|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
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
|[X]||QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the fiscal quarter ended September 30, 2017|
|[ ]||TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT|
|For the transition period from to|
VYCOR MEDICAL, INC.
(Exact name of small business issuer as specified in its charter)
|(State of||(Commission||(IRS Employer|
|Incorporation)||File Number)||Identification No.)|
951 Broken Sound Parkway Suite 320, Boca Raton, FL 33487
(Address of principal executive offices) (Zip code)
Issuer’s 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 [ ]
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[ ] No [ ]
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 [ ]||Accelerated Filer [ ]|
|Non-accelerated Filer [ ] (Do not check if a smaller reporting company)||Smaller Reporting Company [X]|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).[ ] Yes [ ] No
There were 19,816,505 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of November 6, 2017.
Transitional Small Business Disclosure Format (check one): Yes[ ] No [X]
TABLE OF CONTENTS
|Item 1.||Financial Statements||3|
|Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016||3|
|Unaudited Consolidated Statements of Comprehensive Loss for the three months and nine months ended September 30, 2017 and September 30, 2016.||4|
|Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016.||5|
|Notes to Unaudited Consolidated Financial Statements||6|
|Item 2.||Management’s Discussion and Analysis of Financial Condition and Results of Operation||14|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk||24|
|Item 4.||Controls and Procedures||24|
|Item 1.||Legal Proceedings||25|
|Item 1A.||Risk Factors||25|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds||25|
|Item 3.||Defaults Upon Senior Securities||25|
|Item 4.||Mine Safety Disclosures||26|
|Item 5.||Other Information||26|
|ITEM 1.||FINANCIAL STATEMENTS|
|September 30, 2017||December 31, 2016|
|Trade accounts receivable, net||238,129||148,784|
|Prepaid expenses and other current assets||87,604||127,375|
|Total Current Assets||852,956||537,089|
|Fixed assets, net||502,470||401,051|
|Intangible and Other assets:|
|Patents, net of accumulated amortization||112,822||238,571|
|Website, net of accumulated amortization||11,531||14,958|
|Total Intangible and Other assets||384,679||547,110|
|LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)|
|Accrued interest: Other||172,667||136,765|
|Accrued interest: Related party||12,840||12,161|
|Accrued liabilities: Other||195,532||116,957|
|Accrued liabilities: Related Party||436,870||330,000|
|Monies in Escrow Related Party – Offering||-||101,000|
|Notes payable: Related Party||-||248,000|
|Notes payable: Other||336,145||316,856|
|Total Current Liabilities||1,328,209||1,511,688|
|STOCKHOLDERS’ EQUITY (DEFICIT)|
|Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 270,306 issued and outstanding as at September 30, 2017 and December 31, 2016 respectively||27||27|
|Common Stock, $0.0001 par value, 25,000,000 shares authorized at September 30, 2017 and December 31, 2016, 19,841,523 and 11,439,357 shares issued and 19,738,189 and 11,336,023 outstanding at September 30, 2017 and December 31, 2016 respectively||1,984||1,144|
|Additional Paid-in Capital||26,876,310||25,007,850|
|Treasury Stock (103,334 shares of Common Stock as at September 30, 2017 and December 31, 2016 respectively, at cost)||(1,033||)||(1,033||)|
|Accumulated Other Comprehensive Income||125,432||130,119|
|Total Stockholders’ Equity (Deficit)||411,896||(26,438||)|
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)||$||1,740,105||$||1,485,250|
See accompanying notes to financial statements
|For the three months ended September 30,||For the nine months ended September 30,|
|Cost of Revenues Sold||55,332||37,516||142,753||152,843|
|Research and development||-||4,153||-||4,153|
|Depreciation and Amortization||72,734||63,797||211,369||193,391|
|General and administrative||546,615||535,535||1,710,244||1,876,382|
|Total Operating expenses||619,349||603,485||1,921,613||2,073,926|
|Other income (expense)|
|Interest expense: Other||(11,360||)||(12,348||)||(32,217||)||(36,535||)|
|Interest expense: Related Party||-||(4,663||)||(679||)||(5,910||)|
|Warrant issuance expense||(120,788||)||-||(120,788||)||-|
|Gain (loss) on foreign currency exchange||(646||)||337||986||(877||)|
|Total Other Income (expense)||(132,794||)||(16,674||)||(152,698||)||(43,322||)|
|Loss Before Credit for Income Taxes||(428,402||)||(331,898||)||(1,101,909||)||(1,164,822||)|
|Credit for income taxes||-||-||-||-|
|Preferred stock dividends||(162,185||)||(91,409||)||(324,370||)||(179,727||)|
|Net Loss available to common shareholders||(590,587||)||(423,307||)||(1,426,279||)||(1,344,549||)|
|Foreign Currency Translation Adjustment||1,728||1,504||4,687||4,426|
|Net Loss Per Share|
|Basic and diluted||($||0.03||)||($||0.04||)||($||0.08||)||($||0.12||)|
Weighted Average Number of Shares Outstanding – Basic and Diluted
See accompanying notes to financial statements
|For the nine months ended|
|Cash flows from operating activities:|
|Adjustments to reconcile net loss to cash used in operating activities:|
|Amortization of intangible assets||129,176||70,042|
|Depreciation of fixed assets||93,467||130,646|
|Share based compensation||309,805||422,671|
|Warrant issuance expense||120,788||-|
|Loss on foreign exchange||988||877|
|Changes in assets and liabilities:|
