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 $1,477,045 and $1,652,280 for the years ending December
31, 2017 and 2016 respectively and has not generated cash flows from operations. As at December 31, 2017 the Company had a working
capital deficiency of $197,297, excluding related party liabilities of $562,210. As a result, these conditions raise substantial
doubt regarding our ability to continue as a going concern.
The
Company is executing on a plan to achieve growth in revenues for both the Vycor Medical and NovaVision divisions as well as a
reduction in costs, thereby reducing its cash operating usage. However, the Company believes it may not have sufficient cash to
meet its various cash needs through March 31, 2019 unless the Company is able to obtain additional cash from the issuance of debt
or equity securities. Fountainhead, the Company’s largest shareholder, is currently providing 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. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
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. Certain reclassifications and format changes have been made to prior year
amounts to conform to the current year presentation.
Revenue
Recognition
Vycor
Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical
records revenue when a completed contract for the sale exists, price is fixed or determinable, the product is invoiced and shipped
to the customer and collectability is reasonably assured. Vycor Medical does not provide for product returns or warranty costs.
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 vision restoration therapy consists of six modules, performed on
average over 6 months in the U.S. and U.K. and 10 months in Germany. A patient contract comprises set-up fees and monthly therapy
fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period.
Patient therapy is restricted to being completed by a patient within a specified time frame. NovaVision’s saccadic training
software is generally completed within 2-4 weeks and revenue is therefore recognized fully at commencement.
Deferred
revenue results from patients paying for the therapy in advance of receiving the therapy.
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, 2017 and 2016 patient deposits amounted to $41,172 and $33,351, respectively, and are
included in Accrued Liabilities.
Accounts
Receivable and Allowance for Doubtful Accounts Receivable
We
have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our
existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other
factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful
accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial
obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a
specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These
specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to
determine the total amount of the allowance. We may also record a general allowance as necessary. Direct write-offs are taken
in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances
that indicate that we should abandon such efforts.
Inventories
Inventories
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 market. 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, 2017 and 2016 was $44,760 and $10,174, respectively, of which $39,672
is a special provision related to the introduction of the enhanced VBAS. Shipping and handling costs incurred for inventory
purchases and product shipments are recorded in cost of sales in the Company’s consolidated statements of operations.
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 in the accompanying Consolidated
Balance Sheet.
Educational
marketing and advertising expenses
The
Company may incur costs for the education of customers on the uses and benefits of its products. The Company will include education,
marketing and advertising expense as a component of selling, general and administrative costs as such costs are incurred.
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.
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.
Impairment
of long-lived assets
Long-lived
assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets
that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or
group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its
fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based
on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are
carried at the lower of carrying value or estimated net realizable value.
Research
and Development
The
Company expenses all research and development costs as incurred. For the years ended December 31, 2017 and 2016, the amounts charged
to research and development expenses were $3,015 and $4,739, 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. For the years ended December 31, 2017 and 2016, the amounts capitalized for software development were $2,745
and $12,679 respectively, for the Company’s VRT 7.0 and NeuroEyeCoach programs.
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.
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.
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,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Stock
options outstanding
|
|
|
725,557
|
|
|
|
705,557
|
|
|
Warrants
to purchase common stock
|
|
|
6,929,386
|
|
|
|
6,007,048
|
|
|
Debentures
convertible into common stock
|
|
|
2,308,405
|
|
|
|
242,647
|
|
|
Preferred
shares convertible into common stock
|
|
|
1,272,052
|
|
|
|
1,272,052
|
|
|
Directors
Deferred Compensation Plan
|
|
|
510,527
|
|
|
|
176,479
|
|
|
Total
|
|
|
11,745,927
|
|
|
|
8,403,783
|
|
Recent
Accounting Pronouncements
In
August 2014, the FASB issued ASU No. 2014-15 —Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU requires management to evaluate
whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the financial statements are issued and if management’s plans will alleviate that doubt. Management
will be required to make this evaluation for both annual and interim reporting periods. The Company adopted this guidance for
the fiscal year ended December 31, 2017. This adoption did not have a material impact on the Company’s consolidated financial
statements.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU supersedes most of the existing guidance
on revenue recognition in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition and establishes a
broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations
in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and
recognizes revenue when each separate performance obligation is satisfied. The FASB has subsequently issued additional ASUs to
clarify certain elements of the new revenue recognition guidance. The guidance is effective for fiscal years beginning after December
15, 2017, and is to be applied retrospectively using one of two transition methods at the entity's election. The full retrospective
method requires companies to recast each prior reporting period presented as if the new guidance had always existed. Under the
modified retrospective method, companies would recognize the cumulative effect of initially applying the standard as an adjustment
to opening retained earnings at the date of initial application. Early adoption is permitted for fiscal years beginning after
December 15, 2016.
