|TEV||3||TEV/EBIT||-6||TTM 2019-09-30, in MM, except price, ratios|
|Item 1. Financial Statements|
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.|
|Item 3. Quantitative and Qualitative Disclosures About Market Risk|
|Item 4. Controls and Procedures|
|Item 1. Legal Proceedings|
|Item 1A. Risk Factors.|
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds|
|Item 3. Defaults Upon Senior Securities|
|Item 4. Mine Safety Disclosures|
|Item 5. Other Information|
|Balance Sheet||Income Statement||Cash Flow|
Rev, G Profit, Net Income
Ops, Inv, Fin
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the fiscal quarter ended||March 31, 2015|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
VYCOR MEDICAL, INC.
(Exact name of small business issuer as specified in its charter)
|(State of Incorporation)||(Commission File Number)||(IRS Employer Identification No.)|
6401 Congress Ave., Suite 140, Boca Raton, FL 33487
(Address of principal executive offices) (Zip code)
Issuers telephone number: (561) 558-2020
Securities registered under Section 12(g) of the Exchange Act:
Common Stock par value $0.0001
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically 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 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 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.
|Large accelerated filer o||Accelerated filer o|
|Non-accelerated filer o (Do not check if a smaller reporting company)||Smaller reporting company x|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There were 10,821,126 shares outstanding of registrants common stock, par value $0.0001 per share, as of May 14, 2015.
Transitional Small Business Disclosure Format (check one): Yes o No x
TABLE OF CONTENTS
|Item 1.||Financial Statements||3|
|Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014||3|
|Unaudited Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2015|
|and March 31, 2014||4|
|Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and March 31, 2014||5|
|Notes to Unaudited Consolidated Financial Statements||6|
|Item 2.||Managements Discussion and Analysis of Financial Condition and Results of Operation||14|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk||25|
|Item 4.||Controls and Procedures||25|
|Item 1.||Legal Proceedings||27|
|Item 1A.||Risk Factors||27|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds||27|
|Item 3.||Defaults Upon Senior Securities||27|
|Item 4.||Mine Safety Disclosures||27|
|Item 5.||Other Information||27|
ITEM 1. FINANCIAL STATEMENTS
VYCOR MEDICAL, INC.
Consolidated Balance Sheets
|March 31,||December 31,|
|Trade accounts receivable, net of allowance for doubtful accounts of $6,470 and $2,721||166,046||123,815|
|Prepaid expenses and other current assets||244,537||217,800|
|Total Current Assets||2,006,533||2,569,294|
|Fixed assets, net||530,383||582,434|
|Intangible and Other assets:|
|Patents, net of accumulated amortization||390,486||345,113|
|Website, net of accumulated amortization||11,770||12,576|
|Total Intangible and Other assets||700,332||662,015|
|LIABILITIES AND STOCKHOLDERS EQUITY|
|TOTAL CURRENT LIABILITIES||880,557||924,841|
|Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 243,804 and 235,560|
|issued and outstanding as at March 31, 2015 and December 31, 2014 respectively||$24||$24|
|Common Stock, $0.0001 par value, 25,000,000 shares authorized 10,914,396 and|
|10,879,899 shares issued and 10,811,062 and 10,776,565 outstanding at March 31,|
|2015 and December 31, 2014 respectively||1,090||1,088|
|Additional Paid-in Capital||24,078,553||23,903,793|
|Treasury Stock (103,334 shares of Common Stock as of March 31, 2015 and December|
|31, 2014 respectively, at cost)||(1,033)||(1,033)|
|Accumulated Other Comprehensive Income||166,801||67,148|
|Total Stockholders Equity||2,356,691||2,888,902|
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY||$3,237,248||$3,813,743|
See accompanying notes to financial statements
VYCOR MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
For the three months ended
|Cost of Goods Sold||51,692||42,957|
|Research and development||23,226||15,356|
|Depreciation and Amortization||82,649||94,096|
|General and administrative||779,302||1,198,252|
|Total Operating expenses||885,177||1,307,704|
|Other income (expense)|
|Interest expense: Related Party||-||(33,829||)|
|Interest expense: Other||(11,838||)||(14,294||)|
|Gain (loss) on foreign currency exchange||(91,872||)||(632||)|
|Change in fair value of derivative liability||(12,153||)||253,284|
|Total Other income (expense)||(115,863||)||204,529|
|Loss Before Provision for Income Taxes||(724,180||)||(788,010||)|
|Provision for Income Taxes||-||-|
|Net Loss available to common shareholders||(806,626||)||(788,010||)|
|Comprehensive Income (Loss)|
|Foreign Currency Translation Adjustment||(99,653||)||522|
|Net Comprehensive Loss||$(906,279||)||$(787,488||)|
|Loss Per Share|
|Basic and diluted||$(0.07||)||$(0.09||)|
|Weighted Average Number of Shares Outstanding||10,845,092||8,995,082|
See accompanying notes to financial statements
VYCOR MEDICAL, INC.
Consolidated Statement of Cash Flows
|For the three months ended|
|Cash flows from operating activities:|
|Adjustments to reconcile net loss to cash used in operating activities:|
|Amortization of intangible assets||21,521||36,906|
|Depreciation of fixed assets||63,794||60,337|
|Provision for inventory||7,580||-|
|Share based compensation expense||88,150||168,655|
|(Gain) loss on foreign exchange||99,653||(28,282||)|
|Change in fair value of derivative liability||12,153||(253,284||)|
|Changes in assets and liabilities:|
|Accrued interest: Related Party||-||33,829|
|Accrued interest: Other||11,836||(129,459||)|
|Other current liabilities||8,940||3,887|
|Cash used in operating activities||$(527,916||)||$(1,158,348||)|
|Cash flows used in investing activities:|
|Purchase of fixed assets||(12,497||)||(29,634||)|
|Purchase of website||-||(5,628||)|
|Acquisition of patents||(66,276||)||(5,361||)|
|Cash used in investing activities||(78,773||)||(40,623||)|
|Cash flows from financing activities:|
|Proceeds from issuance of Common Stock Offering||-||4,070,140|
|Net proceeds from issuance of Notes Payable: Other||33,801||28,525|
|Repayment of Notes Payable: Related Party||-||(126,519||)|
|Repayment of Notes Payable: Other||(25,328||)||(126,923||)|
|Cash provided by financing activities||8,473||3,845,223|
|Effect of exchange rate changes on cash||(8,227||)||29,534|
|Net increase (decrease) in cash||(606,443||)||2,675,786|
|Cash at beginning of period||1,891,658||31,303|
|Cash at end of period||$1,285,215||$2,707,089|
|Supplemental Disclosures of Cash Flow information:|
|Preferred stock dividends satisfied in new preferred stock||$82,446||$-|
See accompanying notes to financial statements
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
1. BASIS OF PRESENTATION
The consolidated financial statements of the Company present the financial position, results of operations, and cash flows of Vycor Medical, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive financial statements have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2014 derives from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2014.
