U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31,
2010
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
000-51475
Vicor Technologies,
Inc.
(Exact name of Registrant as
specified in its charter)
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Delaware
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20-2903491
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2300 NW Corporate Boulevard Suite 123 Boca Raton, FL
33431
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33431
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(Address of principal executive
offices)
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(zip code)
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Registrants telephone number, including area code:
(561) 995-7313
Securities registered under Section 12(b) of the Exchange
Act:
None.
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, $0.0001 par value per share
(Title of Class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No x
Indicate by check mark whether the Registrant is not required to
file reports pursuant to Section 13 or 15(d) of the
Exchange
Act. Yes o No x
Indicate by checkmark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has electronically
submitted and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the Registrant
was required to submit and post such
files). Yes o No o
Indicate by checkmark if there is no disclosure of delinquent
filers in response to Item 405 of
Regulation S-B
(Sec.229.405 of this chapter) contained herein, and no
disclosure will be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-KSB. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
Check whether the Registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act). Yes o No x
The Registrant had revenue of $189,000 for the year ended
December 31, 2010.
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant was approximately $14,875,003 as
of March 11, 2011 based on the closing price $0.38 of the
Companys common stock on the
Over-the-Counter
Bulletin Board on said date. For purposes of the foregoing
computation, all executive officers, directors and 10%
beneficial owners of the Registrant are deemed to be affiliates.
As of March 15, 2011, there were 47,192,482 issued and
outstanding shares of the Registrants common stock.
DOCUMENTS
INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format (check
one): Yes o No x
PART I
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on
Form 10-K,
other than purely historical information, including estimates,
projections, statements relating to the business plans,
objectives and expected operating results of Vicor Technologies,
Inc. and the assumptions upon which those statements are based,
are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements generally are
identified by the words believe,
project, expect, anticipate,
estimate, intend, strategy,
plan, may, should,
will, would, will be,
will continue, will likely result, and
similar expressions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks
and uncertainties which may cause actual results to differ
materially from the forward-looking statements. A detailed
discussion of these and other risks and uncertainties that could
cause actual results and events to differ materially from such
forward-looking statements is included in the section entitled
Risk Factors in Item 1 of this Annual Report.
Vicor Technologies, Inc. undertakes no obligation to update or
revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
Forward-looking statements reflect only our current
expectations. In any forward-looking statement, where we express
an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith as of the date
of such statement and believed to have a reasonable basis, but
the statement of expectation or belief may not be achieved or
accomplished. Our actual results, performance or achievements
could differ materially from those expressed in, or implied by,
the forward-looking statements due to a number of factors, many
of which may be unforeseen, including:
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our history of operating losses and relatively low cash position
relative to our anticipated cash needs;
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our ability to obtain additional funds to sustain our business
on acceptable terms or at all;
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our ability to obtain FDA approval for specific medical claims
for our products;
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our ability to achieve broad market acceptance of our technology;
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our ability to manufacture, market and sell our products
effectively;
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our ability to protect our proprietary technology;
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the ability of others to develop, obtain approval of and
commercialize products quicker or more successfully than us;
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technological changes impacting our industry that may lead to
our technologies becoming obsolete;
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any future litigation regarding our business, including
intellectual property and product liability claims;
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legal and regulatory changes affecting the medical device
industry, including changes impacting reimbursement for medical
devices and tests;
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general economic and business conditions;
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other risk described in Item 1 of the Annual Report under
the heading Risk Factors.
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1
Item 1.
Introduction
Vicor Technologies, Inc. (we, us,
our, the Company, or Vicor)
was incorporated in the State of Delaware on May 24, 2005
as SRKP 6, Inc. (SRKP). On August 3, 2005 we
filed a registration statement on
Form 10-SB,
subsequently amended on August 29, 2005, to register our
common stock under the Securities Exchange Act of 1934, as
amended (the Exchange Act). The registration
statement became effective on October 3, 2005, after which
time we became a reporting company under the Exchange Act. We
were formed to pursue a business combination with one or more
operating companies.
On March 30, 2007 we acquired Vicor Technologies, Inc., a
Delaware corporation (Old Vicor) formed in August
2000, through the merger (Merger) of Old Vicor with
a wholly-owned subsidiary formed for the purpose of facilitating
that transaction. Upon the closing of the Merger on
March 30, 2007, Old Vicor became our wholly-owned
subsidiary. Effective March 31, 2007 we merged Old Vicor
into our company and changed our name to Vicor Technologies,
Inc. At the closing each outstanding share of Old Vicor common
stock was cancelled and automatically converted into the right
to receive two shares of our common stock. We also assumed all
outstanding options and warrants to purchase Old Vicor common
stock which were not exercised, cancelled, exchanged,
terminated, or expired. Upon the consummation of the Merger, we
were obligated to issue an aggregate of 22,993,723 shares
of our common stock to Old Vicors former common
stockholders and 157,592 shares of our Series A
Convertible Cumulative Preferred Stock (Preferred
Stock) to Old Vicors former preferred stockholder.
In addition, all securities convertible or exercisable into
shares of Old Vicors capital stock outstanding immediately
prior to the Merger (excluding Old Vicors preferred stock
and convertible debt) were cancelled, and the holders thereof
received similar securities for the purchase of an aggregate of
800,250 shares of our common stock.
The Merger was accounted for as a reverse acquisition, to be
applied as an equity recapitalization in accordance with
U.S. generally accepted accounting principles for
accounting and financial reporting purposes. Under this method
of accounting, SRKP was treated as the acquired
company for financial reporting purposes. In accordance with
guidance applicable to these circumstances, the Merger was
considered to be a capital transaction in substance.
Accordingly, for accounting purposes, the Merger was treated as
the equivalent of Old Vicor issuing stock for the net monetary
assets of SRKP, accompanied by a recapitalization. The net
monetary assets of SRKP were stated at their fair value,
essentially equivalent to historical costs, with no goodwill or
other intangible assets recorded. The accumulated deficit of Old
Vicor was carried forward after the Merger. Operations prior to
the Merger are those of Old Vicor.
We own all of the outstanding common stock of Nonlinear
Medicine, Inc., a Delaware corporation (NMI), and
Stasys Technologies, Inc., a Delaware corporation
(STI). NMI owns all of our intellectual property
related to our diagnostic products, and STI owns all of our
intellectual property related to our therapeutic products.
The address of our principal executive office is 2300 NW
Corporate Boulevard, Suite 123, Boca Raton, Florida 33431,
and our telephone number is
(561) 995-7313.
Our
Business
General
Overview
We are a medical diagnostics company focused on commercializing
noninvasive diagnostic technology products based on our
patented, proprietary point correlation dimension algorithm (the
PD2i®
Algorithm). The
PD2i®
Algorithm and software facilitates the ability of physicians to
accurately risk stratify a specific target population to predict
future pathological events, such as autonomic nervous system
dysfunction, cardiac mortality (either from arrhythmic death or
congestive heart failure) and imminent death from trauma. We
believe that the
PD2i®
Algorithm and software
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represents a noninvasive monitoring technology that physicians
and other members of the medical community can use as a new and
accurate vital sign. We are currently commercializing two
proprietary diagnostic medical products which employ software
utilizing the
PD2i®
Algorithm: the PD2i
Analyzertm
(sometimes referred to as the PD2i Cardiac
Analyzertm)
and the
PD2i-VStm
(Vital Sign). It is also anticipated that the
PD2i®
Algorithm and software applications will allow for the early
detection of cerebral disorders as well as other disorders and
diseases.
Our first product, the PD2i
Analyzertm,
received 510(k) marketing clearance from the Food and Drug
Administration (FDA) on December 29, 2008. It
displays and analyzes electrocardiographic (ECG)
information and measures heart rate variability
(HRV) in patients at rest and in response to
controlled exercise and paced respiration. The PD2i
Analyzertm
applies patented and proprietary technology to analyze a high
resolution electrocardiograph signal, and measure R-wave
intervals. The clinical significance of HRV and of the results
of our proprietary analysis must be interpreted by a physician.
Revenues commenced in January 2010. In September 2010 we hired a
National Sales Manager and as of December 31, 2010 we had
entered into agreements with 27 independent sales
representatives in more than 30 states and the District of
Columbia. We have also begun the selected hiring of sales
personnel in selected states to supplement our independent sales
representatives.
The PD2i
Analyzertm
consists of a private-label digital ECG device that incorporates
automated blood pressure recording and a laptop computer which
utilizes proprietary collection software. The PD2i
Analyzertm
accesses the internet and sends recorded ECG files to our remote
server where the files are analyzed by our proprietary algorithm
and software. The analyzed results are then returned to the
laptop in the form of an electronic health record together with
a report for the physician to interpret and make a diagnosis, as
well as information which the physician can use to bill both
public and private insurers. Established Current Procedural
Terminology Codes, known as CPT Codes, allow the physician to
currently bill and collect from public and private insurers.
Vicor bills the physician monthly for the number of tests
performed, thus enabling us to realize revenue from the
recurring use of the PD2i
Analyzertm
in addition to revenue realized from the sale of the device.
We anticipate obtaining additional marketing clearances from the
FDA for the PD2i
Analyzertm
for medical claims which could include cardiovascular disease
testing, trauma triage and the diagnosis of diseases related to
autonomic nervous system dysfunction. These additional marketing
clearances from the FDA are not required for us to generate
revenue from our existing product(s) but would allow us to
accelerate our marketing efforts.
Technology
Background
The
PD2i®
Algorithm is a method for evaluating heart rate variability by
measuring electrophysiological potentials (from
electrocardiograms) with a high sensitivity and high
specificity. This will assist physicians in both the detection
of the presence of certain conditions (such as autonomic nervous
system dysfunction) and the prediction of future pathological
events, such as cardiac mortality (either from arrhythmic death
or congestive heart failure) and imminent death from trauma. The
PD2i®
Algorithm is designed to detect deterministic, low-dimensional
excursions in nonstationary heartbeat intervals.
The key to understanding what the
PD2i®
Algorithm does and why we believe it is superior to all other
related technology is its ability to characterize the
relationship between the variation of heartbeat intervals and
the hearts vulnerability to arrhythmogenesis. Our
analytical approach to quantifying these neuro-cardiac
relationships utilizes the relatively new field of nonlinear
dynamics. As opposed to using an algorithm based on a linear
stochastic model, such as mean or standard deviation, the
PD2i®
Algorithm measures variability that is based on a nonlinear
deterministic model.
The
PD2i®
Algorithm requires a maximum data collection window of only
approximately fifteen minutes (in some cases the collection
window can be as short as 90 seconds) performed on a resting
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patient to produce the PD2i score; elevated heart rates and
stress testing are not required. At the physicians
request, the patient may also perform three simple maneuvers
(commonly referred to as the Ewing maneuvers) which can provide
additional insights into the health of the patients
autonomic nervous system function.
Diagnosis
of Diseases
Cardiovascular
Disease
Statistics from 2010 in a report from the American Heart
Association estimate that more than 81,100,000 people in
the United States have one or more forms of cardiovascular
disease, including high blood pressure, coronary artery disease
and heart failure. Cardiovascular disease mortalities represent
1 out of every 2.9 deaths or approximately 34.6% of all deaths
in the United States. The majority of patients with
cardiovascular disease fall into two categories, congestive
heart failure patients and cardiac ischemia patients.
Congestive
Heart Failure
Congestive heart failure or heart failure (CHF) is a
condition in which the heart cannot pump enough blood to the
bodys other organs. This can result from any of the
following conditions:
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narrowed arteries that supply blood to the heart muscle, which
is referred to as coronary artery disease;
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past heart attack, or myocardial infarction, with scar tissue
that interferes with the heart muscles normal work;
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high blood pressure;
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heart valve disease due to past rheumatic fever or other causes;
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primary disease of the heart muscle itself, called
cardiomyopathy;
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heart defects present at birth, which is referred to as
congenital heart defects; and
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infection of the heart valves
and/or heart
muscle itself, which is referred to as endocarditis
and/or
myocarditis.
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The failing heart continues working but not as
efficiently as it should. People with congestive heart failure
become short of breath and tired when they exert themselves.
As blood flow out of the heart slows, blood returning to the
heart through the veins backs up, causing congestion in the
tissues. Often swelling, or edema, results
typically in the legs and ankles, but swelling may occur in
other parts of the body too. Fluid may also collect in the lungs
and interfere with breathing, causing shortness of breath,
especially when a person is lying down. Congestive heart failure
also affects the kidneys ability to dispose of water and
sodium. The retained water in turn increases the swelling.
The most common signs of congestive heart failure are swollen
legs or ankles or difficulty breathing. Another symptom is
weight gain as a result of fluid accumulation in the body.
A doctor needs to properly tailor a treatment program to an
individual patient. Depending on the severity of the disease,
most people with mild and moderate congestive heart failure can
be treated. A treatment program can consist of:
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rest;
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supervised exercise program;
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proper diet;
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modified daily activities; and
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ACE (angiotensin-converting enzyme) inhibitors;
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beta blockers;
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digitalis;
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diuretics; and
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vasodilators.
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ACE inhibitors and vasodilators expand blood vessels and
decrease resistance. This allows blood to flow more easily and
makes the hearts work more efficient or easier. Beta
blockers can improve how well the hearts left ventricle
pumps. Digitalis increases the pumping action of the heart while
diuretics help the body eliminate excess water and sodium.
When a specific cause of congestive heart failure is discovered,
it should be treated or, if possible, corrected through the use
of medications or implantable devices, such as a Cardiac
Resynchronization Therapy-Defibrillators (CRT-D) or
Left Ventricular Assist Devices (LVAD). For example,
certain cases of congestive heart failure can be treated by
treating high blood pressure and in other instances if the heart
failure is caused by an abnormal heart valve, the abnormal heart
valve can be surgically replaced. If the heart becomes so
damaged that it cannot be repaired, a more drastic approach,
such as a heart transplant, may need to be considered as an
option.
Cardiac
Ischemia
Ischemia is a condition that occurs when blood flow and oxygen
to a particular part of the body are restricted. Cardiac
ischemia or ischemic heart disease is the name for
the condition of lack of blood flow and oxygen to the heart and
is usually caused by a narrowing of the coronary arteries. Less
blood and oxygen are able to reach the heart muscle when
arteries are narrowed. This is also referred to as coronary
artery disease or coronary heart disease and this condition may
ultimately lead to a heart attack.
Ischemia often causes chest pain or discomfort known as angina
pectoris. The American Heart Association estimates, however,
that as many as 3 to 4 million Americans may have ischemic
episodes and not even know they are suffering these episodes.
These people have ischemia without pain, or silent ischemia, and
they may have a heart attack without prior warning. People with
angina may also have undiagnosed episodes of silent ischemia.
Additionally, people who have suffered previous heart attacks or
have diabetes are at a higher risk for developing both angina
and silent ischemia. An exercise test or wearing a
24-hour
portable monitor, or Holter monitor, that measures and records
an electrocardiogram continuously during a 24
48 hour period are two tests that are often used to
diagnose this problem, although other tests may also be used.
Arrhythmic
Death
Arrhythmic death (sudden cardiac death or
SCD) is a sudden, unexpected death caused by a heart
rhythm disturbance (arrhythmia) which leads to a loss of heart
pumping function. It is the largest cause of natural death in
the United States (in excess of 300,000 adult deaths annually).
Arrhythmic death is caused by arrhythmias (abnormal heart
rhythms). The most common life-threatening arrhythmia is
ventricular fibrillation, an erratic, disorganized firing of
impulses from the ventricles. When this occurs, the heart is
unable to pump blood, and death will occur within minutes if
left untreated.
Arrhythmic death is not a heart attack. A heart attack occurs
due to blockage in one or more of the coronary arteries that
feed the heart muscle, resulting in lack of blood flow to the
heart muscle and consequential heart muscle damage. In contrast,
during arrhythmic death the electrical system to the heart
suddenly becomes irregular. The ventricles may flutter or quiver
(ventricular fibrillation), and
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blood is not delivered to the body. Of greatest concern in the
first few minutes is that blood flow to the brain will be
reduced so drastically that a person will lose consciousness.
Death follows unless emergency treatment is begun immediately.
Survival can be as high as approximately 90% if treatment is
initiated within the first few minutes after symptoms develop.
The survival rate decreases by about 10% each minute treatment
is delayed. Proper evaluation by a physician can prevent
arrhythmic death through an implantable cardioverter
defibrillator (ICD). There are approximately
15 million people who currently meet the criteria to
receive an insurance-paid ICD. The risk stratification criteria
to include patients for ICD implantation was established by
three clinical trials: the Multicenter Unsustained Tachycardia
Trial (MUSTT), the Multicenter Automatic
Defibrillation Trial (MADIT-II) and Sudden Cardiac
Death Heart Failure Trial (SCD-HeFT).
The principal cause of death for cardiovascular patients is
either arrhythmic death or congestive heart failure death (pump
failure).
Diagnostic
Tools for Congestive Heart Failure Death and Arrhythmic
Death
There currently are no readily available diagnostic tools that
enable the easy identification of patients at elevated risk of
congestive heart failure death.
Current diagnostic tests to determine patients at risk of
arrhythmic death include noninvasive diagnostic tools such as an
electrocardiogram, ambulatory monitoring, echocardiography,
cardiac stress test and invasive diagnostic tools such as
cardiac catheterization or an electrophysiology study.
The current invasive diagnostic tools to determine patients at
risk of arrhythmic death have all of the risks that accompany
any major surgery. Additionally, we believe that existing
noninvasive tools suffer from three significant drawbacks.
First, the current noninvasive diagnostic tools are inaccurate
because (a) they are insensitive to nonlinearities in the
data, (b) they assume random variation in the data
(stochastic) and (c) the system generating the data cannot
change during the recording. Second, the current noninvasive
diagnostic tools require a stress test, which involves risk for
patients.
We believe the PD2i
Analyzertm
is a simple and easy to use noninvasive diagnostic tool for
physicians in evaluating patients with cardiovascular disease.
In 2010 Vicor and researchers at the University of Rochester and
the Catalan Institute of Cardiovascular Sciences in Barcelona
completed their collaboration on the independent
PD2i®
analysis of data collected for the Merte Subita en
Insufficiencia Cardiaca (MUSIC) Trial. The collaboration was
entitled Prognostic Significance of Point Correlation
Dimension Algorithm (PD2i) in Chronic Heart Failure. The
goal of the study was to evaluate the ability of our
PD2i®
nonlinear algorithm to predict cardiac events in the chronic
heart failure patients enrolled in the MUSIC Trial; MUSIC Trial
participants were followed for an average period of
44 months. The conclusion of the University of Rochester
researchers who conducted the study is that the
PD2i®
nonlinear algorithm and software is predictive of total
mortality, cardiac death, and heart failure death in patients
with left ventricular ejection fraction of less than or equal to
35%, which refers to the percentage of blood pumped out of the
left ventricle with each heart beat (normal is >50%). With
a P value of 0.004 the study results are highly statistically
significant. Commenting on the study and its results, Wojciech
Zareba, M.D. Ph.D. the Principal Investigator at the
University of Rochester said, These results are of major
importance for risk stratifying heart failure patients who are
eligible for therapy with an implantable ICD or
CRT-D.
Currently, only about
30-40% of
heart failure patients eligible for this therapy receive
devices. Testing heart failure patients using the
PD2i®
should enhance risk stratification and motivate physicians to
implant these devices in ICD/CRT-D eligible patients with
abnormal
PD2i®
test results.
Based on the results of the MUSIC Trial, we submitted a 510(k)
application to the FDA for a marketing claim to use the PD2i
Analyzertm
to analyze ECG signals and provide measurement of heart rate
variability in patients undergoing cardiovascular disease
testing for interpretation by a qualified healthcare
practitioner. The FDA is reviewing the submission as part of its
normal process,
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the results of which should be known in the first half of 2011.
Marketing clearance, if obtained, will permit the acceleration
of marketing efforts to cardiologists and electrophysiologists.
Background
of Autonomic Nervous System Testing
Autonomic Nervous System Dysfunction is among the least
recognized and understood serious complications of diabetes. It
often manifests itself as diabetic autonomic neuropathy
(DAN), which impacts the entire autonomic nervous
system. It causes substantial morbidity and increased mortality,
particularly if cardiovascular autonomic neuropathy
(CAN) is present. The American Diabetes Association
recommends annual screening of the 24+ million diabetics for
DAN. The most common noninvasive method of diagnosis is heart
rate variability testing in patients at rest and in response to
three maneuvers (commonly referred to as the Ewing maneuvers).
Those maneuvers include metronomic breathing, the Valsalva
maneuver and orthostatic stress (rising from a recumbent
position to a standing position), all of which stress components
of the autonomic nervous system.
Clinical tests employing HRV analysis have been extensively
studied and published by medical researchers over the last forty
years in the United States and internationally. This research
has demonstrated the potential for the application of HRV tests
to include cardiac and cardiovascular risk stratification and
for identifying the presence of autonomic neuropathy, a
condition which is particularly prevalent among people with
diabetes. Several HRV-measuring devices are now used as tools
for evaluating patients for the presence of autonomic
neuropathy. Many such devices have been designed with a focus on
the diabetic population, but despite the growing incidence of
diabetes, these devices have not yet been widely adopted by
clinicians.
The diabetes market still represents a largely untapped market
for technology able to facilitate objective identification of
autonomic nervous system dysfunction and autonomic neuropathy.
If not diagnosed prior to the manifestation of autonomic
neuropathic symptoms, diabetics are at significantly greater
risk of developing debilitating or fatal end-organ damage, which
is more difficult and more expensive to treat than in its early
stages.
Diagnostic
Tools for Autonomic Nervous System
In 1996 specific measurement of HRV was recognized by the
European Society of Cardiology and the North American Society of
Pacing and Electrophysiology (now known as the Heart Rhythm
Society) as a predictor of risk after acute myocardial
infarction (MI) and as an early warning sign of
diabetic neuropathy. Since that time, a vast amount of research
and experience has been collected and reviewed by medical
societies and researchers worldwide. Now, HRV measurement is a
standard of care for the management of people with diabetes and
in objectively diagnosing autonomic neuropathy.
Autonomic neuropathy is highly prevalent among patients with
diabetes, and is associated with markedly heightened cardiac
risk. About 25% of diabetic adults have clinically significant
autonomic neuropathy. Since the condition is a degenerative one,
it can be graded in degrees of severity for any given patient
population. Treatment is most effective in the earlier stages of
neuropathy prior to end-organ damage, so making an early
diagnosis is important.
Even if diabetic patients are already being screened for
peripheral (somatic) sensory or motor neuropathy, as many as 46%
of them could have autonomic neuropathy without having sensory
neuropathy. It has been demonstrated in various studies that,
for individuals with either type 1 or type 2 diabetes, a
positive test for (i) vibration perception threshold, or
(ii) the presence of peripheral neuropathy or chronic
painful neuropathy, or (iii) abnormal nerve conduction
studies is not necessarily associated with the presence of
autonomic neuropathy.
Looking for autonomic symptoms is not an adequate approach to
managing autonomic neuropathy; a patients history and
physical examination are ineffective for early detection of DAN.
The symptoms of autonomic neuropathy tend to occur when its
development is advanced and difficult
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to treat. HRV testing may facilitate differential diagnosis and
the attribution of symptoms (e.g., erectile dysfunction,
dyspepsia, dizziness) to autonomic dysfunction.
We believe the PD2i
Analyzertm
will be a simple and easy to use noninvasive diagnostic tool for
physicians in evaluating patients for autonomic nervous system
dysfunction (autonomic neuropathy). In addition to the classical
Ewing maneuvers evaluated by the PD2i
Analyzertm,
the
PD2i®
score by itself has been demonstrated in a study to be published
in Clinical Neurophysiology to identify diabetic patients
in the early stages of autonomic neuropathy.
Products
and Markets
PD2i
Analyzertm
The PD2i
Analyzertm
received 510(k) marketing clearance from the FDA on
December 29, 2008. The PD2i
Analyzertm
displays and analyzes electrocardiographic information and
measures heart rate variability in patients at rest and in
response to controlled exercise and paced respiration. The
clinical significance of HRV and of the results of our
proprietary analysis must be interpreted by a physician.
Revenues commenced in January 2010. In September 2010 we hired a
National Sales Manager and as of December 31, 2010 we had
entered into agreements with 27 independent sales
representatives in more than 30 states and the District of
Columbia. We have also begun the selected hiring of sales
personnel in selected states to supplement our independent sales
representatives.
The PD2i
Analyzertm
consists of a private-label digital ECG device that incorporates
automated blood pressure recording and a laptop computer which
utilizes proprietary ECG collection software. The PD2i
Analyzertm
accesses the internet and sends recorded ECG files to our remote
secure server where the files are analyzed by our proprietary
algorithm and software. The analyzed results are then returned
to the laptop in the form of an electronic health record
together with a report for the physician to interpret and make a
diagnosis, as well as information which the physician can use to
bill both public and private insurers. Established CPT codes
allow the physician to currently bill and collect from both
public and private insurers. We bill the physician monthly for
the number of tests performed, thus enabling us to realize
revenue from the recurring use of the PD2i
Analyzertm
in addition to revenue realized from the sale of the device.
PD2i-VStm.
We also plan on commercializing the
PD2i-VStm
product. This product is expected to be used to assess the
severity of critically injured combat and civilian trauma
casualties to determine the need for immediate life saving
intervention in those victims who are at high risk of imminent
death. The
PD2i-VStm
is also anticipated to be used for in-hospital monitoring in
Intensive Care Units, Operating Rooms and Emergency Rooms.
The U.S. Army, in conjunction with Vicor, has tested the
PD2i-VStm
algorithm in several diverse cohorts, including civilian human
trauma, patients in intensive care units (ICU
Patients) and combat casualties. Various experiments have
been performed under the Research and Development Agreement
entered into with the U.S. Army Institute for Surgical
Research (USAISR) in 2008, and the US Army has presented the
findings at several conferences in the United States and Europe.
Manuscripts and abstracts have also been published by leading
journals with Vicor and the US Army as co-authors. The most
recent data set consisted of 325 civilian trauma files. Low
PD2i®
scores correctly identified all 20 deaths, of which 14 of these
victims did not have a life-saving intervention performed on
them in the field.
We have made substantial programming changes in order for the
PD2i-VStm
to operate as a continuous vital sign monitor. In
this mode, the
PD2i-VStm
provides an initial result with three minutes of collected data
and an updated result every minute thereafter. Each result is
accompanied by an audible tone and a green, yellow, or red light
to indicate the patients change in status and alert the
emergency response team of a need for aggressive and immediate
lifesaving intervention. We have
8
completed a modification of the R-R detector in our software to
improve its already high sensitivity and accuracy. The accuracy
of the time intervals between each heart beat (the R-R
interval) is critical to the calculation of a
PD2i®
value. The enhanced version of the continuous
PD2i-VStm,
together with the improved R-R detector is contemplated to be
used in conjunction with hardware still under evaluation
and/or
development as a Vicor solution for both military and civilian
trauma triage.
We have a number of clinical trials ongoing with the University
of Mississippi Medical Center in such areas as trauma triage,
pre-operative and intraoperative monitoring as well as intensive
care unit monitoring. We also have an ongoing study in Ecuador
involving the use of
PD2i®
in the intensive care unit as a patient care metric.
The results of these trials are expected to be finalized and
submitted to the FDA in the second half of 2011 for 510(k)
marketing approval for use in trauma triage.
Regulatory
Approval Process
United States. The FDA classifies medical
devices into Class I, II and III. The amount of
regulatory control increases from Class I to
Class III. The device classification regulation defines the
regulatory requirements for a general device type. A full
premarket notification process for a Class III device is
the most detailed process, requiring the submission of clinical
data to support claims made for the device. Class II
devices require premarket notification on a 510(k) application.
A 510(k) application is a premarketing submission made to the
FDA to demonstrate that the device to be marketed is safe,
effective and substantially equivalent to a legally marketed
device (i.e. a predicate device) and is therefore not subject to
premarket approval. The FDA has advised us that the predicate
device for the PD2i
Analyzertm
is a Class II device (pursuant to 21 C.F.R.
§ 870.2340 Cardiovascular
Devices Cardiovascular Monitoring
Devices Electrocardiograph); thus the PD2i
Analyzertm
is subject to the less onerous premarket notification for a
510(k) application.
