ITEM
1.
|
FINANCIAL
STATEMENTS
|
VYCOR
MEDICAL, INC.
Consolidated Balance Sheets
(Unaudited)
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
315,017
|
|
|
$
|
56,859
|
|
Trade accounts receivable, net
|
|
|
238,129
|
|
|
|
148,784
|
|
Inventory
|
|
|
212,206
|
|
|
|
204,071
|
|
Prepaid expenses
and other current assets
|
|
|
87,604
|
|
|
|
127,375
|
|
Total Current
Assets
|
|
|
852,956
|
|
|
|
537,089
|
|
Fixed assets,
net
|
|
|
502,470
|
|
|
|
401,051
|
|
Intangible and Other assets:
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
251,157
|
|
|
|
251,157
|
|
Patents, net of accumulated amortization
|
|
|
112,822
|
|
|
|
238,571
|
|
Website, net of accumulated amortization
|
|
|
11,531
|
|
|
|
14,958
|
|
Security deposits
|
|
|
9,169
|
|
|
|
42,424
|
|
Total Intangible
and Other assets
|
|
|
384,679
|
|
|
|
547,110
|
|
TOTAL ASSETS
|
|
$
|
1,740,105
|
|
|
$
|
1,485,250
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
174,155
|
|
|
$
|
249,949
|
|
Accrued interest: Other
|
|
|
172,667
|
|
|
|
136,765
|
|
Accrued interest: Related party
|
|
|
12,840
|
|
|
|
12,161
|
|
Accrued liabilities: Other
|
|
|
195,532
|
|
|
|
116,957
|
|
Accrued liabilities: Related Party
|
|
|
436,870
|
|
|
|
330,000
|
|
Monies in Escrow Related Party –
Offering
|
|
|
-
|
|
|
|
101,000
|
|
Notes payable: Related Party
|
|
|
-
|
|
|
|
248,000
|
|
Notes payable:
Other
|
|
|
336,145
|
|
|
|
316,856
|
|
Total Current
Liabilities
|
|
|
1,328,209
|
|
|
|
1,511,688
|
|
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized,
270,306 issued and outstanding as at September 30, 2017 and December 31, 2016 respectively
|
|
|
27
|
|
|
|
27
|
|
Common Stock, $0.0001 par value, 25,000,000
shares authorized at September 30, 2017 and December 31, 2016, 19,841,523 and 11,439,357 shares issued and 19,738,189 and
11,336,023 outstanding at September 30, 2017 and December 31, 2016 respectively
|
|
|
1,984
|
|
|
|
1,144
|
|
Additional Paid-in Capital
|
|
|
26,876,310
|
|
|
|
25,007,850
|
|
Treasury Stock (103,334 shares of Common
Stock as at September 30, 2017 and December 31, 2016 respectively, at cost)
|
|
|
(1,033
|
)
|
|
|
(1,033
|
)
|
Accumulated Deficit
|
|
|
(26,590,824
|
)
|
|
|
(25,164,545
|
)
|
Accumulated Other
Comprehensive Income
|
|
|
125,432
|
|
|
|
130,119
|
|
Total Stockholders’
Equity (Deficit)
|
|
|
411,896
|
|
|
|
(26,438
|
)
|
TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
1,740,105
|
|
|
$
|
1,485,250
|
|
See
accompanying notes to financial statements
VYCOR
MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
(unaudited)
|
|
For
the three months ended September 30,
|
|
|
For
the nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
379,073
|
|
|
$
|
325,777
|
|
|
$
|
1,115,155
|
|
|
$
|
1,105,269
|
|
Cost
of Revenues Sold
|
|
|
55,332
|
|
|
|
37,516
|
|
|
|
142,753
|
|
|
|
152,843
|
|
Gross Profit
|
|
|
323,741
|
|
|
|
288,261
|
|
|
|
972,402
|
|
|
|
952,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
-
|
|
|
|
4,153
|
|
|
|
-
|
|
|
|
4,153
|
|
Depreciation and
Amortization
|
|
|
72,734
|
|
|
|
63,797
|
|
|
|
211,369
|
|
|
|
193,391
|
|
General
and administrative
|
|
|
546,615
|
|
|
|
535,535
|
|
|
|
1,710,244
|
|
|
|
1,876,382
|
|
Total
Operating expenses
|
|
|
619,349
|
|
|
|
603,485
|
|
|
|
1,921,613
|
|
|
|
2,073,926
|
|
Operating loss
|
|
|
(295,608
|
)
|
|
|
(315,224
|
)
|
|
|
(949,211
|
)
|
|
|
(1,121,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
Other
|
|
|
(11,360
|
)
|
|
|
(12,348
|
)
|
|
|
(32,217
|
)
|
|
|
(36,535
|
)
|
Interest expense:
Related Party
|
|
|
-
|
|
|
|
(4,663
|
)
|
|
|
(679
|
)
|
|
|
(5,910
|
)
|
Warrant issuance
expense
|
|
|
(120,788
|
)
|
|
|
-
|
|
|
|
(120,788
|
)
|
|
|
-
|
|
Gain
(loss) on foreign currency exchange
|
|
|
(646
|
)
|
|
|
337
|
|
|