|Accrued interest related party||680||5,910|
|Accrued interest other||35,902||36,032|
|Accrued liabilities Other||(3,925||)||10,756|
|Accrued liabilities Related Party||112,500||-|
|Cash used in operating activities||(351,212||)||(385,674||)|
|Cash flows from investing activities:|
|Purchase of fixed assets||(160,324||)||(28,264||)|
|Cash used in investing activities||(160,324||)||(28,264||)|
|Cash flows from financing activities:|
|Proceeds from issuance of common stock, net||842,207||-|
|Net proceeds from issuance of Notes Payable - Related Party||-||248,000|
|Repayment of Notes Payable - Other||(65,038||)||(64,466||)|
|Cash provided by (used in) financing activities||777,169||183,534|
|Effect of exchange rate changes on cash||(7,475||)||(2,897||)|
|Net increase (decrease) in cash||258,158||(233,301||)|
|Cash at beginning of period||56,859||347,477|
|Cash at end of period||315,017||114,176|
|Supplemental Disclosures of Cash Flow information:|
|Preferred stock dividends satisfied in new preferred stock||$||0||$||179,727|
See Accompanying Notes to Financial Statements
|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 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 omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2016 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The consolidated financial statements as of and for the three and nine months ended September 30, 2017 and 2016, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The results of operations for the three and nine months ended September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
Certain amounts on prior period financial statements have been reclassified to conform with current year presentation.
|2.||SIGNIFICANT ACCOUNTING POLICIES|
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation), NovaVision GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions, and profits have been eliminated in consolidation.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15 —Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued and if management’s plans will alleviate that doubt. Management is required to make this evaluation for both annual and interim reporting periods. The Company adopted this guidance for the fiscal year ended December 31, 2016. This adoption did not have a material impact on the Company’s consolidated financial statements.
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
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:
|September 30, 2017||December 31, 2016|
|Stock options outstanding||725,557||705,557|
|Warrants to purchase common stock||7,001,388||6,007,048|
|Debentures convertible into common stock||262,593||242,647|
|Preferred shares convertible into common stock||1,272,052||1,272,052|
|Directors Deferred Compensation Plan||447,689||176,479|
Related Party Notes Payable
As of September 30, 2017 and December 31, 2016 Related Party Notes Payable consists of:
|September 30, 2017||December 31, 2016|
|The Company issued promissory notes to Fountainhead Capital Management Limited for $248,000. The notes bear interest at 10% per annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the Payee. The notes were converted into 1,180,953,shares of common stock and 1,180,953 warrants in connection with the Private Placement in January 2017.||-||$||248,000|
|Total Related Party Notes Payable||-||$||248,000|
Other Notes Payable
As of September 30, 2017 and December 31, 2016, Other Notes Payable consists of:
|September 30, 2017||December 31, 2016|
|On March 25, 2011 the Company issued a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants to purchase 400,000 shares of the Company’s common stock at an exercise price of $4.50 per share for a period of three (3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares of common stock of the Company an adjusted conversion price of $1.80 per share, subject to adjustment and does not require bifurcation. The due date for this note has been extended to December 31, 2017||$||300,000||$||300,000|
|Insurance policy finance agreements. During the period ended September 30, 2017 the Company made payments of $65,038. The notes are due over the next twelve months.||36,145||16,856|
|Total Notes Payable:||$||336,145||$||316,856|
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 September 30,||Nine Months Ended September 30,|
|September 30, 2017||December 31, 2016|
(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 September 30,||Nine Months Ended September 30,|
|September 30, 2017||December 31, 2016|
Common Stock and Stock Grants
From January to September 2017, the Company granted 271,210 shares of Common Stock (valued at $63,000) to non-employee Directors. Under the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until January 15th of the year following termination of their services as a director. As of September 30, 2017 these shares have yet to be issued.
From January to September 2017, the Company issued 106,451 shares of Common Stock (valued at $25,314) to members of the NovaVision, Inc. Scientific Advisory Board as compensation for their services.
From January to September 2017, the Company issued 644,286 shares of Common Stock (valued at $135,300) to Fountainhead under the terms of a Consulting Agreement and 1,571,429 shares of Common Stock (valued at $330,000) to Fountainhead following the achievement of certain enumerated milestones.
From January to September 2017, the Company issued 9,921 shares of Common Stock (valued at $2,084) to Techmed, Inc. in accordance with the terms of a consulting agreement.