Investigational Device Exemption (IDE). In
certain cases, including ours, the 510(k) application requires
the submission of clinical data to support claims made for the
device. For the FDA to permit applicants to undertake a clinical
trial using unapproved medical devices on human subjects,
applicants are required to seek an Investigational Device
Exemption (IDE). Clinical studies with devices of significant
risk must be approved by the FDA and by an Institutional Review
Board (IRB) before the study can begin. Studies with
devices of nonsignificant risk only need IRB approval before the
clinical trials can begin. The FDA has advised us that the PD2i
Analyzertm
is a nonsignificant risk device. Thus, we are not required to
obtain FDA approval before we conduct any clinical trials.
510(k) Application. Once the 510(k)
application is received by the FDA, a preliminary screening is
undertaken. If the 510(k) application is found to contain all
the required elements, it will be assigned to a reviewer. When
the reviewer needs additional information to complete the
review, the applicant is contacted with a request or deficiency
letter that will detail the information needed. The 510(k)
applications are reviewed in order, according to the original or
additional information receipt date. After the technical review
is completed, the reviewers recommendation is forwarded to
the division director for concurrence. If the division director
concurs, then the FDA will issue the decision letter to the
applicant. Generally, an FDA decision takes 90 to 180 days
after receipt of the 510(k) application. However, certain items,
including the amount of time it takes an applicant to respond to
any FDA requests for additional information, may delay the FDA
decision.
We received 510(k) marketing clearance for the PD2i
Analyzertm
in December 2008. We submitted a 510(k) application to the FDA
for a marketing claim to use the PD2i
Analyzertm
to analyze ECG signals and provide measurement of heart rate
variability in patients undergoing cardiovascular disease
testing for interpretation by a qualified healthcare
practitioner. The FDA is reviewing the submission as part of its
normal process, the results of which should be known in the
first half of 2011.
9
We are in the process of completing or analyzing the data from
at least two other clinical trials. We plan on using the data
from these clinical trials for additional 510(k) submissions
with which to establish (a) normal ranges for the
PD2i®
values to facilitate physician interpretation of test results of
the PD2i
Analyzertm
and (b) a marketing claim for those patients being triaged
for severity of injury related to trauma. These trials and the
analysis of data from these trials are expected to cost
approximately $150,000 in the aggregate and are described in the
following table:
Our
Products and Status of Clinical Trials
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Status of
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FDA
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Product
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Use
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Clinical Trial
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Submission
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PD2i-Analyzertm
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Diagnostic tool for patients undergoing cardiovascular disease
testing
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University of Rochester comparing
PD2i®
values to patient outcomes has been completed
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Undergoing FDA review
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PD2i-Analyzertm
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Normal Range Values for
PD2i®
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Enrollment underway at the University of Mississippi Medical
Center
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Expected in the second half of 2011
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PD2i
VStm
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Diagnostic tool to Triage Trauma
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Ongoing and Data Analysis being completed. Software and hardware
design being finalized.
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Expected in the second half of 2011
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These additional claims, if approved by the FDA, will permit the
acceleration of marketing and sales activities and facilitate
the direct marketing to physicians of the PD2i
Analyzertm
for different medical uses.
As the PD2i
Analyzertm
and our other products become commercially available, it is
anticipated that independent researchers will conduct their own
independent research on areas of interest to them without
financial support from Vicor, which should reduce our research
and development expenses in the future. However, as we explore
other applications for the technology, the related research may
require us to sponsor clinical trials which could require
substantial expenditures.
10
Some of the current trials underway at various institutions,
certain of which are sponsored by Vicor and certain of which are
being independently conducted, include:
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Trial Name
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Market Indication
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Independent or Vicor Sponsored
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Brain Injury Risk Stratification Trial (BIRST)
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Neuro-ICU
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Vicor Sponsored University of Mississippi Medical
Center and Universidad de San Francisco de Quito (Ecuador)
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Complexity Assessment of Potential Concussion in Athletes
(CAPOCA)
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Concussion Student Athletes
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Vicor Sponsored Belhaven University and Baylor
University
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Complexity Analysis During Renal Dialysis (CARD)
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Sudden Cardiac Death-Dialysis Patients
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Vicor Sponsored University of Mississippi Medical
Center
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Cardiac Autonomic Regulation Enhancement Through Exercise
(CARE-E)
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Cardiac Rehabilitation
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Independent Brown University
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Cardiac Autonomic Regulation Enhancement Through Therapy
(CARE-T)
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Cardiac Rehabilitation
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Independent Brown University
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Complexity Analysis Studies of Trauma in the Emergency
Department (CASTED)
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ICU/Mobile Triage
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Vicor Sponsored University of Mississippi Medical
Center
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Intraoperative Complexity Analysis and Monitoring (ICAM)
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Pre-operative risk assessment and intraoperative monitoring
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Vicor Sponsored University of Mississippi Medical
Center
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Study of Heart Rate Variability Using the
PD2i®
Algorithm in a Cardiac Rehabilitation Population (SHeRPA)
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Cardiac Rehabilitation
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Independent Brown University
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European
Regulatory Requirements
The Essential Requirements of the Medical Devices Directive,
which primarily relate to safety and performance, usually
requires, among other things, that products undergo conformity
assessment certification by a notified body resulting in a CE
Mark Certification prior to marketing in Europe. The PD2i
Analyzertm
components, consisting of the ECG/blood pressure collection
device and laptop computer, require such certification, as does
the
PD2i®
Algorithm and related software. The laptop computer we are using
has CE Mark Certification. The manufacturer of the ECG/blood
pressure collection device has commenced the process of securing
CE Mark Certification. We have also identified and are working
with another manufacturer of a similar ECG/blood pressure
collection device that already has such CE Mark Certification.
We expect to work with this manufacturer to have the software
component of the PD2i
Analyzertm
certified as well. Consequently, we anticipate having all the
components of the PD2i
Analyzertm
in conformity with the Essential Requirements Directive (and be
CE marked) in 2011.
Sales and
Marketing
Revenues commenced in January 2010. In September 2010 we hired a
National Sales Manager and as of December 31, 2010 we had
entered into agreements with 27 independent sales
representatives in
11
more than 30 states and the District of Columbia. We have
also begun the selected hiring of sales personnel in selected
states to supplement our independent sales representatives.
The principal initial target customers for our PD2i
Analyzertm
are physicians who specialize in family practice and internal
medicine as well as endocrinologists. Our marketing strategy is
to segment these physicians and target technology-friendly early
adopters. We anticipate primarily utilizing independent sales
representatives complemented by a small in-house sales force
which we will establish. The United States market, although
significant, represents only a fraction of the total potential
worldwide market for the products. Therefore, we anticipate
marketing the products elsewhere in the world, primarily through
distribution partners. We have signed distribution agreements
for the Peoples Republic of China, Australia, Israel and
Palestine. We are actively marketing the PD2i
Analyzertm
in Central and South America and discussions with potential
partners in other parts of the world are ongoing.
Additionally, we are marketing the PD2i
Analyzertm
to our physician base of stockholders and members of our
National Cardiac Panel as early adopters of our technology. We
also conducted a direct mail campaign to 600 physicians known to
be purchasers of older and outdated HRV technology used for
diabetic patients. We are in the process of telephone follow up
with the physicians.
Our sales and marketing will also be directed towards
cardiologists and electrophysiologists. Our target patient
populations will include those individuals with underlying
cardiac disease. In the United States, those populations
include more than 7 million patients who have suffered a
myocardial infarction (heart attack), 5 million patients
suffering from congestive heart failure (poor pumping function),
and more than 1 million other patients suffering from
conditions including syncope (fainting and dizziness) and
nonischemic dilated cardiomyopathy (damaged and enlarged heart).
Therefore, we believe that the aggregate immediate at-risk
patient population in the United States that are candidates for
our PD2i
Analyzertm
diagnostic test exceeds 15 million of the 81.1 million
people with cardiovascular disease. MUSTT, MADIT-II and SCD-HeFT
type patients represent a major and important subset of this
at-risk patient population as evidenced by the results of the
MUSIC Trial.
Our
PD2i-VStm
product is in its early stages. Assuming successful completion
of the product and any necessary regulatory approval, we plan on
marketing it to hospitals and emergency response providers. We
will consider licensing the technology to existing monitor
companies as well as developing our own proprietary monitor for
sale.
Reimbursement
Reimbursement to healthcare providers by third party insurers is
critical to the long-term success of our efforts to make the
PD2i
Analyzertm
the standard of care for patients being screened for autonomic
nervous system dysfunction, as well as patients undergoing
cardiovascular disease testing. There are 60 International
Classification of Disease (ICD-9) diagnosis codes
for which the performance of the test as a diagnostic tool can
be justified. There are established Current Procedural
Terminology Codes (CPT codes) that provide a
national level of reimbursement of approximately $160 per test
to the physicians for using the PD2i
Analyzertm.
CPT codes provide a uniform language used by healthcare
providers to describe medical services and tests. Coding is used
to communicate to third party insurers the services that have
been performed for billing purposes and affect both the coverage
decision and amount paid by such insurers. Physicians are
currently being reimbursed for the use of the PD2i
Analyzertm
from private insurance companies, Medicare and Medicaid.
Competition
Autonomic
Nervous System
Our principal competitor of the PD2i
Analyzertm
is Ansar Group, Inc. (Ansar). According to its
website, Ansar has developed the ANX 3.0, a noninvasive, real
time digital monitor of autonomic nervous system functioning.
The ANX 3.0 monitor costs approximately $40,000. We believe the
PD2i
12
Analyzertm
is more cost effective and offers a superior solution for
physicians based on our business model and the increased utility
of our
PD2i®
measure of HRV.
Indirect competition for the PD2i
Analyzertm
is traditional clinical screening tests, which are performed by
physicians. However, a patients history and physical
examination are ineffective for early detection of cardiac
autonomic neuropathy as the symptoms of autonomic neuropathy
tend to occur when its development is advanced and difficult to
treat. HRV testing may also facilitate differential diagnosis
and the attribution of symptoms (e.g., erectile dysfunction,
dyspepsia, dizziness) to autonomic dysfunction.
Congestive
Heart Failure Death
We believe there are currently no known diagnostic tools used
for the identification of congestive heart failure patients at
elevated risk of death.
Arrhythmic
Death
Noninvasive diagnostic tools for arrhythmic death are relatively
new in the cardiac diagnostic field, thus the current market
competition for this type of product is limited. The major
direct competitor of the PD2i
Analyzertm
is Cambridge Heart, Inc. (Cambridge Heart).
According to its filings with the SEC, Cambridge Heart has
several products, including the Heartwave System, CH 2000
Cardiac Stress Test System, and Micro-V Alternans Sensors. All
of these products have received 510(k) clearance from the FDA
for sale in the United States. They have also received the CE
mark for sale in Europe and have been approved for sale by the
Japanese Ministry of Health, Labor and Welfare. These products
have been sold since 2000.
We believe our PD2i
Analyzertm
will deliver a more accurate prediction of arrhythmic death, is
substantially less expensive and is a procedure that is more
patient friendly than the CH 2000 Cardiac Stress Test System.
The key disadvantages of the Cambridge Heart products are that
(i) they require a stress test to capture the T-wave
alternans, (ii) the stress test itself is not without risk;
it could induce cardiac arrest, (iii) the procedure
requires costly electrodes for which physicians are not
separately reimbursed, and (iv) most importantly, the
procedure cannot be performed on patients exhibiting ectopic or
irregular heartbeats or taking beta-blockers used to treat
coronary artery disease.
The key competitive advantages of the PD2i
Analyzertm
are that (i) it avoids risks associated with a cardiac
stress test, (ii) it can be performed on a resting patient
in any environment, (iii) it can be performed without
specialized equipment, (iv) costly electrodes are not
required, (v) it is not affected by ectopic or irregular
heartbeats, (vi) it is not affected by common cardiac
drugs, and (vii) there is no significant up-front equipment
cost to the physician.
At our expected price of approximately $6,500 per unit and $40
per test, the PD2i
Analyzertm
will offer clinicians an affordable product that will
appropriately pay them and us based on usage.
Manufacturing
We selected Dell Healthcare and Life Sciences division to serve
as our worldwide manufacturing supplier for our laptop computers
in October 2010 and have a manufacturing agreement with Nasiff
Associates for the digital ECD. As we receive the digital ECG
and laptop computers from our third-party suppliers, we install
the appropriate proprietary software and test for quality
assurance before repackaging for shipment.
Trademarks
We pursue and maintain trademark protection in the United States
and worldwide. As of January 31, 2011 we have three United
States registered trademarks for
PD2i®
for use on our products.
13
Research
and Development
Our research and development expenses for 2009 and 2010 were
approximately $964,000 and $638,000, respectively. These
research and development expenses included but were not limited
to laboratory supplies, hardware costs, programming and software
costs, sponsored research activities and salary and fringe
benefit costs for employees who were engaged in research,
development, clinical and regulatory activities. In addition,
all clinical trial costs, clinical and regulatory consulting and
contract manufacturing costs are included.
Employees
As of March 15, 2011 we employed 16 individuals, and
engaged the services of several consultants. Of our employees,
13 are engaged in executive, administrative, business
development, sales, marketing and intellectual property
functions, and 3 are engaged in research and development and
clinical/regulatory activities. We anticipate that we will need
to recruit additional personnel to manage our expanded selling
and administrative functions as well as our research and product
development programs.
Drug
Discovery Platform (Therapeutic Products)
The mission of our drug discovery platform was to focus on the
pre-clinical and early clinical development of products for the
treatment of an array of human diseases, such as cerebral
ischemia (stroke), cardiac ischemia, kidney failure, organ
transplantation and preservation, hypertension, obesity, and
thrombolytic diseases. At the present time, our drug discovery
platform is not active. Since 2003 to conserve cash and focus on
FDA marketing clearance for the PD2i
Analyzertm,
we halted all research related to our drug platform.
Certain naturally occurring peptides and proteins are derived
from state-dependent physiologies, a naturally
occurring process under which certain mammals engage in
altered physiologic states such as hibernation, REM
sleep and pregnancy. We believe that these molecules lead to
altered physiological states such as blood pressure reduction,
loss of appetite and thirst, diminished cancerous cell growth
and reproduction, urea recycling and tissue and organ
preservation.
Our initial drug discovery efforts related to those
state-dependent peptides and proteins released during
hibernation. Hibernation is a complex grouping of individual
physiologies that are spread out over time. Cessation of
appetite occurs many weeks before the animal goes into the
sleep-like state in which blood pressure and metabolism are
reduced. It is the separate and specific individual physiologies
that are of interest to us for pharmaceutical development, not
the complex event of hibernation itself. It has been
demonstrated, for example, that blood-pressure elevations can be
reduced to normal in awake, nonhibernating animals without
inducing all of the other hibernation-related physiologies
(i.e., appetite suppression). We believe that similar results
can be achieved with other physiologies.
We developed a strategy which we believe will enable us to
isolate the naturally occurring, state-dependent, nontoxic,
bioactive molecules that are produced during hibernation of
certain mammals such as the woodchuck. We anticipate using these
molecules as well as their derivatives to treat major human
diseases such as stroke and cardiac ischemia. Through the
execution of this strategy in 2000 2003, we
identified the amino acid sequence of several peptides
discovered in the blood of hibernating mammals (some of which
are also found in humans), which have been successfully tested
for efficacy in pre-clinical animal studies of cerebral
ischemia. This animal model replicates human stroke. These
ischemia-preventing molecules have also been shown to be
nontoxic in animal toxicology studies.
We also conducted a pre-IND briefing meeting with the FDA in
March 2003 to develop the Clinical Development Plan for our lead
stroke compound as part of the Investigational New Drug
(IND) process.
14
Patent
and Proprietary Rights
We have issued patents covering the core systems with the
PD2i®
Algorithm and methods of identifying biological anomalies using
this algorithm as well as issued patents covering machines and
methods for data manipulation for use with the
PD2i®
Algorithm from United States of America (5,709,214), United
States of America (5,720,294), Azerbaijan (008979), Armenia
(008979), Belarus (008979), Kazakhstan (008979), Kyrgyzstan
(008979), Moldova, Republic of (008979), New Zealand (54202),
Russian Federation (008979), South Africa (2005/06909),
Tajikistan (008979), Turkmenistan (008979), United States of
America (7,076,288) and United States of America (7,276,026). It
has been allowed in Australia (Australian Patent Application
2004208161) and Israel (Israel Patent Application 169988).
There are also a number of patent applications around the world
covering additional aspects and uses of the
PD2i®
technology, which if issued will increase the coverage around
technologies utilizing the
PD2i®
Algorithm.
As of March 15, 2011 we have 32 issued patents around the
world for our drug discovery platform. The core application
covering the use of FPA as an anti-infarction molecule has been
issued as a patent in Azerbaijan (010860), Australia
(2003209030), Armenia (010860), Belarus (010860), China
(CN1856504), France (1572168), Germany (1572168), Ireland
(1572168), Kazakhstan 010860), Kyrgyzstan (010860), Moldova,
Republic of (010860), Russian Federation (010860), South Africa
(2004/7103), Switzerland (1572168), Tajikistan (010860),
Turkmenistan (010860), United Kingdom (1572168) and the
United States of America (7,811,992). It has also been allowed
in Mexico
(PA/a/2004/007586).
There are number of pending applications around the world
covering aspects of the core drug discovery platform, which
should continue to extend coverage of the drug discovery
platform around the world.
On October 12, 2010 the U.S. Patent Office issued
United States Patent #7,811,992 to the Company for the use
of a molecule discovered using the Companys novel drug
discovery platform. The molecule covered by the patent has been
shown to diminish the size and severity of infarctions
associated with acute myocardial infarctions (heart attacks) and
strokes.
We filed our United States Utility and Foreign Patent
Application in February 2003.
Risk
Factors
We are subject to certain risks in our business operations which
are described below. Careful consideration of these risks should
be made before making an investment decision. The risks and
uncertainties described below are not the only ones facing our
Company. Additional risks and uncertainties not currently known
or currently deemed immaterial may also impair our business
operations.
Risks
Related To Our Operations
We have
incurred significant operating losses since inception that raise
doubts about our ability to continue as a going
concern.
We have a history of operating losses. We are a developmental
stage company that is still in the process of developing new and
unproved technologies. We have incurred significant losses since
our inception, including net losses applicable to common stock
of approximately $7.3 million in 2002, $9.2 million in
2003, $3.4 million in 2004, $4.2 million in 2005,
$4.6 million in 2006, $6.1 million in 2007,
$8.5 million in 2008, $6.6 million in 2009 and
$6.2 million for the year ended December 31, 2010. As
of December 31, 2010, we had an accumulated deficit of
approximately $59.7 million. The extent of our future
operating losses and the timing of our profitability are highly
uncertain, and we may never generate sufficient revenues to
achieve or sustain profitability. Based on funds available to us
as of December 31, 2010 our independent auditors expressed
doubt about our ability to continue as a going
15
concern if we are unable to raise additional funds. If we are
unable to successfully implement our financing strategy and
develop commercially successful products, we will not generate
sufficient revenues to achieve profitability and may be forced
to cease operations.
We are a
development stage company and we may be unable to successfully
commercialize any products.
Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies engaged in
the development and commercialization of new technologies,
particularly companies targeting markets characterized by
complex regulatory issues. In particular, medical devices such
as the PD2i
Analyzertm
require CPT codes and
agreed-upon
reimbursement levels in order to achieve widespread physician
use and drive significant revenue. While established CPT codes
with adequate levels of reimbursement exist, we still may not
generate significant revenues or achieve and sustain
profitability because our products may not be accepted in the
marketplace. Our limited operating history in new product areas
makes the prediction of future results of operations extremely
difficult.
We have
never generated, and we may never generate, positive operating
cash flow.
Our business operations do not generate positive cash flow and
we do not currently receive revenues from other sources, such as
licensing fees, revenues from grants or consulting fees.
Depending upon the extent of revenue derived from these sources,
if any, as well as revenues generated from the sale of the PD2i
Analyzertm
and related test fees, we may not be able to generate sufficient
cash flow to cover operating expenses. We cannot predict or
guarantee when our products will generate sufficient revenue to
achieve positive operating cash flow.
Our cash
position is very low relative to our anticipated cash
needs.
As of December 31, 2010 we had a cash balance of
approximately $1,119,000. This is substantially less than our
projected short-term cash requirements (including fixed costs
and projected future costs). There can be no guaranty that we
can raise additional funds from sales of our equity or debt
securities on terms that are acceptable to us or otherwise
generate sufficient revenue to maintain our operations. Our
inability to obtain such funds would have a material adverse
effect on the Companys financial condition and operations.
We may be
unable to obtain additional funds necessary to sustain our
business on acceptable terms or at all, which would harm our
business and may require us to significantly curtail or cease
our operations.
We need substantial capital to fund our business operations and
finance our working capital requirements for the long-term. We
have experienced significant negative cash flow from operations
to date and expect to continue to experience significant
negative cash flow in the future. We need additional funds to
sustain and expand our research and development activities, our
collaborative arrangements and expand our sales and marketing
activities. Adequate funds for these and other purposes on
acceptable terms, whether through additional equity financing,
debt financing or other sources, may not be available when
needed, or may result in significant dilution to existing
stockholders. Our inability to obtain sufficient funds from
operations and external sources will have a material adverse
effect on our business, results of operations and financial
condition. If we are unable to raise additional funds, we will
be forced to significantly curtail or cease our operations. Our
ability to issue debt securities or to service any debt may also
be limited by our inability to generate cash flow.
16
We are
developing and attempting to commercialize new and unproved
technologies.
We primarily work with and develop new technologies that have
not been proven for commercial application. The validation of
these technologies for commercial application will require
substantial additional capital investment and a significant
amount of work. Additionally, many of the products and services
that we contemplate developing may prove unsuitable for
commercial application. We cannot be certain that any such
products or services will be able to be commercialized and sold
successfully or at all.
The
results of clinical studies may not support the usefulness of
our technology.
Conducting clinical trials is a long, expensive and uncertain
process that is subject to delays and failure at any stage.
Clinical trials can take months or years. The commencement or
completion of any of our clinical trials may be delayed or
halted for numerous reasons, including (1) the FDA may not
approve a clinical trial protocol or a clinical trial, or may
place a clinical trial on hold; (2) subjects may not enroll
in clinical trials at the rate we expect and subjects may not be
followed up at the rate we expect; (3) subjects may
experience events unrelated to our products;
(4) third-party clinical investigators may not perform our
clinical trials on our anticipated schedule or consistent with
the clinical trial protocol and good clinical practices, or
other third-party organizations may not perform data collection
and analysis in a timely or accurate manner; (5) interim
results of any of our clinical trials may be inconclusive or
negative; (6) regulatory inspections of our clinical trials
may require us to undertake corrective action or suspend or
terminate them if investigators find us not to be in compliance
with regulatory requirements; or (7) governmental
regulations or administrative actions may change and impose new
requirements, particularly on reimbursement.
Results of pre-clinical studies do not necessarily predict
future clinical trial results and previous clinical trial
results may not be repeated in subsequent medical trials. We may
experience delays, cost overruns and project terminations
despite achieving promising results in pre-clinical testing or
early clinical testing. In addition, the data obtained from
clinical trials may be inadequate to support approval or
clearance of a submission. The FDA may disagree with our
interpretation of the data from our clinical trials, or may find
the clinical trial design, conduct or results inadequate to
demonstrate the safety and effectiveness of the product
candidate. The FDA may also require us to conduct additional
clinical trials which could further delay approval. If we are
unsuccessful in receiving FDA approval, we would not be able to
sell or promote the product for certain intended uses in the
United States, which could seriously harm our business.
Moreover, we face similar risks in other jurisdictions in which
we may sell or propose to sell our products.
If
third-party contract research organizations do not perform their
responsibilities in an acceptable and timely manner, our
pre-clinical testing or clinical trials could be delayed or
prove unsuccessful.
We do not have the ability to conduct all aspects of
pre-clinical testing or clinical trials ourselves. We rely and
will continue to rely on clinical investigators, third-party
contract research organizations and consultants to perform some
or all of the functions associated with pre-clinical testing or
clinical trials. The failure of any of these vendors to perform
in an acceptable and timely manner in the future, including in
accordance with any applicable regulatory requirements such as
good clinical and laboratory practices, pre-clinical testing or
clinical trial protocols could cause a delay or otherwise
adversely affect our pre-clinical testing or clinical trials
and, ultimately, the timely advancement of our development
programs.
Our
ability to operate effectively could be impaired if we were to
lose the services of our key personnel, or if we were unable to
recruit key personnel in the future.
Our success will depend to a significant extent on the skills
and efforts of David H. Fater, Dr. Jerry M. Anchin,
Dr. James Skinner, Dr. Daniel Weiss, Richard Cohen and
Gary A. Schwartz. We have entered into employment agreements
with Mr. Fater, Mr. Cohen, Mr. Schwartz and
Drs. Anchin,
17
Skinner and Weiss. Nevertheless, employment agreements do not
assure the services of such personnel. Despite employment and
noncompetition agreements, our employees may voluntarily
terminate their employment with us at any time. Our success also
depends on our ability to attract and retain additional
qualified employees in the future. Competition for such
personnel is intense and we will compete for qualified personnel
with numerous other employers, many of whom have greater
financial and other resources than we do. In addition, we may
incur significantly increased costs in order to attract and
retain skilled employees. The loss of one or more key employees
could have a material adverse effect on our business.
We are
subject to evolving and expensive corporate governance
regulations and requirements. Our failure to adequately adhere
to these requirements or the failure or circumvention of our
controls and procedures could seriously harm our
business.
As a publicly traded company, we are subject to certain federal,
state and other rules and regulations, including applicable
requirements of the Sarbanes-Oxley Act of 2002. Compliance with
these evolving regulations is costly and requires a significant
diversion of management time and attention, particularly with
regard to disclosure controls and procedures and internal
controls over financial reporting. Although we have reviewed our
disclosure controls and internal controls and procedures in
order to determine whether they are effective, our controls and
procedures may be unable to prevent errors or frauds in the
future. Faulty judgments, errors or mistakes, or the failure of
our personnel to adhere to established controls and procedures
make it difficult for us to ensure that their objectives are
met. A failure of our controls and procedures to detect material
errors or fraud could seriously harm our business and results of
operations.
We are
subject to risks in connection with the impact of changes in
international, national and local economic and market
conditions.
Our business is subject to risks in connection with the impact
of changes in international, national and local economic and
market conditions. Beyond the risks of doing business
internationally, there is also the potential impact of changes
in the international, national and local economic and market
conditions, including the effects of a global financial or
credit crisis, and the effects of terrorist acts and the war on
terrorism, which could impact customers ability to pay for
our products.
If we sell our products in international markets, we will
experience additional risks associated with these sales, which
include:
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political and economic instability;
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export controls;
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changes in legal and regulatory requirements;
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United States and foreign government policy changes affecting
the markets for our products; and
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changes in tax laws and tariffs.
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Any of these factors could have a material adverse effect on our
business, results of operations and financial condition. We may
choose to sell our products in international markets through
independent distributors. If a distributor fails to meet annual
sales goals, it may be difficult and costly to locate an
acceptable substitute distributor. If a change in our
distributors becomes necessary, we may experience increased
costs as well as a substantial disruption in operations and a
resulting loss of revenue.
18
Risks
Related To Regulatory Matters
The
medical device and pharmaceutical industries are subject to
stringent regulation and failure to obtain regulatory approval
will prevent commercialization of our products.
Our Diagnostic Platform. Our PD2i
Analyzertm
received 510(k) marketing clearance from the FDA on
December 29, 2008. This clearance enables us to market this
product and generate revenue. Our products for specific medical
claims, however, can only be directly marketed to physicians by
submitting additional 510(k) applications to the FDA supported
by satisfactory clinical trial results. However, the results of
our clinical trials may not provide sufficient evidence to allow
the FDA to grant us such additional marketing clearances. The
failure to obtain FDA marketing clearance for these specific
medical claims would have a material adverse effect on our
business.