|
986
|
|
|
|
(877
|
)
|
Total
Other Income (expense)
|
|
|
(132,794
|
)
|
|
|
(16,674
|
)
|
|
|
(152,698
|
)
|
|
|
(43,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Credit
for Income Taxes
|
|
|
(428,402
|
)
|
|
|
(331,898
|
)
|
|
|
(1,101,909
|
)
|
|
|
(1,164,822
|
)
|
Credit
for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Loss
|
|
|
(428,402
|
)
|
|
|
(331,898
|
)
|
|
|
(1,101,909
|
)
|
|
|
(1,164,822
|
)
|
Preferred
stock dividends
|
|
|
(162,185
|
)
|
|
|
(91,409
|
)
|
|
|
(324,370
|
)
|
|
|
(179,727
|
)
|
Net
Loss available to common shareholders
|
|
|
(590,587
|
)
|
|
|
(423,307
|
)
|
|
|
(1,426,279
|
)
|
|
|
(1,344,549
|
)
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(428,402
|
)
|
|
|
(331,898
|
)
|
|
|
(1,101,909
|
)
|
|
|
(1,164,822
|
)
|
Foreign
Currency Translation Adjustment
|
|
|
1,728
|
|
|
|
1,504
|
|
|
|
4,687
|
|
|
|
4,426
|
|
Comprehensive
Loss
|
|
|
(426,674
|
)
|
|
|
(330,394
|
)
|
|
|
(1,097,222
|
)
|
|
|
(1,160,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
($
|
0.03
|
)
|
|
($
|
0.04
|
)
|
|
($
|
0.08
|
)
|
|
($
|
0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding – Basic and Diluted
|
|
|
19,715,156
|
|
|
|
11,094,763
|
|
|
|
17,895,269
|
|
|
|
11,012,689
|
|
See
accompanying notes to financial statements
VYCOR
MEDICAL, INC.
Consolidated Statement of Cash Flows
(unaudited)
|
|
For
the nine months ended
|
|
|
September
30,
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
($
|
1,101,909
|
)
|
|
($
|
1,164,822
|
)
|
Adjustments to reconcile
net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
129,176
|
|
|
|
70,042
|
|
Depreciation of
fixed assets
|
|
|
93,467
|
|
|
|
130,646
|
|
Inventory provision
|
|
|
2,544
|
|
|
|
7,631
|
|
Share based compensation
|
|
|
309,805
|
|
|
|
422,671
|
|
Warrant issuance
expense
|
|
|
120,788
|
|
|
|
-
|
|
Loss on foreign
exchange
|
|
|
988
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
Changes in assets
and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(89,348
|
)
|
|
|
(10,509
|
)
|
Inventory
|
|
|
(10,678
|
)
|
|
|
61,796
|
|
Prepaid expenses
|
|
|
91,337
|
|
|
|
91,269
|
|
Accrued interest
related party
|
|
|
680
|
|
|
|
5,910
|
|
Accrued interest
other
|
|
|
35,902
|
|
|
|
36,032
|
|
Accounts payable
|
|
|
(75,794
|
)
|
|
|
(54,580
|
)
|
Accrued liabilities
Other
|
|
|
(3,925
|
)
|
|
|
10,756
|
|
Accrued liabilities
Related Party
|
|
|
112,500
|
|
|
|
-
|
|
Security
Deposit
|
|
|
33,255
|
|
|
|
6,607
|
|
Cash
used in operating activities
|
|
|
(351,212
|
)
|
|
|
(385,674
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(160,324
|
)
|
|
|
(28,264
|
)
|
Cash used in
investing activities
|
|
|
(160,324
|
)
|
|
|
(28,264
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of common stock, net
|
|
|
842,207
|
|
|
|
-
|
|
Net proceeds from
issuance of Notes Payable - Related Party
|
|
|
-
|
|
|
|
248,000
|
|
Repayment
of Notes Payable - Other
|
|
|
(65,038
|
)
|
|
|
(64,466
|
)
|
Cash provided
by (used in) financing activities
|
|
|
777,169
|
|
|
|
183,534
|
|
Effect of exchange
rate changes on cash
|
|
|
(7,475
|
)
|
|
|
(2,897
|
)
|
Net increase (decrease) in cash
|
|
|
258,158
|
|
|
|
(233,301
|
)
|
Cash at beginning of period
|
|
|
56,859
|
|
|
|
347,477
|
|
Cash at end of period
|
|
|
315,017
|
|
|
|
114,176
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow
information:
|
|
|
|
|
|
|
|
|
Non-Cash Transactions:
|
|
|
|
|
|
|
|
|
Preferred
stock dividends satisfied in new preferred stock
|
|
$
|
0
|
|
|
$
|
179,727
|
|
See
Accompanying Notes to Financial Statements
VYCOR
MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(unaudited)
The
consolidated financial statements of the Company present the financial position, results of operations, and cash flows of Vycor