On January 11 and February 23, 2017, the Company completed the sale of $1,274,717 in shares of Vycor Common Stock (each a “Share”) and Warrants (together with the Shares, the “Securities”) to accredited investors (the “Investors”). The Shares were issued in a private placement (the “Private Placement”) pursuant to the terms of Stock Purchase Agreements between the Company and each of the Investors, and was limited to current shareholders of the Company as of November 9, 2016 (the “Record Date”).
Included in these gross proceeds was the conversion of $248,000 of debt on the balance sheet at December 31, 2016 and $101,000 funds held in escrow on the balance sheet at December 31, 2016. The Private Placement raised net cash proceeds, after debt conversion and expenses, of $943,207, of which $842,207 was received during the period.
The Securities comprised one Share at a purchase price $0.21 per share and a Warrant to purchase one Share at an exercise price of $0.27, exercisable over a period of three (3) years. A total of 6,070,079 Shares and Warrants to purchase 6,070,079 Shares were issued in the Private Placement.
Warrants and Options
In August 2014, Fountainhead, Peter Zachariou (“the Related Party Noteholders”) and Craig Kirsch (collectively, the “Noteholders”) agreed, pursuant to a Securities Exchange Agreement (“Exchange Agreement”), to exchange their outstanding debt from the Company into shares of Company Series D Convertible Preferred Stock. Pursuant to the Exchange Agreement, on August 5, 2017 (the 3rd anniversary of the exchange) the Noteholders were issued warrants exercisable into 628,619 shares of Common Stock, at a price of $0.30 per share, of which the Related Party Noteholders were issued warrants exercisable into 599,651 shares of Common Stock. The warrants expire on August 4, 2020 and were valued at $120,788 (of which $115,222 related to the Related Party Noteholders) and included in Other Income/Expense, Warrant Issuance Expense for the three months ending September 30, 2017.
The details of the outstanding warrants and options are as follows:
|STOCK WARRANTS:||Number of shares||exercise price per share|
|Outstanding at December 31, 2015||6,007,048||$||2.57|
|Cancelled or expired||-||-|
|Outstanding at December 31, 2016||6,007,048||$||2.57|
|Cancelled or expired||(5,907,048||)||$||1.88|
|Outstanding at September 30, 2017||7,001,388||$||0.52|
|STOCK OPTIONS:||Number of shares||exercise price per share|
|Outstanding at December 31, 2015||25,557||$||20.25|
|Cancelled or expired||-||-|
|Outstanding at December 31, 2016||705,557||$||20.25|
|Cancelled or expired||-||-|
|Outstanding at September 30, 2017||725,557||$||0.95|
As of September 30, 2017, the weighted-average remaining contractual life of outstanding warrants and options is 2.36 and 1.47 years, respectively.
Stock Option Plan
Under ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant date fair value is recognized over the option-vesting period, the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis.
For the nine months ended September 30, 2017 and 2016, the Company recognized share-based compensation of $1,609 and $198,200, 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 September 30, 2017 there were no awards of any stock appreciation rights.
Non-Employee Stock Compensation
The Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees. Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the “measurement date” using an option pricing model. The “measurement date” for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.
Aggregate stock-based compensation expense charged to operations for stock and warrants granted to non-employees for the nine months ended September 30, 2017 and 2016 was $420,696 and $224,471, respectively, of which $245,197 and $167,471, respectively, related to stock issued during the periods. The expense related to stock not issued during the periods comprise: $63,000 and $57,000, respectively, related to stock granted but not issued to directors under the Directors Deferred Compensation Plan; and $112,500 and $0, respectively of fee4s payable in stock to Fountainhead that were accrued but not issued during the period.
During the nine months ended September 30, 2017 warrants with a value of $86,754 were granted with performance vesting conditions; the value of these options will not be recognized as share-based compensation unless or until the Company concludes that it is probably the performance conditions will be achieved.
Stock-based Compensation Valuation Methodology
Stock-based compensation resulting from the issuance of Common Stock is calculated by reference to the valuation of the Stock on the date of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique characteristics of those equity instruments, using the assumptions noted in the table below. Expected volatility is based on the historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the expected life of the option or warrant, and the risk-free rate is based on the U.S. Treasury Constant Maturity rate.
The following assumptions were used in calculations of the Black-Scholes option pricing model for the nine months ended September 30, 2017 and 2016:
|Nine Months Ended September 30,|
|Risk-free interest rates||1.50 - 1.72%||0.91||%|
|Expected life||1.5 – 4.0 years||1.5 years|
|Expected volatility||102% - 104%||95||%|
|Vycor Common Stock fair value||$||0.20||$||0.71|
|7.||COMMITMENTS AND CONTINGENCIES|
The Company leased office space located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for a gross rent of $15,439 plus sales tax per month. The term of the lease was 5 years and 6 months and terminated July 30, 2017. Effective August 1, 2017 the Company leased office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2L.P., for a gross rent of approximately $5,700 plus sales tax per month. The lease terminates September 30, 2020. The Company’s subsidiary in Germany occupies premises on a short-term lease agreement. Aggregate rent expense for the nine months ended September 30, 2017 and 2016 was $134,229 and $159,176 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 $85,000). 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 (either 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 in the nine months ended September 30, 2017 and the year ended December 31, 2016 respectively, other than recording the monthly payments as an expense.