The condensed consolidated financial statements for the three months ended March 31, 2015 and 2014, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Companys financial condition and results of operations. The results of operations for the three months ended March 31, 2015 and 2014 are not necessarily indicative of the results to be expected for any other interim period or for the entire year. Certain prior period amounts have been reclassified to conform to the current presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation), NovaVision GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions, and profits have been eliminated in consolidation.
Recent Accounting Pronouncements
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Companys accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
The Company accounts for the 34,723 Series A Warrants issued in connection with the Offering (all as defined in Note 5), the holders of which have not waived their anti-dilution rights (as detailed further in Note 5) in accordance with the guidance contained in ASC 815-40-15-7D, whereby under that provision, because they have anti-dilution rights, they do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until exercised or until the anti-dilution provisions contained within the warrant agreements expire, and is classified in the balance sheet as a current liability. Any change in fair value of the warrant liability is recognized in the Companys statement of operations as other income (loss).
Software Development Costs
The authoritative accounting guidance requires software development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Companys software, incurred during the application development stage, are capitalized and amortized using the straight-line method of the estimated life of five years once the software has been brought into service. Capitalized software development costs for the three months ended March 31, 2015 and 2014 were $12,497 and $29,634, respectively.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock and convertible debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. No dilution adjustment has been made to the weighted average outstanding common shares in the periods presented because the assumed exercise of outstanding options and warrants and the conversion of preferred stock and debt would be anti-dilutive.
The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share:
|March 31,||March 31,|
|Stock options outstanding||25,557||5,557|
|Warrants to purchase common stock||6,011,715||5,002,217|
|Debentures convertible into common stock||195,816||518,631|
|Preferred shares convertible into common stock||1,148,782||14,815|
3. NOTES PAYABLE
As of March 31, 2015 and December 31, 2014, Notes Payable consists of:
|March 31, 2015||December 31, 2014|
On March 25, 2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. (EuroAmerican). The term note bears interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the Companys common stock at an exercise price of $4.50 per share for a period of three (3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares of common stock of the Company an adjusted conversion price of $1.80 per share, subject to adjustment and does not require bifurcation. The due date for this note has been extended to December 31, 2015.
Insurance policy finance agreements. During the period ended March 31, 2015 the Company received proceeds from Insurance policy finance agreement of $33,801 and made repayments of $25,328. The notes are due over the next twelve months.
|Total Notes Payable:||$330,259||$321,786|
The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of the convertible debt instruments set out above, the fair value of the stock was either the same or less than the conversion price, and so there was no value attributable to any beneficial conversion feature.
4. SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a) Business segments
The Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses on neuro stimulation therapies and diagnostic devices for the treatment and screening of vision field loss and which includes Sight Science. Set out below are the revenues, gross profits and total assets for each segment.
|Three Months Ended March 31,|
|Total Gross Profit||$276,860||$315,165|
|March 31,||December 31,|
(b) Geographic information
The Company operates in two geographic segments, the United States and Europe. Set out below are the revenues, gross profits and total assets for each segment.
|Three Months Ended March 31,|
|Total Gross Profit||$276,860||$315,165|
|March 31,||December 31,|
During January to March 2015, the Company issued: 2,717 shares of Common Stock (valued at $5,000) to Steven Girgenti, 2,660 shares of Common Stock (valued at $5,000) to Oscar Bronsther and 2,660 shares of Common Stock (valued at $5,000) to Lowell Rush in consideration for services provided to the Board of Directors; and 919 shares of Common Stock (valued at $1,563) to Alvaro Pascual-Leone, 1,838 shares of Common Stock (valued at $3,125) to Josef Zihl and 831 shares of Common Stock (valued at $1,563) to each of Jason Barton and Jose Romano in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
During January to March 2015, in accordance with the terms the Consulting Agreement, the Company issued 8,152 shares of Common Stock (valued at $15,000) to Fountainhead.
During the period ended March 2015, in accordance with the terms of an investor relations advisory agreement, the Company issued 13,889 shares of Common Stock (valued at $25,000) to Acorn Management Partners.
During the period ended March 2015 Preferred D Stock, convertible into shares of Common Stock, was issued in respect of Preferred Dividends as follows: 5,745 shares of Preferred D Stock, convertible into 26,721 shares of Common Stock (valued at $57,453) to Fountainhead; 2,119 shares of Preferred D Stock, convertible into 9,856 shares of Common Stock (valued at $21,194) to Peter Zachariou; and 380 shares of Preferred D Stock, convertible into 1,767 shares of Common Stock (valued at $3,799) to Craig Kirsch.
Warrants and Options
The details of the outstanding warrants and options are as follows:
|Number of||exercise price|
|STOCK WARRANTS:||shares||per share|
|Outstanding at December 31, 2013||1,404,599||$3.39|
|Cancelled or expired||(719,004||)||4.46|
|Outstanding at December 31, 2014||5,911,715||$2.57|
|Cancelled or expired||-||-|
|Outstanding at March 31, 2015||6,011,715||$2.57|
|Number of||exercise price|
|STOCK OPTIONS:||shares||per share|
|Outstanding at December 31, 2013||5,557||$20.25|
|Cancelled or expired||-||-|
|Outstanding at December 31, 2014||25,557||$5.97|
|Cancelled or expired||-||-|
|Outstanding at March 31, 2015||25,557||$5.97|
As of March 31, 2015, the weighted-average remaining contractual life of outstanding warrants and options is 2.01 and 2.95 years, respectively.
6. SHARE-BASED COMPENSATION
Stock Option Plan
The Company adopted the Vycor Medical, Inc. Employee, Director, and Consultant Stock Plan (the Plan) as of February 13, 2008. The Plan provides for both incentive stock options and nonqualified stock options to be granted to employees, officers, consultants, independent contractors, directors and affiliates of the Company. The board of directors establishes the terms and conditions of all stock option grants, subject to the Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Companys outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options expire on the date determined by the board of directors, but may not extend mare than 10 years from the grant date, while incentive stock options granted to participants owning more than 10% of the Companys outstanding voting stock expire five years from the grant date. The vesting period for employees is generally over three years. The vesting Period for non-employees is determined based on the services being provided. The maximum number of shares of stock which may be delivered under the plan shall automatically increase by a number sufficient to cause the number of shares covered by the plan to equal 10% of the total number of shares of stock then outstanding on a fully diluted basis.
Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis. For the period ended March 31, 2015 and 2014, the Company recognized share-based compensation of $25,011 and $0, respectively, for employee stock options.