In
May 2016, FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical
Expedients". The update is to address certain issues identified by the FASB/IASB Joint Transition Resource Group for Revenue
Recognition (TRG) in the guidance on assessing collectability, presentation of sales taxes, noncash consideration,
and completed contracts and contract modifications at transition, the Board decided to add a project to its
technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1) The potential for diversity in practice
at initial application 2) The cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments
in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes
entities that enter into contracts with customers to transfer goods or services (that are an output of the entity's ordinary activities)
in exchange for consideration. The amendments to the recognition and measurement provisions of Topic 606 also affect entities
with transactions included within the scope of Topic 610, Other Income. The amendments in this Update affect the guidance in Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective
date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements
for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.
The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related
disclosures.
In
December 2017, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (the “Bulletin”),
which provides accounting guidance regarding accounting for income taxes for the reporting period that includes the enactment
of the Tax Act. The Bulletin provides guidance in those situations where the accounting for certain income tax effects of the
Tax Act will be incomplete by the time financial statements are issued for the reporting period that includes the enactment date.
For those elements of the Tax Act that cannot be reasonably estimated, no effect will be recorded.
The
SEC has provided in the Bulletin that in situations where the accounting is incomplete for certain effects of the Tax Act, a measurement
period which begins in the reporting period that includes the enactment of the Tax Act and ends when the entity has obtained,
prepared and analyzed the information is needed in order to complete the accounting requirements. The measurement period shall
not exceed one year from enactment.
In
February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This guidance
is effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with
early adoption permitted. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively
to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is
recognized. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements
and related disclosures.
From
time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies
that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting
pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting
or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
3.
INVENTORY
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and work in process
|
|
|
80,139
|
|
|
|
67,936
|
|
|
Finished
goods
|
|
|
133,744
|
|
|
|
136,135
|
|
|
Total
Inventory
|
|
|
213,883
|
|
|
|
204,071
|
|
4.
NOTES PAYABLE
Other
Notes Payable
Other
Notes Payable consists of:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
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 December 31, 2018. See further note below.
|
|
|
300,000
|
|
|
|
300,000
|
|
|
Insurance
policy finance agreements.
|
|
|
18,393
|
|
|
|
16,856
|
|
|
Total
Other Notes Payable
|
|
$
|
318,393
|
|
|
$
|
316,856
|
|
Related
Party Notes Payable consists of:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
The
Company issued promissory notes to Fountainhead Capital Management Limited for $248,000. 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 notes were converted into 1,180,953 shares of common stock and 1,180,953 warrants in connection with the Private
Placement in January 2017.
|
|
|
-
|
|
|
|
248,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Related Party Notes Payable
|
|
$
|
-
|
|
|
$
|
248,000
|
|
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 until December 31, 2018
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 2,308,405 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 the same number of 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.
5.
SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a)
Business segments
The
Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses
on neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss. Set out below are
the revenues, gross profits and total assets for each segment.
|
|
|
Twelve
Months Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Vycor
Medical
|
|
$
|
1,178,063
|
|
|
$
|
1,260,949
|
|
|
NovaVision
|
|
$
|
206,908
|
|
|
$
|
191,765
|
|
|
|
|
$
|
1,384,971
|
|
|
$
|
1,452,714
|
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
Vycor
Medical
|
|
$
|
973,883
|
|
|
$
|
1,093,055
|
|
|
NovaVision
|
|
$
|
183,954
|
|
|
$
|
174,974
|
|
|
|
|
$
|
1,157,837
|
|
|
$
|
1,268,029
|
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
Total
Assets:
|
|
|
|
|
|
|
|
|
|
Vycor
Medical
|
|
$
|
1,263,197
|
|
|
$
|
805,716
|
|
|
NovaVision
|
|
|
186,260
|
|
|
|
679,534
|
|
|
Total
Assets
|
|
$
|
1,449,457
|
|
|
$
|
1,485,250
|
|
(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,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,282,527
|
|
|
$
|
1,355,439
|
|
|
Europe
|
|
$
|
102,444
|
|
|
$
|
97,275
|
|
|
|
|
$
|
1,384,971
|
|
|
$
|
1,452,714
|
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,067,243
|
|
|
$
|
1,176,448
|
|
|
Europe
|
|
$
|
90,594
|
|
|
$
|
91,581
|
|
|
|
|
$
|
1,157,837
|
|
|
$
|
1,268,029
|
|
|
|
|
December
31, 2017
|
|
|
December
31,2016
|
|
|
Total
Assets:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
977,145
|
|
|
$
|
1,258,624
|
|
|
Europe
|
|
|
472,312
|
|
|
|
226,626
|
|
|
Total
Assets
|
|
$
|
1,449,457
|
|
|
$
|
1,485,250
|
|
6.
FIXED ASSETS
As
of December 31, 2017 and 2016, Fixed Assets and the estimated lives used in the computation of depreciation are as follows:
|
|
|
Estimated
Useful Lives
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
3
years
|
|
$
|
138,258
|
|
|
$
|
137,453
|
|
|
Leasehold
Improvements
|
|
3
years
|
|
|
8,881
|
|
|
|
6,206
|
|
|
Purchased
Software
|
|
3
years
|
|
|
27,706
|
|
|
|
27,706
|
|
|
Molds
and Tooling
|
|
5
years
|
|
|
608,699
|
|
|
|
409,784
|
|
|
Furniture
and fixtures
|
|
7
years
|
|
|
26,120
|
|
|
|
25,844
|
|
|
Therapy
Devices
|
|
3
years
|
|
|
123,739
|
|
|
|
112,857
|
|
|
Internally
Developed Software
|
|
5
years
|
|
|
1,190,336
|
|
|
|
1,187,591
|
|
|
|
|
|
|
|
2,123,739
|
|
|
|
1,907,441
|
|
|
Less:
Accumulated depreciation and amortization
|
|
|
|
|
(1,634,569
|
)
|
|
|
(1,506,390
|
)
|
|
Property
and Equipment, net
|
|
|
|
$
|
489,170
|
|
|
$
|
401,051
|
|
Depreciation
expense for the years ended December 31, 2017 and 2016 was $127,899 and $178,339 respectively, including $14,558 and $9,914 respectively
for Therapy Devices which is allocated to Cost of Sales.
7.
INTANGIBLE ASSETS
Intangible
Assets consists of:
|
|
|
December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Amortized
intangible assets: Patent (8 years useful life)
|
|
|
|
|
|
|
|
|
|
Gross
carrying Amount
|
|
$
|
865,639
|
|
|
$
|
865,639
|
|
|
Accumulated
Amortization
|
|
|
(784,575
|
)
|
|
|
(627,068
|
)
|
|
|
|
$
|
81,064
|
|
|
$
|
238,571
|
|
|
Amortized
intangible assets: Website (5 years useful life)
|
|
|
|
|
|
|
|
|
|
Gross
carrying Amount
|
|
$
|
50,760
|
|
|
$
|
50,760
|
|
|
Accumulated
Amortization
|
|
|
(40,371
|
)
|
|
|
(35,802
|
)
|
|
|
|
$
|
10,389
|
|
|
$
|
14,958
|
|
|
Intangible
assets not subject to amortization
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
251,157
|
|
|
$
|
251,157
|
|
Intangible
asset amortization expense for the periods ended December 31, 2017 and 2016 was $162,076 and $89,157, respectively.
8.