Medical devices are subject to extensive and rigorous regulation
by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act
(FDCA), by comparable agencies in foreign countries
and by other regulatory agencies and governing bodies. Under the
FDCA and associated regulations, manufacturers of medical
devices must comply with certain regulations that cover the
composition, labeling, testing, clinical study, manufacturing,
packaging and distribution of medical devices. In addition,
medical devices must receive FDA clearance or approval before
they can be commercially marketed in the United States. The FDA
may require testing and surveillance programs to monitor the
effects of approved products that have been commercialized and
can prevent or limit further marketing of a product based on the
results of these post-market evaluation programs. The process of
obtaining marketing clearance from the FDA for new products
could take a significant period of time, require the expenditure
of substantial resources, involve rigorous pre-clinical and
clinical testing, require changes to the products and result in
limitations on the indicated uses of the product.
Our Drug Platform. None of our drug product
candidates have been approved by any governmental regulatory
agency, including the FDA. Our research, development,
pre-clinical trial activities and, to the extent that we
undertake the New Drug Application process (NDA)
itself, clinical trial activities are subject to an extensive
regulatory approval process by the FDA. The process of obtaining
required regulatory approvals for drugs is lengthy, expensive
and uncertain, and any regulatory approvals may contain
limitations on the indicated usage of a drug, distribution
restrictions or may be conditioned on burdensome post-approval
study or other requirements, including the requirement that we
or our pharmaceutical licensees institute and follow a special
risk management plan to monitor and manage potential safety
issues, all of which may eliminate or reduce the drugs
market potential. Post-market evaluation of a product could
result in marketing restrictions or withdrawal from the market.
Any or all of our drug product candidates may not receive FDA
approval even if we resume research and development activities.
If we
seek to market our products in foreign jurisdictions, we may
need to obtain regulatory approval in these
jurisdictions.
In order to market our products in the European Union and many
other foreign jurisdictions, we may need to obtain separate
regulatory approvals and comply with numerous and varying
regulatory requirements. Approval procedures vary among
countries (except with respect to the countries that are part of
the European Economic Area) and can involve additional clinical
testing. The time required to obtain approval may differ from
that required to obtain FDA approval. Should we decide to market
our products abroad, we may fail to obtain foreign regulatory
approvals on a timely basis, if at all. Approval by the FDA does
not ensure approval by regulatory authorities in other
countries, and approval by one foreign regulatory authority does
not ensure approval by regulatory authorities in other foreign
countries or by the FDA. We may be unable to file for, and may
not receive, necessary regulatory approvals to commercialize our
products in any foreign market, which could adversely affect our
business prospects.
19
Changes
in healthcare reimbursement systems in the U.S. and abroad could
affect our revenues and profitability.
The Federal government is considering ways to change, and has
changed, the manner in which healthcare services are provided
and paid for in the U.S. Occasionally, the
U.S. Congress passes laws that impact reimbursement for
healthcare services, including reimbursement to hospitals and
physicians. States may also enact legislation that impacts
Medicaid payments to hospitals and physicians. In addition,
Centers For Medicare and Medicaid Services, the federal agency
responsible for administering the Medicare program, establishes
payment levels for hospitals and physicians on an annual basis,
which can increase or decrease payments to such entities.
In particular, the Patient Protection and Affordable Care Act
and the American Recovery and Reinvestment Act of 2009 (also
known as the Stimulus Package) affects funding for and in many
instances regulates healthcare treatment and strategies. It is
unclear what effect, if any, these pieces of legislation or any
other future legislation would have on our business.
Internationally, medical reimbursement systems vary
significantly from country to country, with some countries
limiting medical centers spending through fixed budgets,
regardless of levels of patients and treatment, and other
countries requiring application for and approval of government
or third-party reimbursement. Even if we succeed in bringing our
products to market, uncertainties regarding future healthcare
policy, legislation and regulation and private market practices
could affect our ability to sell our products in commercially
acceptable quantities and at profitable prices.
If we
promote the off-label use of the PD2i
Analyzertm,
we
could be subject to fines and penalties from the FDA or other
regulatory agencies
If the FDA or another regulatory agency determines that we have
promoted off-label use of our products, we may be subject to
various penalties, including civil
and/or
criminal penalties. The FDA and other regulatory agencies
actively enforce regulations prohibiting promotion of off-label
uses and the promotion of products for which marketing clearance
has not been obtained. If the FDA or another regulatory agency
determines that our promotional materials or training
constitutes promotion of an unapproved use, it could request
that we modify our training or promotional materials or subject
us to regulatory enforcement actions, including the issuance of
a warning letter, injunction, seizure, civil fine and criminal
penalties. Although our policy is to refrain from statements
that could be considered off-label promotion of our products,
the FDA or another regulatory agency could disagree and conclude
that we have engaged in off-label promotion.
We must
comply with healthcare fraud and abuse laws, and we
could face substantial penalties for noncompliance and be
excluded from government healthcare programs, which would
adversely affect our business, financial condition and results
of operations.
Our business is regulated by laws pertaining to healthcare fraud
and abuse, including:
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the Federal Anti-Kickback Statute, which prohibits persons from
knowingly and willfully soliciting, offering, receiving or
providing remuneration directly or indirectly, in cash or in
kind, in exchange for or to induce either the referral of an
individual for, or the furnishing, recommending, or arranging
for, a good or service for which payment may be made under a
federal healthcare program such as Medicare and
Medicaid; and
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state law equivalents to the Anti-Kickback Statute, which may
not be limited to government-reimbursed items.
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If our operations are found to be in violation of any of these
or similar laws or regulations, we or our officers may face
significant civil and criminal penalties, damages, fines,
imprisonment and exclusions from the Medicare and Medicaid
programs. Any violations may lead to curtailment or
restructuring of our operations which could adversely affect our
ability to operate our business and our financial results. The
risk of being found in violation of these laws is increased by
the fact that many of
20
these laws are open to a variety of interpretations. Any action
against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal
expenses, divert our managements attention from the
operation of our business and damage our reputation. If
enforcement action were to occur, our reputation and our
business and financial condition may be harmed even if we were
to prevail or settle the action. Similarly, if the physicians or
other providers or entities with whom we do business are found
not to comply with applicable laws, they may be subject to
sanctions, which could also have a negative impact on our
business.
Risks
Related to the Market for Our Products
Our
ability to compete successfully and achieve future revenue will
depend on our ability to protect our proprietary
technology.
It is possible that no further patents will be issued for our
potential applications and that any issued patent may not
provide any competitive advantage to us or will be successfully
challenged, invalidated or circumvented in the future. In
addition, many potential competitors have substantial resources,
could make significant investments in competing technologies,
and may seek to apply for and obtain patents that will prevent,
limit or interfere with our ability to make, use or sell our
products either in the United States or in international markets.
In addition to patents, we rely on trade secrets and proprietary
know-how, which we seek to protect in part through
confidentiality and proprietary information agreements and limit
access to and distribution of our proprietary information. Such
measures may not provide adequate protection for our trade
secrets or other proprietary information. In addition, our trade
secrets or proprietary technology may become known or be
independently developed by competitors. Our failure to protect
our proprietary technology could have a material adverse effect
on our business, financial condition and results of operations.
Any
future litigation over intellectual property rights would likely
involve significant expense on our part and distract our
management.
Our ability to compete successfully and achieve future revenue
will depend in part on our ability to operate without infringing
on the rights of others and our ability to enforce our own
intellectual property rights. Litigation or claims could result
in substantial costs and diversion of resources and could have a
material adverse effect on our business, financial condition,
and results of operations. Although there are no pending
lawsuits against us regarding our technology or notices that we
are infringing on the intellectual property rights of others,
litigation or infringement claims may arise in the future.
The
success of our various products will depend on our ability to
obtain and maintain adequate levels of third-party reimbursement
for our products.
Our ability to sell our various products will depend on our
ability to maintain adequate levels of third-party reimbursement
for use of these products by our customers. The amount of
reimbursement in the United States that is available for
clinical use of these products is expected to vary. In the
United States, the cost of medical care is funded in substantial
part by government insurance programs such as Medicare and
Medicaid and by private and corporate health care plans.
Third-party payors may seek to deny reimbursement if they
determine that a prescribed device is not used in accordance
with cost-effective treatment methods as determined by the
payors or is experimental, unnecessary or inappropriate.
Difficulties in obtaining reimbursement for each of our products
or the inadequacy of the reimbursement obtained could materially
decrease any demand for our products.
The
commercial viability of our products is uncertain.
To date we have sold only a limited number of one of our
products. It is, therefore, possible that products developed by
us may not achieve widespread market acceptance. The degree of
market acceptance will depend upon a number of factors,
including the receipt and timing of regulatory
21
approvals, the establishment and demonstration in the medical
community of the clinical safety, efficacy and
cost-effectiveness of our products and their advantages over
existing technologies, and approved reimbursement for
physicians. We may be unable to successfully manufacture and
market our products even if they perform successfully in
clinical applications. Furthermore, physicians and the medical
community in general may not accept and utilize any products
that we develop.
We will
depend on third parties to manufacture our products and the
unavailability of qualified manufacturers could restrict our
ability to obtain and sell our products.
We do not manufacture our products, and we anticipate that we
will not manufacture any of our products at any time. Products
will be manufactured by either unrelated parties or strategic
partners. We may be unable to locate a suitable source to
manufacture our products, and even if one is found, we will be
dependent upon its performance. Delays in the manufacture of our
products or defects arising from manufacturing could have a
material adverse effect on our business.
We will
depend on third parties to market and sell our
products.
We do not plan on establishing a large in-house sales force, and
we intend to primarily enter into agreements with independent
sales representatives and international distributors as well as
co-marketing, sales
and/or
licensing agreements with medical device, biotechnology and
pharmaceutical companies to take advantage of their marketing
and sales expertise and to utilize their personnel. Accordingly,
we may become dependent on the efforts of others to obtain
widespread acceptance of our products. No assurances can be
given that such parties will perform satisfactorily.
We may be
unable to keep pace with the rapid technological changes in the
biotechnology/medical device industry and as a result our
technologies may become obsolete.
The field of biotechnology/medical devices is characterized by
significant and extremely rapid technological change. Companies
with significantly greater resources than us may compete with
our technology and products. Research and discoveries by others
may result in medical insights or breakthroughs, which may
render our technologies obsolete even before they generate any
revenue. These factors could have a material adverse effect on
our business.
Product
liability claims may have a material adverse effect on our
financial condition and results of operations.
We may be held liable if any product we develop or any product
that is made with the use of any of our technologies causes
injury or is found otherwise unsuitable. We currently have
limited product liability insurance that may not fully cover our
potential liabilities. If we attempt to obtain additional
product liability insurance coverage, this additional insurance
may be prohibitively expensive or may not fully cover our
potential liabilities. The inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims could prevent or
inhibit the commercialization of products developed by us or our
collaborative partners. Any adverse judgments against us which
exceed our insurance coverage would have a material adverse
effect on our financial condition and results of operations.
We face
competition in the market for diagnostic devices, including from
substantially larger companies with greater resources, which may
result in others discovering, developing or commercializing
competing products quicker or more successfully than
us.
Although our direct competition in the area of noninvasive
diagnostic tools for cardiology and the autonomic nervous system
is currently limited, we face competition from companies who
develop medical devices or screening tests that diagnose cardiac
disease and this competition is likely to increase. Our success
will depend on our ability to establish and maintain a market
for our products as well as keep pace with technological changes
affecting our industry. Many of our current or prospective
22
competitors have substantially greater capital resources, name
recognition, research and development, regulatory, manufacturing
and marketing capabilities which may lead to their discovering,
developing or commercializing competing products faster or more
effectively than us. Many of these competitors offer broad,
well-established product lines and ancillary services not
offered by us. Some of our competitors or prospective
competitors also enjoy long-term or preferential supply
arrangements with physicians and hospitals which may act as a
barrier to our market entry.
Risks
Related to our Common Stock
The
trading of our common stock on the OTCBB and the designation of
our common stock as a penny stock could impact the
trading market for our common stock.
Our securities, traded on the
Over-the-Counter
Bulletin Board (OTC Bulletin Board), are
subject to SEC rules that impose special sales practice
requirements on broker-dealers who sell these securities to
persons other than established customers or accredited
investors. For the purposes of the rule, the phrase
accredited investors means, in general terms,
institutions with assets in excess of $5,000,000, or individuals
having a net worth in excess of $1,000,000, excluding the value
of the investors residence and treating any mortgage debt
secured by the investors residence in excess of the value
of the home as a liability and deducting it from the
investors net worth, or having an annual income that
exceeds $200,000 (or that exceeds $300,000 when combined with a
spouses income). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for
the purchaser and receive the purchasers written agreement
to the transaction before the sale. Consequently, the rule may
affect the ability of broker-dealers to sell our securities and
also may affect the ability of purchasers to sell their
securities in any market that might develop.
In addition, the SEC has adopted a number of rules to regulate
penny stock that restrict transactions involving these
securities, including
Rules 3a51-1,
15g-1,
15g-2,
15g-3,
15g-4,
15g-5,
15g-6,
15g-7, and
15g-9 under
the Exchange Act. These rules may have the effect of reducing
the liquidity of penny stocks. Penny stocks generally are equity
securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges)
if current price and volume information with respect to
transactions in such securities is provided by the exchange.
Because our common stock may constitute penny stock within the
meaning of the rules, the rules would apply to us and to our
securities. If our securities are subject to the penny stock
rules, stockholders may find it more difficult to sell their
securities. Stockholders should be aware that, according to the
SEC, the market for penny stocks has suffered from patterns of
fraud and abuse. Such patterns include (i) control of the
market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; (ii) manipulation
of prices through prearranged matching of purchases and sales
and false and misleading press releases; (iii) boiler
room practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
(iv) excessive and undisclosed bid-ask differentials and
markups by selling broker- dealers; and (v) the wholesale
dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, resulting
in investor losses.
Substantial
future sales of shares of our common stock in the public market
could cause our stock price to fall.
If our stockholders sell substantial amounts of our common stock
or the public market perceives that stockholders might sell
substantial amounts of our common stock, the market price of our
common stock could decline significantly. Such sales also might
make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that our management
deems appropriate. As of March 15, 2011 we have outstanding
47,192,482 shares of common stock and we are required to
issue additional shares upon (i) the exercise of
outstanding options and warrants and (ii) the conversion of
outstanding Series B Junior Convertible Cumulative
Preferred Stock, 8% Subordinated Convertible Notes,
12% Convertible Notes and 10% Convertible Notes into
shares of our common stock, which could exceed
50,000,000 shares depending upon the price of our common
stock.
23
We do not
pay cash dividends to our stockholders and have no plans to pay
cash dividends in the future.
We plan to retain earnings, if any, to finance future growth and
have no plans to pay cash dividends to stockholders. Because we
do not pay cash dividends, holders of our securities will
experience a gain on their investment in our securities only in
the case of an appreciation of value of our securities.
The sale
of securities by us in any equity or debt financing could result
in dilution to our existing stockholders.
Any sale of common stock by us in a future private placement
offering could result in dilution to the existing stockholders
as a direct result of our issuance of additional shares of our
capital stock. In addition, our business strategy may include
expansion through internal growth, by acquiring complementary
businesses, by acquiring or licensing additional brands, or by
establishing strategic relationships with targeted customers and
suppliers. In order to do so or to finance the cost of our other
activities, we may issue additional equity securities that could
also dilute our stockholders ownership.
Our
officers, directors and principal stockholders controlling
approximately 20% of our outstanding common stock can exert
significant influence over us and may make decisions that are
not in the best interests of all stockholders.
Our officers and directors collectively control approximately
20% of our outstanding common stock, exclusive of outstanding
options and warrants. As a result, these stockholders may be
able to affect the outcome of or exert significant influence
over all matters requiring stockholder approval, including the
election and removal of directors and any change in control. In
particular, this concentration of ownership of our common stock
could have the effect of delaying or preventing a change of
control or otherwise discouraging or preventing a potential
acquirer from attempting to obtain control of the Company. This
in turn could have a negative effect on the market price of our
common stock. It could also prevent our stockholders from
realizing a premium over the market prices for their shares of
common stock. Moreover, the interests of this concentration of
ownership may not always coincide with our interests or the
interests of other stockholders and, accordingly, could cause us
to enter into transactions or agreements that we would not
otherwise consider.
Anti-takeover
provisions may limit the ability of another party to acquire us,
which could negatively affect our stock price.
Provisions of our certificate of incorporation and bylaws,
including three classes of directors, could make it more
difficult for a third party to acquire us, even if doing so
would be perceived to be beneficial to our stockholders. The
combination of these provisions as well as Delaware law
effectively inhibits a nonnegotiated merger or other business
combination, which in turn could adversely affect the market
price of our common stock. In addition, these provisions could
limit the price investors would be willing to pay in the future
for shares of our common stock.
The
market of our common stock could vary significantly based on
market perceptions of the status of our development
efforts.
The perception of the investing public and securities analysts
regarding our product development efforts could significantly
affect our stock price. As a result, the market price of our
common stock has and could in the future change substantially
when we or our competitors make product announcements. Many
factors affecting our stock price are industry related and
beyond our control.
24
We have leased facilities comprising our corporate office which
is staffed by personnel devoted to corporate development,
research and development, clinical affairs management and
operations. Our corporate office is located at 2300 NW Corporate
Boulevard, Boca Raton, Florida.
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Item 3.
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Legal
Proceedings.
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We are currently not a party to any material legal proceedings.
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Item 4.
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Removed
and Reserved.
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25
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Common
Stock
Our common stock has been quoted on the OTC Bulletin Board
under the symbol VCRT.OB since July 9, 2007.
The following table sets forth the high and low closing prices
for our common stock during 2009 and 2010. The reported prices
reflect inter-dealer prices without adjustments for retail
markups, markdowns or commissions.
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High
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Low
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First Quarter 2009
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$
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1.06
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$
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.36
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Second Quarter 2009
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$
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0.90
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$
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.55
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Third Quarter 2009
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$
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1.00
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$
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.69
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Fourth Quarter 2009
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$
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0.95
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$
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.55
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First Quarter 2010
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$
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0.87
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$
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.55
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Second Quarter 2010
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$
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0.84
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$
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.51
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Third Quarter 2010
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$
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0.68
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$
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.56
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Fourth Quarter 2010
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$
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0.85
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$
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.49
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On March 15, 2011 the closing sales price of our common
stock as reported on the OTC Bulletin Board was $.36 per
share. As of March 15, 2011 there were 622 record holders
of our common stock. Our transfer agent is Continental Stock
Transfer & Trust Company.
Dividends
We have never paid dividends on our common stock. We intend to
retain our future earnings to reinvest in our ongoing business.
Recent
Sales of Unregistered Securities
During the three months ended December 31, 2010, Vicor:
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|
Issued 241,831 shares of common stock and 68,750 warrants
to purchase 68,750 shares of common stock to employees,
directors, members of our Scientific Advisory Board and
consultants for services rendered. The warrants are immediately
exercisable at $0.01 per share and have a five-year term.
|
|
|
|
Granted 375,000 options at an exercise price of $0.51 and
200,000 options at an exercise price of $0.55 to employees and
consultants pursuant to the Companys 2008 Stock Option
Plan. These options vest 50% 12 months after grant and 50%
24 months after grant.
|
These securities issued in the foregoing transactions were
exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (Securities Act)
or Rule 506 of Regulation D, as transactions by an
issuer not involving a public offering. All of the investors
were knowledgeable, sophisticated and had access to
comprehensive information about the Company and represented
their intention to acquire the securities for investment only
and not with a view to distribute or sell the securities. The
Company placed legends on the certificates stating that the
securities were not registered under the Securities Act and set
forth the restrictions on their transferability and sale.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) should be read in conjunction with our
consolidated financial statements and related notes contained in
Item 7 of this Annual Report
Form 10-K.
This
Form 10-K,
including the following discussion, contains trend analysis and
other forward-looking statements within the safe
26
harbor provisions of the Private Securities Litigation Reform
Act of 1995. Any statements in this
Form 10-K
that are not statements of historical facts are forward-looking
statements. These forward-looking statements are based on a
number of assumptions and involve risks and uncertainties.
Actual results may differ materially from those set forth in
such forward-looking statements as a result of factors set forth
elsewhere in the Original
10-K,
including under Risk Factors.
Overview
The following MD&A or Plan of Operations includes the
following sections:
|
|
|
|
|
Plan of Operations
|
|
|
|
Critical Accounting Policies and Estimates
|
|
|
|
Results of Operations
|
|
|
|
Liquidity and Capital Resources
|
|
|
|
Going Concern
|
|
|
|
Off-Balance Sheet Arrangements
|
Plan of
Operations
As a development-stage enterprise, the Company had no
significant operating revenues through December 31, 2009.
Operating revenues commenced in January 2010, and the Company
hired a national sales manager in September 2010 to direct the
activities of independent sales agents and sales representatives
in the marketing and sales of its products in selected
geographic areas in the United States. Revenues will be
predominately the result of equipment sales, fees from
physicians and other health-care providers related to the
analysis of test results and licensing fees.
At December 31, 2010 our cash balance was $1,119,000.
During 2010 we received $6,471,000 from the sale of
8% Subordinated Convertible Notes
(8% Subordinated Notes) and
10% Convertible Promissory Notes
(10% Convertible Notes).
Our Series B preferred stock yields cumulative annual
dividends at an annual rate of 8%. Dividends on the
Series B preferred stock accrue from their issuance date.
Each share of Series B preferred stock is convertible at
the option of the holder into shares of our common stock at an
initial conversion price equal to the lesser of $0.80 per share
or 80% of the price per share of any common stock sold in a
Qualified Financing, plus the amount of all accrued and unpaid
dividends on such shares, whether or not declared. A Qualified
Financing is defined as the closing of a sale of debt or equity
in a registered offering or pursuant to a private placement
resulting in at least $3 million of gross proceeds to the
Company. The conversion price of the Series B preferred
stock is subject to adjustment in certain cases, including
dilutive issuances and the issuance of additional shares of
common stock. The Series B preferred stock will
automatically be converted into shares of common stock upon the
consummation of a Liquidation Event. A Liquidation Event is
defined as a voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company. The Company may, at
its option, require all holders of Series B preferred stock
then outstanding to convert their shares of Series B
preferred stock into shares of common stock at any time on or
after the closing of a Qualified Financing. Once the shares of
Series B preferred stock are converted into shares of
common stock upon a Qualified Financing, there will be no
further accruals by the Company for annual dividends.
The 8% Subordinated Notes accrue interest at the rate of 8%
per annum. The 8% Subordinated Notes are due on
October 7, 2012. The 8% Subordinated Notes are subject
to mandatory conversion into shares of our common stock at a
conversion price equal to the lesser of $.80 per share or 80% of
the price per share of common stock sold in a Qualified Funding
Event. A Qualified Funding Event is defined as the sale of debt
or equity in a registered offering or private placement, which
sale results in at least $3 million of gross proceeds to
the Company. Since all the 8% Notes were converted into
27
shares of our common stock as of May 31, 2010, the holders
may voluntarily convert the 8% Subordinated Notes into
shares of our common stock at $0.80 per share. Once the
8% Subordinated Notes are converted into shares of common
stock upon a Qualified Funding Event, this will eliminate the
indebtedness represented by the 8% Subordinated Notes and
result in there being no further accruals by the Company for
annual interest.
In October and November 2010, we sold in a private placement
units consisting of 10% Convertible Notes plus warrants to
purchase 6,231,108 shares of common stock. The
10% Convertible Notes have a principal amount of
$2,804,000, and net proceeds to us after fees and related costs
paid at closing were $2,501,000. We utilized the net proceeds
from the offering to execute our business plan and for working
capital. The maturity of the 10% Convertible Notes is
September 30, 2012. The 10% Convertible Notes bear
interest at 10% per annum, and are convertible into common stock
at the lower of the fixed conversion price, as defined, or 75%
of the average of the three lowest closing bid prices during the
10-day
period preceding the conversion date and contain redemption
provisions upon occurrence of both a qualified financing event,
as defined, and a nonqualified financing, as defined. The
warrants are exercisable at $0.80 per share for 4 years
after the issue date.
Our plan of operations consists of:
|
|
|
|
1.
|
Increasing sales of the PD2i
Analyzertm
to physicians and health care facilities in the
United States through the use of independent sales agents
and direct sales personnel.
|
|
|
|
|
2.
|
Raising additional capital with which to expand the sales and
administrative infrastructure and fund ongoing operations until
our operations generate positive cash flow.
|
|
|
3.
|
Completing various clinical trials and 510(k) submission(s) to
secure additional marketing claims for the PD2i
Analyzertm
to enhance and accelerate marketing efforts.
|
|
|
4.
|
Initiating international sales of the PD2i
Analyzertm
and
PD2i-VStm
(Vital Sign), including securing CE Mark Clearance.
|
However, we cannot assure that we will be successful in raising
additional capital to implement our business plan. Further, we
cannot assure, assuming that we raise additional funds, that we
will achieve profitability or positive cash flow. If we are not
able to timely and successfully raise additional capital
and/or
achieve profitability and positive cash flow, our operating
business, financial condition, cash flows and results of
operations may be materially and adversely affected.
Critical
Accounting Policies and Estimates
The SEC has defined a companys critical accounting
policies as the ones that are most important to the portrayal of
the Companys financial condition and results of operations
and which require the Company to make its most difficult and
subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on
this definition, we have identified the critical accounting
policies and judgments addressed below. We also have other key
accounting policies that are significant to understanding our
results. For additional information, see Item 8 of
Part II, Financial Statements and Supplementary
Data Note 3 Summary of Significant
Accounting Policies and Basis of Presentation.
The following are deemed to be the most significant accounting
policies affecting the Company.
Use
of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could
differ from those estimates and the differences could be
material.
28
Research
and Development Costs
Research and development costs include payments to collaborative
research partners and costs incurred in performing research and
development activities, including wages and associated employee
benefits, facilities and overhead costs. These are expensed as
incurred.
Intellectual
Property
Intellectual property, consisting of patents and other
proprietary technology, are stated at cost and amortized on the
straight-line basis over their estimated useful economic lives.
Costs and expenses incurred in creating intellectual property
are expensed as incurred. The cost of purchased intellectual
property is capitalized. Software development costs are expensed
as incurred.
Revenue
Recognition
Operating revenues commenced in January 2010 and are
predominately the result of equipment sales and fees from
physicians related to the analysis of test results.
The Company recognizes revenue when it is realized or realizable
and earned. Revenue is considered realized and earned when
persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; fees to the customer
are fixed or determinable; and collection of the resulting
receivable is reasonably assured.
The Company sells equipment to physicians and other health care
providers (Customer or Customers)
through both sales representatives employed by the Company and
also independent sales agents. Revenue from equipment sales to
Customers is generally recognized when title transfers to the
Customer, typically upon delivery and acceptance, and includes
training that is provided at the time of product delivery.
Revenue from sales of equipment to independent sales agents to
be used by the agents as demonstration units is recognized upon
shipment.
The Companys credit terms are net 30 days.
The Company also enters into agreements to lease equipment to
health-care providers. Revenue from the leases is recognized
ratably over the term of the lease, usually 12 months.
Revenue from the analysis of test results is recognized upon
provision of the test results to the Customers.
Accounting
for Stock-Based Compensation
We record equity-based compensation expense for employees and
nonemployees in accordance with the fair-value provisions of
Accounting Standards Codification (ASC) 718,
principally the result of granting stock options and warrants to
employees with an exercise price below the fair value of the
shares on the date of grant.
Accounting
for Derivative Financial Instruments
We evaluate financial instruments using the guidance provided by
ASC 815 and apply the provisions thereof to the accounting
of items identified as derivative financial instruments not
indexed to our stock.
Fair
Value of Financial Instruments
The Company follows the provisions of ASC 820. This Topic
defines fair value, establishes a measurement framework and
expands disclosures about fair value measurements.
The Company uses fair value measurements for determining the
valuation of derivative financial instruments payable in shares
of its common stock. This primarily involves option pricing
models that incorporate certain assumptions and projections to
determine fair value. These require management judgment.