Stock appreciation rights may be granted either on a stand alone basis or in conjunction with all or part of any other stock options granted under the plan. As of March 31, 2015 there were no awards of any stock appreciation rights.
Non-Employee Stock Compensation
|3 months ended|
|March 31, 2015|
|Name||Description||$ in period|
|Steven Girgenti||2,717 shares issued for services rendered to the board of directors||$5,000|
|Oscar Bronsther||2,660 shares issued for services rendered to the board of directors||$5,000|
|Lowell Rush||2,660 shares issued for services rendered to the board of directors||$5,000|
|Alvaro Pascual-Leone||919 shares issued for services rendered to the Scientific Advisory Board||$1,563|
|Jason Barton||831 shares issued for services rendered to the Scientific Advisory Board||$1,563|
|Jose Romano||831 shares issued for services rendered to the Scientific Advisory Board||$1,563|
|Josef Zihl||1,838 shares issued for services rendered to the Scientific Advisory Board||$3,125|
|Fountainhead Capital Mgmt||8,152 shares issued in accordance with the terms of the consulting agreement||$15,000|
|Acorn Management Partners||13,889 shares issued in relation to an investor advisory agreement||$20,834|
|Gordon Holmes||100,000 warrants issued in relation to an investor advisory agreement||$4,492|
Totals and Fair Values
Aggregate stock-based compensation expense charged to operations for stock and warrants granted to the employees and non-employees for the three months ended March 31, 2015 was $88,150. As of March 31, 2015, there was $4,167 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.
Stock-based compensation expenses related to common stock, options and warrants granted to employees and non-employees are recognized as the services are received or the stock, options and warrants are earned. The common stock, options or warrants meet the criteria for equity treatment and their fair is estimated at the grant date. Expense related to common stock is recognized on a straight-line basis over the period during which services are to be received; expense related to options and warrants is recognized on a straight-line basis over the shorter of the period during which services are to be received or the life of the option or warrant. The fair value of the common stock is determined by the then-prevailing share price. The grant date fair value of the options and warrants is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock on the measurement date, using the assumptions noted in the table below. Expected volatility is based on the historical volatility of a peer group of publicly traded companies.
The following assumptions were used in calculations of the Black-Scholes option pricing model for the three months ended March 31, 2015 and 2014:
|Three months ended March 31,|
|Risk-free interest rates||1.07%||0.78%|
|Expected life||3 years||3 years|
|Vycor Common Stock fair value||$2.00||$2.05|
7. FAIR VALUE MEASUREMENTS
The Company has adopted ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The adoption of ASC 820 did not have an impact on the Companys financial position or results of operations.
The following table presents information about the Companys liabilities that are measured at fair value on a recurring basis (the 2,062,108 Series A Warrants and Placement Agent Warrants issued as part of the Units in connection with the Offering) as of March 31, 2015 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the liability, and includes situations where there is little, if any, market activity for the liability:
|Description||March 31, 2015||Level 1||Level 2||Level 3|
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured using fair significant unobservable inputs (Level 3):
|Balance at January 1, 2015||$19,792|
|Change in fair value||12,153|
|Balance at March 31, 2015||$31,945|
The fair value of the Series A Warrants and Placement Agent Warrants was determined using a Monte Carlo Simulation. This model requires the input of highly subjective assumptions, including the expected price volatility, which is based on the historical volatility of a peer group of publicly traded companies. Changes in the subjective input assumptions can materially affect the estimate of fair value of the warrants and the Companys results of operations could be impacted.
The following assumptions were used in calculations of the Monte Carlo Simulation model for the three months ended March 31, 2015 and 2014:
|Three months ended March 31,|
|Risk-free interest rates||0.56%||0.68-0.93%|
|Expected life||1.84 years||3 years|
|Vycor Common Stock fair value||$1.84||$1.88-2.39|
8. COMMITMENTS AND CONTINGENCIES
The Company leases approximately 10,000 sq. ft located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $14,260 plus sales tax per month. The term of the lease is 5 years and 6 months terminating July, 2017. The Companys subsidiaries in Germany and the UK occupy properties on short term lease agreements. Rent expense for the three months ended March 31, 2015 and 2014 was $47,211 and $50,178 respectively.
Potential German tax liability
In June 2012 the Company's German subsidiary received a preliminary assessment for Magdeburg City trade tax of approximately €75,000 (approximately $94,000). This assessment is for the 2010 fiscal year and relates to the Company's acquisition of the assets of the former NovaVision, Inc. An initial assessment for corporate tax for the same period has been preliminarily reduced to zero. The Company has not accepted this trade tax assessment and is in discussion with the relevant tax authorities with a view to its reduction. The tax authorities have agreed to suspend the assessment pending the outcome of certain court hearings, and the Company has agreed to make limited monthly payments on account. To the extent that this assessment, a higher or a reduced amount, is ultimately confirmed by the tax authorities, the Company believes it has a very strong claim against certain professional advisors which would offset the liability in full. Accordingly, the Company has made no provision for this liability for the three months ending March 31, 2015, other than recording the monthly payments as an expense.
Potential Patent Infringement
The Company was made aware in 2012 that a competitor had been granted a patent for related technology, and appeared to be entering the market with products that infringe the Companys own issued patent. Following investigation, the Company has taken steps to initiate an invalidation of the competitors patent and enforce its patent rights; in March 2014 the Patent Re-examination Board issued an Examination Decision invalidating all the claims of the competitors patent. The competitor has the right of appeal but the Company will contest any such appeal. The Company has also been made aware that a second competitor has filed a patent application for related technology and also may be producing a product that potentially infringes the Companys patent, and is in the early stages of evaluation and has yet to determine what, if any actions to take in this instance, however as a general rule the Company intends to take all necessary action to protect its patent portfolio. As with all patent infringement actions, there is some risk that the accused infringer will not be found to infringe the claims, and an additional risk that the accused infringer will successfully challenge the validity of the asserted claims.
9. CONSULTING AND OTHER AGREEMENTS
The following agreements were entered into or remained in force during the three months ended March 31, 2015:
Under the terms of an amended Consulting Agreement between the Company and Fountainhead, Fountainhead is paid a monthly retainer of $10,000 per month, payable $5,000 in cash and $5,000 payable in Company Common Stock at the end of each quarter.
In January 2015, the Company entered into a twelve (12) month agreement to provide financial advisory, strategic business planning and professional relations services, with Acorn Management Partners (Acorn). Under the terms of the Acorn Agreement, Acorn receives $8,000 in cash per month and 25,000 shares of Restricted Common Stock in the first two three month periods and $8,000 in cash per month and 75,000 shares of restricted common stock in the final two three month periods.
In March 2015, the Company entered into a twelve (12) month agreement to provide investor relations services with Gordon Holmes. Under the terms of the agreement, Gordon Holmes received warrants to purchase 100,000 Vycor shares of Common Stock at $2.56, exercisable for a period of three years.
