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 65 issued or allowed patents and
a further 9 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 will be licensed to provide NovaVision's products and therapies in
Germany, Austria and Switzerland to patients and professionals; and will assume
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 27 granted and 9 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 cash operating losses1. For Vycor Medical this plan includes in
particular: increasing market penetration in the US through broadening of the
distribution network and programs to increase penetration in existing hospitals;
increasing international growth in territories where we are not represented or
under represented; and continued new product development. The first phase of the
modification of the existing VBAS product range to make it more compatible with
the most common IGS systems was completed in September 2017 and has been well
received by surgeons, resulting in increased hospital penetration and revenues
particularly in the US. The second phase of the development of further IGS
integration is complete, subject to regulatory clearances and approvals. Upon
regulatory clearances and product release of this new VBAS AC model range the
Company intends to conduct a multi-center study to provide additional clinical
data on the product. We will also be exploring with surgeons 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 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 has now closed the NovaVision German office and is entering 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.
The NovaVision German operation accounted for a very substantial proportion of
Vycor's operating cash loss1 during the year ended December 31, 2019. This
proportion has been reduced during the six months ended June 30, 2020 for two
reasons: firstly, the selling, general and administrative expenses of NovaVision
Germany have been reduced as the operation has been wound down; and secondly due
to the impact on Vycor revenues from Covid-19 discussed below.
1 Operating Loss before Depreciation, Amortization and non-cash Stock
Compensation
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COVID-19
In December 2019, an outbreak of a novel strain of coronavirus (COVID-19)
originated in Wuhan, China, and has since spread to a number of other countries,
including the United States. On March 11, 2020, the World Health Organization
characterized COVID-19 as a pandemic. In addition, as of the time of the filing
of this Form 10-Q, several states in the United States remain in states of
emergency, and travel restrictions continue to be applied in several countries
around the world, including the United States. Vycor Medical experienced a
reduction in demand during the three months ended June 30, 2020 in the US and
Europe. 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 six months ended June 30, 2020 and could
continue to do so. In addition, sales and marketing efforts by Vycor's
representatives have been disrupted or curtailed due to lockdown and social
distancing, and this has and may continue to hinder the recovery of revenues.
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 the existence of a worldwide pandemic, the fear
associated with COVID-19, or any, pandemic, and the reactions of governments
around the world in response to COVID-19, or any, pandemic, to regulate the flow
of labor and products and impede the travel of personnel, may impact our ability
to conduct normal business operations, which could adversely affect our results
of operations and liquidity. Disruptions to our supply chain and business
operations, or to our suppliers' or customers' supply chains and business
operations, could include disruptions from the closure of supplier and
manufacturer facilities, interruptions in the supply of raw materials and
components, personnel absences, 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 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, 2020 to the Three Months Ended
June 30, 2019
Revenue and Gross Margin:
Three months ended
June 30,
2020 2019 % Change
Revenue:
Vycor Medical $ 218,997 $ 390,627 -44 %
NovaVision $ 25,269 $ 21,275 19 %
$ 244,266 $ 411,902 -41 %
Gross Profit
Vycor Medical $ 201,179 $ 355,415 -43 %
NovaVision $ 22,594 $ 20,367 11 %
$ 223,773 $ 375,782 -40 %
Vycor Medical recorded revenue of $218,997 from the sale of its products for the
three months ended June 30, 2020, a decrease of $171,630 over the same period in
2019. Sales of VBAS devices have been significantly disrupted during the 2020
period in the US and internationally by COVID-19. 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 three
months ended June 30, 2020. In addition, sales and marketing efforts by Vycor's
representatives have been disrupted or curtailed due to lockdown and social
distancing, and this has hindered the recovery of revenues. Gross margin of 92%
and 91% was recorded for the three months ended June 30, 2020 and 2019,
respectively.
NovaVision recorded revenues of $25,269 for the three months ended June 30,
2020, an increase of $3,994 over the same period in 2019. Gross margin was 89%,
compared to 96% for the same period in 2019.