EQUITY
Equity
Transactions
From
January to December 2017, the Company granted 334,048 shares of Common Stock (valued at $84,000) 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, 2017 these shares have yet to be issued.
From
January to December 2017, the Company issued 106,451 shares of Common Stock (valued at $25,314) to members of the NovaVision,
Inc. Scientific Advisory Board as compensation for their services.
From
January to December 2017, the Company issued 644,286 shares of Common Stock (valued at $135,300) to Fountainhead under the terms
of a Consulting Agreement and 1,571,429 shares of Common Stock (valued at $330,000) to Fountainhead following the achievement
of certain enumerated milestones.
From
January to December 2017, the Company issued 21,718 shares of Common Stock (valued at $6,251) to Techmed, Inc. in accordance with
the terms of a consulting agreement.
During
January to December 2016, the Company granted 176,479 shares of Common Stock (valued at $78,000) to non-employee Directors. Under
the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until the January 15
th
following the termination of their services as a director. As of December 30, 2016 these shares have yet to be issued.
During
January to December 2016, the Company issued 78,915 shares of Common Stock (valued at $36,875) to members of the NovaVision, Inc.
Scientific Advisory Board in respect of their services.
During
January to December 2016, the Company issued 212,478 shares of Common Stock (valued at $120,000) to Fountainhead in accordance
with the terms of a Consulting Agreement.
During
April to December 2016, the Company issued 15,404 shares of Common Stock (valued at $8,334) to Techmed, Inc. in accordance with
the terms of a consulting agreement.
During
May to December 2016, the Company issued 100,000 share of Common Stock (valued at $40,700) to Valeo Consulting in accordance with
the terms of a consulting agreement.
During
January to December 31, 2016, the Company paid an aggregate of 17,971 shares of Preferred D Stock, valued at $179,727, representing
preferred stock dividends. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 83,586
shares. An aggregate of 17,142 shares of Preferred D Stock dividends were in respect of related parties.
From
January to December the Company issued 72,002 shares of common stock (valued at $19,441) pursuant to exercise of warrants related
to the offering in 2017.
Private
Placement
.
On
January 11 and February 23, 2017, the Company completed the sale of $1,274,717 in shares of Vycor Common Stock (each a “Share”)
and Warrants (together with the Shares, the “Securities”) to accredited investors (the “Investors”). The
Shares were issued in a private placement (the “Private Placement”) pursuant to the terms of Stock Purchase Agreements
between the Company and each of the Investors, and was limited to current shareholders of the Company as of November 9, 2016 (the
“Record Date”).
Included
in these gross proceeds is the conversion of $248,000 of debt on the balance sheet at December 31, 2016 and $101,000 funds held
in escrow on the balance sheet at December 31, 2016. The Private Placement raised net cash proceeds, after debt conversion and
expenses, of $943,207, of which $842,207 was received during the period.
The
Securities comprised one Share at a purchase price $0.21 per share and a Warrant to purchase one Share at an exercise price of
$0.27, exercisable over a period of three (3) years. A total of 6,070,078 Shares and Warrants to purchase 6,070,078
Shares were issued in the Private Placement.
Warrants
and Options
In
August 2014, Fountainhead, Peter Zachariou (“the Related Party Noteholders”) and Craig Kirsch (collectively, the “Noteholders”)
agreed, pursuant to a Securities Exchange Agreement (“Exchange Agreement”), to exchange their outstanding debt from
the Company into shares of Company Series D Convertible Preferred Stock. Pursuant to the Exchange Agreement, on August 5, 2017
(the 3rd anniversary of the exchange) the Noteholders were issued warrants exercisable into 628,619 shares of Common Stock, at
a price of $0.30 per share, of which the Related Party Noteholders were issued warrants exercisable into 599,651 shares of Common
Stock. The warrants expire on August 4, 2020 and were valued at $120,788 (of which $115,222 related to the Related Party Noteholders)
and included in Other Income/Expense, Warrant Issuance Expense for the three months ending September 30, 2017.