10. RELATED PARTY TRANSACTIONS
On March 31 2015, in accordance with the terms of the Consulting Agreement, the Company issued 8,152 shares of Common Stock (valued at $15,000) to Fountainhead.
11. SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10Q:
During April to May 2015, the Company issued 2,660 shares of Common Stock (valued at $5,000) to Steven Girgenti, in consideration for services provided to the Board of Directors, and 925 and 1,849 shares of Common Stock respectively (valued at $1,563 and $3,125 respectively) to Alvaro Pascual-Leone and Josef Zihl in respect of their roles as members of the NovaVision, Inc. Scientific Advisory Board.
During April 2015 the Company issued 4,630 shares of Common Stock (valued at $8,333) to Acorn Partners in accordance with the terms of the Acorn Agreement.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Statements
This Interim Report on Form 10-Q contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PLSRA), Section 27A of the Securities Act of 1933, as amended (the Securities Act), and section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) regarding Vycor Medical, Inc. (the Company or Vycor, also referred to as us, we or our). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words may, will, should, anticipate, estimate, plans, potential, projects, continuing, ongoing, expects, management believes, we believe, we intend or the negative of these words or other variations on these words or comparable terminology. These statements may be found under Management's Discussion and Analysis of Financial Condition and Results of Operations and Description of Business, as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.
Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under Risk Factors and matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA.
1. Organizational History
The Company was formed as a limited liability company under the laws of the State of New York on June 17, 2005 as Vycor Medical LLC. On August 14, 2007, we converted into a Delaware corporation and changed our name to Vycor Medical, Inc.. The Companys listing went effective on February 2009 and on November 29, 2010 Vycor completed the acquisition of substantially all of the assets of NovaVision, Inc. (NovaVision) and on January 4, 2012 Vycor, through its wholly-owned NovaVision subsidiary, completed the acquisition of all the shares of Sight Science Limited (Sight Science), a previous competitor to NovaVision.
2. Overview of Business
Vycor is dedicated to providing the medical community with innovative and superior surgical and therapeutic solutions and operates two distinct business units within the medical industry. Vycor Medical designs, develops and markets medical devices for use in neurosurgery. NovaVision develops non-invasive, computer-based light stimulation therapies for those suffering from vision loss resulting from neurological brain damage.
Both businesses adopt a minimally or non-invasive approach. Both technologies have strong sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has 43 issued or allowed patents and a further 14 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner. In addition to our existing products and products in development we actively seek acquisition, joint venture and in-licensing opportunities in the medical device field which we believe are complementary, can benefit from our existing infrastructure and will add shareholder value.
Vycor Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medicals ViewSite Brain Access System (VBAS) is a next generation retraction and access system that was fully commercialized in early 2010 and is the first significant technological change to brain tissue retraction in over 50 years in contrast to significant development in most other neuro-surgical technologies. Vycor Medical is ISO 13485:2003 compliant, and VBAS has U.S. FDA 510(k) clearance and CE Marking for Europe (Class III) for brain and spine surgeries, full regulatory approvals in Australia, Brazil, Canada, China, Korea and Japan and is seeking or has partial regulatory approvals in India, Russia, Taiwan and Vietnam.
Vycor Medicals Products
To access a surgical site in the brain, a surgeon usually needs to remove part of the skull (craniotomy) and then make an entry incision in the outer protective brain tissue (corticotomy); the soft brain tissue is then parted (retracted) to access the targeted site. The current standard of care, the blade retractor, utilizes a metal blade retractor to pull the tissue apart; to maintain the opening the blades are attached to a head frame and parting tension is applied to the tissue. In a typical procedure 2 or more blades are used.
Many clinical studies have shown that retractors can cause excessive pressure on brain tissues, resulting in damage and a prolonged patient recovery. The incidence of contusions (tissue injuries) or infarctions (blockage of blood supply) from brain retraction is as great as 5-10%.
Vycors VBAS is a significant improvement over current technologies for accessing regions within the brain. A disposable product that can be used with microscopic, endoscopic and neuro-navigation systems (IGS), the VBAS includes an introducer and working channel. Available in multiple sizes, the current series consists of 12 disposable products, offered in four different port (working channel) diameters of 12mm, 17mm, 21mm, and 28 mm and a choice of three lengths: 3cm, 5cm, and 7cm. The surgeon makes a smaller corticotomy, inserts the clear, elliptical-shaped VBAS introducer through the brain tissue, removes the introducer and is left with a clear hollow working channel to provide access to the precise location desired for surgery.
VBAS clinical advantages are supported by a number of leading peer-reviewed articles (see Peer Review and Other Clinical Studies). Clinical benefits cited include: minimally invasive shape and less invasive procedure; resultant reduction of pressure on the brain; improved visual field; improved working channel; and more accurate target access. Management also believes, from anecdotal surgeon feedback, that although a disposable product VBAS offers potential cost savings from shorter operating theater time and reduced post-operative recovery time.
The Market For Vycor Medicals VBAS Product
VBAS is used for craniotomy procedures. Based on statistics from the American Association of Neurological Surgeons (AANS), management estimates 700,000 such procedures were performed in the US in 2012. Of this, management believe approximately 200,000 (28 percent) are addressable by the VBAS range currently, with another 125,000 (total of 325,000 or 46 percent) addressable by an expanded future range. Management estimates, for the global market, there exists a current addressable market of approximately 1,000,000 procedures with another 600,000 addressable by an expanded VBAS range.
The VBAS device is both a brain access system and a retractor and is therefore unique with no direct competitors. Competitive manufacturers of brain retractors include Cardinal Health (V. Mueller line), Aesculap, Integra Life Science and Codman (Division of Johnson & Johnson). Nico Corporation has a brain access device specifically designed to work with its Myriad resection and suction product.
Sales and Marketing
According to the American Board of Neurological Surgery (ABNS), there are approximately 3,500 neurosurgeons in the US, providing a well-defined target audience. Vycor Medicals sales channels are to stocking regional distributors and direct to hospitals through independent representatives, all of whom have existing relationships with neurosurgeons and provide an experienced and efficient distribution infrastructure without the need for a large and costly dedicated Vycor regional sales team. The distributors and representatives are supported by Vycor Medical Sales, Marketing and Customer Service.
Vycor Medical has found that the learning curve is only 1-2 cases for surgeons, who like the simplicity of design and ease of use after trialing the product. However, Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation of the product in the hospital by the neurosurgeon and this is one of the key barriers to the speed of adoption as this process can take several months.
Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. Vycor Medical has regulatory approvals for VBAS in Australia, Brazil, Canada, China, Europe (Class III), Korea and Japan and is seeking or has partial regulatory approvals in India, Russia, Taiwan and Vietnam with distribution agreements in place or being sought.
