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").
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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 67 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; and has assumed
responsibility for the current patients of NovaVision in the territory. 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 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 13485:2016 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 29 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 38 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 cash operating
profit1 during the three and nine months ended September 30, 2021. 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. 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 early in 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. 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.
1 Operating Income or Loss before Depreciation, Amortization and non-cash Stock
Compensation
19
COVID-19
Vycor Medical experienced a significant reduction in demand during the twelve
months ended December 31, 2020 in the US and Europe, particularly in the second
quarter, with some recovery in the third and fourth quarters. This recovery
continued at a stronger level during the nine months ended September 30, 2021
such that sales for the Vycor Medical division increased by 32% over the same
period in 2020. Although neurosurgery is not considered an elective procedure,
general hospital dislocation and diversion of resources away from non-emergency
surgeries, or surgeries that can be postponed for a short period without harm,
has impacted our revenues during the twelve months ended December 31, 2020 and
although this has recovered during the nine months ended September 30, 2021,
COVID-19 remains classified as a pandemic and this could impact future sales. In
addition, sales and marketing efforts by Vycor's representatives were disrupted
or curtailed during periods of lockdown and social distancing, and this may
continue to hinder the recovery of revenues, particularly in certain
international territories where vaccination rates remain relatively low. While
our operations are principally located in the United States, and our
sub-contract manufacturers are located in the United States, we participate in a
global supply chain, and COVID-19 may impact our ability to conduct normal
business operations, which could adversely affect our results of operations and
liquidity. Furthermore, our sub-contract manufacturers have experienced, and
continue to experience staffing shortages and this has elongated our production
lead times. Disruptions to our supply chain and business operations, or to our
suppliers' or customers' supply chains and business operations, could include
disruptions from supplier staff absences due to COVID-19 illness or isolation
requirements, the closure of supplier and manufacturer facilities, interruptions
in the supply of raw materials and components, or restrictions on the shipment
of our or our suppliers' or customers' products, any of which could have adverse
ripple effects on our manufacturing output and delivery schedule. Although we
have implemented business continuity plans for our offices and personnel to
enable continuity of service remotely if required, if a critical number of our
employees become too ill to work, or we are not able to access a sufficient
quantity of our inventory for shipment due to enforced office closures, our
production ability could be materially adversely affected in a rapid manner.
Similarly, if our customers experience adverse business consequences due to
COVID-19, or any other, pandemic, demand for our products could also be
materially adversely affected in a rapid manner. Global health concerns, such as
COVID-19, could also result in social, economic, and labor instability in the
countries and localities in which we or our suppliers and customers operate. Any
of these uncertainties could have a material adverse effect on our business,
financial condition or results of operations.
Comparison of the Three Months Ended September 30, 2021 to the Three Months
Ended September 30, 2020
Revenue and Gross Margin:
Three months ended
September 30,
2021 2020 % Change
Revenue:
Vycor Medical $ 301,540 $ 250,648 20 %
NovaVision $ 30,547 $ 25,277 21 %
$ 332,087 $ 275,925 20 %
Gross Profit
Vycor Medical $ 269,986 $ 211,089 28 %
NovaVision $ 26,956 $ 24,285 11 %
$ 296,942 $ 235,374 26 %
Vycor Medical recorded revenue of $301,540 from the sale of its products for the
three months ended September 30, 2021, an increase of $50,892, or 20%, over the
same period in 2020. This reflected continued recovery in the US and certain
international markets following the easing of COVID-19 issues as well as results
from Vycor's strategy to increase penetration described under "Strategy" above.
Gross margin of 90% and 84% was recorded for the three months ended September
30, 2021 and 2020, respectively.
20
NovaVision recorded revenues of $30,547 for the three months ended September 30,
2021, an increase of $5,270 over the same period in 2020. Gross margin was 88%,
compared to 96% for the same period in 2020.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased by $61,465 to $365,785
for the three months ended September 30, 2021 from $427,250 for the same period
in 2020. 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
September 30, 2021 was $82,175, a $44,325 decrease from the charge in 2020 of
$126,500 following the departures from the board of Messrs. Girgenti and Rush
and lower calculated fees to Fountainhead. Also included within Selling, General
and Administrative Expenses are Sales Commissions, which increased by $8,792
from $52,806 to $61,598 in 2021.