29
Results
of Operations
The following table sets forth results of operations for certain
items reflected in the Companys consolidated statements of
operations for each of the years ended December 31, 2009
and 2010 and Inception to December 31, 2010. Because there
was no revenue in 2009, all percentages shown are based on total
operating expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 4, 2000
|
|
|
|
Years Ended
|
|
|
|
|
|
(Inception) to
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
185,000
|
|
|
|
−2.1
|
%
|
|
$
|
185,000
|
|
|
|
−0.3
|
%
|
Lease income
|
|
|
|
|
|
|
0.0
|
%
|
|
|
4,000
|
|
|
|
0.0
|
%
|
|
|
4,000
|
|
|
|
0.0
|
%
|
Grants and other
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
844,000
|
|
|
|
−1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
189,000
|
|
|
|
−2.1
|
%
|
|
|
1,033,000
|
|
|
|
−1.7
|
%
|
Cost of revenue
|
|
|
|
|
|
|
0.0
|
%
|
|
|
131,000
|
|
|
|
−1.5
|
%
|
|
|
131,000
|
|
|
|
−0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
0.0
|
%
|
|
|
58,000
|
|
|
|
−0.6
|
%
|
|
|
902,000
|
|
|
|
−1.5
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
964,000
|
|
|
|
13.2
|
%
|
|
|
638,000
|
|
|
|
7.2
|
%
|
|
|
15,665,000
|
|
|
|
25.1
|
%
|
Selling, general and administrative expenses
|
|
|
3,705,000
|
|
|
|
50.6
|
%
|
|
|
5,944,000
|
|
|
|
67.1
|
%
|
|
|
35,038,000
|
|
|
|
56.2
|
%
|
Interest expense
|
|
|
2,485,000
|
|
|
|
33.9
|
%
|
|
|
2,273,000
|
|
|
|
25.7
|
%
|
|
|
10,401,000
|
|
|
|
16.7
|
%
|
Loss from extinguishment of debt
|
|
|
167,000
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
1,266,000
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,321,000
|
|
|
|
100.0
|
%
|
|
|
8,855,000
|
|
|
|
100.0
|
%
|
|
|
62,370,000
|
|
|
|
100.0
|
%
|
Gain (loss) on derivative financial instruments
|
|
|
2,157,000
|
|
|
|
−29.5
|
%
|
|
|
3,991,000
|
|
|
|
−45.1
|
%
|
|
|
6,148,000
|
|
|
|
−9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,164,000
|
)
|
|
|
−129.5
|
%
|
|
|
(4,806,000
|
)
|
|
|
−145.7
|
%
|
|
|
(55,320,000
|
)
|
|
|
−111.4
|
%
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
480,000
|
|
|
|
0.8
|
%
|
Dividends for the benefit of preferred stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable on Series A and Series B preferred stock
|
|
|
(479,000
|
)
|
|
|
6.5
|
%
|
|
|
(436,000
|
)
|
|
|
4.9
|
%
|
|
|
(1,349,000
|
)
|
|
|
2.2
|
%
|
Amortization of derivative discount on Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred stock
|
|
|
(979,000
|
)
|
|
|
13.4
|
%
|
|
|
(1,004,000
|
)
|
|
|
11.3
|
%
|
|
|
(1,983,000
|
)
|
|
|
3.2
|
%
|
Value of warrants issued in connectin with Series B
preferred stock
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
(1,536,000
|
)
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends for the benefit of preferred stockholders
|
|
|
(1,458,000
|
)
|
|
|
19.9
|
%
|
|
|
(1,440,000
|
)
|
|
|
16.2
|
%
|
|
|
(4,868,000
|
)
|
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$
|
(6,622,000
|
)
|
|
|
−109.6
|
%
|
|
$
|
(6,246,000
|
)
|
|
|
−129.5
|
%
|
|
$
|
(59,708,000
|
)
|
|
|
−102.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and dilluted
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common shares outstanding
|
|
|
37,513,205
|
|
|
|
|
|
|
|
44,850,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ending December 31, 2010 Compared to December 31,
2009:
Revenues
Revenues were $189,000 for the year ended December 31, 2010
compared to no revenues for 2009.
Cost
of Revenue
Cost of revenue was $131,000 for the year ended
December 31, 2010 compared to no cost of sales for the year
ended December 31, 2009.
Gain
on derivative financial instruments
There was a gain on derivative financial instruments of
$3,991,000 for the year ended December 31, 2010 compared to
a gain of $2,157,000 for the year ended December 31, 2009.
The
30
primary reason for the increase of $1,834,000 was the generally
lower level of the Companys common stock price during 2010
as compared to 2009. The fair value resulting from the periodic
mark-to-market
calculation varies inversely to the change in the stock price
used in the Black-Scholes-Merton option pricing model so that
gain results from a stock price decrease and loss results from a
stock price increase.
Research
and Development
For the year ended December 31, 2010, research and
development costs were $638,000, or 7.2% of total expenses,
compared to $964,000, or 13.2% of total expenses, for the year
ended December 31, 2009. The $326,000 decrease in expenses
was largely attributable to a $175,000 decrease in the MUSIC
Trial costs as well as the use of collaborative researchers in
2010 at greatly reduced cost to Vicor. Other cost reductions in
2010 were achieved by hiring IT personnel and reducing the level
of outside contractor involvement in programming.
We anticipate that research and development costs will continue
in the future. As our products become commercially available in
the marketplace, we expect more collaborative research efforts
from third parties to take place, reducing the extent to which
Vicor-sponsored and funded research and development will be
required.
Selling,
General and Administrative
For the year ended December 31, 2010 selling, general and
administrative costs were $5,994,000, or 67.1% of total
expenses, compared to $3,705,000, or 50.6% of total expenses,
for the year ended December 31, 2009. The $2,289,000
increase was primarily due to increases of $770,000 for
compensation and benefits resulting from increased personnel,
primarily in the IT function; $662,000 as a result of
establishing the sales and marketing infrastructure in 2010;
$262,000 of expenses related to debt issuances for capital
funding purposes; $216,000 for investor relations activities,
and $101,000 of legal fees. The increases were offset by
decreases of $119,000 due to reduced use of IT contractors and
decreases of $116,000 of equity-based compensation provided to
members of the Scientific Advisory Board and outside directors.
Interest
Expense
For the year ended December 31, 2010 interest costs were
$2,273,000, or 25.7% of total expenses, compared to $2,485,000,
or 33.9% of total expenses, for the year ended December 31,
2009. 2010 interest expense includes increases of $496,000
caused by increased debt levels and reductions of $708,000 of
expense incurred in 2009 involving debt issuance and conversion
of debt to equity.
Loss
on Extinguishment of Debt
For the year ended December 31, 2009 loss on extinguishment
of debt amounted to $167,000, or 2.3% of total expenses. There
was no such loss in 2010.
Liquidity
and Capital Resources
We generated revenues of $189,000 in the year ended
December 31, 2010. However, our revenues are not sufficient
to execute our business plan and continue development of our
products. Accordingly, we continue to look to outside sources to
raise capital.
At December 31, 2010 we had working capital of $32,000 and
$1,119,000 in cash. Based on our cash balance as of
March 15, 2011, management believes the we have sufficient
funds to continue current operations through at least
May 1, 2011.
We have raised approximately $27,000,000 since our inception in
2000 in a series of private placements of our common stock,
convertible preferred stock and convertible notes.
31
However, we may not be successful in raising additional capital.
Further, assuming that we raise additional funds, the Company
may not achieve positive cash flow or profitability. If we are
not able to timely and successfully raise additional capital
and/or
achieve positive cash flow or profitability, our operating
business, financial condition, cash flows and results of
operations may be materially and adversely affected.
Going
Concern
We have prepared our financial statements for the years ended
December 31, 2009 and 2010 on a going concern basis, which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. We
incurred a net loss of $4,806,000 for the year ended
December 31, 2010 and had an accumulated deficit of
$59,708,000 at December 31, 2010. We expect to incur
substantial expenditures to further the commercial development
of our products. However, our working capital at
December 31, 2010 of $32,000 will not be sufficient to meet
such objectives. Although sales commenced in January 2010, we
anticipate operating losses over the next 12 months (and
likely longer) as we continue to incur expenditures necessary to
further the commercial development of our products. These
matters raise substantial doubt about our ability to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Management recognizes that the Company must generate additional
funds to successfully commercialize its products. Management
plans include the sale of additional equity or debt securities,
alliances or other partnerships with entities interested in and
having the resources to support the further development of our
products as well as other business transactions to assure
continuation of the Companys development and operations.
We are executing our plan to secure additional capital through a
multi-part funding strategy. Management believes the amount of
capital generated by this plan will be sufficient to permit
completion of various clinical trials and provide sufficient
working capital for the next 18 months, by which time it
expects that the Company will generate positive cash flow
through the sales of its products.
Off-Balance
Sheet Arrangements
We have not entered into any transaction, agreement or other
contractual arrangement with an entity unconsolidated under
which it has:
|
|
|
|
|
a retained or contingent interest in assets transferred to the
unconsolidated entity or similar arrangement that serves as
credit;
|
|
|
|
liquidity or market risk support to such entity for such assets;
|
|
|
|
an obligation, including a contingent obligation, under a
contract that would be accounted for as a derivative
instrument; or
|
|
|
|
an obligation, including a contingent obligation, arising out of
a variable interest in an unconsolidated entity that is held by,
and material to the Company, where such entity provides
financing, liquidity, market risk or credit risk support to or
engages in leasing, hedging, or research and development
services with the Company.
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Our Financial Statements are contained on pages F-2 to F-32 of
this Annual Report and are incorporated herein by reference.
32
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, we
conducted an evaluation under the supervision and with the
participation of our Chief Executive Officer and Chief Financial
Officer of our disclosure controls and procedures (as defined in
Rule 13a-15(e)
and
Rule 15d-15(e)
of the Exchange Act). Based upon this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms and that such information is
accumulated and communicated to our management, including our
principal executive officer and principal financial officer, or
persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Changes
in Internal Controls
There was no change in our internal controls or in other factors
that could affect these controls during our last fiscal quarter
that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
Managements
Annual 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 a process designed by or
under the supervision of our Chief Executive Officer and our
Chief Financial Officer and effected by our 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 generally accepted accounting principles.
Our evaluation of internal control over financial reporting as
of December 31, 2010 was conducted on the basis of the
framework in Internal Control-Integrated Framework,
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management has
concluded that our internal control over financial reporting was
effective as of December 31, 2010.
|
|
Item 9B.
|
Other
Information.
|
None.
33
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Executive
Officers and Directors
The following table sets forth the names, positions and ages of
our current executive officers, directors and significant
employees. Class I directors serve until the 2011 annual
meeting of stockholders or until their successors are elected
and qualified. Class II directors serve until the 2012
annual meeting of stockholders or until their successors are
elected and qualified. Class III directors serve until the
2013 annual meeting of stockholders or until their successors
are elected and qualified. Officers are appointed by our board
of directors and their terms of office are, except to the extent
governed by an employment contract, at the discretion of our
board of directors.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
David H. Fater
|
|
|
64
|
|
|
President, Chief Executive and Chief Financial Officer; Class I
Director
|
Thomas J. Bohannon
|
|
|
66
|
|
|
Chief Financial Officer
|
James E. Skinner, Ph.D.
|
|
|
69
|
|
|
Vice President Research and Science; Class I Director
|
Jerry M. Anchin, Ph.D.
|
|
|
50
|
|
|
Vice President Product Development; Class II Director
|
Richard M. Cohen
|
|
|
65
|
|
|
Chief Operating Officer
|
Daniel N. Weiss, M.D., F.A.C.C
|
|
|
48
|
|
|
Chief Medical Officer
|
Gary A. Schwartz
|
|
|
50
|
|
|
Chief Technology Officer
|
Frederick M. Hudson
|
|
|
65
|
|
|
Class II Director
|
Joseph A. Franchetti
|
|
|
71
|
|
|
Class III Director
|
Ronald A. Malone
|
|
|
55
|
|
|
Class III Director
|
Frank B. Wheeler
|
|
|
73
|
|
|
Class III Director
|
David H. Fater joined us as President, Chief Executive
and a director in June 2002. Mr. Fater was the founder and
from January 1993 through the present, has been the chief
executive officer of ALDA & Associates International,
Inc., a business and financial consulting firm specializing in
healthcare and life sciences. Prior to his founding ALDA,
Mr. Fater served as a senior executive with three public
health care companies, including two in which he led the initial
public offering process (BMJ Medical Management, Inc. and
Community Care of America) and one which he led to a NYSE
listing and a $1 billion market capitalization (Coastal
Physician Group, Inc.). Mr. Fater was employed by Coastal
Physician Group, Inc. from January 1993 to June 1995; Community
Care of America from July 1995 to December 1996; and BMJ Medical
Group, Inc. from January 1997 to July 1999. From June 2000
through July 2001 Mr. Fater was the chief financial officer
of Vector Medical Technologies, Inc. Prior to his corporate
experience, Mr. Fater was an international business advisor
to senior management and boards of directors as a senior
international partner during a
24-year
career with Ernst & Young from January 1969 to
December 1992. He holds a B.S. in Accounting from the University
of North Carolina. He is a Certified Public Accountant licensed
in Georgia and North Carolina.
Thomas J. Bohannon was appointed to serve as the Chief
Accounting Officer of the Company effective as of
December 28, 2008 and became Chief Financial Officer on
January 1, 2011. Mr. Bohannon has been in the
accounting and financial field for more than 40 years.
Mr. Bohannon worked as a senior manager at
Ernst & Young in Atlanta from 1968 until 1978 where he
specialized in financial and SEC reporting before becoming the
partner in charge of audit and review services for Pappadakis,
Nelson & Bohannon from 1978 - 1991. Since 1992,
he has focused on his own consulting practice, serving as the
financial officer for a variety of companies in the Southeast
United States. He holds a B.S. in Economics from Auburn
University and a Masters in Business Administration,
34
Concentration in Accounting from Tulane University. He is a
Certified Public Accountant licensed in Georgia.
James E. Skinner, Ph.D., has been our Vice President
Research and Science and a director since August 2000.
Dr. Skinner was our President from August 2000 through July
2002. Dr. Skinner has experience both as a scientist and
manager of large research and development projects. From
December 1969 to February 1993 Dr. Skinner was a Professor
at Baylor College of Medicine in Houston, where he was the
recipient of many research grants from the National Institutes
of Health. During his tenure at Baylor College of Medicine, he
was the principal investigator of a Program Project Grant that
operated five laboratories and three core facilities. From March
1993 to July 1997, Dr. Skinner was the Associate Director
of the Totts Gap Medical Research Laboratories, Inc. In August
1997 he founded the Delaware Water Gap Science Institute, a
nonprofit medical research organization devoted to the
development of medical devices and pharmaceuticals, and has
served as its director since its inception. Dr. Skinner is
a graduate of Pomona College and received his Ph.D. from the
University of California at Los Angeles.
Jerry M. Anchin, Ph.D., has been our Vice President
Product Development since October 2000 and a director since
September 2003. Dr. Anchin has extensive experience in the
biotechnology business sector. He has been actively involved in
the fields of immunology, molecular biology, drug discovery and
protein chemistry since 1978. Dr. Anchin worked in
biotechnology at International Immunoassay Labs from September
1981 to July 1988 as head of assay development and
manufacturing, where he was instrumental in designing a novel
assay for the detection of the protein creatine kinase that is
released as a result of acute myocardial infarction. He received
two patents for his work in this area. Dr. Anchin then
worked for Immuno Pharmaceuticals from August 1993 to February
1996 and Prism Pharmaceuticals from February 1996 to June 1998.
Dr. Anchin was employed by Ciblex Pharmaceuticals from June
1998 through August 2000, where he became group leader of the
drug discovery program involving novel small molecules that will
be entering clinical trials for the prevention of asthma. He has
been granted five patents in the field of immunoassay and drug
discovery and has four patents pending. Dr. Anchin holds a
B.A. in Cell Biology from University of California at
Santa Barbara and received his Ph.D. in Immunology from
Texas A&M University.
Richard M. Cohen was appointed to serve as Chief
Operating Officer effective January 1, 2011. Mr. Cohen
has management experience at companies ranging from
start-ups to
Fortune 500 companies. He also has experience in matters
related to importing, exporting and manufacturing operations in
South America, the Far East and Europe. From 1987
2000 Mr. Cohen served as the Chief Operating Officer of
Chaseco Inc. and served as the Chief Operating Officer of
ALDA & Associates International, Inc., a consulting
company during the ten years from 2000 2010. While
working with ALDA, Mr. Cohen performed consulting services
for the Company. He holds a B. A. in Business Administration
from Kentucky Wesleyan College.
Daniel N. Weiss, M.D., F.A.C.C., joined us as our
Chief Medical Officer in April 2004. Dr. Weiss has
extensive experience as a practicing cardiologist and
electrophysiologist. He has been a partner in Florida Arrhythmia
Consultants. He is also a consultant to Fortune 500 Medical
Device companies including Medtronics, St. Jude Medical and
Guidant. He has been a clinical investigator in the MADIT II
(Multi Center Automatic Defibrillator Implantation Trial)
and SCDHeFT (Sudden Cardiac Death Heart Failure Trial)
clinical trials. He is a cum laude graduate of
Princeton University with a BSE in Electrical Engineering and
Computer Science. He received his Medical Degree with
Distinction in Research from the Mount Sinai School of Medicine
where he also received the Nathan A. Setz Award for Research in
Cardiovascular and Renal Disease.
Gary A. Schwartz was appointed Chief Technology Officer
on January 1, 2011. Mr. Schwartz has more than
20 years of experience in executive positions involving
strategic business planning, information technology and quality
assurance/improvement. He worked at Lehman Brothers
corporate headquarters in New York City from 1992
1995 and designed, built and maintained its Business
Communications. From 1995 1997 Mr. Schwartz
served as the New York Branch Manager of
35
TechLaw Automation Partners, servicing some of the most
prominent law firms in New York. From 1997 2000 he
worked with Clinical Systems Limited, a healthcare conglomerate
delivering HMO operations, clinical trials, practice management
and bio-statistical research. In 2000 he relocated to Florida
and joined Vista Healthplan of South Florida as Chief
Information Officer. In 2005 he created Sierra Healthcare
Consultants and consulted with startup HOMs and MHN in
South Carolina and Florida to develop information technology and
operations systems. He consulted with Vicor during 2010 prior to
joining the Company.
Frederick M. Hudson has served as a director since July
2008. Mr. Hudson retired as a partner in charge of the
health care audit practice for the Washington
Baltimore business unit of the accounting firm of KPMG, LLP on
January 1, 2006 after a
37-year
career with the firm. He is a graduate of Loyola College and
currently serves in a board capacity with the Board of Financial
Administration of the Catholic Archdiocese of Baltimore, Board
of Sponsors, Loyola College Sellinger School of Business and
Management and the Board of Trustees of the Maryland Historical
Society. He chairs the audit committee of the board of directors
of Paradigm Management Services LLC (a provider of catastrophic
care services),Woodhaven Holding Corporation, d/b/a Remedi
Health Services, (an institutional pharmacy service provider)
and is a member of the audit and finance committee of the board
of directors for GBMC Healthcare, Inc and its affiliate, the
Greater Baltimore Medical Center. He serves as Chairman of our
Audit Committee.
Joseph C. Franchetti has served as a director since July
2008. He is a consultant, director and advisor to several health
care/medical device companies in the cardiology/cardiovascular
and life sciences arenas, including 31
start-up
companies. He now serves as vice-chairman of CVAC Health Systems
Inc. and was president and CEO of Colin Medical Instruments
Corp. (now Omron), a Japanese-owned worldwide leader for
noninvasive blood pressure and physiological/vital signs
monitoring and diagnosis from 1989 to 1996. His executive
experience also includes being co-founder and CEO of Bio-Chem
Laboratory Systems Inc. and a corporate and international
vice-president and general manager for Technicon (now Siemens)
and Narco Scientific (now Respirionics). He is a graduate of the
Wharton School of the University of Pennsylvania, a trustee
emeritus of Southwest Research Institute of Texas, and a
commissioned US Army Infantry Officer.
Ronald A. Malone, has served as a Class III Director
since November 2010. He has served as the chairman of the board
of Gentiva Health Services, Inc. (Gentiva) since
June 2002, and its chief executive officer from June 2002
through September 2008. Gentiva is the largest provider of home
health care services in the United States and is traded on the
Nasdaq Stock Market under the symbol GTIV. He served
in various executive positions at Gentiva from March 2000
through June 2002. Prior thereto he served in various executive
capacities with Olsten Corporation, a large multinational
conglomerate. Mr. Malone currently serves as a director of
Hill-Rom Holdings, Inc. (Hill-Rom), a worldwide
manufacturer and provider of medical technologies and related
services for the health care industry, and Capital Senior Living
Corporation (CSL), one of the largest operators of
senior living communities in the United States in terms of
resident capacity. Mr. Malone has served as a director of
Hill-Rom since July 2007 and as a director of CSL since
June 16, 2010. Mr. Malone has a Bachelors degree from
Furman University.
Frank B. Wheeler, has served as a Class III Director
since November 2010. He worked for thirty-five years in the
British Diplomatic Service until 1997. He served as foreign
policy adviser on East West affairs and Middle East
issues, was the Charge dAffairs in Czechoslovakia and the
Ambassador to Ecuador and then Chile. Since 1997 he has served
as the chairman of the British - Chilean Chamber of Commerce in
London and as international adviser to the English Football
Association in its campaign to host the 2006 World Cup. For the
past five years he has been an independent business consultant
involved with health insurance and software companies.
Mr. Wheeler received an Advanced Level Certificate in
French and German from the Mill Hill School in London, graduated
in Russian Studies from the Joint Services College for Linguists
and obtained Diploma in Economics from the Treasury Centre for
Administrative Studies in London.
36
Director
Independence and Qualifications
The Board of Directors has determined that the following four
individuals currently serving as directors are independent as
that term is defined in the Marketplace Rules of The NASDAQ
Stock Market: Messrs. Franchetti, Hudson, Malone and
Wheeler.
Our Board believes that the qualifications of our directors, as
set forth in their biographies which are listed above and
briefly summarized in this section, give them the qualifications
and skills to serve as directors of Vicor. Three of our
directors, Mr. Fater, Dr. Anchin and
Mr. Franchetti, have experience serving as executive
officers of medical device companies, and Mr. Malone serves
as the Chairman of a company in the home health care industry.
Mr. Wheeler has experience in the health care and software
industry as a consultant and has a great deal of international
experience through his work with the British Diplomatic Service,
which will assist us in our marketing and sales efforts outside
the United States. Mr. Hudson has a strong background in
finance for health care companies.
Our Board also believes that each of the directors has other key
attributes that are important to an effective Board: integrity
and demonstrated high ethical standards, sound judgment;
analytical skills, the ability to engage management and each
other in a constructive and collaborative fashion, and the
commitment to devote significant time and energy to service on
the Board and its Committees.
Director
Compensation
Each nonemployee Director receives a basic annual retainer of
$24,000, paid quarterly in shares of our common stock. The
Director serving as the Chairman of the Audit Committee will
receive an annual fee of $12,000 and the Directors serving as
Chairman of the Compensation Committee and the Governance
Committee will receive an annual fee of $6,000 for the
additional duties as Chairmen of these committees. Such fees
will be paid quarterly in shares of the Companys common
stock. Nonemployee Directors will receive cash fees of $1,000
per meeting (paid in shares of the Companys common stock)
not to exceed six Board meetings per year and four meetings for
each Committee. Each nonemployee Director will also receive an
annual grant of 100,000 stock options. The options will be
exercised at the fair market value of the Companys common
stock on the date of grant and will be for a term of up to ten
years. The options will vest monthly on a pro-rata basis over a
24-month
period.
Director
Compensation Table
The following table sets forth a summary of the compensation we
paid to our nonemployee Directors in 2010. We do not provide any
compensation to our Directors who also are serving as executive
officers of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
Stock
Options(1)
|
|
Stock
Award(2)
|
|
Total
|
|
Edward Wiesmeier
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,500
|
|
|
$
|
35,500
|
|
Frederick Hudson
|
|
$
|
|
|
|
$
|
49,000
|
|
|
$
|
54,000
|
|
|
$
|
103,000
|
|
Frank B. Wheeler
|
|
$
|
|
|
|
$
|
49,000
|
|
|
$
|
9,000
|
|
|
$
|
58,000
|
|
Ronald Malone
|
|
$
|
|
|
|
$
|
49,000
|
|
|
$
|
9,000
|
|
|
$
|
58,000
|
|
Joseph Franchetti
|
|
$
|
|
|
|
$
|
49,000
|
|
|
$
|
42,000
|
|
|
$
|
91,000
|
|
|
|
|
(1) |
|
The amounts reflect the aggregate grant date fair value computed
in accordance with FASB ASC Topic 718. For information regarding
the assumptions used in the calculation of the amount are
included in footnote 8 of the Companys financial
statements for the fiscal year ended December 31, 2010. |
|
(2) |
|
The amounts reflect the fair market value of the stock on date
of issuance. |
37
Board
Committees
During the year ended December 31, 2010 we had two standing
committees: an Audit Committee and a Compensation Committee. A
Governance Committee was appointed in 2010 but held no meetings.
The members of the Audit Committee are Mr. Hudson,
Chairman, and Mr. Franchetti. The members of the
Compensation Committee are Mr. Malone, Chairman,
Mr. Hudson and Mr. Wheeler. The members of the
Governance Committee are Mr. Franchetti, Mr. Hudson
and Mr. Wheeler, no Chairman having been appointed
currently.
Audit
Committee
The Audit Committee reviews, with our independent accountants,
our annual and quarterly financial statements prior to
publication, and reviews the work of, and approves nonaudit
services performed by, such independent accountants. Our Audit
Committee appoints the independent accountants for the ensuing
year.
Our Board has determined that Mr. Hudson is an audit
committee financial expert, as that term is defined in
Item 401(e)(2) of
Regulation S-K.
SCIENTIFIC
ADVISORY BOARD
The Company has assembled a Scientific Advisory Board that
enables it to access some of the brightest minds in the life
sciences arena. Members, in addition to Drs. Anchin,
Skinner and Weiss, include:
|
|
|
|
|
Edward F. Lundy, M.D., Ph.D., Chief of
Cardiothoracic Surgery at the Active International
Cardiovascular Institute at Good Samaritan Hospital in Suffern,
New York. In addition to his M.D. from the University of
Michigan, Dr. Lundy also received a Ph.D. from that
institution in physiology with a primary focus on altered-state
physiologies such as hibernation. He serves as Chairman of our
Scientific Advisory Board.
|
|
|
|
Mark E. Josephson, M.D., Chief of Cardiology at Beth
Israel Deaconess Medical Center, a major patient care, research
and teaching affiliate of Harvard Medical School; and the author
of Clinical Cardiac Electrophysiology, the fundamental
textbook in the field.
|
|
|
|
Hein J. J. Wellens, M.D., Professor and Chairman of
the Department of Cardiology at Academisch Ziekenhuis Maastricht
in Amsterdam, the Netherlands. He is a director of the
Interuniversity Cardiology Institute of the Netherlands and is a
member of the Netherlands Academy of Arts and Sciences. He also
has an appointment of visiting lecturer at Harvard Medical
School.
|
|
|
|
Richard M. Luceri, M.D., F.A.C.C., recently retired
director, Interventional Arrhythmia Center Holy Cross Hospital,
Fort Lauderdale, FL as well as a clinical investigator in
the MADIT II (MultiCenter Automatic Defibrillator
Implantation Trial) and author SCDHeFT (Sudden Cardiac
Death Heart Failure Trial).
|
|
|
|
Robert G. Hauser, MD, F.A.C.C., FHRS, Chairman of the
Cardiovascular Services Division at Abbott Northwestern Hospital
and former CEO of Cardiac Pacemakers, Inc., acquired by Guidant
Corporation.
|
|
|
|
Jonathan Kaplan, M.D., M.P.H., Medical Director for
Fidelis Care New York and formerly the corporate medical
director for Excellus Blue Cross Blue Shield.
|
|
|
|
David Chazanovitz, the former chief executive officer of
Cambridge Heart, Inc. (our only FDA-approved competitor).
|
38
|
|
|
|
|
Jules T. Mitchel, M.B.A., Ph.D., founder of Target
Health, Inc., a full-service contract research organization
supporting all aspects of pharmaceutical drug and device
development.
|
|
|
|
Ariel D. Soffer, M.D., F.A.C.C, Chief of Cardiology
at Jackson North Medical Center, one of the newest hospitals in
the academically affiliated hospital system, Jackson Hospital.
|
|
|
|
Hank Lubin, M.D., practicing physician with
Hightstown Medical Associates, PA, (formerly affiliated with the
University of Pennsylvania Health System) and currently a
Clinical Associate Professor at The University of Pennsylvania
School of Medicine.
|
|
|
|
David Fertel, D.O., Clinical Professor of Surgery at
Michigan State University and a practicing board certified
thoracic and cardiovascular surgeon in Michigan.
|
|
|
|
Mitchell S. Karl, M.D., practicing board certified
cardiologist on staff with Boca Raton Community Hospital;
Clinical Associate Professor of Biomedical Science, Florida
Atlantic University/University of Miami School of Medicine;
Associate Medical Director, Vicor Technologies, Inc.
|
Code of
Ethics
We adopted a Code of Ethical Conduct on March 25, 2008 that
includes provisions ranging from conflicts of interest to
compliance with all applicable laws and regulations. All
officers, directors and employees are bound by this Code of
Ethical Conduct, violations of which may be reported to the Code
of Ethics Contact Person
and/or any
member of the Audit Committee.
|
|
Item 11.
|
Executive
Compensation.
|
Summary
Compensation Table
The following table sets forth compensation awarded to, earned
by or paid to (i) David H. Fater, our Chief Executive
Officer, (ii) James. E. Skinner, our Vice President,
Research and Science, (iii) Jerry M. Anchin, our
Vice President, Product Development, and
(iv) Daniel N. Weiss, our Chief Medical Officer.
