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 7 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 7 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
profit1during the six months ended June 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 during the 4th quarter of 2021. 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 during the three months ended March 31, 2021 and with a much stronger
level of recovery during the three months ended June 30, 2021 such that sales
for the Vycor Medical division increased by 38% 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 six months ended June 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 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 June 30, 2021 to the Three Months Ended
June 30, 2020
Revenue and Gross Margin:
Three months ended
June 30,
%
2021 2020 Change
Revenue:
Vycor Medical $ 462,318 $ 218,997 111 %
NovaVision $ 29,109 $ 25,269 15 %
$ 491,427 $ 244,266 101 %
Gross Profit
Vycor Medical $ 424,261 $ 201,179 111 %
NovaVision $ 27,838 $ 22,594 23 %
$ 452,099 $ 223,773 102 %
Vycor Medical recorded revenue of $462,318 from the sale of its products for the
three months ended June 30, 2021, an increase of $243,321, or 111%, over the
same period in 2020. This reflected a strong recovery in the US and certain
international markets as well as results from Vycor's strategy to increase
penetration desribed under "Strategy" above. Gross margin of 92% was recorded
for the three months ended June 30, 2021 and 2020, respectively.
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NovaVision recorded revenues of $29,109 for the three months ended June 30,
2021, an increase of $3,840 over the same period in 2020, of which $2,282
related to licensing fees from NovaVision's German licensee. Gross margin was
96%, compared to 89% for the same period in 2020.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased by $1,309 to $407,179 for
the three months ended June 30, 2021 from $408,488 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 June 30, 2021 was
$79,497, a $54,003 decrease from the charge in 2020 of $133,500. Also included
within Selling, General and Administrative Expenses are Sales Commissions, which
increased by $57,054 from $46,602 to $103,656 in 2021.
The remaining Selling, General and Administrative expenses decreased by $4,360
from $228,386 to $224,026 in 2021. Patent costs increased by $25,695 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 $10,274; regulatory costs decreased by $20,164 due to
the costs of international regulatory costs during the 2020 period.
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 57,054 -
Legal, patent, audit/accounting 15,558 -
Scientific, clinical and software development 6,524
Board and financial
- (54,003 )
Other (travel/insurance/premises) (39 ) -
Payroll (6,239 ) -
Regulatory (20,164 ) -
Total change 52,694 (54,003 )
Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for the three months ended June 30, 2021 and 2020
was $8,000 and $7,586, respectively. Other Interest expense for the three months
ended June 30, 2021 and 2020 was $13,662 and $11,967, respectively.
Operating loss from Discontinued Operations:
Operating loss from Discontinued Operations decreased by $19,435 to $10,317 in
2021 from $29,752 in 2020; the Company has some ongoing costs related to the
wind-down of the discontinued operations in Germany but no revenues.
21
Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June
30, 2020
Revenue and Gross Margin:
Six months ended
June 30,
2021 2020 % Change
Revenue:
Vycor Medical $ 725,032 $ 526,284 38 %
NovaVision $ 62,144 $ 48,221 29 %
$ 787,176 $ 574,505 37 %
Gross Profit
Vycor Medical $ 660,194 $ 472,036 40 %
NovaVision $ 59,177 $ 44,682 32 %
$ 719,371 $ 516,718 39 %
Vycor Medical recorded revenue of $725,032 from the sale of its products for the
six months ended June 30, 2021, an increase of $198,748 This reflected a strong
recovery in the US and certain international markets as well as results from
Vycor's strategy to increase penetration desribed under "Strategy" above during
the second quarter. Gross margin of 91% and 90% was recorded for the six months
ended June 30, 2021 and for the same period in 2020.
NovaVision recorded revenues of $62,144 for the six months ended June 30, 2021,
an increase of $13,923 over the same period in 2021, of which $7,378 related to
licensing fees from NovaVision's German licensee, and gross margin of 95%,
compared to 93% for the same period in 2020.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased by $31,063 to $864,555
for the six months ended June 30, 2021 from $833,492 for the same period in
2020. Included within Selling, General and Administrative Expenses are non-cash
charges for share based compensation as the result of amortizing employee and
non-employee shares, warrants and options which have been issued by the Company
over various periods. The charge for the six months ended June 30, 2021 was
$201,927, a decrease of $65,072 over $266,999 in 2020. Also included within
Selling, General and Administrative Expenses are Sales Commissions, which
increased by $54,769 from $96,557 to $151,326, as a result of higher revenues in
the US market.