Potential Patent Infringement
The Company was made aware in 2012 that a competitor in China had been granted a patent for related technology, and appeared to be entering the market with products that infringe the Company’s own issued patent in China. Following investigation, the Company initiated an invalidation of the competitor’s patent; in March 2014 the Patent Re-examination Board issued an Examination Decision invalidating all the claims of the competitor’s patent. The competitor appealed the decision, but the Patent Review Board denied the appeal and affirmed the Examination Decision, and the time for appeal has now passed. The Company has been made aware that an additional two or more Chinese companies are marketing the products that appear to infringe the Company’s Chinese patent, and is investigating this information to determine whether infringing products are being sold and the extent of such sales. As a general rule the Company intends to take all necessary action to protect its patent portfolio to address any material violation thereof, and the success of the above case confirms to competitors the priority of the Company’s Chinese patent. 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.
|8.||CONSULTING AND OTHER AGREEMENTS|
The following agreements were entered into or remained in force during the nine months ended September 30, 2017:
During the period ended September 30, 2017, following the achievement of certain milestones established in the March 2016 Compensation Plan, the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued during the year ended December 31, 2016, was paid to Fountainhead by the issuance of 1,571,429 shares of Common Stock (valued at $330,000) during the period ended September 30, 2017.
In March 2017 and effective April 1, 2017, as part of a streamlining of compensation arrangements with executive management, the Company established the March 2017 Compensation Plan. Under this Plan, the Company amended the Fountainhead Consulting Agreement (“the Amendment”) to increase the annual fees payable to Fountainhead by $330,000 to a total of $37,500 per month. Concurrently, annual compensation payable to executive management under the March 2016 Compensation Plan was reduced by $330,000 to $0. These changes had no financial impact on the Company. The other terms of the Consulting Agreement remained the same, including the ability of Fountainhead at its option to receive $5,000 per month in cash and the remainder payable in Company Common Stock issued at the recent Private Placement price ($0.21) and deliverable at the end of each fiscal quarter. The Consulting Agreement also contains provisions for Fountainhead to receive a higher proportion of its fees in cash subject to certain future liquidity events and Board approval. Under the Amendment, Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2008 Stock Option Plan, to purchase 660,000 shares of Company Common Stock at the same $0.27 exercise price as that of the warrants issued in the Private Placement. Vesting of these options is subject to the achievement of certain milestones by March 31, 2018. These options are consistent with the options granted to executive management under the March 2016 Compensation Plan.
During the nine months ended September 30, 2017, under the terms of this amended Consulting Agreement, Fountainhead received total fees of $255,000, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock, $7,200 was paid in cash and $112,500 was accrued but not yet paid.
|9.||RELATED PARTY TRANSACTIONS|
Peter Zachariou, and David Cantor, directors of the Company, are investment managers of Fountainhead which is a related party due to the size of its shareholding. Adrian Liddell, Chairman is a consultant for Fountainhead.
During the period ended September 30, 2017, following the achievement of certain milestones established in the March 2016 Compensation Plan, the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued during the year ended December 31, 2016, was paid to Fountainhead through the issuance 1,571,429 shares of Common Stock (valued at $330,000) during the period ended September 30, 2017.
During the nine months ended September 30, 2017, under the terms of this amended Consulting Agreement referred to in Note 8, Fountainhead received total fees of $255,000, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock, $7,200 was paid in cash and $112,500 was accrued but not yet paid.
On January 11, and February 23, 2017 the Company completed the sale of $1,274,717 in shares of Common Stock and Warrants to accredited investors (the “Private Placement”). Fountainhead purchased a total of $477,939 of shares in the Private Placement of which approximately $248,000 represented amounts that Fountainhead had already advanced to the Company and was held by the Company in the form of notes. As a result, Fountainhead was issued 2,275,901 shares of Common Stock and three-year Warrants to purchase 2,275,901 shares of Common Stock at an exercise price of $0.27.
During the three months ended September 30, 2017 $112,500 of fees payable in stock were accrued; however these shares were not issued.
In August 2014, Fountainhead and Peter Zachariou (collectively, the “Related Party Noteholders”) agreed, pursuant to a Securities Exchange Agreement (“Exchange Agreement”), to exchange their outstanding debt from the Company into shares of Company Series D Convertible Preferred Stock. Pursuant to the Exchange Agreement, on August 5, 2017 (the 3rd anniversary of the exchange) the Related Party Noteholders were issued warrants exercisable into 599,651 shares of Common Stock, at a price of $0.30 per share. The warrants expire on August 2, 2020 and were valued at $115,222.