No other executive officers received total compensation in
excess of $100,000 for the fiscal year ended December 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option/Warrant
|
|
All Other
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Awards(1)
|
|
Awards(1)
|
|
Compensation
|
|
Total
|
|
David H. Fater
|
|
|
2010
|
|
|
$
|
201,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,000
|
|
Chief
Executive(2)
|
|
|
2009
|
|
|
$
|
183,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
228,000
|
|
|
$
|
|
|
|
$
|
411,000
|
|
James E. Skinner
|
|
|
2010
|
|
|
$
|
180,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
180,000
|
|
Vice President, Research and
Science(2)
|
|
|
2009
|
|
|
$
|
177,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
228,000
|
|
|
$
|
|
|
|
$
|
405,000
|
|
Jerry M. Anchin
|
|
|
2010
|
|
|
$
|
180,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
180,000
|
|
Vice President, Product
Development(2)
|
|
|
2009
|
|
|
$
|
168,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
228,000
|
|
|
$
|
|
|
|
$
|
396,000
|
|
Daniel N. Weiss
|
|
|
2010
|
|
|
$
|
180,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
180,000
|
|
Chief Medical
Officer(2)
|
|
|
2009
|
|
|
$
|
180,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,000
|
|
|
$
|
78,900
|
|
|
$
|
410,900
|
|
|
|
|
(1) |
|
The amounts reflect the aggregate grant date fair value computed
in accordance with FASB ASC Topic 718. For information regarding
the assumptions used in the calculation of the amount are
included in footnote 8 of the Companys financial
statements for the fiscal year ended December 31, 2010. |
|
(2) |
|
Mr. Fater, Dr. Skinner and Dr. Anchin commenced
employment with the Company on March 30, 2007, the date of
the Merger closing. Dr. Weiss commenced employment with us
in April 2008. |
39
Employment
Agreements
We have entered into employment agreements with David H. Fater,
James E. Skinner, Ph.D., Dr. Daniel N. Weiss and Jerry
M. Anchin, Ph.D.
David H. Fater. Our employment agreement with
Mr. Fater, dated June 1, 2002, as amended, is for a
three-year term; provided, however, that on June 1 of each year
the term is automatically extended for an additional one-year
period. The employment agreement provides for an annual base
salary of $150,000, subject to annual increases (currently at
$201,000), plus reimbursement of reasonable expenses and
entitles Mr. Fater to participate in the employee benefit
plans made available to our other executives. Upon the first to
occur of (1) our receipt of $3 million in funding;
(2) consummation of a significant liquidity event; or
(3) significant enhancement of our value,
Mr. Faters annual increases to base compensation will
be 10% and Mr. Fater will be entitled to an annual bonus of
20% of his base salary. The agreement contains customary
confidentiality and noncompete provisions.
James E. Skinner. Our employment agreement
with Dr. Skinner dated January 1, 2009 expires on
December 31, 2011. It provides for an annual base salary of
$180,000 subject to annual increases plus reimbursement of
reasonable expenses, and entitles Dr. Skinner to
participate in the employee benefit plans made available to our
other executives. This agreement contains customary
confidentiality and noncompete provisions. In addition,
Dr. Skinner agrees that all intellectual property developed
by him shall be our property.
Jerry M. Anchin. Our employment agreement with
Dr. Anchin dated January 1, 2009 expires on
January 1, 2012. It provides for an annual base salary of
$180,000 subject to annual increases plus reimbursement of
reasonable expenses, and entitles Dr. Anchin to participate
in the employee benefit plans made available to our other
executives. This agreement contains customary confidentiality
and noncompete provisions. In addition, Dr. Anchin agrees
that all intellectual property developed by him shall be our
property.
Daniel N. Weiss. Our employment agreement with
Dr. Weiss of January 1, 2010 expires on
January 1, 2013. It provides for an annual base salary of
$180,000 subject to annual increases plus reimbursement of
reasonable expenses and entitles Dr. Weiss to participate
in the employee benefit plans made available to our other
executives. This agreement contains customary confidentiality
and noncompete provisions. In addition, Dr. Weiss agrees
that all intellectual property developed by him shall be our
property.
40
Outstanding
Equity Awards at Fiscal Year-End Table
The following table presents information regarding outstanding
options and warrants held by our Named Executive Officers as of
our fiscal year end December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
Number of Securities
|
|
|
|
|
|
|
Underlying Unexercised
|
|
Underlying Unexercised
|
|
Option/Warrant
|
|
|
|
|
Options/Warrants (#)
|
|
Options/Warrants (#)
|
|
Exercise
|
|
Option/Warrant
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Expiration Date
|
|
David H. Fater
|
|
|
300,000
|
(1)
|
|
|
|
|
|
$
|
0.78
|
|
|
|
01/05/2016
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
04/09/2013
|
|
Thomas J. Bohannon
|
|
|
75,000
|
|
|
|
|
|
|
$
|
0.68
|
|
|
|
12/22/2015
|
|
|
|
|
25,000
|
|
|
|
|
|
|
$
|
0.78
|
|
|
|
1/5/2016
|
|
|
|
|
100,000
|
(2)
|
|
|
|
|
|
$
|
0.62
|
|
|
|
12/17/2016
|
|
|
|
|
100,000
|
(3)
|
|
|
|
|
|
$
|
0.51
|
|
|
|
12/29/2017
|
|
James E. Skinner
|
|
|
300,000
|
(1)
|
|
|
|
|
|
$
|
0.78
|
|
|
|
01/05/2016
|
|
|
|
|
255,000
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
08/08/2017
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
06/10/2013
|
|
Jerry M. Anchin
|
|
|
100,000
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
08/08/2017
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
02/19/2013
|
|
|
|
|
300,000
|
(1)
|
|
|
|
|
|
$
|
0.78
|
|
|
|
01/05/2016
|
|
Daniel N. Weiss
|
|
|
50,000
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
08/08/2017
|
|
|
|
|
200,000
|
(1)
|
|
|
|
|
|
$
|
0.78
|
|
|
|
01/05/2016
|
|
|
|
|
(1) |
|
We granted these options under our 2008 Stock Option Plan on
January 5, 2009. The options vest 50% immediately and 12.5%
per quarter thereafter. |
|
(2) |
|
We granted these options under our 2008 Stock Option Plan on
January 5, 2009. The options vest 50% immediately and 50%
after a milestone is achieved. |
|
(3) |
|
We granted these options under our 2008 Stock Option Plan on
January 5, 2009. The options vest 50% after 12 months
and 50% after 24 months. |
Equity
Compensation Plan Information
The following table sets forth information concerning our equity
compensation plans as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
Number of securities to be
|
|
|
Weighted-average
|
|
|
future issuance under
|
|
|
|
issued upon exercise of
|
|
|
exercise price of
|
|
|
equity compensation plans
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
(excluding securities
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
reflected in column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders (2002)
|
|
|
122,500
|
|
|
$
|
0.78
|
|
|
|
477,500
|
|
Equity compensation plans approved by security holders (2008)
|
|
|
3,817,500
|
|
|
$
|
0.73
|
|
|
|
1,182,500
|
|
Equity compensation plans not approved by security holders
|
|
|
24,466,460
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28,406,460
|
|
|
|
|
|
|
|
1,660,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Compliance
with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the
Companys directors and officers and persons who
beneficially own more than 10% of a registered class of the
Companys equity securities to file reports of beneficial
ownership and changes in beneficial ownership of the
Companys securities with the SEC on Forms 3, 4 and 5.
Based solely on the Companys review of the copies of such
forms received by it or written representations from certain
reporting persons the Company believes that with respect to the
fiscal year ended December 31, 2010 it complied with all
filing requirements applicable to its executive officers,
directors and 10% beneficial owners except as described herein.
Mr. Malone and Mr. Wheeler filed their
Form 3s late. Mr. Fater, Mr. Franchetti and
Mr. Hudson each filed two Form 4s late, which
reported 2 transactions for each, and Dr. Weismeier (a
former director) filed one Form 4 late, reporting 1
transaction.
Potential
Payments Upon Termination or a Change in Control
David H. Fater. If we terminate
Mr. Faters employment without cause or if
Mr. Fater terminates his employment agreement for good
reason (as defined in his employment agreement) or if either
event occurs during the two years after a change of control,
then Mr. Fater will receive an amount equal to 300% of the
sum of his current base salary and any bonuses paid during the
previous
12-month
period, and he will receive accelerated vesting under any
long-term incentive plans including stock options and warrants
and other benefits for the remainder of the term of the
agreement. We have also agreed to pay to Mr. Fater any
excise taxes to the extent any amount paid to Mr. Fater is
deemed parachute payments.
The table below reflects the compensation payable to
Mr. Fater in the event of a termination of his employment
in each of the situations listed below. The amounts shown assume
that the termination was effective as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
Termination for
|
|
not for
|
|
Termination for
|
|
Change in
|
Executive Benefits and
|
|
Voluntary
|
|
Cause by the
|
|
Cause by the
|
|
Good Reason by
|
|
Control for
|
Payments Upon Termination
|
|
Termination
|
|
Company
|
|
Company
|
|
the Executive
|
|
Good Reason
|
|
Base Salary
|
|
$
|
|
|
|
$
|
|
|
|
$
|
603,000
|
|
|
$
|
603,000
|
|
|
$
|
603,000
|
|
Bonus
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unvested & Accelerated)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Benefits and Insurance
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,700
|
|
|
$
|
74,700
|
|
|
$
|
74,700
|
|
280G Tax Gross Up
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other Named Executive Officers. If we
terminate Drs. Skinner, Anchin or Weiss without cause or if
Drs. Skinner, Anchin or Weiss terminates his employment
agreement with us for good reason (as defined in his employment
agreement), then said executive will receive an amount equal to
100% of the sum of his current base salary and any bonuses paid
during the previous 12-month period and will receive accelerated
vesting under any long-term incentive plans, including stock
options and warrants.
If we had terminated Drs. Skinner, Anchin or Weiss without cause
or any of the these executives had terminated their employment
with us without cause as of December 31, 2010, each would
have received an amount equal to $180,000 and would have
received accelerated vesting under any long-term incentive
plans, including stock options and warrants. In addition,
Dr. Weiss would receive $12,000 of health insurance
coverage.
42
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The following table presents information regarding the
beneficial ownership of our common stock by the following
persons as of March 15, 2011:
|
|
|
|
|
each of the executive officers listed in the summary
compensation table;
|
|
|
|
each of our directors;
|
|
|
|
all of our directors and executive officers as a group; and
|
|
|
|
each stockholder known by us to be the beneficial owner of more
than 5% of our common stock.
|
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Unless otherwise indicated below, to
our knowledge the persons and entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where
applicable. Shares of our common stock subject to options or
warrants that are currently exercisable or exercisable within
60 days of March 15, 2011 are deemed to be outstanding
and to be beneficially owned by the person holding the options
for the purpose of computing the percentage ownership of that
person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Unless
otherwise indicated, the address of each of the executive
officers and directors and 5% or more stockholders named below
is
c/o Vicor
Technologies, Inc., 2300 N.W. Corporate Boulevard,
Suite 123, Boca Raton, Florida 33431.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Percent of
|
|
Name of Beneficial Owner
|
|
Beneficially
Owned(1)
|
|
|
Shares
|
|
|
David H.
Fater(2)
|
|
|
1,715,354
|
|
|
|
3.26
|
%
|
James E.
Skinner(3)
|
|
|
4,245,164
|
|
|
|
8.03
|
%
|
Jerry M.
Anchin(4)
|
|
|
2,308,892
|
|
|
|
4.38
|
%
|
Daniel N.
Weiss, M.D.(5)
|
|
|
761,701
|
|
|
|
1.45
|
%
|
Thomas J.
Bohannon(6)
|
|
|
156,048
|
|
|
|
*
|
|
Ronald A.
Malone(7)
|
|
|
313,279
|
|
|
|
*
|
|
Frank B.
Wheeler(8)
|
|
|
42,803
|
|
|
|
*
|
|
Frederick M.
Hudson(9)
|
|
|
412,205
|
|
|
|
*
|
|
Joseph A.
Franchetti(10)
|
|
|
363,906
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All 7 directors and executive officers as a group
|
|
|
10,319,352
|
(11)
|
|
|
19.48
|
%
|
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
For purposes of calculating beneficial ownership percentages,
52,281,009 shares of the Companys common stock were
deemed outstanding as of March 15, 2011 and includes
(a) 47,095,908 shares of the Companys common
stock issued and outstanding and (b) 5,185,101 shares
of the Companys common stock issuable upon conversion of
5,185,101 shares of Series B preferred stock. As of
March 15, 2011, each share of Series B preferred stock
is convertible into one share of the Companys common stock. |
|
(2) |
|
Includes (a) immediately exercisable warrants to purchase
12,500 shares of the Companys common stock,
(b) immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
300,000 shares of the Companys common stock, and
(c) 12,500 shares of Series B preferred stock as
though converted into 12,500 shares of the Companys
common stock. |
|
(3) |
|
Includes (a) immediately exercisable warrants to purchase
267,500 shares of the Companys common stock,
(b) immediately exercisable options or options exercisable
within 60 days of |
43
|
|
|
|
|
March 15, 2011 to purchase 300,000 shares of the
Companys common stock, and (c) 12,500 shares of
Series B preferred stock as though converted into
12,500 shares of the Companys common stock. |
|
(4) |
|
Includes (a) immediately exercisable warrants to purchase
112,500 shares of the Companys common stock,
(b) immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
300,000 shares of the Companys common stock, and
(c) 12,500 shares of Series B preferred stock as
though converted into 12,500 shares of the Companys
common stock. |
|
(5) |
|
Includes immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
200,000 shares of the Companys common stock. |
|
(6) |
|
Includes immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
150,000 shares of the Companys common stock. |
|
(7) |
|
Includes (a) immediately exercisable warrants to purchase
30,000 shares of the Companys common stock and
(b) immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
79,167 shares of the Companys common stock. |
|
(8) |
|
Includes immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
29,167 shares of the Companys common stock. |
|
(9) |
|
Includes immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
216,668 shares of the Companys common stock. |
|
(10) |
|
Includes immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
216,668 shares of the Companys common stock. |
|
(11) |
|
Includes (a) immediately exercisable warrants to purchase
422,500 shares of the Companys common stock,
(b) immediately exercisable options or options exercisable
within 60 days of March 15, 2011 to purchase
1,791,670 shares of the Companys common stock, and
(c) 37,500 shares of Series B preferred stock as
though converted into 50,000 shares of the Companys
common stock |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Other than the transactions described below since January 2009
there has not been nor is there currently proposed any
transaction or series of similar transactions to which we were
or will be a party:
|
|
|
|
|
in which the amount involved exceeds the lesser of $120,000 or
one percent of the average of our total assets at year-end for
the last two completed fiscal years; and
|
|
|
|
in which any director, executive officer, or stockholder owning
more than 5% of our common stock, or any member of their
immediate family had or will have a direct or indirect material
interest.
|
Transactions
with Management
On January 1, 2007 we entered into a Service Agreement
(Service Agreement) with ALDA & Associates
International, Inc. (ALDA), a consulting company
owned and controlled by David H. Fater, whereby three of our
employees became employees of ALDA under a Professional Employer
Organization (PEO) arrangement. The Service Agreement is a
cost-reimbursement-only contract and provides for our
reimbursement of all of ALDAs actual payroll and
insurance-related costs for these employees. The arrangement was
entered into because of the substantial cost savings that could
be obtained for us due to the higher number of employees
employed by ALDA. Subsequently, these advantages became
nonconsequential, and this Service Agreement was terminated on
January 1, 2011.
In 2007 the Company borrowed $200,000 from Colonial Bank, N.A.
(Colonial Bank), now Branch Banking and
Trust Company, on an unsecured basis under a loan agreement
with a due date in August 2007 and an interest rate of 6.65%. As
a condition to making the loan, Colonial Bank received
44
a $200,000 certificate of deposit from the Companys Chief
Executive and Financial Officer, David H. Fater, as standby
collateral. As consideration for this standby collateral, the
Companys Board of Directors authorized (i) the
reimbursement of Mr. Faters
out-of-pocket
cash costs associated with this transaction, and (ii) the
monthly issuance of 728 shares of the Companys common
stock. This loan has been extended until February 2012 at an
interest rate of 3.45%.
Also in 2007 the Company borrowed $100,000 from Colonial Bank
(now Branch Banking and Trust Company) on an unsecured
basis under a loan agreement with a due date in August 2007 and
an interest rate of 6.13%. As a condition to making the loan,
Colonial Bank received a $100,000 certificate of deposit from
Mr. Fater as standby collateral. As consideration for this
standby collateral, the Companys Board of Directors
authorized (i) the reimbursement of Mr. Faters
out-of-pocket
cash costs associated with this transaction, and (ii) the
monthly issuance of 364 shares of the Companys common
stock. The loan was paid in full in October 2010.
For the years ended December 31, 2009 and 2010,
respectively, Mr. Fater received 14,196 and
10,556 shares of the Companys common stock related to
these bank loans.
In October 2002 we entered into a Purchase and Royalty
Agreement, as amended in July and September 2003 (the
Royalty Agreement), with Dr. James E. Skinner,
our Vice President and Director of Research and Development and
a Director of the Company, to acquire the software related to
the Analyzer. The total purchase price for the software was
$200,000. To date we have paid $100,000, and we are required to
pay the remaining $100,000 from 10% of any revenues that we
receive from the sale, licensing, distribution or other use of
the Analyzer. The Royalty Agreement further provides for an
additional ongoing royalty to be paid to Dr. Skinner of 10%
of revenues received by us from any activities that utilize the
Analyzer including, without limitation, licensing and sales of
the Analyzer for the life of the patents. Beginning in 2010
royalties were accrued as sales related to the PD2i cardiac
device were made, and some payments of royalties were made
during 2010.
Director
Independence
For information regarding the independence of our directors,
please review Item 10. Directors, Executive Officers
and Corporate Governance Director Independence and
Qualifications.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The following is a summary of the fees billed to us by Daszkal
Bolton LLP for professional services rendered for the fiscal
years ended December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
Fee Category
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
Audit Fees
|
|
$
|
118,889
|
|
|
$
|
152,465
|
|
Audit-Related Fees
|
|
|
25,967
|
|
|
|
5,799
|
|
Tax Fees
|
|
|
4,164
|
|
|
|
6,786
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
149,020
|
|
|
$
|
165,050
|
|
|
|
|
|
|
|
|
|
|
Audit fees consisted of fees billed for professional services
rendered for the audit of the Companys consolidated
financial statements included in our annual report on
Form 10-K
for the year ended December 31, 2010, other SEC filings in
2010, and reviews of the consolidated financial statements
included in the Companys quarterly reports on
Form 10-Q
during fiscal 2010.
Audit-related fees consist of general assistance on SEC matters.
Tax fees consist of fees for tax compliance, tax advice and tax
planning. Our auditors did not bill any additional fees for any
other nonaudit services rendered to us such as attending
meetings and other miscellaneous financial consulting.
45
Policy on
Audit Committee Pre-Approval of Audit and Permissible Nonaudit
Services of Independent Auditors
The Audit Committees policy is to pre-approve all audit
and permissible nonaudit services provided by the independent
public accountants. These services may include audit services,
audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year; any
pre-approval is detailed as to the particular service or
category of services and is generally subject to a specific
budget. The independent public accountants and management are
required to periodically report to the Audit Committee regarding
the extent of services provided by the independent public
accountants in accordance with this pre-approval and the fees
for the services performed to date. The Audit Committee may also
pre-approve particular services on a case by case basis. The
Audit Committee approved one hundred percent (100%) of all such
professional services provided by Daszkal Bolton LLP during
fiscal 2009 and 2010.
46
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
2
|
.1
|
|
Purchase and Royalty Agreement, by and between Vicor
Technologies, Inc. and James E. Skinner, dated October
24, 2002 (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed with the SEC on
April 5, 2007,
File No. 000-51475).
|
|
2
|
.2
|
|
Asset Purchase Agreement, by and between Nonlinear Medicine,
Inc. and Enhanced Cardiology, Inc., dated May 29, 2003
(incorporated by reference to Exhibit 2.2 to the Companys
Current Report on Form 8-K filed with the SEC on April 5, 2007,
File No. 000-1475).
|
|
2
|
.3
|
|
First Amendment to the Purchase and Royalty Agreement, by and
between Vicor Technologies, Inc. and James E. Skinner, dated
July 24, 2003 (incorporated by reference to Exhibit 2.3 to the
Companys Current Report on Form 8-K filed with the SEC on
April 5, 2007, File No. 000-51475).
|
|
2
|
.4
|
|
Second Amendment to the Purchase and Royalty Agreement, by and
between Vicor Technologies, Inc. and James E. Skinner, dated
September 18, 2003 (incorporated by reference to Exhibit 2.4 to
the Companys Current Report on Form 8-K filed with the SEC
on April 5, 2007, File No. 000-51475).
|
|
2
|
.5
|
|
First Amendment to the Asset Purchase Agreement, by and between
Nonlinear Medicine, Inc. and Enhanced Cardiology, Inc., dated
September 18, 2003 (incorporated by reference to Exhibit 2.5 to
the Companys Current Report on Form 8-K filed with the SEC
on April 5, 2007, File No. 000-51475).
|
|
2
|
.6
|
|
Agreement and Plan of Merger, by and among SRKP 6, Inc., Vicor
Acquisition Corp., and Vicor Technologies, Inc., dated as of
July 28, 2006 (incorporated by reference to Annex A to the
Registration Statement on Form S-4 filed with the SEC on
December 6, 2006, File No. 333-139141).
|
|
2
|
.7
|
|
First Amendment to the Agreement and Plan of Merger, by and
among SRKP 6, Inc., Vicor Acquisition Corp., and Vicor
Technologies, Inc., dated as of December 6, 2006 (incorporated
by reference to Annex A to the Companys Registration
Statement on Form S-4 filed with the SEC on December 6, 2006,
File No. 333-139141).
|
|
3
|
.1.1
|
|
Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K filed with the SEC on April 5, 2007,
File No. 000-51475).
|
|
3
|
.1.2
|
|
Certificate of Designations, Preferences and Rights of Series A
8.0% Convertible Cumulative Preferred Stock (incorporated
by reference to Exhibit 3.3 to the Companys Current Report
on Form 8-K filed with the SEC on April 5, 2007, File No.
000-51475).
|
|
3
|
.1.3
|
|
Certificate of Designations, Preferences and Rights of Series B
8.0% Convertible Cumulative Preferred Stock (incorporated
by reference to Exhibit 3.1 1 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 30, 2008 filed
with the SEC on May 15, 2008 File No. 000-51475).
|
|
3
|
.1.4
|
|
Second Amendment to the Companys Certificate of
Designation for Series B Preferred Stock filed with the Delaware
Secretary of State on August 6, 2010 (incorporated by reference
to Exhibit 3.2 in the Companys Form 8-K filed with the SEC
on August 11, 2010).
|
|
3
|
.1.5
|
|
Certificate of Amendment of the Certificate of Incorporation of
Vicor Technologies, Inc. filed with the Delaware Secretary of
State on November 16, 2010.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Companys Current Report on
Form 8-K filed with the SEC on April 5, 2007,
File No. 000-51475).
|
|
4
|
.1
|
|
See Exhibits 3.1.1, 3.1.2 , 3.1.3 and 3.2 for provisions of the
Certificate of Incorporation and Bylaws of the Company defining
rights of holders of the Companys outstanding securities.
|
|
10
|
.1
|
|
Vicor Technologies, Inc. 2002 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed with the SEC on April 5, 2007,
File No. 000-51475).+
|
47
|
|
|
|
|
|
10
|
.2
|
|
Form of Participant Agreement for the 2002 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed with the SEC on April 5, 2007,
File No. 000-51475).+
|
|
10
|
.3
|
|
Executive Court Lease Agreement Boca Office, by and between RJL
Company Limited Partnership and Vicor Technologies, Inc., dated
July 6, 2006 (incorporated by reference to Exhibit 10.3 to the
Companys Current Report on Form 8-K filed with the SEC on
April 5, 2007, File No. 000-51475).
|
|
10
|
.4
|
|
Employment Agreement, by and between Vicor Technologies, Inc.
and David H. Fater, dated June 1, 2002 (incorporated by
reference to Exhibit 10.4 to the Companys Current Report
on Form 8-K filed with the SEC on April 5, 2007, File No.
000-51475).+
|
|
10
|
.5
|
|
Amendment No. 1 to the Employment Agreement, by and between
Vicor Technologies, Inc. and David H. Fater, dated October 24,
2003 (incorporated by reference to Exhibit 10.5 to the
Companys Current Report on Form 8-K filed with the SEC on
April 5, 2007,
File No. 000-51475).+
|
|
10
|
.6
|
|
Employment Agreement, by and between Vicor Technologies, Inc.
and Jerry M. Anchin, dated January 1, 2006 (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q filed with the SEC on May 11, 2010, File No.
000-51475).+
|
|
10
|
.7
|
|
Employment Agreement, by and between Vicor Technologies, Inc.
and James E. Skinner, dated January 1, 2009 (incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report
on Form 10-Q filed with the SEC on May 11, 2010, File No.
000-51475).+
|
|
10
|
.8
|
|
Employment Agreement dated January 1, 2010 between the Company
and Daniel Weiss (incorporated by reference to Exhibit 10.8 to
the Companys Form 10-K for fiscal 2009 filed with the SEC
on March 31, 2010 (File No. 000-51475).*+
|
|
10
|
.9
|
|
Victor Technologies, Inc. 2008 Stock Incentive Plan
(incorporated by reference to Appendix A in the Companys
definitive proxy statement filed with the SEC on May 15, 2008
(File No. 000-51475).+
|
|
10
|
.10
|
|
Form of Registration Rights Agreement, between the Company and
certain stockholders, dated March 30, 2007 (incorporated by
reference to Exhibit 10.11 to the Companys Registration
Statement on Form SB-2 filed with the SEC on May 14, 2007,
File No. 333-142948).
|
|
10
|
.11
|
|
Form of Registration Rights Agreement, between the Company,
certain stockholders and WestPark Capital, Inc., dated March 30,
2007 (incorporated by reference to Exhibit 10.12 to the
Companys Registration Statement on Form SB-2 filed with
the SEC on May 14, 2007, File No. 333-142948).
|
|
10
|
.12
|
|
Service Agreement dated January 1, 2007 by and between ALDA
& Associates International, Inc. and Vicor Technologies,
Inc. (incorporated by reference to Exhibit 10.2 in the
Companys Quarterly Report on Form 10-QSB for the quarter
ended March 30, 2007 filed with the SEC on May 15, 2007, File
No. 000-51475).
|
|
10
|
.13
|
|
Consulting Agreement dated January 1, 2010 between Vicor
Technologies Inc. and TJ Bohannon, Inc. (incorporated by
reference to Exhibit 10.15 in the Companys Form 10-K for
fiscal 2009 filed with the SEC on March 31, 2010, File No.