The remaining Selling, General and Administrative expenses increased by $41,366
from $469,936 to $511,302. Patent costs increased by $46,642 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 $22,063; regulatory costs decreased by $10,590 due to
the costs of international regulatory costs during the 2020 period.
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 54,769 -
Legal, patent, audit/accounting 38,805 -
Scientific, clinical and software development 27,275
Other (travel/insurance/premises)
(149 ) -
Regulatory (10,590 ) -
Board and financial - (65,072 )
Payroll (13,975 ) -
Total change 96,135 (65,072 )
Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for the six months ended June 30, 2021 was
$15,665 compared to $14,010 for 2020. Other Interest expense for the six months
ended June 30, 2021 was $29,780 compared to $23,934 for 2020.
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Liquidity
The following table shows cash flow and liquidity data for the periods ended
June 30, 2021 and December 31, 2020:
June 30, 2021 December 31, 2020 $ Change
Cash $ 108,687 $ 46,002 $ 62,685
Accounts receivable, inventory
and other current assets $ 455,016 $ 417,899 $ 37,117
Total current liabilities $ (3,038,645 ) $ (2,740,828 ) $ (297,817 )
Working capital $ (2,474,942 ) $ (2,276,927 ) $ (198,015 )
Cash provided by financing
activities $ 42,613 $ 286,552 $ (243,939 )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 six months ended June 30, 2021 and 2020, with a
commentary of changes during the periods and known or anticipated future
changes:
June 30, 2021 June 30, 2020 $ Change
Net loss $ (252,293 ) $ (423,835 ) $ 171,542
Adjustments to reconcile net
loss to cash used in operating
activities:
Amortization and depreciation
of assets $ 32,255 $ 30,369 $ 1,886
Stock based compensation $ 201,927 $ 266,999 $ (65,072 )
Other $ 6,180 $ 6,279 $ (99 )
$ 240,362 $ 303,647 $ (63,285 )
Net loss adjusted for non-cash
items $ (11,931 ) $ (120,188 ) $ 108,257
Changes in working capital
Accounts receivable $ (45,849 ) $ 177,587 $ (223,436 )
Accounts payable and accrued
liabilities $ 50,132 $ (200,759 ) $ 250,891
Inventory $ (16,642 ) $ 8,454 $ (25,096 )
Prepaid expenses and net
insurance financing repayments $ 8,779 $ 18,531 $ (9,752 )
Accrued interest (not paid in
cash) $ 45,445 $ 37,945 $ 7,500
Changes in discontinued
operations, net $ (3,610 ) $ 473 $ (4,083 )
$ 38,255 $ 42,231 $ (3,976 )
Cash used in operating
activities, adjusted for net
insurance repayments $ 26,324 $ (77,957 ) $ 104,281
23
The adjustments to reconcile net loss to cash of $240,362 in the period have no
impact on liquidity. The positive change in Net loss adjusted for non-cash items
of $108,257 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, which also accounts for the increase in accounts
receivable of $45,849. 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 $250,891 between the 2021 and 2020
periods was mainly due to the settlement of these accounts during the six months
ended June 30, 2020.
Additional inventory of $69,246 was purchased during the six months ended June
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 six months ended June 30, 2021 was $32,242, which primarily reflected
expenditure on the completion of VBAS AC.
Financing Activities. During the six months ended June 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.
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 $414,478 for the
six months ended June 30, 2021 and has not generated sufficient positive cash
flows from operations. As of June 30, 2021 the Company had a working capital
deficiency of $604,136, excluding related party liabilities of $1,870,806. 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 losses2and generated a cash operating profit2 during the six months
ended June 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 during the 4th
quarter of 2021. 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 August 31, 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 $352,699,
which has a maturity date of October 15, 2021, 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 October 15, 2021 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. 