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, 2015
|
|
|
6,007,048
|
|
|
$
|
2.57
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
or expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at December 31, 2016
|
|
|
6,007,048
|
|
|
$
|
2.57
|
|
|
Granted
|
|
|
6,901,388
|
|
|
$
|
0.27
|
|
|
Exercised
|
|
|
(72,002
|
)
|
|
$
|
0.27
|
|
|
Cancelled
or expired
|
|
|
(5,907,048
|
)
|
|
$
|
1.88
|
|
|
Outstanding
at December 31, 2017
|
|
|
6,929,386
|
|
|
$
|
0.31
|
|
STOCK
OPTIONS:
|
|
|
|
|
|
Weighted
average
|
|
|
|
|
|
|
|
exercise
price
|
|
|
|
|
Number
of shares
|
|
|
per
share
|
|
|
Outstanding
at December 31, 2015
|
|
|
25,557
|
|
|
$
|
20.25
|
|
|
Granted
(see Note 9)
|
|
|
680,000
|
|
|
$
|
0.79
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
or expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at December 31, 2016
|
|
|
705,557
|
|
|
$
|
0.97
|
|
|
Granted
(see Note 9)
|
|
|
20,000
|
|
|
|
0.27
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
or expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at December 31, 2017
|
|
|
725,557
|
|
|
$
|
0.95
|
|
As
of December 31, 2017, the weighted-average remaining contractual life of outstanding warrants and options is 2.11 and 1.21 years,
respectively. Options to purchase 5,557 shares of Company Common Stock expired on February 12, 2018.
9.
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, 2017 and 2016, the Company recognized share-based compensation of $1,609 and $198,200, 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, 2017 there were no awards of any stock appreciation rights.
Non-Employee
Stock Compensation
Aggregate
stock-based compensation expense charged to operations for stock and warrants granted to non-employees for the twelve months ended
December 31, 2017 and 2016 was $558,363 and $531,409, respectively, of which $249,363 and $205,909, respectively, related to stock
issued during the periods. The expense related to stock not issued during the periods comprise: $84,000 and $78,000, respectively,
related to stock granted but not issued to directors under the Directors Deferred Compensation Plan; and $225,000 and $247,500,
respectively of fees payable in stock to Fountainhead that were accrued but not issued during the period. As of December 31, 2017,
there was $0 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.
During
the twelve months ended December 31, 2017 options with a value of $86,754 were granted to Fountainhead with performance
vesting conditions (see Note 12); the value of these options will not be recognized as share-based compensation unless
or until the Company concludes that it is probable the performance conditions will be achieved.
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, 2017 resulted from the issuance of Common Stock 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, 2016:
|
|
|
Year
ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Risk-free
interest rates
|
|
|
1.50
|
%
|
|
|
0.91
|
%
|
|
Expected
life
|
|
|
1.5
– 3.0 years
|
|
|
|
1.5
years
|
|
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
104
|
%
|
|
|
95
|
%
|
|
Vycor
Common Stock fair value
|
|
$
|
0.20
- .30
|
|
|
$
|
0.71
|
|
10.
INCOME TAXES
Loss
Before Taxes
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
Domestic
|
|
$
|
1,304,136
|
|
|
$
|
1,351,693
|
|
|
Foreign
|
|
|
172,909
|
|
|
|
300,587
|
|
|
|
|
$
|
1,477,045
|
|
|
$
|
1,652,280
|
|
The
reconciliation of income tax expense at the U.S. statutory rate of 35%, to the Company’s effective tax rate is as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
US
statutory rate
|
|
$
|
(516,966
|
)
|
|
$
|
(578,298
|
)
|
|
Tax
difference between foreign and U.S.
|
|
|
10,248
|
|
|
|
25,275
|
|
|
Change
in Valuation Allowance
|
|
|
(506,718
|
)
|
|
|
(553,023
|
)
|
|
Tax
Provision
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2017 and December 31, 2016 are as follows:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
Operating
loss carry-forward
|
|
$
|
6,195,000
|
|
|
$
|
6,050,000
|
|
|
Deferred
tax asset before Valuation allowance
|
|
|
6,195,000
|
|
|
|
6,050,000
|
|
|
Valuation
allowance
|
|
|
(6,195,000
|
)
|
|
|
(6,050,000
|
)
|
|
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, 2017 and December 31, 2016.