000-51475).
|
|
10
|
.14
|
|
Form of 8% Subordinated Convertible Promissory Note issued
to investors (incorporated by reference to Exhibit 10.1 in the
Companys Quarterly Report on Form 10-Q filed with the SEC
on May 11, 2010).
|
|
10
|
.15
|
|
Form of Subscription Agreement dated October 8, 2010 between
Vicor Technologies, Inc. and each investor (incorporated by
reference to Exhibit 10.1 in the Companys Current Report
on Form 8-K filed with the SEC on October 8, 2010).
|
|
10
|
.16
|
|
Form of Convertible Note dated October 8, 2010 between Vicor
Technologies, Inc. and each investor (incorporated by reference
to Exhibit 10.2 in the Companys Current Report on Form 8-K
filed with the SEC on October 8, 2010).
|
|
10
|
.17
|
|
Form of Warrant Agreement dated October 8, 2010 issued by Vicor
Technologies, Inc. to each investor (incorporated by reference
to Exhibit 10.3 in the Companys Current Report on Form 8-K
filed with the SEC on October 8, 2010).
|
48
|
|
|
|
|
|
14
|
.1
|
|
Code of Ethics (incorporated by reference to Exhibit 14.1 in the
Companys Annual Report on Form 10-K for fiscal 2008 filed
with the SEC on March 31, 2008, as amended on April 3, 2008,
File No. 000-51475).
|
|
21
|
.1
|
|
List of Subsidiaries (incorporated by reference to Exhibit 21.1
to the Companys Current Report on Form 8-K filed with the
SEC on April 5, 2007, File No. 000-51475).
|
|
23
|
.1
|
|
Consent of Daszkal Bolton, Independent Certified Public
Accountants.*
|
|
31
|
.1
|
|
Certification of the Companys Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with
respect to the Companys Annual Report on Form 10-K for the
year ended December 31, 2010.*
|
|
31
|
.2
|
|
Certification of the Companys Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with
respect to the Companys Annual Report on Form 10-K for the
year ended December 31, 2010.*
|
|
32
|
.1
|
|
Certification of the Companys 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 the Companys Principal Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.*
|
|
|
|
+ |
|
Management Compensation Plan or Arrangement. |
|
* |
|
Filed herewith. |
49
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Amendment
No. 1 to its Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 31, 2011
Vicor Technologies, Inc.
Name: David H. Fater
|
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
By:
|
/s/ Thomas
J. Bohannon
|
Name: Thomas J. Bohannon
|
|
|
|
Title:
|
Chief Financial Officer
|
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Amendment No. 1 to its Annual
Report on
Form 10-K
has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ David
H. Fater
David
H. Fater
|
|
Chief Executive Officer,
Chief Financial Officer and Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ James
E. Skinner,
James
E. Skinner, Ph.D.
|
|
Vice President and Director of Research and Development and
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Jerry
M. Anchin
Jerry
M. Anchin, Ph.D.
|
|
Vice President Product Development, Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Joseph
C. Franchetti
Joseph
C. Franchetti
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Frederick
M. Hudson
Frederick
M. Hudson
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Ronald
A. Malone
Ronald
A. Malone
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Frank
B. Wheeler
Frank
B. Wheeler
|
|
Director
|
|
March 31, 2011
|
50
Vicor
Technologies, Inc.
(A Development Stage Company)
Consolidated
Financial Statements
For
The Years Ended
December 31, 2009 and 2010
Table
of Contents
|
|
|
|
|
F-2
|
Financial Statements:
|
|
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-8
|
|
|
F-10
|
F-1
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
VICOR Technologies, Inc.
We have audited the accompanying consolidated balance sheets of
Vicor Technologies, Inc. (the Company) a Delaware
Corporation as of December 31, 2009 and 2010, and the
related consolidated statements of operations, changes in
shareholders equity (net capital deficiency) and cash
flows for the years then ended and the period from
August 4, 2000 (inception) through December 31, 2010.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Vicor Technologies, Inc. at December 31, 2009
and 2010, and the results of its operations and its cash flows
for the years then ended and the period from August 4, 2000
(inception) through December 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 2 to the financial statements, the
Company has suffered recurring losses from operations and had
negative cash flows from operations that raise substantial doubt
about the Companys ability to continue as a going concern.
Managements plans regarding those matters are also
described in Note 2. The consolidated financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Daszkal Bolton LLP
Boca Raton, Florida
March 31, 2011
F-2
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
544,000
|
|
|
$
|
1,119,000
|
|
Accounts receivable
|
|
|
|
|
|
|
58,000
|
|
Inventory
|
|
|
|
|
|
|
58,000
|
|
Prepaid expenses
|
|
|
74,000
|
|
|
|
411,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
618,000
|
|
|
|
1,646,000
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
35,000
|
|
|
|
199,000
|
|
Furniture and fixtures
|
|
|
24,000
|
|
|
|
38,000
|
|
Less accumulated depreciation
|
|
|
(38,000
|
)
|
|
|
(82,000
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
21,000
|
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,000
|
|
|
|
18,000
|
|
Deferred financing costs
|
|
|
1,117,000
|
|
|
|
8,076,000
|
|
Intellectual property, net of accumulated amortization of
$223,000 and
|
|
|
|
|
|
|
|
|
$260,000 at December 31, 2009 and 2010, respectively
|
|
|
229,000
|
|
|
|
192,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,997,000
|
|
|
$
|
10,087,000
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET CAPITAL DEFICIENCY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
600,000
|
|
|
$
|
1,166,000
|
|
Current debt
|
|
|
460,000
|
|
|
|
360,000
|
|
Due to related party
|
|
|
100,000
|
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,160,000
|
|
|
|
1,614,000
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,200,000
|
|
|
|
8,277,000
|
|
Accrued dividends
|
|
|
833,000
|
|
|
|
932,000
|
|
Derivative financial instruments payable in shares of common
stock
|
|
|
4,414,000
|
|
|
|
7,692,000
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
7,447,000
|
|
|
|
16,901,000
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Net capital deficiency:
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 10,000,000 and
25,000,000 shares authorized at December 31, 2009 and
2010, respectively:
|
|
|
|
|
|
|
|
|
Series A Convertible Cumulative, 157,592 shares issued
and outstanding at December 31, 2009 and none at
December 31, 2010; preference in liquidation of $751,000 at
December 31, 2009
|
|
|
|
|
|
|
|
|
Series B Voting Junior Convertible Cumulative, 5,210,101
and 5,185,101 shares issued and outstanding at
December 31, 2009 and 2010, respectively; preference in
liquidation of $5,386,000 and $5,795,000 at December 31,
2009 and 2010, respectively
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 100,000,000 and
150,000,000 shares authorized at December 31, 2009 and
2010, respectively; 41,813,959 and 46,799,324 shares issued
and outstanding at December 31, 2009 and 2010, respectively
|
|
|
4,000
|
|
|
|
5,000
|
|
Additional paid-in capital
|
|
|
46,848,000
|
|
|
|
51,275,000
|
|
Deficit accumulated during the development stage
|
|
|
(53,462,000
|
)
|
|
|
(59,708,000
|
)
|
|
|
|
|
|
|
|
|
|
Net capital deficiency
|
|
|
(6,610,000
|
)
|
|
|
(8,428,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,997,000
|
|
|
$
|
10,087,000
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
Vicor
Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of
Operations
For the Years Ended December 31,
2009 and 2010 and
For the Period from August 4, 2000 (Inception) to
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 4, 2000
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
|
|
|
$
|
185,000
|
|
|
$
|
185,000
|
|
Lease income
|
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Grants and other
|
|
|
|
|
|
|
|
|
|
|
844,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,000
|
|
|
|
1,033,000
|
|
Cost of revenue
|
|
|
|
|
|
|
131,000
|
|
|
|
131,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
58,000
|
|
|
|
902,000
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
964,000
|
|
|
|
638,000
|
|
|
|
15,665,000
|
|
Selling, general and administrative expenses
|
|
|
3,705,000
|
|
|
|
5,944,000
|
|
|
|
35,038,000
|
|
Interest expense
|
|
|
2,485,000
|
|
|
|
2,273,000
|
|
|
|
10,401,000
|
|
Loss from extinguishment of debt
|
|
|
167,000
|
|
|
|
|
|
|
|
1,266,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,321,000
|
|
|
|
8,855,000
|
|
|
|
62,370,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
|
|
|
1,083,000
|
|
|
|
318,000
|
|
|
|
1,401,000
|
|
Unrealized
|
|
|
1,074,000
|
|
|
|
3,673,000
|
|
|
|
4,747,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,157,000
|
|
|
|
3,991,000
|
|
|
|
6,148,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,164,000
|
)
|
|
|
(4,806,000
|
)
|
|
|
(55,320,000
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
480,000
|
|
Dividends for the benefit of preferred stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable on Series A and Series B preferred stock
|
|
|
(479,000
|
)
|
|
|
(436,000
|
)
|
|
|
(1,349,000
|
)
|
Amortization of derivative discount on Series B preferred
stock
|
|
|
(979,000
|
)
|
|
|
(1,004,000
|
)
|
|
|
(1,983,000
|
)
|
Value of warrants issued in connection with sales of
Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,536,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends for the benefit of preferred stockholders
|
|
|
(1,458,000
|
)
|
|
|
(1,440,000
|
)
|
|
|
(4,868,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$
|
(6,622,000
|
)
|
|
$
|
(6,246,000
|
)
|
|
$
|
(59,708,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common shares outstanding
|
|
|
37,513,205
|
|
|
|
44,850,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Notes Receivable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
Balance at August 4, 2000 (inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Issuance of common stock to founders
|
|
|
7,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed research and development services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
194,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,000
|
|
|
|
|
|
|
|
|
|
|
|
194,000
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(657,000
|
)
|
|
|
(657,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2000
|
|
|
7,594,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,000
|
|
|
|
|
|
|
|
(657,000
|
)
|
|
|
(439,000
|
)
|
|
|
|
|
Issuance of common stock for services
|
|
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
|
|
|
|
|
Issuance of warrants for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,252,000
|
|
|
|
|
|
|
|
|
|
|
|
1,252,000
|
|
|
|
|
|
Contributed research and development services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,000
|
|
|
|
|
|
|
|
|
|
|
|
71,000
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
1,362,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,363,000
|
|
|
|
|
|
|
|
|
|
|
|
1,363,000
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,181,000
|
)
|
|
|
(3,181,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
|
9,237,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,184,000
|
|
|
|
|
|
|
|
(3,838,000
|
)
|
|
|
(654,000
|
)
|
|
|
|
|
Issuance of common stock for services
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,722,000
|
|
|
|
|
|
|
|
|
|
|
|
4,722,000
|
|
|
|
|
|
Subscription Note receivable
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000
|
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed research and development services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
1,725,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,492,000
|
|
|
|
|
|
|
|
|
|
|
|
3,492,000
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,306,000
|
)
|
|
|
(7,306,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
11,822,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,148,000
|
|
|
|
(750,000
|
)
|
|
|
(11,144,000
|
)
|
|
|
254,000
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
27,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,365,000
|
|
|
|
|
|
|
|
|
|
|
|
6,365,000
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
870,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,718,000
|
|
|
|
|
|
|
|
|
|
|
|
2,718,000
|
|
|
|
|
|
Issuance of preferred stock for cash
|
|
|
|
|
|
|
|
|
|
|
157,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,000
|
|
|
|
|
|
|
|
|
|
|
|
448,000
|
|
|
|
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
(8,000
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,247,000
|
)
|
|
|
(9,247,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
12,720,968
|
|
|
|
|
|
|
|
157,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,679,000
|
|
|
|
(750,000
|
)
|
|
|
(20,399,000
|
)
|
|
|
530,000
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
217,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205,000
|
|
|
|
|
|
|
|
|
|
|
|
205,000
|
|
|
|
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033,000
|
|
|
|
|
|
|
|
|
|
|
|
1,033,000
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
308,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
889,000
|
|
|
|
|
|
|
|
|
|
|
|
889,000
|
|
|
|
|
|
Accretion of beneficial conversion feature on 10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,000
|
|
|
|
|
|
|
|
|
|
|
|
201,000
|
|
|
|
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,000
|
)
|
|
|
(39,000
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,372,000
|
)
|
|
|
(3,372,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
13,246,708
|
|
|
$
|
|
|
|
|
157,592
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
24,007,000
|
|
|
$
|
(750,000
|
)
|
|
$
|
(23,810,000
|
)
|
|
$
|
(553,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
Vicor
Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in
Stockholders Equity (Net Capital Deficiiency)
For the Period from August 4, 2000
(Inception) through December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
Subscription
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at December 31, 2004
|
|
|
13,246,708
|
|
|
$
|
|
|
|
|
157,592
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
24,007,000
|
|
|
$
|
(750,000
|
)
|
|
$
|
(23,810,000
|
)
|
|
$
|
(553,000
|
)
|
Issuance of common stock for services
|
|
|
83,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,000
|
|
|
|
|
|
|
|
|
|
|
|
209,000
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,817,000
|
|
|
|
|
|
|
|
|
|
|
|
1,817,000
|
|
Issuance of warrants to note holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
Issuance of common stock for cash
|
|
|
1,329,302
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,165,000
|
|
|
|
|
|
|
|
|
|
|
|
2,167,000
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,000
|
)
|
|
|
(43,000
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,212,000
|
)
|
|
|
(4,212,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
14,659,510
|
|
|
|
2,000
|
|
|
|
157,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,215,000
|
|
|
|
(750,000
|
)
|
|
|
(28,065,000
|
)
|
|
|
(598,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
67,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,000
|
|
|
|
|
|
|
|
|
|
|
|
169,000
|
|
Issuance of common stock for debt
|
|
|
43,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
110,000
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392,000
|
|
|
|
|
|
|
|
|
|
|
|
392,000
|
|
Cancellation of subscription notes receivable
|
|
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(750,000
|
)
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for notes receivable
|
|
|
796,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398,000
|
|
|
|
(398,000
|
)
|
|
|
|
|
|
|
|
|
Beneficial conversion feature for 12% convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
912,000
|
|
|
|
|
|
|
|
|
|
|
|
912,000
|
|
Issuance of warrants in connection with 15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,000
|
|
|
|
|
|
|
|
|
|
|
|
139,000
|
|
promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,000
|
)
|
|
|
(47,000
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,580,000
|
)
|
|
|
(4,580,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
15,266,830
|
|
|
|
2,000
|
|
|
|
157,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,585,000
|
|
|
|
(398,000
|
)
|
|
|
(32,692,000
|
)
|
|
|
(3,503,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
177,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663,000
|
|
|
|
|
|
|
|
|
|
|
|
663,000
|
|
Common stock issued in merger transaction
|
|
|
677,579
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,140,000
|
|
|
|
|
|
|
|
|
|
|
|
1,141,000
|
|
Stock issued upon conversion of Convertible Notes
|
|
|
1,137,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632,000
|
|
|
|
|
|
|
|
|
|
|
|
632,000
|
|
Acquisition of SKRP, 6 Inc. net assets
|
|
|
2,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for warrants in merger transaction
|
|
|
5,423,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for options in merger transaction
|
|
|
329,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of subscription notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(415,000
|
)
|
|
|
398,000
|
|
|
|
|
|
|
|
(17,000
|
)
|
Stock issued related to notes payable transactions
|
|
|
241,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
473,000
|
|
|
|
|
|
|
|
|
|
|
|
473,000
|
|
Issuance of common stock for interest payments
|
|
|
26,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,000
|
)
|
|
|
(51,000
|
)
|
Issuance of warrants in connection with 15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,000
|
|
|
|
|
|
|
|
|
|
|
|
122,000
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
885,000
|
|
|
|
|
|
|
|
|
|
|
|
885,000
|
|
Contributed capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,000
|
|
|
|
|
|
|
|
|
|
|
|
178,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,068,000
|
)
|
|
|
(6,068,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
25,980,883
|
|
|
$
|
3,000
|
|
|
|
157,592
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
33,310,000
|
|
|
$
|
|
|
|
$
|
(38,811,000
|
)
|
|
$
|
(5,498,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Vicor
Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in
Stockholders Equity (Net Capital Deficiiency)
For the Period from August 4, 2000
(Inception) through December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Subscriptions In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Process
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at December 31, 2007
|
|
|
25,980,883
|
|
|
$
|
3,000
|
|
|
|
157,592
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
33,310,000
|
|
|
$
|
|
|
|
$
|
(38,811,000
|
)
|
|
$
|
(5,498,000
|
)
|
Issuance of stock for services
|
|
|
690,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,250
|
|
|
|
|
|
|
|
837,000
|
|
|
|
|
|
|
|
|
|
|
|
837,000
|
|
Issuance of stock for cash
|
|
|
1,215,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,645,000
|
|
|
|
|
|
|
|
2,420,000
|
|
|
|
|
|
|
|
|
|
|
|
2,420,000
|
|
Stock issued related to notes payable transactions
|
|
|
4,748,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,959,045
|
|
|
|
|
|
|
|
5,883,000
|
|
|
|
|
|
|
|
|
|
|
|
5,883,000
|
|
Issuance of stock for interest payments
|
|
|
336,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376,000
|
|
|
|
|
|
|
|
|
|
|
|
376,000
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,071,000
|
|
|
|
|
|
|
|
(1,782,000
|
)
|
|
|
(711,000
|
)
|
Issuance of warrants in connection with preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
633,000
|
|
|
|
|
|
|
|
|
|
|
|
633,000
|
|
Issuance of warrants and stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,000
|
|
|
|
|
|
|
|
|
|
|
|
252,000
|
|
Stock subscriptions in process:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be issued in payment of accrued compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561,000
|
|
|
|
|
|
|
|
561,000
|
|
Cash received, stock to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
16,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,727,000
|
)
|
|
|
(6,727,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
32,971,619
|
|
|
|
3,000
|
|
|
|
157,592
|
|
|
|
|
|
|
|
4,781,295
|
|
|
|
|
|
|
|
44,782,000
|
|
|
|
577,000
|
|
|
|
(47,320,000
|
)
|
|
|
(1,958,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,049,000
|
)
|
|
|
|
|
|
|
480,000
|
|
|
|
(3,569,000
|
)
|
Issuance of stock for services
|
|
|
2,244,684
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
154,096
|
|
|
|
|
|
|
|
1,581,000
|
|
|
|
|
|
|
|
|
|
|
|
1,582,000
|
|
Issuance of stock for cash
|
|
|
366,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438,460
|
|
|
|
|
|
|
|
479,000
|
|
|
|
|
|
|
|
|
|
|
|
479,000
|
|
Conversion of Series B preferred stock to common stock
|
|
|
182,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,750
|
)
|
|
|
|
|
|
|
149,000
|
|
|
|
|
|
|
|
(66,000
|
)
|
|
|
83,000
|
|
Stock issued related to notes payable transactions
|
|
|
3,812,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,101,000
|
|
|
|
|
|
|
|
|
|
|
|
2,101,000
|
|
Warrants issued related to notes payable transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
117,000
|
|
Issuance of stock for interest payments
|
|
|
51,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,000
|
|
|
|
|
|
|
|
|
|
|
|
119,000
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(413,000
|
)
|
|
|
(413,000
|
)
|
Exercise of warrants
|
|
|
562,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,000
|
|
|
|
|
|
|
|
|
|
|
|
133,000
|
|
Issuance of stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362,000
|
|
|
|
|
|
|
|
|
|
|
|
362,000
|
|
Fair value of derivative financial instruments issued in
connection with Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(482,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(482,000
|
)
|
Amortization of discounts related to derivative financial
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
979,000
|
|
|
|
|
|
|
|
(979,000
|
)
|
|
|
|
|
Stock subscriptions in process shares issued in
|
|
|
1,621,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
577,000
|
|
|
|
(577,000
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,164,000
|
)
|
|
|
(5,164,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
41,813,959
|
|
|
|
4,000
|
|
|
|
157,592
|
|
|
|
|
|
|
|
5,210,101
|
|
|
|
|
|
|
|
46,848,000
|
|
|
|
|
|
|
|
(53,462,000
|
)
|
|
|
(6,610,000
|
)
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(436,000
|
)
|
|
|
(436,000
|
)
|
Conversion of Series A preferred stock to common
|
|
|
417,416
|
|
|
|
|
|
|
|
(157,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335,000
|
|
|
|
|
|
|
|
|
|
|
|
335,000
|
|
Conversion of Series B preferred stock to common
|
|
|
28,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
Issuance of stock for interest payments
|
|
|
10,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
Issuance of stock for services
|
|
|
1,085,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783,000
|
|
|
|
|
|
|
|
|
|
|
|
783,000
|
|
Issuance of stock options for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497,000
|
|
|
|
|
|
|
|
|
|
|
|
497,000
|
|
Issuance of stock for conversion of notes payable
|
|
|
3,318,515
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,206,000
|
|
|
|
|
|
|
|
|
|
|
|
1,207,000
|
|
Warrants issued related to notes payable transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,000
|
|
|
|
|
|
|
|
|
|
|
|
557,000
|
|
Issuance of warrants for consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
Exercise of warrants
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
Amortization of discounts related to derivative financial
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,004,000
|
|
|
|
|
|
|
|
(1,004,000
|
)
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,806,000
|
)
|
|
|
(4,806,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
46,799,324
|
|
|
$
|
5,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
5,185,101
|
|
|
$
|
|
|
|
$
|
51,275,000
|
|
|
$
|
|
|
|
$
|
(59,708,000
|
)
|
|
$
|
(8,428,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
Vicor
Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash
Flows
For the Years Ended December 31,
2009 and 2010 and
For the Period from August 4, 2000 (Inception) to
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 4, 2000
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,164,000
|
)
|
|
$
|
(4,806,000
|
)
|
|
$
|
(55,320,000
|
)
|
Adjustment to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
41,000
|
|
|
|
81,000
|
|
|
|
404,000
|
|
Noncash interest imputed upon conversion of debt to equity
|
|
|
331,000
|
|
|
|
|
|
|
|
5,620,000
|
|
Noncash interest from deferred financing costs and debt-based
derivative liabilities
|
|
|
2,149,000
|
|
|
|
1,937,000
|
|
|
|
4,086,000
|
|
Gain on derivative financial instruments
|
|
|
(2,157,000
|
)
|
|
|
(3,991,000
|
)
|
|
|
(6,148,000
|
)
|
Loss from sale of assets
|
|
|
|
|
|
|
|
|
|
|
48,000
|
|
Securities issued for services
|
|
|
1,109,000
|
|
|
|
596,000
|
|
|
|
1,909,000
|
|
Beneficial conversion feature of notes payable
|
|
|
|
|
|
|
102,000
|
|
|
|
303,000
|
|
Contributed research and development services
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
Merger-related costs
|
|
|
|
|
|
|
|
|
|
|
523,000
|
|
Shares in lieu of interest payments
|
|
|
119,000
|
|
|
|
7,000
|
|
|
|
387,000
|
|
Warrants issued for consulting
|
|
|
|
|
|
|
35,000
|
|
|
|
35,000
|
|
Equity-based compensation
|
|
|
620,000
|
|
|
|
684,000
|
|
|
|
19,349,000
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(58,000
|
)
|
|
|
(58,000
|
)
|
Inventory
|
|
|
|
|
|
|
(58,000
|
)
|
|
|
(58,000
|
)
|
Prepaid expenses and other assets
|
|
|
(311,000
|
)
|
|
|
(1,475,000
|
)
|
|
|
(1,898,000
|
)
|
Accounts payable and accrued expenses
|
|
|
(400,000
|
)
|
|
|
1,328,000
|
|
|
|
2,901,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(3,663,000
|
)
|
|
|
(5,618,000
|
)
|
|
|
(27,822,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of intellectual property
|
|
|
|
|
|
|
|
|
|
|
(237,000
|
)
|
Net proceeds from sale of equipment
|
|
|
|
|
|
|
|
|
|
|
59,000
|
|
Purchase of property and equipment
|
|
|
(23,000
|
)
|
|
|
(178,000
|
)
|
|
|
(355,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(23,000
|
)
|
|
|
(178,000
|
)
|
|
|
(533,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Proceeds from bank loans
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Proceeds from sale of preferred stock
|
|
|
351,000
|
|
|
|
|
|
|
|
2,915,000
|
|
Proceeds from sale of common stock
|
|
|
128,000
|
|
|
|
|
|
|
|
11,268,000
|
|
Repayment of notes
|
|
|
(300,000
|
)
|
|
|
(100,000
|
)
|
|
|
(1,005,000
|
)
|
Proceeds from bridge loan
|
|
|
300,000
|
|
|
|
|
|
|
|
300,000
|
|
Proceeds from sale of notes
|
|
|
3,569,000
|
|
|
|
6,471,000
|
|
|
|
15,402,000
|
|
Proceeds for stock to be issued
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
Contributed capital
|
|
|
|
|
|
|
|
|
|
|
178,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,048,000
|
|
|
|
6,371,000
|
|
|
|
29,474,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
362,000
|
|
|
|
575,000
|
|
|
|
1,119,000
|
|
Cash at beginning of period
|
|
|
182,000
|
|
|
|
544,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
544,000
|
|
|
$
|
1,119,000
|
|
|
$
|
1,119,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
Vicor
Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2009 and
2010 and
For the Period from August 4, 2000 (Inception) to
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 4, 2000
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of previously-subscribed common stock
|
|
$
|
16,000
|
|
|
$
|
|
|
|
$
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of accounts payable to note payable
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock for cancellation of subscription note
receivable
|
|
|
|
|
|
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed research and development
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of intellectual property from related party
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion features for promissory notes
|
|
|
|
|
|
|
|
|
|
|
912,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with 15% promissory notes
|
|
|
|
|
|
|
|
|
|
|
261,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with 8% Subordinated
Convertible Notes
|
|
|
117,000
|
|
|
|
557,000
|
|
|
|
674,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants to purchase common stock
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
|
87,000
|
|
|
|
70,000
|
|
|
|
1,029,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued equity-based compensation
|
|
|
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends
|
|
|
413,000
|
|
|
|
437,000
|
|
|
|
2,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on promissory notes paid in common stock
|
|
|
|
|
|
|
|
|
|
|
520,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related-party accrual converted to common stock
|
|
|
|
|
|
|
|
|
|
|
561,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt to Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
1,567,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes to common stock
|
|
|
1,918,000
|
|
|
|
1,206,000
|
|
|
|
5,815,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses paid with notes
|
|
|
|
|
|
|
703,000
|
|
|
|
703,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses paid with preferred stock
|
|
|
108,000
|
|
|
|
|
|
|
|
108,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses paid with common stock
|
|
|
772,000
|
|
|
|
|
|
|
|
772,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of equity-based derivative financial instruments
issued
|
|
|
816,000
|
|
|
|
|
|
|
|
816,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of debt-based derivative financial instruments issued
|
|
|
1,046,000
|
|
|
|
7,270,346
|
|
|
|
8,316,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred costs paid with common stock
|
|
|
358,000
|
|
|
|
|
|
|
|
358,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of derivative discounts
|
|
|
341,000
|
|
|
|
1,004,000
|
|
|
|
1,345,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A preferred stock and accrued
dividends to common stock
|
|
|
|
|
|
|
335,000
|
|
|
|
335,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred stock and accrued
dividends to common stock
|
|
|
82,000
|
|
|
|
9,000
|
|
|
|
91,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-9
Note 1
Organization and Nature of Business
Organization
Vicor Technologies, Inc. (Vicor, the
Company) was incorporated in the State of Delaware
on May 24, 2005 as SRKP 6, Inc. (SRKP). On
August 3, 2005 SKRP filed a registration statement on
Form 10-SB,
subsequently amended on August 29, 2005, to register common
stock under the Securities Exchange Act of 1934, as amended (the
Exchange Act). The registration statement became
effective on October 3, 2005, after which time SKRP became
a reporting company under the Exchange Act. The Company was
formed to pursue a business combination with one or more
operating companies.