The remaining Selling, General and Administrative expenses decreased by $25,932
from $247,944 to $222,012 in 2021. Patent costs increased by $14,457 due to
Vycor division patent activity during the period and software development and
associated scientific and clinical costs related to additional development in
NovaVision increased by $14,680; there was also a reduction in professional
costs related to the closure of NovaVision Germany of $7,498.
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 8,792 -
Scientific, clinical and software development 10,930
Regulatory
(4,197 ) -
Other (travel/insurance/premises/payroll) (13,782 ) -
Legal, patent, audit/accounting (18,883 ) -
Board and financial - (44,325 )
Total change (17,140 ) (44,325 )
Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for the three months ended September 30, 2021 and
2020 was $8,088 and $7,836, respectively. Other Interest expense for the three
months ended September 30, 2021 and 2020 was $12,685 and $12,099, respectively.
Operating income (loss) from Discontinued Operations:
Operating income from Discontinued Operations decreased by $26,469 to a loss of
$3,966 in 2021 from the income of $22,503 in 2020; The income in 2020 resulted
from recording other income of $36,451. The Company has some ongoing costs
related to the wind-down of the discontinued operations in Germany but no
revenues.
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Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended
September 30, 2020
Revenue and Gross Margin:
Nine months ended
September 30,
2021 2020 % Change
Revenue:
Vycor Medical $ 1,026,572 $ 776,932 32 %
NovaVision $ 92,691 $ 73,498 26 %
$ 1,119,263 $ 850,430 32 %
Gross Profit
Vycor Medical $ 930,180 $ 683,125 36 %
NovaVision $ 86,133 $ 68,967 25 %
$ 1,016,313 $ 752,092 35 %
Vycor Medical recorded revenue of $1,026,572 from the sale of its products for
the nine months ended September 30, 2021, an increase of $249,640. This
reflected a strong recovery in the US and certain international markets
following the easing of COVID-19 issues as well as results from Vycor's strategy
to increase penetration described under "Strategy" above during the second
quarter. Gross margin of 91% and 88% was recorded for the nine months ended
September 30, 2021 and for the same period in 2020.
NovaVision recorded revenues of $92,691 for the nine months ended September 30,
2021, an increase of $19,193 over the same period in 2020, of which $7,378
related to licensing fees from NovaVision's German licensee, and gross margin of
93%, compared to 94% for the same period in 2020.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased by $30,402 to $1,230,340
for the nine months ended September 30, 2021 from $1,260,742 for the same period
in 2020. 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 nine months ended September
30, 2021 was $284,102, a decrease of $109,398 over $393,500 in 2020 following
the departures from the board of Messrs. Girgenti and Rush and lower calculated
fees to Fountainhead. Also included within Selling, General and Administrative
Expenses are Sales Commissions, which increased by $63,561 from $149,363 to
$212,924, as a result of higher revenues in the US market.
The remaining Selling, General and Administrative expenses increased by $15,435
from $717,879 to $733,314. Patent costs increased by $32,185 due to Vycor
division patent activity during the period and software development and
associated scientific and clinical costs related to additional development in
NovaVision increased by $38,824; regulatory costs decreased by $14,788 due to
the costs of international regulatory costs during the 2020 period and there was
also a reduction in professional costs related to the closure of NovaVision
Germany of $12,277.
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 63,561 -
Scientific, clinical and software development 39,797
Legal, patent, audit/accounting
19,922 -
Other (travel/insurance/premises) (14,567 ) -
Regulatory (14,788 ) -
Payroll (14,929 ) -
Board and financial - (109,398 )
Total change 78,996 (109,398 )
Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for the nine months ended September 30, 2021 was
$23,753 compared to $21,846 for 2020. Other Interest expense for the nine months
ended September 30, 2021 was $42,465 compared to $36,033 for 2020.
22
Liquidity
The following table shows cash flow and liquidity data for the periods ended
September 30, 2021 and December 31, 2020:
September 30, 2021 December 31, 2020 $ Change
Cash $ 78,573 $ 46,002 $ 32,571
Accounts receivable, inventory
and other current assets $ 483,646 $ 417,899 $ 65,747
Total current liabilities $ (3,107,110 ) $ (2,740,828 ) $ (366,282 )
Working capital $ (2,544,891 ) $ (2,276,927 ) $ (267,964 )
Cash provided by (used in)
financing activities $ 81,340 $ 286,552 $ (205,212 )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 provided by (used in) operating
activities.