The Company evaluated subsequent events through the date the financial statements were issued and filed with this Quarterly Report:
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 Company’s listing went effective on February 2009 and on November 29, 2010 Vycor completed the acquisition of substantially all of the assets of NovaVision, Inc. (“NovaVision”) and on January 4, 2012 Vycor, through its wholly-owned NovaVision subsidiary, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”), a previous competitor to NovaVision.
2. Overview of Business
Vycor is dedicated to providing the medical community with innovative and superior surgical and therapeutic solutions and operates two distinct business units within the medical device industry. Vycor Medical designs, develops and markets medical devices for use in neurosurgery. NovaVision provides non-invasive rehabilitation therapies for those who have vision disorders resulting from neurological brain damage such as that caused by a stroke. Both businesses adopt a minimally or non-invasive approach. Both technologies have strong sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has 66 issued or allowed patents and a further 11 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner.
The Company periodically engages in discussions with potential strategic partners for or purchasers of each or both of our operating divisions.
Vycor Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medical’s ViewSite Brain Access System (“VBAS”) is a next generation retraction and access system that was fully commercialized in early 2010 and is the first significant technological change to brain tissue retraction in over 50 years in contrast to significant development in most other neuro-surgical technologies. Vycor Medical is ISO 13485:2003 compliant, and VBAS has U.S. FDA 510(k) clearance and CE Marking for Europe (Class III) for brain and spine surgeries, and regulatory approvals in Australia, Brazil, Canada, China, Korea, Japan, Russia and Taiwan.
We believe VBAS offers several advantages over other brain retractor systems, commonly known as ribbon or blade retractors that are metallic, including having the potential to significantly reduce brain tissue trauma that arises from excessive pressure at the edges of the blade. The design of VBAS can minimize the size of the brain entry access necessary for surgical procedures, and is believed to significantly reduce the pressure and hence trauma on the surrounding brain tissue.
NovaVision provides non-invasive, computer-based rehabilitation targeted at a substantial and largely un-addressed market of people who have lost their sight as a result of stroke or other brain injury. 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: NovaVision’s VRT and Sight Science’s Neuro-Eye Therapy (NeET), aim to improve visual sensitivity in a person’s blind area. VRT delivers a series of light stimuli along the border of the patient’s visual field loss. These programmed light sequences stimulate the border zone between the “seeing” and “blind” visual fields, repetitively challenging the visual cortex in the border zone with a large number of 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.|
VRT and NeuroEyeCoach are therefore highly complementary and are provided in an Internet-delivered suite to ensure broad benefits to NovaVision’s patients.
NovaVision also has models of VRT and NeuroEyeCoach for physicians and rehabilitation clinics, as well as VIDIT, a diagnostic program that enables therapists to perform high-resolution visual field tests in less than ten minutes.
NovaVision’s 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; and NeuroEyeCoach is registered in the US as a Class I 510(k) exempt device. VRT, NEC and NeET have CE Marking for the EU. NovaVision has 45 granted and 1 pending patents worldwide.
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.
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 NovaVision’s acquisition of Sight Science and there are a few very small companies or entities offering some form of vision rehabilitation product in Germany. Within compensation there are no real direct competitors. Other companies in the general rehabilitation space include RevitalVision, PositScience and Dynavision. In the professional market, NovaVision competes with aggregator products or those that provide a range of non-specific therapies, such a Rehacom, Sanet Vision Integrator and Bioness BITS. NovaVision’s products are dedicated to vision.
The Market For the Company’s Products And Therapies
VBAS is used for craniotomy procedures. Based on statistics from the American Association of Neurological Surgeons (AANS), management estimates 700,000 such procedures are performed in the US annually. Of this, management believe approximately 225,000 (32 percent) are addressable by the VBAS range currently, with another 100,000 (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 1,100,000 procedures with another 500,000 addressable by an expanded VBAS range.
The market for NovaVision’s therapies comprises those suffering from vision loss resulting from neurological trauma such as stroke or other brain injury. 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, with 275,000 hospitalizations each year. 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 28.5% 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.
Our Growth Strategy
Vycor Medical’s growth strategy includes:
1. Increasing U.S. market penetration through broader hospital coverage and targeted direct physician marketing. Vycor Medical’s sales and marketing strategy is to penetrate a well-defined US target market of 4,500 neurosurgeons. Vycor markets direct to surgeons as well as marketing and distributing through independent distributors, with a focus 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 is pursuing a policy of continually evaluating and upgrading its distributors as well as adding additional distributors in regions where it has little to no presence.
2. Provision of more Clinical and Scientific Data supporting the products superiority over the current standard-of-care blade retractors and to demonstrate VBAS’ 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 that helps VBAS move further up the hospital cost/benefit curve. To date the Company has already had 11 Peer Reviewed studies and 6 other clinical papers published or presented.