On March 30, 2007 SKRP acquired Vicor Technologies, Inc., a
Delaware corporation (Old Vicor) formed in August
2000, through the merger (Merger) of Old Vicor with
a wholly-owned subsidiary formed for the purpose of facilitating
that transaction. Upon the closing of the Merger on
March 30, 2007, Old Vicor became a wholly-owned subsidiary.
Effective March 31, 2007 Old Vicor was merged into SKRP and
changed its name to Vicor Technologies, Inc. At the closing each
outstanding share of Old Vicor common stock was cancelled and
automatically converted into the right to receive two shares of
Vicor common stock. The Company also assumed all outstanding
options and warrants to purchase Old Vicor common stock which
were not exercised, cancelled, exchanged, terminated, or
expired. Upon the consummation of the Merger, the Company was
obligated to issue an aggregate of 22,993,723 shares of its
common stock to Old Vicors former common stockholders and
157,592 shares of its Series A Convertible Cumulative
Preferred Stock (Preferred Stock) to Old
Vicors former preferred stockholder. In addition, all
securities convertible or exercisable into shares of Old
Vicors capital stock outstanding immediately prior to the
Merger (excluding Old Vicors preferred stock and
convertible debt) were cancelled, and the holders thereof
received similar securities for the purchase of an aggregate of
800,250 shares of Vicor common stock.
The Merger was accounted for as a reverse acquisition, to be
applied as an equity recapitalization in accordance with
U.S. generally accepted accounting principles for
accounting and financial reporting purposes. Under this method
of accounting, SRKP was treated as the acquired
company for financial reporting purposes. In accordance with
guidance applicable to these circumstances, the Merger was
considered to be a capital transaction in substance.
Accordingly, for accounting purposes, the Merger was treated as
the equivalent of Old Vicor issuing stock for the net monetary
assets of SRKP, accompanied by a recapitalization. The net
monetary assets of SRKP were stated at their fair value,
essentially equivalent to historical costs, with no goodwill or
other intangible assets recorded. The accumulated deficit of Old
Vicor was carried forward after the Merger. Operations prior to
the Merger are those of Old Vicor.
All share and per share amounts were restated to reflect the
recapitalization.
The Company owns all of the outstanding common stock of
Nonlinear Medicine, Inc., a Delaware corporation
(NMI), and Stasys Technologies, Inc., a Delaware
corporation (STI). NMI owns all intellectual
property related to Vicors diagnostic products, and STI
owns all intellectual property related to the Companys
therapeutic products.
Nature
of the business
Vicor is a medical diagnostics company focused on
commercializing noninvasive diagnostic technology products based
on its patented, proprietary point correlation dimension
algorithm (the
PD2i®
Algorithm). The
PD2i®Algorithm
facilitates the ability of physicians to accurately risk
stratify a specific target population to predict future
pathological events such as autonomic nervous system
dysfunction, cardiac mortality (either from arrhythmic death or
congestive heart failure) and imminent
F-10
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
death from trauma. The Company believes that the
PD2i®
Algorithm represents a noninvasive monitoring technology that
physicians and other members of the medical community can use as
a new and accurate vital sign and is currently commercializing
two proprietary diagnostic medical products which employ
software utilizing the
PD2i®
Algorithm: the PD2i
Analyzertm
(sometimes also referred to as the PD2i Cardiac
Analyzer(tm))
and the
PD2i-VStm
(Vital Sign). It is also anticipated that the
PD2i®Algorithm
applications will allow for the early detection of cerebral
disorders as well as other disorders and diseases.
The Companys first product, the PD2i
Analyzertm,
received 510(k) marketing clearance from the Food and Drug
Administration (FDA) on December 29, 2008. The
PD2i
Analyzertm
displays and analyzes electrocardiographic (ECG) information and
measures heart rate variability (HRV) in patients at
rest and in response to controlled exercise and paced
respiration. The clinical significance of HRV and other
parameters must be determined by a physician.
Revenues commenced in January 2010. In September 2010 we hired a
National Sales Manager and as of December 31, 2010 we had
entered into agreements with 27 independent sales
representatives in more than 30 states and the District of
Columbia. We have also begun the selected hiring of sales
personnel in selected states to supplement our independent sales
representatives.
Risks
The Company is subject to all the risks inherent in an early
stage company in the biotechnology industry. The biotechnology
industry is subject to rapid and technological change. The
Company has numerous competitors, including major pharmaceutical
and chemical companies, medical device manufacturers,
specialized biotechnology firms, universities and other research
institutions. These competitors may succeed in developing
technologies and products that are more effective than any that
are being developed by the Company or that would render the
Companys technology and products obsolete and
noncompetitive. Many of these competitors have substantially
greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of
the Companys competitors have significantly greater
experience than the Company in pre-clinical testing and human
clinical trials of new or improved pharmaceutical products and
in obtaining FDA and other regulatory approvals on products or
devices for use in health care.
The Company has limited experience in conducting and managing
pre-clinical testing necessary to enter clinical trials required
to obtain government approvals and has limited experience in
conducting clinical trials. Accordingly, the Companys
competitors may succeed in obtaining FDA approval for products
more rapidly than the Company, which could adversely affect the
Companys ability to further develop and market its
products. If the Company commences significant commercial sales
of its products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in
which the Company has limited or no experience.
Note 2
Liquidity and Going Concern
The Companys consolidated financial statements as of and
for the year ended December 31, 2010 have been prepared on
a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the
normal course of business. The Company incurred a net loss
applicable to common stockholders of $6,622,000 and $6,246,000
for the years ended December 31, 2009 and 2010,
respectively, and at December 31, 2010 had working capital
of $32,000, an accumulated deficit of $59,708,000 and a net
capital deficiency of $8,428,000. The Company expects to
continue to incur expenditures to further the commercial
development of its products. These matters raise substantial
doubt about the Companys ability to continue as a going
concern. The
F-11
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Management recognizes that the Company must generate additional
resources to successfully commercialize its products. Management
plans include the sale of additional equity or debt securities,
alliances or other partnerships with entities interested in and
having the resources to support the further development of its
products as well as other business transactions to assure
continuation of the Companys development and operations.
The Company is executing its plan to secure additional capital
through a multi-part funding strategy. The Company believes that
the amount of capital generated by this plan will be sufficient
to permit completion of various clinical trials and provide
sufficient working capital for the next 18 months, by which
time it is expected that the Company will generate positive cash
flow through the sales of its products.
However, no assurances can be given that the Company will be
successful in raising additional capital or entering into
business alliances. Further, there can be no assurance, assuming
the Company successfully raises additional funds or enters into
a business alliance, that the Company will achieve profitability
or positive cash flow. If the Company is not able to timely and
successfully raise additional capital
and/or
achieve positive cash flow, its business, financial condition,
cash flows and results of operations will be materially and
adversely affected.
Note 3
Summary of Significant Accounting Policies and Basis of
Presentation
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation. The Companys consolidated
financial statement amounts have been rounded to the nearest
thousand.
Cumulative
Effect of a Change in Accounting Principle
On June 25, 2008, the Financial Accounting Standards Board
ratified the consensus reached by the Emerging Issues Task Force
in Accounting Standards Codification (ASC) 815,
Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock. This Issue provides
guidance for determining whether an equity-linked financial
instrument (or embedded feature) is indexed to an entitys
own stock, which is the first part of the scope exception in
paragraph 11(a) of Statement 133. If an embedded feature
(for example, the conversion option embedded in a convertible
debt instrument) does not meet the scope exception in
paragraph 11(a) of Statement 133, it would be separated
from the host contract (the debt instrument) and be separately
accounted for as a derivative by the issuer. ASC 815 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years, to be applied to outstanding
instruments as of the effective date.
The Companys Series B preferred stock and related
warrants contain terms in which the conversion or exercise price
may be reduced if the company issues or sells shares of its
common stock at a price less than the conversion price of the
Series B Preferred Stock or the exercise price of the
warrants. Under the consensus reached in ASC 815, the
conversion option is not considered indexed to the
Companys own stock because the conversion rate can be
affected by future equity offerings undertaken by the Company at
the then-current market price of the related shares. Therefore,
such embedded features are now accounted for as derivatives,
which are presented as liabilities under
F-12
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
generally accepted accounting principles. As a change in
accounting principle, this resulted in adjustments on
January 1, 2009 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
Instruments
|
|
|
|
|
|
|
|
|
|
Payable in
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
Common Stock
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Aggregate fair value at issuance
|
|
$
|
(4,568,000
|
)
|
|
$
|
4,568,000
|
|
|
$
|
|
|
2008
mark-to-market
gain
|
|
|
999,000
|
|
|
|
|
|
|
|
(999,000
|
)
|
2008 preferred dividend for discount amortization
|
|
|
|
|
|
|
(519,000
|
)
|
|
|
519,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As recorded on January 1, 2009
|
|
$
|
(3,569,000
|
)
|
|
$
|
4,049,000
|
|
|
$
|
(480,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management calculated the fair values at issuance and the
mark-to-market
gains using the Black-Scholes-Merton options pricing method with
the following assumptions: risk-free interest rate of 2.10% to
4.25%, expected life of 5 years, expected volatility of 63%
and dividend yield of zero.
Concentration
of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash.
Management believes the financial risks associated with these
financial instruments are minimal. The Company places its cash
with high credit quality financial institutions and makes
short-term investments in high credit quality money market
instruments of short-term duration. The Company maintains its
cash in bank deposit accounts which, at times, may exceed
federally insured limits.
In November 2010 the Federal Deposit Insurance Corporation
(FDIC) issued a final rule implementing
section 343 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act that provides for unlimited insurance
coverage of noninterest-bearing transaction accounts. At
December 31, 2010 the Company had no interest-bearing
accounts with balances in excess of FDIC-insured limits.
Receivables
Receivables are reported net of an allowance for doubtful
accounts. The allowance is based on managements evaluation
of the collectibility of outstanding balances and is zero at
December 31, 2010 and 2009, respectively.
Inventory
Inventory is stated at the lower of cost or market using the
first-in,
first-out method of accounting.
Property
and Equipment
Furniture, fixtures and equipment are stated at cost.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which range from three
to five years. Leasehold improvements are stated at cost and
amortized over the shorter of the estimated useful lives of the
assets or the lease term. Routine maintenance and repairs are
charged to expense as incurred and major renovations or
improvements are capitalized.
F-13
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Research
and Development Costs
Research and development expenditures, are comprised of costs
incurred in performing research and development activities.
These include payments to collaborative research partners,
including wages and associated employee benefits, facilities and
overhead costs. These are expensed as incurred.
Revenue
Recognition
As discussed in Note 1, operating revenues commenced in
January 2010 and are predominately the result of equipment sales
and fees related to the analysis of test results for tests
performed.
The Company recognizes revenue when it is realized or realizable
and earned. Revenue is considered realized and earned when
persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; fees to the customer
are fixed or determinable; and collection of the resulting
receivable is reasonably assured.
The Company sells equipment to physicians and other health-care
providers (Customer or Customers) both
through sales representatives employed by the Company and also
independent sales agents. Revenues from equipment sales to
Customers are generally recognized when title transfers to the
Customer, typically upon delivery and acceptance, and includes
training that is provided at the time of product delivery.
Revenues from sales of equipment to independent sales agents to
be used by the agents as demonstration units are recognized upon
shipment.
The Companys credit terms are net 30 days. However,
in cases where the Company grants extended payment terms to a
Customer, the Company defers revenue recognition until Customer
acceptance of the equipment.
The Company also enters into agreements to lease equipment to
health-care providers. Revenue from the leases is recognized
ratably over the term of the lease, usually 12 months.
Revenues from the analysis of test results are recognized upon
provision of the test results to the Customers.
The Company obtained Phase I and II Small Business
Innovation Research (SBIR) Grants in
2003 2005 amounting to a total of $844,000. The
funds received were utilized to develop software for the PD2i
Cardiac Analyzer and to conduct a study of 700 patients
with chest pain presenting at emergency rooms in six
(6) tertiary care facilities. The aim of the grant was to
test and establish good medical practice through
wide experimental use of the Analyzer at different emergency
room sites with high risk patients. The funds received for this
Grant have been treated as revenues by the Company in its
consolidated financial statements and were recorded when costs
to perform such research and development activities were
incurred.
Cash
and Cash Equivalents
The Company considers all investments purchased with original
maturities of three months or less to be cash and cash
equivalents.
Intellectual
Property
Intellectual property, consisting of patents and other
proprietary technology acquired by the Company is stated at cost
and amortized on a straight-line basis over the estimated useful
lives of the assets.
F-14
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Patents
|
|
$
|
252,000
|
|
|
$
|
252,000
|
|
Purchased software
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452,000
|
|
|
|
452,000
|
|
Less accumulated amortization
|
|
|
(223,000
|
)
|
|
|
(260,000
|
)
|
|
|
|
|
|
|
|
|
|
Net intellectual property
|
|
$
|
229,000
|
|
|
$
|
192,000
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2009
and 2010 was $37,000 in each year. Legal fees related to the
prosecution of new patents and intellectual property are
expensed as incurred and amounted to $236,000 and $227,000 in
2009 and 2010, respectively.
Use
of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could
differ from those estimates and the differences could be
material.
Accounting
for Stock-Based Compensation
The Company uses the fair value-based method of accounting for
stock-based employee compensation arrangements under which
compensation cost is determined using the fair value of
stock-based compensation determined as of the grant date and is
recognized over the periods in which the related services are
rendered.
The Company has also granted stock purchase warrants to
independent consultants and contractors and values these
warrants using the fair value-based method described in the
preceding paragraph. The compensation cost so determined is
recognized over the period the services are provided which
usually results in compensation cost being recognized at the
date of the grant.
Financial
Instruments
The carrying amount of financial instruments, including cash,
accounts receivable, accounts payable and accrued expenses, and
notes payable approximates fair value as of December 31,
2009 and 2010.
Convertible securities with detachable warrants that do not
contain features requiring them to be accounted for as embedded
derivatives are valued by allocating the proceeds between the
warrant and the convertible security based on relative fair
values, with any resulting fixed beneficial conversion feature
(BCF) embedded in the convertible security being
recorded at its intrinsic value.
Convertible securities containing detachable warrants where the
conversion price of the security
and/or the
exercise price of the warrants are affected by the current
market price of the Companys common stock are accounted
for as derivative financial instruments when the exercise and
conversion prices are not considered to be indexed to the
Companys own stock. These derivatives are recorded as a
liability and presented in the consolidated balance sheet under
the caption derivative financial instruments payable in
common stock.
F-15
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For such issuances of convertible securities with detachable
warrants, the Company initially records both the warrant and the
BCF at fair value, using options pricing models commonly used by
the financial services industry (Black-Scholes-Merton options
pricing model) using inputs generally observable in the
financial services industry. These derivative financial
instruments are marked to market each reporting period, with
unrealized changes in value reflected in earnings under the
caption gain (loss) on derivative financial
instruments.
For discounts arising from issuances of instruments embedded in
a debt security, the discount is accounted for as a discount to
the principal amount of the related note payable. For discounts
arising from issuances of instruments embedded in an equity
security, the discount is accounted for as a reduction to
additional paid-in capital.
The resulting discounts arising from the initial recording of
the warrants are amortized over the term of the host security,
and the discounts arising from the BCF are amortized over the
period when the conversion right first becomes exercisable. The
classification of the amortization is based on the nature of the
host instrument. In this respect, amortization of discounts
associated with debt issuances are classified as interest
expense, whereas amortization of discounts associated with
preferred stock issuances are classified as preferred stock
dividends.
At the time a warrant is exercised or a BCF is exercised, the
fair value of the derivative financial instrument at time of
exercise/conversion is calculated, and a realized gain or loss
on conversion is determined and reported as gain (loss)
from derivative financial instruments.
Long-Lived
Assets
The Company reviews long-lived assets and certain identifiable
intangibles held and used for possible impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In evaluating the
fair value and future benefits of its intangible assets,
management performs an analysis of the anticipated undiscounted
future net cash flow of the individual assets over the remaining
amortization period. The Company recognizes an impairment loss
if the carrying value of the asset exceeds the expected future
cash flows. During the years ended December 31, 2009 and
2010, there were no deemed impairments of long-lived assets.
Reclassifications
Certain reclassifications have been made to the prior year
amounts to conform to the current year presentation. These
reclassifications had no effect on previously reported results
of operations or net capital deficiency.
Recent
Accounting Developments
Fair Value Measurements and Disclosures In January
2010 the FASB issued ASU
2010-06,
Fair Value Measurements and Disclosures (Topic 820)
Improving Disclosures about Fair Value Measurements, which
provides additional guidance relating to fair value measurement
disclosures. Specifically, companies will be required to
separately disclose significant transfers into and out of
Level 1 and Level 2 measurements in the fair value
hierarchy and the reasons for those transfers. For Level 3
fair value measurements, the new guidance requires a gross
presentation of activities within the Level 3 roll forward.
Additionally, the FASB also clarified existing fair value
measurement disclosure requirements relating to the level of
disaggregation, inputs, and valuation techniques. This ASU is
effective for interim or annual reporting periods beginning
after December 15, 2009, except for the detailed
Level 3 disclosures, which are effective for interim or
annual reporting periods beginning after December 15, 2010.
Since ASU
2010-06 only
affects disclosure requirements, the adoption of
F-16
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
these provisions will have no impact on the Companys
financial condition, results of operations, or cash flows.
Other new accounting pronouncements issued but not effective
until after December 31, 2010, are not expected to have a
significant effect on the Companys financial condition,
results of operations, or cash flows.
Note 4
Current Debt
At December 31, 2009 and 2010 current debt consists of:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2004 Notes
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
12% Convertible Promissory Notes
|
|
|
110,000
|
|
|
|
110,000
|
|
Bank loan, unsecured, 4.83%, due October 2010
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
460,000
|
|
|
$
|
360,000
|
|
|
|
|
|
|
|
|
|
|
2004
Notes
The 2004 Notes consist of a 12% convertible promissory note
payable to a stockholder and is convertible to common stock at
$2.25 per common share. The maturity of the notes is being
extended on a
month-to-month
basis by agreement with the stockholder.
12% Convertible
Promissory Notes
The 12% Convertible Promissory Notes (12% Notes)
were originally due at varying dates in 2007 and bear interest
at 12% per annum, payable monthly. The maturity of the notes is
being extended on a
month-to-month
basis by agreement with the noteholders.
Current
Debt Extinguished in 2009
Certain holders of 15% promissory notes sold the notes to third
parties in 2009, and the Company induced conversions of $300,000
of these notes by issuing shares of its common stock. The stock
was valued on the date of the transaction, the debt for the
notes was extinguished and the difference was recorded as
interest expense of $88,000 in 2009.
In September 2009 the holder of a 10% unsecured promissory note
sold it to an investor. The Company induced conversion of the
note by issuing 200,000 shares of its common stock to the
investor. The stock was valued on the date of the transaction,
the debt for the note was extinguished and $79,000 of interest
expense was recorded in 2009.
F-17
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 5
Long-term debt
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
8% Convertible Notes
|
|
$
|
1,097,000
|
|
|
$
|
|
|
8% Subordinated Convertible Promissory Notes
|
|
|
903,000
|
|
|
|
5,273,000
|
|
10% Convertible Promissory Notes
|
|
|
|
|
|
|
2,804,000
|
|
Bank loan, unsecured, 3.54% and 3.45%, respectively, at
December 31, 2009 and 2010
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$
|
2,200,000
|
|
|
$
|
8,277,000
|
|
|
|
|
|
|
|
|
|
|
8% Convertible
Notes
During the period from May 1, 2009 through
September 17, 2009 the Company sold 8% Convertible
Notes (8% Notes). The 8% Notes are due two
years from date of issue and are convertible into common stock
at the option of the holder any time prior to maturity. The
conversion price is equal to the lesser of 75% of the weighted
average common stock price, as defined, for the three days
immediately prior to the date of the conversion notice or $1.07
per share of common stock.
The conversion rights embedded in the 8% Notes are
accounted for as derivative financial instruments because of the
beneficial conversion feature embedded therein. The beneficial
conversion feature was valued at date of issuance using the
Black-Scholes-Merton options pricing model with the following
assumptions: risk-free interest rates ranging from 1.33% to
3.02%, expected life of 2 years, expected volatility of 63%
and dividend yield of zero, resulting in fair value at date of
issuance of $1,996,000 in 2009.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
8% Notes sold
|
|
$
|
2,671,000
|
|
|
$
|
2,671,000
|
|
8% Notes converted
|
|
|
(1,574,000
|
)
|
|
|
(2,671,000
|
)
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$
|
1,097,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Beginning in November 2009 through May 2010, the 8% Notes
were converted into common stock as provided for by terms of the
debt instrument. This resulted in a realized gain to the Company
of $1,083,000 and $311,000 in 2009 and 2010, respectively,
included in the amount reported in the consolidated statement of
operations as gain on derivative financial
instruments, and measured by the difference between the
fair value of the beneficial conversion feature just prior to
the conversion and the fair value of the beneficial conversion
feature as of the most recent
mark-to-market
calculation. The beneficial conversion feature was valued at
dates of conversion using the Black-Scholes-Merton options
pricing model with the following assumptions in 2009: risk-free
interest rates ranging from 1.04% to 3.02%, expected life of
2 years, expected volatility of 63% and dividend yield of
zero; and 2010: risk-free interest rates ranging from 0.89% to
1.08%, expected life of 2 years, expected volatility of 63%
and dividend yield of zero Related unamortized discount of
$1,095,000 and $324,000 was recognized as interest expense as a
result of the conversions in 2009 and 2010, respectively.
8% Subordinated
Convertible Promissory Notes
Beginning in the fourth quarter of 2009 the Company sold
8% Subordinated Convertible Promissory Notes
(8% Subordinated Notes) and warrants to purchase
shares of the Companys common stock at $1.00 per share
(12,500 warrants were issued for each $10,000 of
8% Subordinated
F-18
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Notes). The 8% Subordinated Notes are due on
October 7, 2012 and at issuance were subordinated to the
8% Notes sold between May 1, 2009 and
September 17, 2009. They are mandatorily convertible into
shares of the Companys common stock at a conversion price
equal to the lesser of $0.80 per share of common stock or 80% of
the price per share of common stock sold in a qualified funding
event, defined as the sale of debt or equity in an offering
resulting in a least $3,000,000 of gross proceeds to the Company.
The conversion of the 8% Notes was completed in May 2010,
and the holders of the 8% Subordinated Notes may,
therefore, voluntarily convert the 8% Subordinated Notes
subsequent to May 2010.
The conversion rights embedded in the 8% Subordinated Notes
are accounted for as derivative financial instruments because of
the beneficial conversion feature embedded therein. The
beneficial conversion feature was valued at date of issuance
using the Black- Scholes-Merton options pricing model with the
following assumptions: fair market value of $0.69
$0.94, risk-free interest rates ranging from 1.66% to 2.10%,
expected life of 3 years, expected volatility of 63% and
dividend yield of zero, resulting in fair value of date of
issuance of $559,000 in 2009; fair market value of
$0.55 $0.87, risk-free interest rates ranging from
1.00% to 1.68%, expected life of 3 years, expected
volatility of 63% and dividend yield of zero, resulting in fair
value of date of issuance of $557,000 in 2010.
The warrants issued with the 8% Subordinated Notes expire
5 years from date of issuance and were valued using the
Black-Scholes-Merton options pricing model with the following
assumptions: fair market value of $0.69 $0.94,
risk-free interest rates ranging from 1.66% to 2.86%, expected
life of 5 years, expected volatility of 63% and dividend
yield of zero in 2009; fair market value of $0.69
$0.94, risk-free interest rates ranging from 1.93% to 2.64%,
expected life of 5 years, expected volatility of 63% and
dividend yield of zero in 2010. The value of the warrants was
recorded based on the relative fair value of the principal
amount of the 8% Subordinated Notes and the beneficial
conversion feature, resulting in a credit of $117,000 to
additional paid-in capital in 2009 and $395,000 in 2010.
10% Convertible
Promissory Notes
In the fourth quarter of 2010 the Company sold $2,804,000 of
10% Convertible Promissory Notes
(10% Convertible Notes) and warrants to
purchase shares of the Companys common stock at $0.80 per
share (22,200 warrants were issued for each $10,000 of
10% Convertible Notes). The 10% Convertible Notes are
due on September 30, 2012 and are convertible into common
stock at the option of the holder at any time prior to maturity
at an initial fixed conversion price of $0.45 per share. After
the 10% Convertible Notes have been outstanding for six
months, the conversion price adjusts to 75% of the average of
the three lowest closing bid prices during the
10-day
period preceding the conversion date. If the Company conducts a
registered public offering, as defined, of its common stock (or
securities convertible into or exercisable for shares of common
stock), the conversion price is subject to adjustment.
If the Company raises $5,000,000 or more from the sale of
caopital stock or debt securities (5,000,000 Qualified
Financing), it may offer to redeem the 10% Convertible
Notes for cash at rates ranging from 110% 115%,
depending on the date of the redemption after the issue date,
plus accrued but unpaid interest. The holders are not required
to tender the 10% Convertible Notes for redemption.
For a financing of less than $5,000,000 (Nonqualified
Financing), the Company may offer to redeem a pro rata
portion of the 10% Convertible Notes.
F-19
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
The warrants may be exercised in full or in part and, at the
option of the holder, may be exercised on a cashless basis.
The conversion rights embedded in the 10% Convertible Notes
are accounted for as derivative financial instruments because of
the beneficial conversion feature embedded therein. The
beneficial conversion feature was valued at date of issuance
using the Black- Scholes-Merton options pricing model with the
following assumptions: fair market value of $0.80, risk-free
interest rate of 0.35%, expected life of 2 years, expected
volatility of 63% and dividend yield of zero, resulting in fair
value of date of issuance of $2,679,000 in 2010.
The warrants contain an embedded net issuance feature that is
accounted for as derivative financial instruments because of the
variable number of common stock shares that could be issued.
This was valued at date of issuance using the
Black-Scholes-Merton options pricing model with the following
assumptions: risk-free interest rate of 0.54%, expected life of
3 years, expected volatility of 63% and dividend yield of
zero, resulting in fair value of date of issuance of $2,056,000
in 2010.
Bank
Loans
The bank loans of $200,000 and $100,000 (see
Note 4) are from Branch Banking and Trust Company
(BB&T) under a loan agreement. The $200,000
loan bears interest at 3.54% and is due January 2011
(subsequently renewed at 3.45% with a due date of February
2012). As a condition to making the loans, the bank received
Certificates of Deposit for $200,000 and $100,000 from the
Companys Chief Executive Officer, David H. Fater, as
standby collateral. (At December 31, 2010 the $100,000
Certificate of Deposit had been returned to Mr. Fater. As
consideration for this standby collateral, the Companys
Board of Directors authorized (i) the reimbursement of
Mr. Faters
out-of-pocket
cash costs associated with this transaction, (ii) the
Companys receipt of interest from the Certificates of
Deposit as an offset to the Companys interest expense, and
(iii) the monthly issuance of 1,092 shares of the
Companys common stock (728 shares following repayment
of the $100,000 loan in October 2010).
Mr. Fater received 14,196 and 10,556 shares of the
Companys common stock in 2009 and 2010, respectively,
related to these bank loans.
Discount
on Debt-based Derivative Financial Instruments
Prior to the issuance of the 10% Convertible Notes in the
fourth quarter of 2010, Vicor reported the related derivative
discount as a reduction of the principal balance of the related
debt instrument. Because of the large number of common shares
that would be issued upon conversion of the 10% Convertible
Notes, the derivative discount related to the beneficial
conversion feature and net issuance feature exceeded the
principal amount of the 10% Convertible Notes. Accordingly,
the reporting of both note principal and debt discount is the
gross amounts, and 2009 net presentation has been
reclassified to conform to the 2010 gross presentation.