Peer Review and Other Clinical Studies
The publication of clinical papers in neurosurgery journals by surgeon-users of VBAS regarding their experiences with the products (peer review papers), and the publication of other clinical data, is important for Vycor Medical. Such papers continue to evidence the clinical superiority of VBAS, which in turn drives its adoption and accelerates the hospital approval process, which in turn drives revenues. During the last 4 years the following papers were published:
Usage of a Minimally Invasive Tubular Retraction System for Deep-Seated Tumors in Pediatric Patients in Journal of Neurosurgery in May 2011: Pediatrics. Co-authors Pablo Recinos, M.D., of the Cleveland Clinic and George Jallo, M.D., of Johns Hopkins University conclude that while access to deep-seated, intra-axial tumors is challenging, the ViewSite tubular retractor and frameless neuro navigation facilitated the surgical approach and the combination of these technologies adds to the surgeons armamentarium to safely approach tumors in deep locations.
Vycor Viewsite TC: Endoscope-guided Intraparenchimal Brain Tumor Resection, by Daniel Prevedello, M.D., Director of the Minimally Invasive Cranial Surgery Program at the Ohio State University. Dr Prevedello reported on a case with a patient taking Avastin®, which delays surgical wound healing. He said the Viewsite TC was essential to the surgery; otherwise, no procedure could have been performed on the patient.
Minimally Invasive Trans-Portal Resection of Deep Intracranial Lesions in Minimally Invasive Neurosurgery, February 2011 a Johns Hopkins University paper by lead author A. Quinones Hinojosa. The authors reported a case series of 9 adult and pediatric patients with a variety of pathologies, including colloid cyst, DNET, papillary pineal tumor, anaplastic astrocytoma, toxoplasmosis and lymphoma. The locations of the lesions approached included: lateral ventricle, basal ganglia, pulvinar/posterior thalamus and insular cortex. Post-operative imaging was assessed to determine extent of resection and extent of white matter damage along the surgical trajectory. Satisfactory resection or biopsy was obtained in all patients. VBAS lends itself well to minimally invasive microsurgical approaches and can be used in combination with modern navigational systems. The use of navigation permits not only the creation of a smaller craniotomy but also facilitates the creation of a trajectory that provides efficient and safe means for splitting white fiber tracts, said the authors.
Rigid endoscopic resection of deep-seated or intraventricular brain tumors, by Yukinori Akiyama, Masahiko Wanibuchi, Takeshi Mikami, Yoshifumi Horita, of the Dept of Neurosurgery, Sapporo Medical University, School of Medicine, Hokkaido Japan. Published in Neurological Research, Mar 2014. Conclusion: Strong retraction may cause significant brain and vascular damage; tubular retractors can help minimize retraction injury. The rigid endoscopic technique using a thick tubular sheath [VBAS] provides an alternative medial approach that improves visualization and increases working space. We believe that this technique [rigid endoscope resection through a sheath] is a safer, more reliable, and less invasive method for the treatment of deep-seated brain tumors.
3D Endoscope Transcallosal Approach to the Third Ventricle by Alireza Shoakazemi, Alexander I. Evins, Justin C. Burrell, Philip E. Stieg and Antonio Bernardo of the Weill Cornell Medical Center. Published in The Journal of Neurosurgery, Mar 2015. Conclusion: A transtubular approach [utilizing VBAS] to the third ventricle is feasible and facilitates blunt dissection of the corpus callosum that may minimize retraction injury. This technique also provides an added degree of safety by limiting the free range of instrumental movement. The combination of 3D endoscopic visualization with a clear plastic retractor facilitates safe and direct monitoring of the surgical corridor.
A Percutaneous Transtubular Middle Fossa Approach for Intracanalicular Tumors by Antonio Bernardo, Alexander I. Evins, Apostolos J Tsiouris and Philip E Stieg. of the Department of Neurological Surgery, Weill Cornell Medical College, New York-Presbyterian Hospital, New York. Conclusion: All 10 approaches were successfully completed through the tubular retractor [VBAS] with minimal retraction of the temporal lobe. Excellent visualization of the structures within the internal auditory World Neurosurgery canal was achieved with both the microscope and 3D endoscope
Vycor Medical uses a sub-contract manufacturer to manufacture, package, label and sterilize its VBAS products. The Company is in the process of migrating all its VBAS manufacturing to First Engineering Limited of Singapore, which is FDA-registered and meets ISO standards and certifications.
Vycor Medical maintains a portfolio of patent protection on its methods and apparatus for its Brain and Spine products and technology in the form of issued patents and applications, both domestically and internationally, with a total of 10 granted/allowed and 9 pending patents. This includes the purchase in March 2015 of a portfolio of two pending United States patent applications that disclose approaches to integrating surgical navigation systems into optically-transparent neurosurgical obturators.
Vycor Medicals 10 granted/allowed patents are in the Canada (Brain) China (Brain), Hong Kong (Brain), Russia (Brain), Japan (Brain and Spine) and US (Brain (3) and Spine).
Vycor Medicals 9 pending patents are in: Canada (Spine), Europe (Brain, Spine), India (Brain, Spine), Hong Kong (Spine), US (Brain (3)).
VYCOR MEDICAL is a registered trademark and VIEWSITE is a common law trademark.
Vycor Growth Strategy
Vycor Medicals growth strategy is centered around:
1. Increasing U.S. market penetration through broader hospital coverage and targeted direct physician marketing.
Vycor Medicals sales and marketing strategy is to penetrate a well defined target market of 3,500 neurosurgeons by trade shows, significantly increased direct marketing with VBAS samples and existing clinical data, and through its existing distributors which it is continually evaluating and upgrading as well as adding additional distributors in regions where it has little to no presence. In marketing to these hospitals and surgeons, Vycor Medical leads with those neurosurgical procedures where VBAS competitive advantages are most easily understood deep seated tumors and other complicated deep procedures. The focus is both on adding new hospitals and expanding to additional surgeons in hospitals where VBAS is already approved and to expand usage to a broader range of procedures. Vycor Medical prioritizes its attention on teaching hospitals, which not only carry out more relevant procedures but also provide a natural way to drive adoption through the conversion of new surgeons.
2. Provision of more Clinical and Scientific Data supporting the products superiority over the current standard of care blade retractors and to demonstrate the products potential for cost savings. Clinical and scientific data (in the form of peer reviewed articles, clinical studies and other reports and case studies) are critical in driving adoption, and in turn revenues, further and faster by demonstrating VBAS' superiority as a minimally invasive access system which helps VBAS move further up the hospital cost/benefit curve. To date the Company already had 6 Peer Reviewed studies and anticipates further studies during the course of the year.