3. International Market Growth
Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. VBAS has regulatory approvals in Australia, Brazil, Canada, China, Europe (EU – Class III), Korea, Mexico, Japan, Russia and Taiwan. Vycor Medical is actively pursuing new distribution agreements in the countries where it does not have any market presence.
4. New Product Development
New Product Development is targeted at both driving the use of its existing VBAS product range through ancillary products and modalities that will facilitate the product’s use and through new product extensions to broaden VBAS applicability to procedures currently not addressed by the existing product line.
Vycor is modifying its existing VBAS product suite to make it easier to integrate with Image Guidance Systems (IGS) by re-engineering its VBAS product range so that the entire range of 12 devices, excluding the VBASmini, will be able to more easily accommodate pointers from the leading IGS system providers, the first phase of this was completed in September 2017. Increasingly, all major neuro centers have image guidance systems, and where this is in place management believes over 90% of surgeries are carried out using IGS and management strongly believes that the existing VBAS rigid structure lends itself well to being incorporated into this increasing trend.
While speech, physical, and occupational therapies are the long-standing treatment standards for stroke and TBI survivors, VRT is the first and only FDA-cleared clinical component of vision restoration to physically enhance the visual field after a stroke or brain injury. Increasingly the healthcare community, partly driven by strong lobbying by stroke associations worldwide, are recognizing that vision is not only a significant issue post stroke or brain injury, but that visual field loss can have a significant impact on the success of other rehabilitation modalities and the quality of life.
NovaVision is now able to provide a clinically supported, cost-effective and scalable visual therapy solution offering broad benefits to those suffering visual impairment following neurological brain damage, to both patients and medical professionals alike.
NovaVision has four routes-to-market aimed at patients and professionals, comprising: direct-to-patient; rehabilitation centers and clinics; stroke associations and support groups; and physicians. Given the company’s resources NovaVision is initially focused on direct-to-patient, with a website lead-driven inbound and outbound marketing strategy targeted at prospective patients and relatives.
Following the pilot launch of our NovaVision Center Model, comprising the Vision Diagnostics program and the NeuroEyeCoach training program, we have substantially broadened the delivery and licensing model in response to feedback from clinics. The new Center Model has a complete suite for the professional market, including options for software download, CD Rom, Cloud based and Hardware delivery with flexible and cost-effective pricing options, and is now being offered in both the US and Europe.
Vycor Medical uses a sub-contract manufacturer to manufacture, package, label and sterilize its VBAS products. The Company has migrated all its VBAS manufacturing to Life Science Outsourcing, Inc. in Brea, California that is FDA-registered 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 21 granted/allowed and 10 pending patents.
NovaVision maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically and internationally, with a total of 45 granted and 1 pending patents (including Sight Science).
VYCOR MEDICAL is a registered trademark and VIEWSITE is a common law trademark.
NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT, VRT VISION RESTORATION THERAPY and NEUROEYECOACH, amongst others, along with relevant logos, both in the US and internationally.
We currently have 12 employees.
Comparison of the Three Months Ended September 30, 2017 to the Three Months Ended September 30, 2016
Revenue and Gross Margin:
|Three months ended|
Vycor Medical recorded revenue of $326,843 from the sale of its products for the three months ended September 30, 2017, an increase of $47,028, or 17%, over the same period in 2016. Vycor has been in the process, during 2017, of modifying its existing VBAS product suite to make it easier to integrate with Imaging Guided Systems. The Company experienced manufacturing delays in connection with this re-engineering during the first half of 2017 and as a result was unable to fulfil shipments of certain models, particularly for some large international orders. These delays were resolved and back orders were filled during the third quarter. Gross margin of 85% was recorded for the three months ended September 30, 2017 compared to 88% for the same period in 2016.
NovaVision recorded revenues of $52,230 for the three months ended September 30, 2017, an increase of 14% over the same period in 2016, and gross margin of 89%, compared to 93% for the same period in 2016.
Research and Development Expense:
Research and development (“R&D”) expenses were $0 for the three months ended September 30, 2017 and $4,153 for the three months ended September 30, 2016.
General and Administrative Expenses:
General and administrative expenses increased by $11,080 to $546,615 for the three months ended September 30, 2017 from $535,535 for the same period in 2016. Included within General and Administrative Expenses are non-cash charges for share based compensation from the amortization of 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 September 30, 2017 was $141,937, an increase of $67,216 over $74,721 in 2016. Also included within General and Administrative Expenses are Sales Commissions, which decreased by $4,796 to $43,712. The remaining General and Administrative expenses decreased by $51,340 from $412,306 to $360,966.
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|
|Legal, professional and other consulting||14,351||-|
|Board, financial and scientific advisory||6,091||80,416|
|Sales, marketing and travel||5,201||-|
|Investor relations and road show costs||(21,411||)||(13,200||)|
Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for the three months ended September 30, 2017 and 2016 was $0 and $4,663, respectively. Other Interest expense for 2016 decreased by $988 to $11,360 from $12,348 for 2016.
