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." ("Vycor"). 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. The Company has 61 issued
or allowed patents and a further 10 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. In April
2020, the board of Vycor took the decision to close the German operations of
NovaVision, including the German office and NovaVision GmbH, and instead migrate
to a licensed business model; in June 2020 Vycor announced that it would be
entering into a license agreement and transition agreement (the "Agreements")
with HelferApp GmbH, a cognitive therapy specialist. Under the Agreements,
HelferApp is licensed to provide NovaVision's products and therapies in Germany,
Austria and Switzerland to patients and professionals. The NovaVision German
office was closed effective June 30, 2020.
Vycor Medical
Vycor Medical designs, develops and markets medical devices for use in
neurosurgery. Vycor Medical's ViewSite Brain Access System ("VBAS") is a next
generation retraction and access system. Vycor Medical is ISO 13485:2016 and
MDSAP (Medical Device Single Audit Program) certified, and VBAS has U.S. FDA
510(k) clearance and CE Marking for Europe (Class III) for brain and spine
surgeries, and regulatory approvals in a number of other international markets.
Vycor Medical has 30 granted and 10 pending patents.
NovaVision
NovaVision provides non-invasive, computer-based rehabilitation therapies
targeted at people who have impaired vision as a result of stroke or other brain
injury, and has 31 granted patents.
Strategy
The Company is continuing to execute on a plan to achieve revenue growth and a
reduction in annual cash operating losses1 and generated a small cash operating
profit1 during the three months ended March 31, 2022. For Vycor Medical this
plan includes: increasing market penetration in the US; increasing international
growth in territories where we are not represented or under-represented and
continued new product development in response to market demands and
demonstrating applicability in a broader range of pathologies. In the US the
Company is focused on increasing market penetration through targeting
neurosurgeons systematically, both through its distribution network and also
directly by leveraging existing KOL neurosurgeon VBAS supporters to access new
neurosurgeon users.
The Company continues to target key international territories including Europe
where it intends to drive adoption of its VBAS product through selected key KOL
neurosurgeon VBAS users in each territory to identify both new potential users
and also high-quality distribution partners to bolster our existing network.
1 Operating Income or Loss before Depreciation, Amortization and non-cash Stock
Compensation
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The Company has for some time been working to better integrate its VBAS with
neuronavigation. The first phase of the modification of the existing VBAS
product range was completed in September 2017 and has been well received by
surgeons. The second phase involves the introduction of an optional Alignment
Clip accessory that will snap onto the VBAS and allow for a neuronavigation
pointer to be fully integrated into the body of the VBAS. This VBAS AC model
range has received US FDA 510(k) clearance, EU clearance and is going through
the regulatory process elsewhere internationally; it is envisaged that it will
be available during 2022. The Company will continue to work with neuronavigation
companies to seek ways to further integrate the VBAS with neuronavigation and
with other companies with complementary technologies used in neurosurgery. We
will also be exploring with neurosurgeons and focus groups additional selected
development work targeted at increasing the ease and applicability of our
products to additional common procedures.
For NovaVision, given the company's resources, and the large size and diversity
of its end markets, we believe that the most efficient way to tackle the
distribution of its broad range of patient and professional products is by
partnering with entities in selected geographies that have either direct access
to the end users or a desire and financial wherewithal to leverage the
NovaVision therapy platform, including into new areas. As a result, the Company
closed the NovaVision German office and entered into a license agreement with
HelferApp, a cognitive therapy specialist, for Germany, Austria and Switzerland,
and is seeking similar partnerships in other territories with regional companies
able to leverage NovaVision's clinically supported vision therapies. Management
is also open to a broad range of alternatives for NovaVision as a whole, which
could comprise distribution and marketing partnerships, licensing, merger or
sale.
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended
March 31, 2021
Revenue and Gross Margin:
Three months ended
March 31,
2022 2021 % Change
Revenue:
Vycor Medical $ 287,356 $ 262,714 9 %
NovaVision $ 26,477 $ 33,035 -20 %
$ 313,833 $ 295,749 6 %
Gross Profit
Vycor Medical $ 256,337 $ 235,932 9 %
NovaVision $ 24,087 $ 31,340 -23 %
$ 280,424 $ 267,272 5 %
Vycor Medical recorded revenue of $287,356 from the sale of its products for the
three months ended March 31, 2022, an increase of $24,642, or 9%, over the same
period in 2021. Gross margin of 89% and 90% was recorded for the three months
ended March 31, 2022 and 2021, respectively.