3. International Market Growth
Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. In Europe, the Company currently only has a limited number of distributors and is only now turning its focus to this geographic region. VBAS has full regulatory approvals in Australia, Brazil, Canada, China, Europe (EU Class III), Korea and Japan and is seeking or has partial regulatory approvals in India, Russia, Taiwan and Vietnam. Vycor Medical plans on focusing on the international markets and is actively pursuing new distribution agreements.
4. New Product Development
New Product Development is targeted at both driving the use of its existing VBAS product range through ancillaries that will facilitate the products use and through new product extensions to broaden VBAS applicability to procedures currently not addressed by the existing product line.
Vycor Medical has a current product pipeline aimed at expanding the applicable procedures it addresses by extending its VBAS range and at increasing the compatibility of its current VBAS range.
Vycor Medical has implemented manufacturing of two new smaller VBAS devices that will be available during the final quarter of 2015 and is in the advanced stages of development on a new set of VBAS devices that will be designed to completely integrated with selected Image Guided Systems. Management strongly believes that the existing VBAS rigid structure lends itself well to being incorporated into the increasing trend of IGS surgery.
NovaVision provides non-invasive, computer-based vision solutions targeted at a substantial and largely un-addressed market of people who have lost their sight as a result of stroke, Traumatic Brain Injury (TBI) or other neurological brain damage. NovaVision addresses a significant target market, estimated at approximately $2 billion in each of the U.S. and the EU and over $13 billion globally.
NovaVision has a family of therapies that both restore and compensate for lost vision:
Restoration of vision: NovaVisions VRT and Sight Sciences Neuro-Eye Therapy (NeET), aim to improve visual sensitivity in a persons blind area. VRT delivers a series of light stimuli along the border of the patients visual field loss. These programmed light sequences stimulate the border zone between the seeing and blind visual fields, repetitively challenging the visual cortex in the border zone with multiple stimuli over the course of time. NeET targets deep within the blind area by repeated stimulation, allowing patients to detect objects within the blind field.
Compensation and re-training: Normal eye movements are also affected after brain injury adding to the problems of blindness. NeuroEyeCoach provides a complementary therapy to VRT and NeET, which re-trains a patient to move their eyes, re-integrate left and right vision and to make the most of their remaining visual field.
NovaVision operates in the US through our wholly-owned subsidiary, NovaVision, Inc., in Germany through our wholly-owned subsidiary, NovaVision GmbH and in the UK through our wholly-owned subsidiary, Sight Science Limited.
NovaVisions VRT is the only medical device aimed at the restoration of vision lost as a result of neurological damage which has FDA 510(k) clearance to be marketed in the U.S.; VRT and NeET both have CE Marking for the EU and NeuroEyeCoach is registered in the US as a Class I 510(k) exempt device. NovaVision has 33 granted and 5 pending patents worldwide.
VRT and NeET
VRT and NeET are aimed at those suffering from vision loss resulting from neurological brain damage such as stroke and traumatic brain injury (TBI). It is estimated that approximately 20% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living.
Both VRT and NeET work on the basis that repeated stimulation of the blind or transition areas by either bright patches of light (VRT) or specific spatial patterns (NeET) can lead to increases in sensitivity of the blind areas. Patient progress after VRT appears to be initiated at the blind and sighted borders whereas NeET results in changes deep within the blind field. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living.
VRT and NeET are patient-specific diagnostic and therapeutic platforms with extensive clinical data supporting their ability to increase a patients visual field. The diagnostic algorithm first maps the visual field and defines the areas of defect in patients suffering vision loss. The therapeutic algorithm is then specifically designed for each patient based upon the results of the diagnostic program. The therapies are delivered through a computer device in the patients home and are generally performed over a six month period, twice a day for approximately an hour total, six days a week.
With VRT therapy, the patient first focuses on a fixation point on a display screen. Then, a series of light stimuli are presented along the border of the patients visual field loss. These programmed light sequences stimulate the border zone between the seeing and blind visual fields, repetitively challenging the visual cortex in the border zone with thousands of stimuli over the course of the therapy. With NeET, the patient responds to the images that appear on the screen, initially in the border area of the patients visual field loss and over time deeper within the damaged field of vision.
Vycor acquired NovaVision at the end of 2010. While its VRT was clinically supported to be effective, was underpinned by 15 years of clinical research and 20 studies evidencing that 70% of patients benefited from the therapy, further development was required in order: to deliver broader patient benefits; to make it cost effective and affordable; and to make it scalable.
As not all patients benefit from VRT, management concluded that a new complementary eye training therapy should be introduced into the NovaVision therapy suite to provide broader benefits to patients than the delivery of VRT on its own, and developed and launched NeuroEyeCoach in the U.S. during 2014. This is also a computer-based program providing eye-movement training to those who have suffered a visual field loss as a result of neurological damage.
The program is supported by more than four decades of scientific findings and was developed as collaboration between NovaVision and Josef Zihl, a NovaVision Scientific Advisor who is a world thought leader in saccadic training and the pioneer of this computer based training technique. The program is designed to re-train the ability of a patient to scan the environment, re-integrate left and right vision and make the most of their remaining visual field. The therapy can be completed in two to four weeks to result in a meaningful improvement in the patients visual search performance resulting in improvements in their navigation and object finding skills. Given that NeuroEyeCoach addresses the patients difficulty with their eye movements and their ability to integrate visual information while VRT and NeET focuses on the restoration of lost vision the two therapy types are highly complementary.
NeuroEyeCoach will be provided by NovaVision in one therapy suite with VRT, providing broad benefits to all patients, and is also provided on a standalone basis; those suffering non-permanent defects or those otherwise unsuited to VRT can benefit from NeuroEyeCoach. The program is also provided as a clinic-based version to enable healthcare professionals to provide the therapy to patients under supervision.
Vision Diagnostic (VIDIT)
NovaVision VIDIT is a diagnostic system that enables therapists in rehabilitation centers and other clinics to perform high-resolution visual field tests to screen for central visual field deficits commonly associated with stroke or brain injury. As an undetected visual field deficit may adversely impact other rehabilitation modalities, early detection and treatment are critical steps towards improving overall patient care and this diagnostic is therefore a valuable tool for such centers and clinics. Tests take less than 10 minutes while the patient is in the facilitys care.
