 

  By: /s/ Adrian Christopher Liddell
    Adrian Christopher Liddell
    Chairman of the Board and Director (Principal Financial and Accounting Officer)
     
  Date March 27, 2020
     
  By: /s/ Steven Girgenti
    Steven Girgenti
    Director
     
  Date March 27, 2020
     
  By: /s/ Oscar Bronsther, M.D.
    Oscar Bronsther, M.D.
    Director
     
  Date March 27, 2020
     
  By: /s/ Lowell Rush
    Lowell Rush
    Director
     
  Date March 27, 2020

 

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