NovaVision recorded revenues of $26,477 for the three months ended March 31,
2022, a decrease of $6,559 over the same period in 2021, of which $5,096 related
to delayed recording of 2020 licensing fees from NovaVision's German licensee
during the three months ended March 31, 2021. Gross margin was 91%, compared to
95% for the same period in 2021.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased by $138,802 to $318,674
for the three months ended March 31, 2022 from $457,476 for the same period in
2021. Included within Selling, General and Administrative Expenses are non-cash
charges for stock 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, 2022 was
$50,568, a $71,682 decrease from the charge in 2021 of $122,430. Also included
within Selling, General and Administrative Expenses are Sales Commissions, which
increased by $9,656 from $47,670 to $57,326 in 2021, reflecting a proportional
increase in US sales.
The remaining Selling, General and Administrative expenses decreased by $76,595
from $287,376 to $210,780 in 2022. Patent costs decreased by $15,998 due a lower
level of Vycor division patent activity during the period, and software
development and regulatory fees decreased by $18,604 as a result of EU audit
costs in the prior year.
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
Commissions 9,656 -
Scientific, clinical and software development 1,005 -
Payroll (625 ) -
Regulatory (18,604 ) -
Legal, patent, audit/accounting (23,662 ) -
Other (travel/regulatory/premises) (34,709 )
Board and financial - (71,682 )
Total change (66,939 ) (71,682 )
17
Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for the three months ended March 31, 2022 was
$7,912 compared to $7,665 for 2021. Other Interest expense for the three months
ended March 31, 2022 was $12,314 compared to $16,118 for 2021.
Operating loss from Discontinued Operations:
Operating loss from Discontinued Operations decreased by $11,417 to $755 in 2022
from $12,172 in 2021; the Company has some minor ongoing costs related to the
wind-down of the discontinued operations in Germany but no revenues.
Liquidity
The following table shows cash flow and liquidity data for the periods ended
March 31, 2022 and December 31, 2021:
March 31, December 31,
2022 2021 $ Change
Cash $ 80,567 $ 90,941 $ (10,374 )
Accounts receivable, inventory and
other current assets $ 432,317 $ 396,470 $ 35,847
Total current liabilities $ (3,352,332 ) $ (3,149,997 ) $ (202,335 )
Working capital $ (2,839,448 ) $ (2,662,586 ) $ (176,862 )
Cash provided by financing
activities $ 68,409 $ 51,130 $ 17,279Operating 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 three months ended March 31, 2022 and 2021, with a
commentary of changes during the periods and known or anticipated future
changes:
March 31, March 31,
2022 2021 $ Change
Net loss $ (74,552 ) $ (242,919 ) $ 168,367
Adjustments to reconcile net loss to
cash used in operating activities:
Amortization and depreciation of
assets $ 15,563 $ 14,156 $ 1,407
Share based compensation $ 50,568 $ 122,430 $ (71,862 )
Other $ 5,960 $ 3,090 $ 2,870
$ 72,091 $ 139,676 $ (67,585 )
Net loss adjusted for non-cash items $ (2,461 ) $ (103,243 ) $ 100,782
Changes in working capital
Accounts receivable $ (35,686 ) $ 15,382 $ (51,068 )
Accounts payable and accrued
liabilities $ (48,168 ) $ 40,429 $ (88,597 )
Inventory $ (2,117 ) $ (21,628 ) $ 19,511
Prepaid expenses and net insurance
financing repayments $ (20,127 ) $ (870 ) $ (19,257 )
Accrued interest (not paid in cash) $ 18,032 $ 23,783 $ (5,751 )
Changes in discontinued operations,
net
$ 154 $ (5,483 ) $ 5,637
$ (87,912 ) $ 51,613 $ (139,525 )
Cash provided by (used in) operating
activities, adjusted for net
insurance repayments $ (90,373 ) $ (51,630 ) $ (38,743 )
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The adjustments to reconcile net loss to cash of $72,091 in the period have no
impact on liquidity. The positive change in net loss adjusted for non-cash items
of $100,784 was primarily due an increase in sales in the Vycor division, which
also accounts for the increase in accounts receivable of $51,068. The change in
accounts payable and accrued liabilities of $88,597 between the 2022 and 2021
periods was mainly due to the settlement of expenses incurred during the final
quarter of 2021.