The Market For NovaVisions Therapies
The market for NovaVisions therapies comprises those suffering from vision loss resulting from neurological trauma such as Stroke and Traumatic Brain Injury (TBI). The U.S. Centers for Disease Control (CDC) estimates there are approximately 8 million Americans who have previously had a stroke incident, with 795,000 additional strokes occurring annually; adjusting for repeat strokes and deaths, there are 481,000 new stroke survivors each year. Additionally, approximately 5.3 million Americans live with the long-term effects of a TBI. The most recent scientific research estimates that approximately 28.5% experience some visual impediment and 20.5% of these patients experience a permanent visual field deficit, reducing mobility and other activities of daily living. The target market for VRT and NeET is this 20.5% subset of patients who have suffered a permanent visual field deficit; NeuroEyeCoach addresses all 30.5% of patients who experience visual impediments. Management estimates that the addressable target market for its therapies is approximately 2.9 million people in the US, approximately 2.8 million people in Europe and approximately 12.9 million people throughout the rest of the world.
NovaVision provides restoration therapies (VRT and NeET) and compensation or saccadic therapies (NeuroEyeCoach) for those suffering vision loss as a result of neurological trauma. The other therapy type for this condition is substitution (optical aids such as prisms) and is not considered by NovaVision as competition.
In restoration, competition has been reduced through NovaVisions acquisition of Sight Science and really only leaves two small companies, Teltra and Visiontrainer in Germany. Within compensation, competitors include RevitalVision, PositScience, and Rehacom.
NovaVision has accumulated significant amounts of clinical data as a result of company-sponsored trials as well as studies conducted by independent third parties, of which some of the key findings can be summarized as:
Approximately 70% of patients experience positive outcome reflected by an increase in their visual field and studies have indicated an average increase of 4.9 degrees (Mueller I, et al., 2007; Romano JG, et al., 2008).
Elapsed time since injury does not seem to impact VRT and NeET therapies success. Therefore, a large historical backlog of patients can potentially be treated (Romano JG, et al., 2008).
Improvements are permanent and do not appear to be age or gender dependent.
The PC-based treatment approach was originally developed by Prof. Zihl (1988, 1990) and has since been used with various modifications in 14 studies on a total of 591 patients with homonymous visual field loss and persistent visual disabilities.
The main outcome is a significant improvement in visual search performance accompanied by more efficient oculomotor strategies, and a reduction in visual disability as assessed with standardized questionnaires and behavioral measures. The efficacy of this treatment approach for the improvement of visual overview and visual exploration is superior to practice with reading (Schuett et al., 2012), non-specific visual training (Roth et al., 2009), standard occupational therapy (Mödden et al., 2012) or counseling with regards to coping strategies (Zihl, 2011). Importantly, time since brain injury (Zihl, 2011) and age of hemianopic patients (Schuett & Zihl, 2012) do not play a significant role for the treatment effect. In conclusion, there is convincing scientific empirical evidence for the efficacy of the visual search treatment method. It is important to note that visual field borders do not change after the treatment, indicating that visual search training represents a compensatory technique and not a restorative approach; by addressing both compensation and restoration NovaVision is providing a broad solution to this large patient demographic.
NovaVision maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically and internationally, with a total of 33 granted and 5 pending patents (including Sight Science).
NovaVisions 33 granted patents are in the U.S. (13), Canada (4), Europe (7), Australia (2), China (2), Hong Kong (1), Singapore (1), India (1) and Japan (2).
NovaVisions 5 pending patents are in Canada (1) and Europe (4).
NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT, VRT VISION RESTORATION THERAPY and NEUROEYCOACH, amongst others, along with relevant logos, both in the US and internationally.
NovaVisions Growth Strategy
Our strategic vision for NovaVision has been to develop and provide a clinically supported, affordable and scalable visual therapy solution offering broad benefits to those suffering visual impairment following neurological brain damage; and to offer solutions for both patients and physicians alike. VRT was, in effect, a prototype with a delivery and service model too costly to be affordable and scalable, and with 70% of patients experiencing significant positive outcome but 30% of patients therefore experiencing little to no improvement.
Our first steps were to build a world-class scientific advisory board and acquire Sight Science, the only credible competitor, from Prof. Arash Sahraie and the University of Aberdeen. Prof. Sahraie, Chair in Vision Sciences at the University, became our Chief Scientific Officer and led the advisory board made up of experts in the field from Harvard Medical School, Univ. of Miami Miller School of Medicine and the Max Planck Institute in Germany, to develop the strategy to deliver our vision:
Broadening Patient Benefits: the creation of NeuroEyeCoach™. Two things happen when someone suffers from vision related disorders following a stroke or the like: there is a loss of visual field as well as difficulty with eye movement, affecting the ability to integrate visual information. NeuroEyeCoach addresses patients' difficulty with their eye movements and their ability to integrate visual information. While VRT addresses the restoration of lost vision, NeuroEyeCoach enables the patient to make the most of their remaining vision; the two therapies provided in a suite are therefore highly complementary and ensure broad benefits to NovaVision's patients.
Cost Effective and Affordable. Migrated therapy delivery from provided-hardware to internet-delivered onto patients' computers, significantly reducing cost without changing the therapy itself. Further cost reduction has been achieved through considerable business process streamlining. Development is complete and NovaVision will launch this commercially during the second quarter.
Scalable. NovaVision's therapy is now affordable, with broader benefits and truly scalable and deliverable to the mass market.
NovaVision is now positioned, for the first time, with the suite of therapies and product offerings to deliver on our strategic vision: to provide a clinically supported, affordable and scalable visual therapy solution offering broad benefits to those suffering visual impairment following neurological damage; and to offer solutions for both patients and physicians alike.
VRT and NeuroEyeCoach Therapy Suite. We will commence marketing and providing during the second quarter our two complementary therapies, internet-delivered in a package for $900.
NeuroEyeCoach. For patients with visual impairments who are not suitable, for whatever reason, for VRT, we provide NeuroEyeCoach on its own for $450.
Vision Diagnostic (VIDIT). A diagnostic system that enables therapists to perform high-resolution visual field tests in less than 10 minutes to screen for visual field deficits as a result of neurological brain damage. NovaVision has received approval for and entered into an agreement to offer VIDIT throughout the 100+ network of HealthSouth rehabilitation centers in the U.S.; therapists are then able to refer patients to NovaVision. As we roll this out to the HealthSouth network we will also market this model to other rehabilitation chains and centers.
NeuroEyeCoach Pro Center. Enables stroke rehabilitation and other centers to treat patients while in their care, both as in-patient and out-patient. This model is being trialed in 3 centers in the U.S. and 5 in Europe, with positive feedback.
NovaVision and NeuroEyeCoach Pro Physician. Enables physicians to register patients in their clinic who complete the therapy at home, supported by NovaVision but monitored by the physician through a dedicated portal.
We believe NovaVision's therapy and product offerings for patients and physicians are unique, and that we are now well placed to deliver value from this large potential market.
We currently have 14 employees.
Website. The Company operates websites at www.vycormedical.com and www.novavision.com.