Comparison of the Nine months Ended September 30, 2017 to the Nine months Ended September 30, 2016
Revenue and Gross Margin:
|Nine months ended|
Vycor Medical recorded revenue of $949,053 from the sale of its products for the nine months ended September 30, 2017, a decrease of $12,786, or 1%, over the same period in 2016. Sales grew by 6% in the US in 2017 compared to 2016, offset by reduced international sales. International sales tend to be irregular as international distributors follow a pattern of placing large stocking orders. In addition, Vycor has been in the process, during 2017, of modifying its existing VBAS product suite to make it easier to integrate with Imaging Guided Systems. The Company experienced manufacturing delays in connection with this re-engineering during the first half of 2017 and as a result was unable to fulfil shipments of certain models, particularly for some large international orders. These delays were resolved and back orders were filled during the third quarter. Gross margin of 87% was recorded for the three months ended September 30, 2017 compared to 85% for the same period in 2016.
NovaVision recorded revenues of $166,102 for the nine months ended September 30, 2017, an increase of 16% over the same period in 2016, and gross margin of 89%, compared to 92% for the same period in 2016.
Research and Development Expense:
Research and development (“R&D”) expenses were $0 for the nine months ended September 30, 2017 and $4,153 for the nine months ended September 30, 2016.
General and Administrative Expenses:
General and administrative expenses decreased by $166,138 to $1,710,244 for the nine months ended September 30, 2017 from $1,876,382 for the same period in 2016. Included within General and Administrative Expenses are non-cash charges for share based compensation from the amortization of employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the nine months ended September 30, 2017 was $422,305, an increase of $366 over $422,671 in 2016. Also included within General and Administrative Expenses are Sales Commissions, which increased by $20,085 to $162,699. The remaining General and Administrative expenses decreased by $185,857 from $1,311,097 to $1,125,240.
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|
|Board, financial and scientific advisory||10,352||43,622|
|Sales, marketing and travel||2,676||-|
|Legal, professional and other consulting||(14,406||)||-|
|Investor relations and road show costs||(50,849||)||(40,700||)|
Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for the nine months ended September 30, 2017 was $679 compared to $5,910 for 2016. Other Interest expense for 2016 decreased by $4,318 to $32,217 from $36,535 for 2016.
Liquidity and Capital Resources
The following table shows cash flow and liquidity data for the periods ended September 30, 2017 and December 31, 2016:
|September 30, 2017||December 31, 2016||$ Change|
|Accounts receivable, inventory and other current assets||$||537,939||$||480,230||$||57,709|
|Total current liabilities||$||1,328,209||$||1,511,688||($||183,479||)|
|Cash provided by financing activities||$||777,169||$||183,534||$||593,635|
Operating Activities. Cash used in operating activities comprises net loss adjusted for non-cash items and the effect of changes in working capital and other activities. The net repayment of normal insurance financing should also be taken into account when considering cash used in operating activities.
The following table shows the principle components of cash used in operating activities during the nine months ended September 30, 2017 and 2016, with a commentary of changes during the periods and known or anticipated future changes:
|September 30, 2017||September 30, 2016||$ Change|
|Adjustments to reconcile net loss to cash used in operating activities:|
|Amortization and depreciation of assets||$||222,643||$||200,688||$||21,955|
|Share based compensation||$||309,805||$||422,671||($||112,866||)|
|Warrant issuance expense||$||120,788||-||$||120,788|
|Accrued share based compensation||$||112,500||-||$||112,500|
|Loss on foreign exchange||$||988||$||877||$||111|
|Net loss adjusted for non-cash items||($||332,641||)||($||532,955||)||$||200,314|
|Changes in working capital|
|Accounts receivable, accounts payable and accrued liabilities||($||169,067||)||($||54,333||)||($||114,734||)|
|Prepaid expenses, change in security deposit and net insurance financing repayments||$||59,554||$||33,410||$||26,144|
|Accrued interest (not paid in cash)||$||36,582||$||41,942||($||5,360||)|
|Cash used in operating activities, adjusted for net insurance repayments||($||416,250||)||($||450,140||)||$||33,890|
The adjustments to reconcile net loss to cash used of $769,268 in the period have no impact on Liquidity. The reduction in net loss (as adjusted for non-cash items) by $200,314 to $332,641 was primarily due to a reduction of $170,925 in cash operating expenses during the period. The net change in accounts receivable, accounts payable and accrued liabilities is primarily the result of: the payment during the first quarter of $69,314 of accounts payable deferred at the end of December 2016; and an increase in accounts receivable of $89,381 due in particular to a large customer order placed prior to the quarter end. During the period the Company purchased VBAS inventory for $85,748. Vycor is in the process of modifying the VBAS product suite to make it easier to integrate with IGS and as a result will be purchasing additional new inventory in the fourth quarter of approximately $35,000.
Investing Activities. Cash used in investing activities for the nine months ended September 30, 2017 was $160,324, of which $146,793 reflected expenditure on modifying the VBAS product suite to make it easier to integrate with IGS; there will be additional mold expenditure of approximately $20,000 in the fourth quarter.