Additional inventory of $23,823 was purchased during the three months ended
March 31, 2022 as part of normal production, and the Company anticipates
purchasing additional new inventory of approximately $100,000 during the next
twelve months for VBAS and VBAS AC.
Investing Activities. There was no cash used in investing activities during the
three months ended March 31, 2022 and the Company anticipates limited investing
activities during the next twelve months.
Financing Activities. During the three months ended March 31, 2022 the Company
received funds of $80,000 in respect of loans from Fountainhead.
Liquidity and Plan of Operations, Ability to Continue as a Going Concern
The accompanying unaudited consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred losses since its inception, including a net loss of $236,737 for the
three months ended March 31, 2022 and has not generated sufficient positive cash
flows from operations. As of March 31, 2022 the Company had a working capital
deficiency of $540,184, excluding related party liabilities of $2,299,264. These
conditions, among others, raise substantial doubt regarding our ability to
continue as a going concern. The unaudited consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
As described earlier in this ITEM 2 "Strategy", the Company is continuing to
execute on a plan to achieve revenue growth and a reduction in annual cash
operating losses1 and generated a small cash operating profit1 during the three
months ended March 31, 2022. For Vycor Medical this plan includes: increasing
market penetration in the US; increasing international growth in territories
where we are not represented or under-represented and continued new product
development in response to market demands and demonstrating applicability in a
broader range of pathologies. In the US the Company is focused on increasing
market penetration through targeting neurosurgeons systematically, both through
its distribution network and also directly by leveraging existing KOL
neurosurgeon VBAS supporters to access new neurosurgeon users. The Company
continues to target key international territories including Europe where it
intends to drive adoption of its VBAS product through selected key KOL
neurosurgeon VBAS users in each territory to identify both new potential users
and also high-quality distribution partners to bolster our existing network. The
Company has for some time been working to better integrate its VBAS with
neuronavigation. The first phase of the modification of the existing VBAS
product range was completed in September 2017 and has been well received by
surgeons. The second phase involves the introduction of an optional Alignment
Clip accessory that will snap onto the VBAS and allow for a neuronavigation
pointer to be fully integrated into the body of the VBAS. This VBAS AC model
range has received US FDA 510(k) clearance, EU clearance and is going through
the regulatory process elsewhere internationally; it is envisaged that it will
be available during 2022. The Company will continue to work with neuronavigation
companies to seek ways to further integrate the VBAS with neuronavigation and
with other companies with complementary technologies used in neurosurgery. We
will also be exploring with neurosurgeons and focus groups additional selected
development work targeted at increasing the ease and applicability of our
products to additional common procedures. For NovaVision, given the company's
resources, and the large size and diversity of its end markets, we believe that
the most efficient way to tackle the distribution of its broad range of patient
and professional products is by partnering with entities in selected geographies
that have either direct access to the end users or a desire and financial
wherewithal to leverage the NovaVision therapy platform, including into new
areas. As a result, the Company closed the NovaVision German office and entered
into a license agreement with HelferApp, a cognitive therapy specialist, for
Germany, Austria and Switzerland, and is seeking similar partnerships in other
territories with regional companies able to leverage NovaVision's clinically
supported vision therapies. Management is also open to a broad range of
alternatives for NovaVision as a whole, which could comprise distribution and
marketing partnerships, licensing, merger or sale.
19
However, the Company believes it may not have sufficient cash to meet its
various cash needs through May 31, 2023 unless the Company is able to obtain
additional cash from the issuance of debt or equity securities. Included within
the working capital deficiency above is a term note for $300,000 to EuroAmerican
Investment Corp. ("EuroAmerican"), together with accrued interest of $388,732,
which has a maturity date of March 31, 2023, having been extended on a number of
occasions from its initial due date of June 11, 2011. At this time, it is not
known whether any further extension of the note beyond March 31, 2023 will be
available. Fountainhead, the Company's largest shareholder, has provided working
capital funding to the Company on an as-needed basis, although there is no
guarantee that this will continue to be the case. The Company may consider
seeking additional equity or debt funding, although there is no assurance that
this would be available on acceptable terms or at all. If adequate funds are not
available, the Company may have to delay or curtail development or
commercialization of products, or cease some of its operations.
Critical Accounting Policies and Estimates
Uses of estimates in the preparation of financial statements
The preparation of unaudited consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the unaudited
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 unaudited
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 stock-based compensation.
A detailed description of our significant accounting policies can be found in
our most recent Annual Report on Form 10-K for the year ended December 31, 2021.
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VYCOR MEDICAL, INC. 