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. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act,
the Company has not recorded any adjustments according to Tax Act. As we collect and prepare necessary data, and interpret the
Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may
make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes and effective
tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed
in 2018.
Net
Operating Loss Carry-Forwards
As
of December 31, 2017 and 2016, the Company had U.S. accumulated losses for tax purposes of approximately $17,700,000 and $17,300,000
respectively, which may be carried forward and offset against U.S. taxable income, and which expire during the tax years 2027
through 2032.
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, 2017 and 2016, the Company had German accumulated losses for tax purposes of approximately $1,633,000 and $1,012,000
respectively, which may be carried forward and offset against German taxable income subject to certain restrictions and limitations.
Such carry-forwards are subject to certain restrictions and limitations in the event of changes in the NovaVision GmbH’s
ownership.
As
of December 31, 2017 and 2016, the Company had UK accumulated losses for tax purposes of approximately $249,000 and $198,000 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, 2017 and 2016 was 35%. Non-US subsidiaries
are taxed according to the tax laws in their respective country of residence. The German applicable rate for both of the years
ended December 31, 2017 and 2016 was 31.58%; the UK applicable rate for both the years ended December 31, 2017 and 2016 was 20%.
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 2017 and 2016. Accordingly, the Company has not recorded
any interest or penalty in regard to any unrecognized benefit.
11.
COMMITMENTS AND CONTINGENCIES
Lease
The
Company leased office space located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for
a gross rent of approximately $14,260 plus sales tax per month. The term of the lease was 5 years and 6 months and terminated
July 30, 2017. 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, 2017 and 2016 was $158,278 and $212,054 respectively.
Potential
German tax liability
In
June 2012 the Company’s German subsidiary received a preliminary assessment for Magdeburg City trade tax of approximately
€75,000 (approximately $94,000). This assessment is for the 2010 fiscal year and relates to the Company’s acquisition
of the assets of the former NovaVision, Inc. An initial assessment for corporate tax for the same period has been preliminarily
reduced to zero. The Company has not accepted this trade tax assessment and is in discussion with the relevant tax authorities
with a view to its reduction. The tax authorities agreed to suspend the assessment pending the outcome of certain court hearings
and proposed legal amendments, and the Company agreed to make limited monthly payments on account, which were completed in October
2016. Accordingly, the Company has made no provision for this liability for years ended December 31 2017 and 2016 respectively,
other than recording the monthly payments as an expense.
12.
CONSULTING AND OTHER AGREEMENTS
The
following agreements were entered into or remained in force during the year ended December 31, 2017:
Consulting
Agreement with Fountainhead
During
the year ended December 31, 2017, following the achievement of certain milestones established in the March 2016 Compensation Plan,
the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued during
the year ended December 31, 2016, was paid to Fountainhead by the issuance of 1,571,429 shares of Common Stock (valued at $330,000)
during the year ended December 31, 2017.
In
March 2017 and effective April 1, 2017, as part of a streamlining of compensation arrangements with executive management, the
Company established the March 2017 Compensation Plan. Under this Plan, the Company amended the Fountainhead Consulting Agreement
(“the Amendment”) to increase the annual fees payable to Fountainhead by $330,000 to a total of $37,500 per month.
Concurrently, annual compensation payable to executive management under the March 2016 Compensation Plan was reduced by $330,000
to $0. These changes had no financial impact on the Company. The other terms of the Consulting Agreement remained the same, including
the ability of Fountainhead at its option to receive $5,000 per month in cash and the remainder payable in Company Common Stock
issued at the higher of the Private Placement price ($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 Amendment, Fountainhead was granted
options pursuant to the Vycor Medical, Inc. 2008 Stock Option Plan, to purchase 660,000 shares of Company Common Stock at the
same $0.27 exercise price as that of the warrants issued in the Private Placement. Vesting of these options is subject to the
achievement of certain milestones by March 31, 2018. In March 2018 the Company extended the time period for the achievement of
these milestones to June 30, 2018. These options are consistent with the options granted to executive management under the March
2016 Compensation Plan.
During
the year ended December 31, 2017, under the terms of this amended Consulting Agreement, Fountainhead received total fees of $367,500,
of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock during the period, $7,200 was paid in
cash and $225,000 was accrued and recorded as payable, of which $92,500 was paid after the year end through the issuance of 250,000
shares of Company Common Stock.