Medical, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information
and footnote disclosures normally included in comprehensive financial statements have been omitted pursuant to such rules and
regulations. The consolidated balance sheet as of December 31, 2016 derives from the audited financial statements at that date,
but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2016.
The
consolidated financial statements as of and for the three and nine months ended September 30, 2017 and 2016, in the opinion of
management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the
Company’s financial condition and results of operations. The results of operations for the three and nine months ended September
30, 2017 and 2016 are not necessarily indicative of the results to be expected for any other interim period or for the entire
year.
Certain
amounts on prior period financial statements have been reclassified to conform with current year presentation.
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision,
Inc. (a Delaware corporation), NovaVision GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly
owned subsidiaries of NovaVision, Inc. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions,
and profits have been eliminated in consolidation.
Recent
Accounting Pronouncements
In
August 2014, the FASB issued ASU No. 2014-15 —Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU requires management to evaluate
whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the financial statements are issued and if management’s plans will alleviate that doubt. Management
is required to make this evaluation for both annual and interim reporting periods. The Company adopted this guidance for the fiscal
year ended December 31, 2016. This adoption did not have a material impact on the Company’s consolidated financial statements.
From
time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies
that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting
pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting
or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
Net
Loss Per Share
Basic
net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.
Diluted net loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and
conversion of preferred stock and convertible debt. Such potentially dilutive shares are excluded when the effect would be to
reduce a net loss per share. No dilution adjustment has been made to the weighted average outstanding common shares in the periods
presented because the assumed exercise of outstanding options and warrants and the conversion of preferred stock and debt would
be anti-dilutive.
The
following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per
share:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Stock options outstanding
|
|
|
725,557
|
|
|
|
705,557
|
|
Warrants to purchase common stock
|
|
|
7,001,388
|
|
|
|
6,007,048
|
|
Debentures convertible into common stock
|
|
|
262,593
|
|
|
|
242,647
|
|
Preferred shares convertible into common
stock
|
|
|
1,272,052
|
|
|
|
1,272,052
|
|
Directors Deferred
Compensation Plan
|
|
|
447,689
|
|
|
|
176,479
|
|
Total
|
|
|
9,709,279
|
|
|
|
8,403,783
|
|
Related
Party Notes Payable
As
of September 30, 2017 and December 31, 2016 Related Party Notes Payable consists of:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
The
Company issued promissory notes to Fountainhead Capital Management Limited for $248,000. The notes bear interest at 10% per
annum and are payable on the earlier of one year or five days following the delivery of written demand for payment by the
Payee. The notes were converted into 1,180,953,shares of common stock and 1,180,953 warrants in connection with the Private
Placement in January 2017.