The following table shows the principle components of cash provided by (used in)
operating activities during the nine months ended September 30, 2021 and 2020,
with a commentary of changes during the periods and known or anticipated future
changes:
September 30, 2021 September 30, 2020 $ Change
Net loss $ (248,600 ) $ (622,122 ) $ 373,522
Adjustments to reconcile net
loss to cash provided by (used
in) operating activities:
Amortization and depreciation of
assets $ 50,648 $ 44,922 $ 5,726
Forgiveness of debt Paycheck
Protection Program $ (117,200 ) $ - $ (117,200 )
Stock based compensation $ 284,102 $ 393,500 $ (109,398 )
Other $ 9,270 $ 9,418 $ (148 )
$ 226,820 $ 447,840 $ (221,020 )
Net loss adjusted for non-cash
items $ (21,780 ) $ (174,282 ) $ 152,502
Changes in working capital
Accounts receivable $ (17,646 ) $ 137,154 $ (154,800 )
Accounts payable and accrued
liabilities $ 16,076 $ (231,277 ) $ 247,353
Inventory $ (49,838 ) $ 19,221 $ (69,059 )
Prepaid expenses and net
insurance financing repayments $ 15,611 $ 21,695 $ (6,084 )
Accrued interest (not paid in
cash) $ 64,024 $ 57,879 $ 6,145
Changes in discontinued
operations, net $ (3,791 ) $ (54,218 ) $ 50,427
$ 24,436 $ (49,546 ) $ 73,982
Cash provided by (used in)
operating activities, adjusted
for net insurance repayments $ 2,656 $ (223,828 ) $ 226,484
23
The adjustments to reconcile net loss to cash of $226,820 in the period have no
impact on liquidity. The negative change in Net loss adjusted for non-cash items
of $221,020 was primarily due to the increase in sales as a result of recovery
from the impact of COVID-19 on the Vycor division and results from the Company's
strategic initiatives. At December 31, 2019 there had been an increase in
accounts payable and accrued liabilities mainly due to expenditure on regulatory
for the transition to a new EU Notified Body, and regulatory and testing for the
VBAS development occurring during the fourth quarter of 2019. The change in
accounts payable and accrued liabilities of $247,353 between the 2021 and 2020
periods was mainly due to the settlement of these accounts during the nine
months ended September 30, 2020.
Additional inventory of $127,313 was purchased during the nine months ended
September 30, 2021 as part of normal production, and the Company anticipates
purchasing additional new inventory of approximately $80,000 during the next
twelve months for VBAS and VBAS AC. In January 2021 the Company received FDA
510(k) clearance for its new VBAS AC model range, and in April 2021 received EU
clearance. The VBAS AC provides significantly greater integration with IGS by
enabling an IGS pointer to be held securely within the device.
Investing Activities. Cash used in investing activities of continuing operations
for the nine months ended September 30, 2021 was $38,690, which primarily
reflected expenditure on the completion of VBAS AC.
Financing Activities. During the nine months ended September 30, 2021 the
Company received funds of $10,000 in respect of loans from Fountainhead. The
Company also received a second loan of $58,600 during the period pursuant to the
Paycheck Protection Program (the "PPP") under Division A, Title I of the CARES
Act. Both loans received under the Paycheck Protection Program were forgiven in
August 2021 and have resulted in an extinguishment of debt for $117,200.
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 $248,600 for the
nine months ended September 30, 2021 and has not generated sufficient positive
cash flows from operations. As of September 30, 2021 the Company had a working
capital deficiency of $503,812, excluding related party liabilities of
$2,041,079. 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 losses2 and generated a cash operating profit2 during the nine months
ended September 30, 2021. 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 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 in each territory 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 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 early in
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. 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.
2 Operating Income or Loss before Depreciation, Amortization and non-cash Stock
Compensation
24
However, the Company believes it may not have sufficient cash to meet its
various cash needs through November 30, 2022 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 $364,798, which has a maturity date of March 31, 2022, 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,
2022 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, 2020.
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VYCOR MEDICAL, INC. 