Financing Activities. On January 11, and February 23, 2017 the Company completed the sale of $1,274,717 in shares of Common Stock and Warrants to accredited investors (the “Private Placement”). Included in these gross proceeds is the conversion of $248,000 of debt on the balance sheet at December 31, 2016, so that proceeds net of debt conversion were $1,026,717. The Private Placement raised net cash proceeds, after debt conversion and expenses, of $943,207. $101,000 of these proceeds and $7,050 of these expenses were reflected in the in the balance sheet at December 31, 2016 and so the net increase in liquidity during the period from the Private Placement was $849,259.
During the year ended December 31, 2016 Vycor’s largest shareholder, Fountainhead, had provided $248,000 of funding in the form of notes payable, which was converted into Common Stock as part of the Private Placement Initial Closing. Fountainhead also advanced $101,000 during the year ended December 31, 2016 in respect of the Private Placement. This amount was held in escrow at December 31, 2016 and represented part of the Private Placement Initial Closing.
Liquidity and Plan of Operations
The balance of cash at September 30, 2017 is $315,017. Management has evaluated the effects of the Private Placement described above on the Company’s financial condition, as well as the continued revenue growth coupled with improved margins and control of expenses. Management is of the opinion that any potential going concern uncertainty that previously existed has been remediated, and that its existing cash and cash equivalents following the Private Placement, together with the continued reduction in losses as a result of initiatives outlined below and short-term funding from Fountainhead, will be sufficient to meet its anticipated cash requirements through at least November 30, 2018.
As described earlier in this ITEM 2 “Our Growth Strategy”, the Company is executing on a plan to achieve a growth in revenues for both the Vycor Medical and NovaVision divisions, and thereby further reduce its cash operating usage. For Vycor Medical this includes in particular: increasing penetration in the US market through targeted marketing; increased international market growth; and new product development centered around the modification of its VBAS product range to make it easier to integrate with IGS systems, the first phase of which was completed in September 2017. For NovaVision, after a prolonged and now complete period of re-development, the Company is focusing its resources on direct-to-patient marketing through a website lead-driven inbound and outbound marketing strategy. In addition, the Company is now starting to market its NovaVision Center Model to medical professionals, with a broad and flexible range of delivery and licensing options.
Critical Accounting Policies and Estimates
Uses of estimates in the preparation of financial statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based compensation.
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 or chinrest at the end of therapy. At September 30, 2017 and December 31, 2016 patient deposits amounted to $40,073 and $33,351, respectively, and are included in Accrued Liabilities.
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 entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Patents and Other Intangible Assets
The Company capitalizes legal and related costs associated with the establishment and enhancement of patents for its products once patents have been applied for. Costs associated with the development of the patented item or processes are charged to research and development costs as incurred. The capitalized costs are amortized over the life of the patent. The Company reviews intangible assets on an annual in accordance with the authoritative guidance. Trademarks have an indefinite life and are reviewed annually by management for impairment in accordance with the authoritative guidance.
Software Development Costs
The authoritative accounting guidance requires software development costs to be capitalized upon completion of the preliminary project stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line method over the estimated life of five years.
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 not provide for product returns or warranty costs.
NovaVision generates revenues from various programs, therapy services and other sources such as license sales. Therapy services revenues represent fees from NovaVision’s vision restoration therapy software, 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. A patient contract comprises set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed by a patient within a specified time frame. NovaVision’s saccadic training software is generally completed within 2-4 weeks and revenue is therefore recognized fully at commencement.
Deferred revenue results from patients paying for the therapy in advance of receiving the therapy.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
The Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients directly for therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products have been delivered or at the time the therapy is initiated; however, some NovaVision therapy patients make monthly payments during the therapy program. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customer’s ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.
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 September 30, 2017 and 2016 was $2,544 and $7,630, respectively. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales.
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.
(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 Company’s 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 Company’s 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 Company’s management, including its CEO and its CFO, as appropriate, to allow timely decisions regarding required disclosure. 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) 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 Company’s 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 Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of November 6, 2017, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.
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.
The following is a list of securities issued for cash or services rendered, during the period from January 1, 2017 through November 6, 2017, which were not registered under the Securities Act:
|FHC Management Fees and Milestone Award||Common||2,215,715|
|Advisory Board Fees||Common||106,451|
|Private Placement Offering FHC||Common||2,275,901|
|Private Placement Offering Others||Common||3,794,178|
|Issued on Exercise of Warrants||Common||72,002|
|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 November 13, 2017.
|Vycor Medical, Inc.|
|By:||/s/ Peter C. Zachariou|
|Peter C. Zachariou|
|Chief Executive Officer and Director (Principal Executive Officer)|
|Date||November 13, 2017|
|By:||/s/ Adrian Liddell|
|Chairman of the Board and Director|
|(Principal Financial and Accounting Officer)|
|Date||November 13, 2017|