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Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased by $83,068 to $408,488
for the three months ended June 30, 2020 from $491,556 for the same period in
2019. 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, 2020 was
$133,500, a $939 decrease from the charge in 2019 of $134,439. Also included
within Selling, General and Administrative Expenses are Sales Commissions, which
decreased by $28,433 from $75,035 to $46,602 in 2020, reflecting the reduced
level of sales in the US due to COVID-19.
The remaining Selling, General and Administrative expenses decreased by $53,696
from $282,082 to $228,386 in 2020. Regulatory fees reduced by $17,341 reflecting
the completion of the transition to a new EU Notified Body for Vycor; and patent
fees reduced by $34,111 reflecting the level of patent filing activity in the
2019 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
Legal, patent, audit/accounting, regulatory $ (44,971 ) -
Sales, marketing and travel (3,985 ) -
Board, financial and scientific advisory (5,991 ) -
Payroll 2,284 (939 )
Other (premises, insurances) (1,033 ) -
Commissions (28,433 ) -
Total change $ (82,129 ) (939 )
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, 2020 was
$7,586 compared to $5,257 for 2019. Other Interest expense for the three months
ended June 30, 2020 was $11,967 compared to $12,012 for 2019.
Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June
30, 2019
Revenue and Gross Margin:
Six months ended
June 30,
2020 2019 % Change
Revenue:
Vycor Medical $ 526,284 $ 687,733 -23 %
NovaVision $ 48,221 $ 50,776 -5 %
$ 574,505 $ 738,509 -22 %
Gross Profit
Vycor Medical $ 472,036 $ 622,338 -24 %
NovaVision $ 44,682 $ 47,687 -6 %
$ 516,718 $ 670,025 -23 %
Vycor Medical recorded revenue of $526,284 from the sale of its products for the
six months ended June 30, 2020, a decrease of $161,449. Sales of VBAS devices
have been significantly disrupted, particularly from March to June, in the US
and internationally by COVID-19 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 six months ended June
30, 2020. In addition, sales and marketing efforts by Vycor's representatives
have been disrupted or curtailed due to lockdown and social distancing, and this
has hindered the recovery of revenues. Gross margin of 90% was recorded for the
six months ended June 30, 2019 and for the same period in 2019.
NovaVision recorded revenues of $48,221 for the six months ended June 30, 2020,
a decrease of $2,555 over the same period in 2019 and gross margin of 93%,
compared to 94% for the same period in 2019.
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Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased by $66,990 to $833,492
for the six months ended June 30, 2020 from $900,482 for the same period in
2019. 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, 2020 was
$266,699, a decrease of $939 over $267,939 in 2019. Also included within
Selling, General and Administrative Expenses are Sales Commissions, which
decreased by $34,304 from $130,861 to $96,557, as a result of higher revenues in
the US market, reflecting the reduced level of sales in the US due to COVID-19.
The remaining Selling, General and Administrative expenses decreased by $31,747
from $501,682 to $469,935. Regulatory fees reduced by $14,596 reflecting the
completion of the transition to a new EU Notified Body for Vycor; and patent
fees reduced by $30,942 reflecting the level of patent filing and prosecution
activity in the 2019 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
Legal, patent, audit/accounting, regulatory $ (35,624 ) -
Sales, marketing and travel (7,219 ) -
Board, financial and scientific advisory (12,840 ) -
Payroll 14,615 (939 )
Other (premises, insurances) 9,320 -
Commissions (34,303 ) -
Total change $ (66,051 ) (939 )
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, 2020 was
$14,010 compared to $10,016 for 2019. Other Interest expense for the six months
ended June 30, 2020 was $23,934 compared to $23,965 for 2019.
Liquidity
The following table shows cash flow and liquidity data for the periods ended
June 30, 2020 and December 31, 2019:
June 30, 2020 December 31, 2019 $ Change
Cash $ 70,994 $ 60,717 $ 10,277
Accounts receivable, inventory and
other current assets $ 373,524 $ 595,715 $ (222,191 )
Total current liabilities $ (2,584,440 ) $ (2,446,406 ) $ (138,034 )
Working capital $ (2,139,922 ) $ (1,789,974 ) $ (349,948 )
Cash provided by financing
activities $ 139,772 $ 17,627 $ 122,145Operating 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.