Comparison of the Three Months Ended March 31, 2015 to the Three Months Ended March 31, 2014
Revenue and Gross Margin:
|Total Gross Profit||$276,860||$315,165||(12||)%|
Vycor Medical recorded revenue of $258,849 from the sale of its products for the three months ended March 31, 2015, a decrease of $4,862, or (2)%, over the same period in 2014, which reflected additional revenue from the fulfillment of backlog. Revenue for the three months ended March 31, 2015 represented an increase of $76,564 or 42% over the three months ended December 31, 2014. Gross margin of 82% was recorded for the three months ended March 31, 2015 compared to 89% for the same period in 2014.
NovaVision recorded revenues of $69,703 for the three months ended March 31, 2015, a decrease of $24,708 over the same period in 2014, and gross margin of 83%, compared to 87% for the same period in 2014. Of the total decrease of $24,708, $8,834 was in respect of the impact of foreign exchange differences in the translation of revenues from NovaVisions European subsidiaries. NovaVisions therapy suite has been undergoing significant development to: substantially reduce costs of delivery; as a result drive down the price of VRT therapy to make it affordable; streamline business processes to make the therapy scalable; add a new saccadic program to broaden the range of benefits to patients from the therapy suite. As a result the Company is not intensively marketing its existing VRT program model and this, together with NovaVisions intense focus on development, impacted revenues.
Research and Development Expense:
Research and development (R&D) expenses were $23,226 for the three months ended March 31, 2015, as compared to $15,356 for the same period in 2014. Capitalized software development costs for the three months ended March 31, 2015 and 2014 were $12,497 and $29,633, respectively.
General and Administrative Expenses:
General and administrative expenses decreased by $418,950 to $779,302 for the three months ended March 31, 2015 from $1,198,252 for the same period in 2014. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the three months ended March 31, 2015 was $88,150, a decrease of $80,505 over $168,655 in 2014. Also included within General and Administrative Expenses are Sales Commissions, which increased by $2,546 to $48,929. The remaining General and Administrative expenses decreased by $340,991 from $983,214 to $642,223.
An analysis of the change in cash and non-cash G&A is shown in the table below:
|Cash G&A||Non-Cash G&A|
|Investor relations costs||14,598||(33,995||)|
|Board, financial and scientific advisory||27,110||(38,521||)|
|Legal, professional and other consulting||(7,737||)||-|
|Sales, marketing and travel||6,455||-|
Interest comprises expense on the Companys debt and insurance policy financing. Related Party Interest expense for the three months ended March 31, 2015 decreased by $33,829 to $0 from $33,829 for 2014 due to the exchange of the Related Party notes to Series D Convertible Preferred Stock of Vycor in August 2014. Other Interest expense for 2015 decreased by $3,086 to $11,838 from $14,924 for 2014, due to the exchange of the certain notes to Series D Convertible Preferred Stock of Vycor in August 2014.
Liquidity and Capital Resources
The following table shows cash flow and liquidity data for the periods ended March 31, 2015 and December 31, 2014:
|March 31, 2015||December 31, 2014||$ Change|
|Accounts receivable, inventory and other current assets||$721,318||$677,636||$43,682|
|Total current liabilities||$(880,557||)||$(924,841||)||$44,284|
|Working capital/(deficit), excluding derivative liability||$1,125,976||$1,644,453||$(518,477||)|
|Cash provided by financing activities||$8,473||$4,725,630||$(4,717,157||)|
Uses of estimates in the preparation of financial statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent managements estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include managements estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.
Research and Development
The Company expenses all research and development costs as incurred.
Cash and cash equivalents
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Cash balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed by government securities up to 105% of the account balance. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Included within cash are deposits paid by patients, held by the Company until the patient returns the VRT device at the end of therapy. At March 31, 2015 and December 31, 2014 patient deposits amounted to $31,377 and $32,869, respectively, and are reserved against in Other Current Liabilities.
Property and equipment
The Company records fixed assets at cost and calculates depreciation using the straight-line method over the estimated useful life of the assets, which is estimated to be between three and seven years. Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entitys financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Patents and Other Intangible Assets
The Company capitalizes legal and related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with the development of the patented item or processes are charged to research and development costs and expensed as incurred. The capitalized costs are amortized over the life of the patent. The Company reviews intangible assets on an annual in accordance with the authoritative guidance. Trademarks have an indefinite life and are also reviewed annually by management for impairment in accordance with the authoritative guidance.
Vycor Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical does provide for product returns or warranty costs.
NovaVision generates revenues from various programs, therapy services and other sources such as license sales. Therapy services revenues represent fees from NovaVisions vision restoration therapy software, eye movement training software, diagnostic software, clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision provides vision restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average over 6 months in the U.S. and U.K. and 10 months in Germany. A patient contract comprises set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a specified time frame. NovaVisions saccadic training software is generally completed within 2-4 weeks and revenue is therefore recognized fully at commencement.
Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
The Companys accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly for therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, for NovaVision therapy patients sometimes credit is extended through various payment plans based on individual financial conditions, generally not to exceed the 9 or 10 month therapy period. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customers ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.
Inventories are stated at the weighted average cost method. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product. If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. The provision for inventory for the years ended March 31, 2015 and 2014 was $7,580 and $0, respectively. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company's consolidated statements of operations.
The Euro is the local currency of the country in which NovaVision GmbH conducts its operations and is considered the functional currency of this entity; the GB Pound is the local currency of the country in which Sight Science Limited conducts its operations and is considered the functional currency of this entity. All balance sheet amounts are translated to U.S. dollars using the U.S. exchange rate at the balance sheet date except for the equity section which is translated at historical rates. Operating statement amounts are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated as part of the accumulated other comprehensive income (loss) and included in shareholders (deficit) in the accompanying Consolidated Balance Sheet.
Educational marketing and advertising expenses
The Company may incur costs for the education of customers on the uses and benefits of its products. The Company will include education, marketing and advertising expense as a component of selling, general and administrative costs as such costs are incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.
The Companys management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and our CFO have concluded that, as of the end of such period, the Companys disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports its files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its CEO and its CFO, as appropriate, to allow timely decisions regarding required disclosure. There have not been any changes in the Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
(b) Changes in Internal Controls
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
The Companys management, including the Companys CEO and CFO, does not expect that the Companys internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
ITEM 1. LEGAL PROCEEDINGS
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of May 8, 2015, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.
ITEM 1A. RISK FACTORS.
As a smaller reporting company as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
|31.1||Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.|
|31.2||Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.|
|32.1||Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.|
|32.2||Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.|
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 15, 2015.
|VYCOR MEDICAL, INC.|
|By:||/s/ Peter C. Zachariou|
|Peter C. Zachariou|
|Director (Principal Executive Officer)|
|By:||/s/ Adrian C. Liddell|
|Adrian C. Liddell|
|Chairman of the Board and|
|Director (Principal Financial Officer)|