F-20
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
The debt discount is included in deferred financing costs, as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Unamortized derivative discount:
|
|
|
|
|
|
|
|
|
8% Convertible Notes
|
|
$
|
324,000
|
|
|
$
|
|
|
8% Subordinated Convertible Promissory Notes
|
|
|
513,000
|
|
|
|
2,140,000
|
|
10% Convertible Promissory Notes
|
|
|
|
|
|
|
4,234,000
|
|
Debt discount warrants
|
|
|
113,000
|
|
|
|
567,000
|
|
Other
|
|
|
167,000
|
|
|
|
1,135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,117,000
|
|
|
$
|
8,076,000
|
|
|
|
|
|
|
|
|
|
|
Note 6
Preferred Stock
At December 31, 2009 the Company had two classes of
preferred stock: Series A Convertible Cumulative and
Series B Voting Junior Convertible Cumulative. In September
2010 the holder of the Series A preferred stock converted
all of its shares plus accrued dividends of $335,000 into
417,416 shares of common stock.
The Series A Convertible Cumulative preferred stock
(Series A or Series A preferred
stock) yielded cumulative annual dividends at an annual
rate of 8%. Dividends on the Series A accrued and
compounded annually on such amount from the date of issuance
until paid in full or at the option of the holder converted into
additional Series A stock at $3.17 per share. At
December 31, 2009 accrued dividends payable were $303,000.
The Series B Voting Junior Convertible Cumulative preferred
stock (Series B or Series B
preferred stock) yields cumulative annual dividends at an
annual rate of 8%. Dividends on the Series B accrue and
compound annually on such amount from the date of issuance. At
December 31, 2009 and 2010 accrued dividends payable were
$530,000 and $932,000, respectively. Each share of Series B
preferred stock is convertible at the option of the holder into
shares of common stock at a conversion price equal to the lesser
of $0.80 or 80% of the price per share of any common stock sold
in a Qualified Financing, plus the amount of all accrued and
unpaid dividends on such shares, whether or not declared. A
Qualified Financing is defined as the closing of a sale of debt
or equity in a registered offering or pursuant to a private
placement resulting in at least $3,000,000 of gross proceeds to
the Company. The conversion price of the Series B preferred
stock is subject to adjustment in certain cases, including
dilutive issuances and the issuance of additional shares of
common stock. The Series B preferred stock will
automatically be converted into shares of common stock upon the
consummation of a Liquidation Event, which is defined as a
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company. The Company may, at its option,
require all holders of Series B preferred stock then
outstanding to convert their shares of Series B into shares
of common stock at any time on or after: (i) the closing of
a Qualified Financing or (ii) the consummation of a
Liquidation Event.
The Series B preferred stock is entitled to a liquidation
preference after distribution or payment is made to holders of
the Series A equal to the greater of (i) the issue
price per share for the Series B plus any accrued and
unpaid dividends or (ii) any accrued and unpaid dividends
as of the date of the liquidation plus the amount the holder
would have received if prior to liquidation the Series B
preferred stock had been converted into common stock. At
December 31, 2009 and 2010 the liquidation preference as
described for item (i) totals $5,413,000 and $5,795,000,
respectively.
F-21
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
In 2008 the Company issued 4,781,295 shares of
Series B preferred stock, convertible into shares of common
stock, and 4,781,295 warrants to purchase common stock, sold as
a unit. The Series B and warrants are derivative financial
instruments because the conversion rates embedded in the
Series B units contain down round price
protection. The fair values of the Series B units were
determined at time of issuance using the Black-Scholes-Merton
options pricing method with the following assumptions: risk-free
interest rates ranging from 3.30% to 4.25%, expected life of
5 years, expected volatility of 63% and dividend yield of
zero. The calculated fair values of the conversion options
totals $2,207,000 and of the warrants totals $2,361,000.
In 2009 the Company issued 438,460 shares of Series B
preferred stock, convertible into shares of common stock, and
438,460 warrants to purchase common stock, sold as a unit. The
Series B and warrants are derivative financial instruments
because the conversion rates embedded in the Series B units
contain down round price protection. The fair values
of the Series B units were determined at time of issuance
using the Black-Scholes-Merton options pricing method with the
following assumptions: risk-free interest rates ranging from
1.87% to 3.00%, expected life of 5 years, expected
volatility of 63% and dividend yield of zero. The calculated
fair values of the conversion options totals $252,000 and of the
warrants totals $228,000.
The consent of 2/3 of the holders of all Series A preferred
stock and Series B preferred stock, voting as separate
classes, will be required (i) to amend, alter or repeal any
provisions of Series A preferred stock, Series B
preferred stock, or the Companys Certificate of
Incorporation or Bylaws that materially adversely affect any of
the preferences, rights, powers or privileges of the
Series A preferred stock or Series B preferred stock,
respectively; (ii) to pay any dividends on or redeem or
repurchase any shares of the Companys common stock or
other junior securities; (iii) create, authorize or issue
any other class or series of preferred stock on a parity with,
or having greater or preferential rights than, the Series A
preferred stock or Series B preferred stock with respect to
liquidation, dividends, distribution or conversion upon a
liquidation event; (iv) merge, consolidate, sell or dispose
of the Companys assets in a transaction that requires
stockholder approval; (v) declare bankruptcy, file an
assignment for the benefit of creditors, effect any judicial or
voluntary winding up or dissolution or liquidation of the
Company or any similar transaction; (vi) borrow funds
outside the ordinary course of business; (vii) enter into
any transaction with related parties or affiliates of the
Company; and (viii) effect any judicial or voluntary
winding up or dissolution of the Company or liquidation of the
business.
Note 7
Stockholders Equity
The Company has 25,000,000 shares of preferred stock
authorized with a par value of $0.0001. The Board has the
authority to issue the shares in one or more series and to fix
the designations, preferences, powers and other rights, as it
deems appropriate.
The Company has 150,000,000 shares of common stock
authorized with a par value of $0.0001. Each share of common
stock has one vote per share for the election of directors and
all other items submitted to a vote of stockholders. The common
stock does not have cumulative voting rights, preemptive,
redemption or conversion rights.
The Company has issued stock warrants to certain employees,
vendors and independent contractors. The warrants are
immediately exercisable for a period of three to ten years and
enable the holders to purchase shares of the Companys
common stock at exercise prices ranging from $0.01 - $3.12. The
fair value per warrant based on the Black-Scholes-Merton options
pricing method ranges from $0.31 to $4.99. The weighted average
remaining contractual term for the outstanding warrants is
3.2 years.
F-22
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
The cost of these warrants was treated as compensation and,
accordingly, the Company recorded expense of $883,000 and
$80,000 for 2009 and 2010, respectively.
The fair value for these warrants was estimated at the date of
grant using the Black-Scholes-Merton options pricing model with
the following weighted-average assumptions: fair market value of
$0.68, risk-free interest rate of 1.87% 3.00%,
dividend yield of 0%, weighted average expected warrant life of
four years, and a volatility factor of 63% for 2009; fair market
value of $0.55 $0.87,
F-23
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
risk-free interest rate of 1.60% 2.64%, dividend
yield of 0%, a weighted average expected warrant life of
two five years, and a volatility factor of 63% for
2010.
|
|
|
|
|
|
|
|
|
|
|
Shares Under
|
|
|
Weighted-Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Balance at inception
|
|
|
|
|
|
$
|
|
|
Granted in connection with stock sold
|
|
|
148,000
|
|
|
|
1.00
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2000
|
|
|
148,000
|
|
|
|
1.00
|
|
Granted
|
|
|
900,000
|
|
|
|
0.67
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2001
|
|
|
1,048,000
|
|
|
|
0.72
|
|
Granted
|
|
|
1,270,252
|
|
|
|
1.09
|
|
Exercised
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2002
|
|
|
2,317,502
|
|
|
|
0.92
|
|
Granted
|
|
|
1,520,332
|
|
|
|
1.14
|
|
Exercised
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2003
|
|
|
3,837,084
|
|
|
|
1.01
|
|
Granted
|
|
|
126,200
|
|
|
|
0.93
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2004
|
|
|
3,963,284
|
|
|
|
1.01
|
|
Granted
|
|
|
595,180
|
|
|
|
1.21
|
|
Exercised
|
|
|
(101,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
4,456,714
|
|
|
|
1.06
|
|
Granted
|
|
|
70,000
|
|
|
|
2.50
|
|
Exercised
|
|
|
(398,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006
|
|
|
4,128,714
|
|
|
|
1.09
|
|
Granted
|
|
|
470,500
|
|
|
|
1.00
|
|
Exercised
|
|
|
(3,469,908
|
)
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
1,129,306
|
|
|
|
1.96
|
|
Granted
|
|
|
9,976,707
|
|
|
|
0.85
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
11,106,013
|
|
|
|
0.96
|
|
Granted
|
|
|
1,941,823
|
|
|
|
0.90
|
|
Exercised
|
|
|
(624,494
|
)
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
12,423,342
|
|
|
|
0.98
|
|
Granted
|
|
|
12,230,610
|
|
|
|
0.88
|
|
Expired
|
|
|
(62,492
|
)
|
|
|
2.50
|
|
Exercised
|
|
|
(125,000
|
)
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
24,466,460
|
|
|
|
0.93
|
|
|
|
|
|
|
|
|
|
|
F-24
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
The weighted-average grant date fair value of all warrants
granted during 2009 and 2010 was $0.22 and $0.17, respectively.
The warrants expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
Year of Expiration
|
|
Quantity
|
|
Price
|
|
2011
|
|
|
580,414
|
|
|
$
|
2.02
|
|
2013
|
|
|
9,028,463
|
|
|
$
|
0.95
|
|
2014
|
|
|
9,223,081
|
|
|
$
|
0.85
|
|
2015
|
|
|
5,180,752
|
|
|
$
|
1.00
|
|
2016
|
|
|
78,750
|
|
|
$
|
0.17
|
|
2017
|
|
|
375,000
|
|
|
$
|
1.00
|
|
The warrants expiring in 2011 were originally issued in 2005 and
expired in 2008. In the first quarter of 2008 the warrants were
extended for three years. Management calculated the deemed
dividend using the Black-Scholes-Merton options pricing method
with the following assumptions: risk-free interest rate of
3.21%, expected life of two years, expected volatility of 50%
and dividend yield of zero. This yielded a value of less than
$50,000, which was not reported separately in the 2008
consolidated statement of operations and consolidated statement
of stockholders equity (net capital deficiency).
Note 8
Stock Option Plan
In 2002 the Companys stockholders approved the Vicor
Technologies, Inc. 2002 Stock Option Plan (the 2002
Plan), which provides for the granting of options to
purchase up to 1,000,000 shares of the Companys
common stock. Both incentive stock options and nonqualified
stock options may be issued under the provisions of the 2002
Plan. Employees of the Company and its subsidiaries, members of
the Board of Directors, independent consultants and advisors are
eligible to participate in the 2002 Plan. The granting and
vesting of options under the 2002 Plan are authorized by the
Companys Board of Directors or a committee of the Board of
Directors.
During 2002 the Company granted stock options to employees at an
exercise price of $3.00 per share, which vested over a two-year
period. In 2004 the Company granted 1,000 stock options to a
director at an exercise price of $3.25 per share. During 2005
the Company granted a total of 269,000 options to employees and
directors with an exercise price of $2.50.
The fair value for these options was estimated at the date of
grant using the Black- Scholes-Merton options pricing model with
the following weighted-average assumptions: fair market value of
$1.37 in 2007, risk-free interest rate of 5.24%, dividend yield
of 0%, weighted-average expected option life of 10 years;
and a minimal volatility factor since the Companys stock
was not then actively traded on an established public market.
F-25
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Information regarding the 2002 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
Granted
|
|
|
50,000
|
|
|
$
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000
|
|
|
$
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
51,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
269,000
|
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(25,000
|
)
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
295,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
80,000
|
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(35,000
|
)
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
122,500
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised in cashless exercise March 30, 2007
|
|
|
(340,000
|
)
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
122,500
|
|
|
$
|
0.78
|
|
|
|
122,500
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserved for future option grants at September 30, 2010
|
|
|
477,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008 the Companys stockholders approved the Vicor
Technologies, Inc. 2008 Stock Incentive Plan (the 2008
Plan). This plan provides for the granting of options to
purchase up to 5,000,000 shares of the Companys
common stock. Directors, officers and other employees of the
Company and its subsidiaries, and other persons who provide
services to the Company are eligible to participate in the 2008
Plan, and both incentive stock options and nonqualified stock
options may be issued under the provisions of the 2008 Plan. The
2008 Plan is administered by the Board of Directors and its
Compensation Committee.
F-26
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Information regarding the 2008 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
Granted
|
|
|
417,500
|
|
|
$
|
0.72
|
|
|
|
417,500
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
417,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,150,000
|
|
|
$
|
0.78
|
|
|
|
2,150,000
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,567,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,525,000
|
|
|
$
|
0.69
|
|
|
|
503,750
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(275,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
3,817,500
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserved for future option grants at December 31, 2010
|
|
|
1,182,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in nonvested options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
Number of
|
|
|
grant-date
|
|
|
|
Shares
|
|
|
fair value
|
|
|
Outstanding at December 31, 2008
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
2,150,000
|
|
|
|
1,508,000
|
|
Vested
|
|
|
(1,762,500
|
)
|
|
|
(1,302,375
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
387,500
|
|
|
|
205,625
|
|
Granted
|
|
|
1,525,000
|
|
|
|
610,750
|
|
Vested or canceled
|
|
|
(1,078,750
|
)
|
|
|
(484,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
833,750
|
|
|
$
|
332,080
|
|
|
|
|
|
|
|
|
|
|
There was a total of 3,940,000 options outstanding for both
plans at December 31, 2010.
The fair value for these options was estimated at the date of
grant using the Black- Scholes-Merton options pricing model with
the following weighted-average assumptions: fair market value of
$0.62 $0.90, expected option lives of 7
10 years, risk-free interest rate of 2.51% - 3.91%,
dividend yield of 0%, and volatility factors of 63% to 172% in
2009; fair market value of $0.51 $0.80, expected
option lives of 7 10 years, risk-free interest
rate of 2.51% 3.91%, dividend yield of 0%, and
volatility factor of ranging from 63% in 2010.
The 2008 Plan has a weighted average grant date fair value of
$0.57 and weighted average remaining contractual term for the
vested options of 6.8 years.
Compensation expense related to the granting of options under
the 2008 Plan was approximately $1,159,000 and $305,000 in 2009
and 2010, respectively.
NOTE 9
Fair Value of Financial Instruments
The Company follows the provisions of ASC Topic 820, Fair
Value Measurements and Disclosures. This Topic defines
fair value, establishes a measurement framework and expands
disclosures about fair value measurements.
F-27
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
The Company measures financial assets in three levels, based on
the markets in which the assets and liabilities are traded and
the reliability of the assumptions used to determine fair value.
These levels are:
|
|
|
|
|
Level 1 Valuations for assets and liabilities
traded in active exchange markets, or interest in open-end
mutual funds that allow a company to sell its ownership interest
back at net asset value (NAV) on a daily basis.
Valuations are obtained from readily available pricing sources
for market transactions involving identical assets, liabilities
or funds.
|
|
|
|
Level 2 Valuations for assets and liabilities
traded in less active dealer, or broker markets, such as quoted
prices for similar assets or liabilities or quoted prices in
markets that are not active.
|
|
|
|
Level 3 Valuations for assets and liabilities
that are derived from other valuation methodologies, such as
option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer, or broker
traded transactions. Level 3 valuations incorporate certain
assumptions and projections in determining the fair value
assigned to such assets or liabilities.
|
The availability of observable inputs can vary from instrument
to instrument and in certain cases the inputs used to measure
fair value may fall into different levels of the fair value
hierarchy. In such cases, an instruments level within the
fair value hierarchy is based on the lowest level of input that
is significant to the fair value measurement. The Companys
assessment of the significance of a particular input to the fair
value measurement of an instrument requires judgment and
consideration of factors specific to the instrument.
Recurring
Fair Value Measurement Valuation Techniques
The fair value for certain financial instruments is derived
using pricing models and other valuation techniques that involve
significant management judgment. The price transparency of
financial instruments is a key determinant of the degree of
judgment involved in determining the fair value of the
Companys financial instruments. Financial instruments for
which actively quoted prices or pricing parameters are available
will generally have a higher degree of price transparency than
financial instruments that are thinly traded or not quoted. In
accordance with ASC Topic 820, the criteria used to determine
whether the market for a financial instrument is active or
inactive is based on the particular asset or liability. As a
result, the valuation of these financial instruments included
significant management judgment in determining the relevance and
reliability of market information available. The Company
considered the inactivity of the market to be evidenced by
several factors, including limited trading of the Companys
stock since the commencement of trading in July 2007.
Derivative
Financial Instruments
The Companys derivative financial instruments consist of
conversion options embedded in 8% Convertible Notes,
8% Subordinated Convertible Promissory Notes, 10%
Convertible Promissory Notes, Series B Preferred Stock and
warrants to purchase common stock issued with 10% Convertible
Promissory Notes and preferred stock. These instruments are
valued with pricing models commonly used by the financial
services industry using inputs generally observable in the
financial services industry. These models require significant
judgment on the part of management, including the inputs
utilized in its pricing models. The Companys derivative
financial instruments are categorized in
F-28
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Level 3 of the fair value hierarchy. The Company estimates
the fair value of derivatives utilizing the Black-Scholes-Merton
option pricing model and the following assumptions:
The Companys methodology to estimate volatility of its
common stock is based on an average of published volatilities
contained in the most recent audited financial statements of
other publicly-reporting companies in industries similar to that
of the Company.
Level 3
Assets and Liabilities
Level 3 liabilities include instruments whose value is
determined using pricing models and for which the determination
of fair value requires significant management judgment or
estimation. As of December 31, 2009 and 2010 instruments
measured at fair value on a recurring basis categorized as
Level 3 represented approximately 51% and 42%,
respectively, of the Companys total liabilities.
Fair values of liabilities measured on a recurring basis are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
active
|
|
|
|
|
|
|
|
|
|
|
|
|
markets for
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
identical
|
|
|
Significant
|
|
|
unobservable
|
|
|
|
|
|
|
labilities
|
|
|
other observable
|
|
|
inputs (Level
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
inputs (Level 2)
|
|
|
3)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - December 31, 2009
|
|
$
|
4,414,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,414,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - December 31, 2010
|
|
$
|
7,692,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,692,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Both observable and unobservable inputs may be used to determine
the fair value of positions that the Company has classified
within the Level 3 category. As a result, the gains for
liabilities within the Level 3 category presented in the
tables below may include changes in fair value that were
attributable to both observable and unobservable inputs. The
following table presents additional information about
Level 3 assets and liabilities measured at fair value on a
recurring basis for the years ended December 31, 2009 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
|
|
|
Beneficial
|
|
|
|
|
|
|
|
|
|
Conversion -
|
|
|
Conversion -
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Convertible
|
|
|
|
|
|
|
Warrants
|
|
|
Stock
|
|
|
notes
|
|
|
Total
|
|
|
Balance, January 1, 2009
|
|
$
|
1,905,000
|
|
|
$
|
1,664,000
|
|
|
$
|
|
|
|
$
|
3,569,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain)
|
|
|
133,000
|
|
|
|
161,000
|
|
|
|
|
|
|
|
294,000
|
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
174,000
|
|
|
|
193,000
|
|
|
|
|
|
|
|
367,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
2,212,000
|
|
|
|
2,018,000
|
|
|
|
|
|
|
|
4,230,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
|
|
|
|
(36,000
|
)
|
|
|
(36,000
|
)
|
Unrealized loss (gain)
|
|
|
78,000
|
|
|
|
28,000
|
|
|
|
18,000
|
|
|
|
124,000
|
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
|
|
|
Beneficial
|
|
|
|
|
|
|
|
|
|
Conversion -
|
|
|
Conversion -
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Convertible
|
|
|
|
|
|
|
Warrants
|
|
|
Stock
|
|
|
notes
|
|
|
Total
|
|
|
Settlements and issuances net
|
|
|
33,000
|
|
|
|
36,000
|
|
|
|
779,000
|
|
|
|
848,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
2,323,000
|
|
|
|
2,082,000
|
|
|
|
761,000
|
|
|
|
5,166,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
|
|
|
|
(972,000
|
)
|
|
|
(972,000
|
)
|
Unrealized loss (gain)
|
|
|
762,000
|
|
|
|
712,000
|
|
|
|
(21,000
|
)
|
|
|
1,453,000
|
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
6,000
|
|
|
|
4,000
|
|
|
|
1,120,000
|
|
|
|
1,130,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
3,091,000
|
|
|
|
2,798,000
|
|
|
|
888,000
|
|
|
|
6,777,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
|
|
|
|
(75,000
|
)
|
|
|
(75,000
|
)
|
Unrealized loss (gain)
|
|
|
(1,172,000
|
)
|
|
|
(1,059,000
|
)
|
|
|
(714,000
|
)
|
|
|
(2,945,000
|
)
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
(48,000
|
)
|
|
|
(41,000
|
)
|
|
|
746,000
|
|
|
|
657,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
1,871,000
|
|
|
|
1,698,000
|
|
|
|
845,000
|
|
|
|
4,414,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
|
|
|
|
(112,000
|
)
|
|
|
(112,000
|
)
|
Unrealized loss (gain)
|
|
|
211,000
|
|
|
|
141,000
|
|
|
|
(125,000
|
)
|
|
|
227,000
|
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
|
|
|
|
|
|
|
|
604,000
|
|
|
|
604,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
|
2,082,000
|
|
|
|
1,839,000
|
|
|
|
1,212,000
|
|
|
|
5,133,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
|
|
|
|
(199,000
|
)
|
|
|
(199,000
|
)
|
Unrealized loss (gain)
|
|
|
(96,000
|
)
|
|
|
(75,000
|
)
|
|
|
(82,000
|
)
|
|
|
(253,000
|
)
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
|
|
|
|
|
|
|
|
1,930,000
|
|
|
|
1,930,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010
|
|
|
1,986,000
|
|
|
|
1,764,000
|
|
|
|
2,861,000
|
|
|
|
6,611,000
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain)
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
(8,000
|
)
|
Unrealized loss (gain)
|
|
|
(349,000
|
)
|
|
|
(324,000
|
)
|
|
|
(461,000
|
)
|
|
|
(1,134,000
|
)
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
1,637,000
|
|
|
|
1,432,000
|
|
|
|
2,400,000
|
|
|
|
5,469,000
|
|
F-30
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
|
|
|
Beneficial
|
|
|
|
|
|
|
|
|
|
Conversion -
|
|
|
Conversion -
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Convertible
|
|
|
|
|
|
|
Warrants
|
|
|
Stock
|
|
|
notes
|
|
|
Total
|
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
|
|
|
(737,000
|
)
|
|
|
(176,000
|
)
|
|
|
(1,599,000
|
)
|
|
|
(2,512,000
|
)
|
Purchases, sales and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements and issuances net
|
|
|
2,056,000
|
|
|
|
|
|
|
|
2,679,000
|
|
|
|
4,735,000
|
|
Net transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
2,956,000
|
|
|
$
|
1,256,000
|
|
|
$
|
3,480,000
|
|
|
$
|
7,692,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10
Related Party Transactions
In 2003 the Company purchased the software related to the PD2i
Cardiac
Analyzertm
from one of its founding scientists, who is now an employee and
a director. Terms of the Purchase and Royalty Agreement provide
that $100,000 of the purchase price be deferred until the
Company begins receiving revenue from the Analyzer. The
Agreement further provides for an ongoing royalty to be paid to
the scientist amounting to 10% of amounts received by the
Company from any activities relating to the PD2i Cardiac Device
for the life of the patents. Beginning in 2010 royalties were
accrued as sales related to the PD2i Cardiac Device were made
and some payments of such royalties were made during the year.
The balance is included in the accompanying consolidated balance
sheet as due to related party.
Additionally, on January 1, 2007 the Company entered into a
Service Agreement (Service Agreement) with
ALDA & Associates International, Inc.
(ALDA), a consulting company owned and controlled by
the Companys Chief Executive and Financial Officer whereby
three of the Companys employees became employees of ALDA
under a Professional Employer Organization (PEO)
arrangement. This was subsequently increased to seven employees.
The Service Agreement, which is a cost reimbursement only
contract, provides for reimbursement of all of ALDAs
actual payroll and insurance related costs for these employees.
Costs associated with the contract amounted to $909,000 and
$1,599,000 for the years ended December 31, 2009 and 2010,
respectively. See Note 16.
As discussed in Notes 4 and 5 the Company has certain bank
loans. As a condition to making the loans, the bank received a
two Certificates of Deposit valued at $300,000 from the
Companys Chief Executive and Financial Officer, David H.
Fater, as standby collateral.
Note 11
Income Taxes
For income tax purposes the Company has capitalized its losses
(other than contract research and development) as start up
costs. The startup costs will be amortized over a
15-year
period when operations commence. The tax loss carry forward at
December 31, 2010 amounts to $2,746,000 and begins to
expire in 2023.
Significant components of the Companys deferred tax assets
are shown below. Certain reclassifications have been made to the
2009 components in the table as the derivative financial
instruments relating to convertible debt issuances are
considered equity. As such these create permanent differences
and do not result in a future income tax expense or benefit to
the Company.
F-31
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
A valuation allowance has been recognized to offset the deferred
tax assets as of December 31, 2009 and 2010 as realization
of such assets is uncertain.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax loss carryforward
|
|
$
|
788,000
|
|
|
$
|
1,030,000
|
|
Start-up
costs
|
|
|
10,671,000
|
|
|
|
12,687,000
|
|
General business credit carryforward
|
|
|
357,000
|
|
|
|
357,000
|
|
Equity-based compensation expense
|
|
|
991,000
|
|
|
|
1,012,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
12,807,000
|
|
|
|
15,086,000
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
(15,485,000
|
)
|
|
|
(12,807,000
|
)
|
Decrease (increase)
|
|
|
2,678,000
|
|
|
|
(2,279,000
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
(12,807,000
|
)
|
|
|
(15,086,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to Sections 382 and 383 of the Internal Revenue
Code, annual use of any of the Companys net operating loss
and credit carryforwards may be limited if cumulative changes in
ownership of more than 50% occur during any three year period.
Note 13
Leases
The Company is obligated under operating lease agreements for
its office and administrative facilities. The leases expire in
August and October 2011, and annual future minimum lease
obligations as of December 31, 2010 total $82,000 in 2011.
Rent expense for the years ended December 31, 2009 and 2010
was $95,000 and $119,000, respectively.
Note 14
Retirement plan
In December 2009 the Company established a defined contribution
plan (Plan) to provide retirement benefits in return
for services rendered. The Plan provides an individual account
for each participant and has terms that specify how
contributions to participant accounts are determined. Employees
are eligible to participate in the Plan at time of hire as well
as certain independent contractors at the discretion of
management. The Plan provides for the Company to match employee
contributions up to 4% of the employees salary and also
provides for Company discretionary contributions of up to 6% of
employee compensation. The Company made an initial grant to the
Plan equal to 4% of each participants 2009 base
compensation, resulting in Plan expense of $54,000 for 2009.
There were no contributions to the Plan in 2010.
Note 15
Commitments and Contingencies
From time to time the Company may become subject to threatened
and/or
asserted claims arising in the ordinary course of business.
Management is not aware of any matters, either individually or
in the aggregate, that are reasonably likely to have a material
adverse effect on the Companys financial condition,
results of operations or liquidity.
F-32
Vicor
Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
The Company has employment agreements with its Chief Executive
Officer, its Chief Medical Officer, its Chief Operating Officer
and its scientists. Such agreements provide for minimum salary
levels, adjusted annually for
cost-of-living
changes.
Note 16
Subsequent Events
The agreement with ALDA (see Note 10) was terminated
effective January 1, 2011. All former ALDA employees are
now Vicor employees, and the Company now administers its own
compensation and benefits plans.
F-33
Index to
Exhibits
|
|
|
|
|
|
23
|
.1
|
|
Consent of Daszkal Bolton, Independent Certified Public
Accountants.*
|
|
31
|
.1
|
|
Certification of the Companys Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
with respect to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010.*
|
|
31
|
.2
|
|
Certification of the Companys Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
with respect to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010.*
|
|
32
|
.1
|
|
Certification of the Companys 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 the Companys Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*
|