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The following table shows the principle components of cash used in operating
activities during the six months ended June 30, 2020 and 2019, with a commentary
of changes during the periods and known or anticipated future changes:
June 30, 2020 June 30, 2019 $ Change
Net loss $ (423,835 ) $ (365,602 ) $ (58,233 )
Adjustments to reconcile net loss to cash
used in operating activities:
Amortization and depreciation of assets $ 30,369 $ 30,879 $ (510 )
Stock based compensation $ 266,999 $ 267,940 $ (941 )
Other $ 6,279 $ 6,279 $ -
$ 303,647 $ 305,098 $ (1,451 )
Net loss adjusted for non-cash items $ (120,188 ) $ (60,504 ) $ (59,684 )
Changes in working capital
Accounts receivable, accounts payable and
accrued liabilities $ (23,172 ) $ 42,236 $ (65,408 )
Inventory $ 8,454 $ (54,399 ) $ 62,853
Prepaid expenses and net insurance
financing repayments $ 77,131 $ 5,555 $ 71,576Accrued interest (not paid in cash) $ 37,945 $ 33,820 $ 4,125
Changes in discontinued operations, net $
473 $ 5,746 $ (5,273 )
$ 100,831 $ 32,958 $ 67,873
Cash used in operating activities,
adjusted for net insurance repayments $ (19,357 ) $ (27,546 ) $ 8,189The adjustments to reconcile net loss to cash of $120,187 in the period have no
impact on liquidity. The change in Net loss adjusted for non-cash items of
($59,683) was primarily due to the impact of COVID-19 on the Vycor division
sales. At December 31, 2019 there was an increase in accounts payable mainly due
to expenditure on regulatory and testing for the VBAS development occurring
during the fourth quarter. The net change in accounts receivable, accounts
payable and accrued liabilities was mainly due to the settlement of these
accounts.
Additional inventory of $30,745 was purchased during the six months ended June
30, 2020 as part of normal production, and the Company anticipates purchasing
additional new inventory of approximately $80,000 during the next twelve months.
Investing Activities. Cash used in investing activities for the six months ended
June 30, 2020 was $47,406, which reflected expenditure on the second phase of
modifying the VBAS product suite to make it easier to integrate with IGS. The
Company anticipates additional expenditures for this second phase, including
work to obtain regulatory clearances and approvals, of approximately $80,000.
Financing Activities. During the six months ended June 30, 2020 the Company
received funds of $80,000 in respect of loans from Fountainhead. The Company
also received a 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 $586,020 for the
six months ended June 30, 2020 and has not generated sufficient positive cash
flows from operations. As of June 30, 2020 the Company had a working capital
deficiency of $634,822, excluding related party liabilities of $1,505,100. 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.
23
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 cash operating
losses2. For Vycor Medical this plan includes in particular: increasing market
penetration in the US through broadening of the distribution network and
programs to increase penetration in existing hospitals; increasing international
growth in territories where we are not represented or under represented; and
continued new product development. The first phase of the modification of the
existing VBAS product range to make it more compatible with the most common IGS
systems was completed in September 2017 and has been well received by surgeons,
resulting in increased hospital penetration and revenues particularly in the US.
The second phase of the development of further IGS integration is complete
subject to regulatory clearances and approvals. Upon regulatory clearances and
product release of this new VBAS AC model range the Company intends to conduct a
multi-center study to provide additional clinical data on the product. We will
also be exploring with surgeons 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 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 has now closed the
NovaVision German office and is entering 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.
However, the Company believes it may not have sufficient cash to meet its
various cash needs through August 31, 2021 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 $304,699,
which has a maturity date of December 31, 2020, 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 December 31, 2020 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, 2019.
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VYCOR MEDICAL, INC. 