In
March 2018 Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2018 Stock Option Plan, to purchase 660,000 shares
of Company Common Stock at an exercise price of $0.46 (the average closing price for the 5 trading days before
the grant). Vesting of these options is subject to the achievement of certain milestones by March 31, 2019.
13.
RELATED PARTY TRANSACTIONS AND BALANCES
Peter
Zachariou, and David Cantor, directors of the Company, are investment managers of Fountainhead which owned, at December 31, 2017,
46% of the Company’s Common Stock and 95% of the Company’s Preferred D Stock. Adrian Liddell, Chairman is a consultant
for Fountainhead.
As
referred to in Note 4, 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 or 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.
During
the year ended December 31, 2017, following the achievement of certain milestones established in the March 2016 Compensation Plan,
the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued during
the year ended December 31, 2016, was paid to Fountainhead through the issuance 1,571,429 shares of Common Stock (valued at $330,000)
during the period ended September 30, 2017.
During
the year ended December 31, 2017, under the terms of this amended Consulting Agreement referred to in Note 12, Fountainhead
received total fees of $367,500, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock,
$7,200 was paid in cash and $225,000 was accrued but not yet paid.
On
January 11, and February 23, 2017 the Company completed the sale of $1,274,717 in shares of Common Stock and Warrants to accredited
investors (the “Private Placement”). Fountainhead purchased a total of $477,939 of shares in the Private Placement
of which approximately $248,000 represented amounts that Fountainhead had already advanced to the Company and was held by the
Company in the form of notes. As a result, Fountainhead was issued 2,275,901 shares of Common Stock and three-year Warrants to
purchase 2,275,901 shares of Common Stock at an exercise price of $0.27.
During
the year ended December 31, 2017 $225,000 of fees payable in stock were accrued; however these shares were not issued.
Pursuant
to the Exchange Agreement, on August 5, 2017 (the 3rd anniversary of the exchange) the Related Party Noteholders were issued warrants
exercisable into 599,651 shares of Common Stock, at a price of $0.30 per share. The warrants expire on August 2, 2020 and were
valued at $115,222 (see Note 8).
During
the year ended December 31, 2016, in accordance with the terms of the Consulting Agreement, the Company issued 212,478 shares
of Common Stock (valued at $120,000) to Fountainhead.
During
the year ended December 31, 2016, the Company paid an aggregate of 17,971 shares of Preferred D Stock, valued at $179,727, representing
preferred stock dividends. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 83,586
shares. An aggregate of 17,142 shares of Preferred D Stock dividends were in respect of related parties.
During
the year ended December 31, 2016, 2016, the Company issued unsecured loan notes to Fountainhead for a total of $248,000. The loan
notes bore interest at a rate of 10% and were due on demand or by their one-year anniversary. The notes were
converted into Common Stock in the Offering during 2017.
At
December 31, 2016 the Company was holding $101,000 cash in escrow from Fountainhead in respect of the Private Placement Initial
Closing that occurred on January 11, 2017.
There
were no other related party transactions during the years ended December 31, 2017 and 2016.
14.
CONCENTRATION
Vycor
sells its neurosurgical devices in the US primarily direct to hospitals, and internationally through distributors who in turn
sell to hospitals. The sales to one international distributor represented 16% and 14%, respectively, of total sales for the years
ended December 31, 2017 and 2016.
15.
SUBSEQUENT EVENTS
On
February 09, 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 09, 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 . As of the
date of this Report, the increase in authorized capital the Company’s 2018 Stock Incentive Plan have yet to become effective
and the Company expects that they will become effective during the Company’s second fiscal quarter of 2018.
During
March 2018 the Company issued unsecured loan notes to Fountainhead for a total of $30,000. The loan notes bear interest at a rate
of 10% and are due on demand or by their one-year anniversary.
Other
than the foregoing, 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 which would require recognition or disclosure in the financial statements.