|
|
|
-
|
|
|
$
|
248,000
|
|
|
|
|
|
|
|
|
|
|
Total Related
Party Notes Payable
|
|
|
-
|
|
|
$
|
248,000
|
|
Other
Notes Payable
As
of September 30, 2017 and December 31, 2016, Other Notes Payable consists of:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
On March 25, 2011 the
Company issued a term note for $300,000 to EuroAmerican Investment Corp. (“EuroAmerican”). The term note bears
interest at 16% per annum and was due June 25, 2011. In connection with the loan the Company also issued EuroAmerican warrants
to purchase 400,000 shares of the Company’s common stock at an exercise price of $4.50 per share for a period of three
(3) years. On June 25, 2011 the due date for this note was extended to September 25, 2011 and the Holder was granted the right
to convert all or any amount of the principal face amount of the debenture then outstanding and accrued interest into shares
of common stock of the Company an adjusted conversion price of $1.80 per share, subject to adjustment and does not require
bifurcation. The due date for this note has been extended to December 31, 2017
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Insurance
policy finance agreements. During the period ended September 30, 2017 the Company made payments of $65,038. The notes are
due over the next twelve months.
|
|
|
36,145
|
|
|
|
16,856
|
|
Total Notes Payable:
|
|
$
|
336,145
|
|
|
$
|
316,856
|
|
The
company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of
such conversion, under ASC 470, at the time of issuance. At the time of issuance of the convertible debt instruments set out above,
the fair value of the stock was either the same or less than the conversion price, and so there was no value attributable to any
beneficial conversion feature.
4.
|
SEGMENT
REPORTING, GEOGRAPHICAL INFORMATION
|
(a)
Business segments
The
Company operates in two business segments: Vycor Medical, which focuses on devices for neurosurgery; and NovaVision, which focuses
on neuro-stimulation therapies and diagnostic devices for the treatment and screening of vision field loss and which includes
Sight Science. Set out below are the revenues, gross profits and total assets for each segment.
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vycor
Medical
|
|
$
|
326,843
|
|
|
$
|
279,815
|
|
|
$
|
949,053
|
|
|
$
|
961,821
|
|
NovaVision
|
|
$
|
52,230
|
|
|
$
|
45,962
|
|
|
$
|
166,102
|
|
|
$
|
143,448
|
|
|
|
$
|
379,073
|
|
|
$
|
325,777
|
|
|
$
|
1,115,155
|
|
|
$
|
1,105,269
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vycor Medical
|
|
$
|
277,324
|
|
|
$
|
245,412
|
|
|
$
|
824,176
|
|
|
$
|
820,830
|
|
NovaVision
|
|
$
|
46,417
|
|
|
$
|
42,849
|
|
|
$
|
148,226
|
|
|
$
|
131,596
|
|
|
|
$
|
323,741
|
|
|
$
|
288,261
|
|
|
$
|
972,402
|
|
|
$
|
952,426
|
|
|
|
September
30,
2017
|
|
|
December
31,
2016
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Vycor
Medical
|
|
$
|
1,218,151
|
|
|
$
|
805,716
|
|
NovaVision
|
|
|
521,954
|
|
|
|
679,534
|
|
Total
Assets
|
|
$
|
1,740,105
|
|
|
$
|
1,485,250
|
|
(b)
Geographic information
The
Company operates in two geographic segments, the United States and Europe. Set out below are the revenues, gross profits and total
assets for each segment.
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
352,109
|
|
|
$
|
303,400
|
|
|
$
|
1,033,087
|
|
|
$
|
1,031,876
|
|
Europe
|
|
$
|
26,964
|
|
|
$
|
22,377
|
|
|
$
|
82,068
|
|
|
$
|
73,393
|
|
|
|
$
|
379,073
|
|
|
$
|
325,777
|
|
|
$
|
1,115,155
|
|
|
$
|
1,105,269
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
300,687
|
|
|
$
|
266,335
|
|
|
$
|
899,298
|
|
|
$
|
882,889
|
|
Europe
|
|
$
|
23,054
|
|
|
$
|
21,926
|
|
|
$
|
73,104
|
|
|
$
|
69,537
|
|
|
|
$
|
323,741
|
|
|
$
|
288,261
|
|
|
$
|
972,402
|
|
|
$
|
952,426
|
|
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,535,431
|
|
|
$
|
1,258,624
|
|
Europe
|
|
|
204,674
|
|
|
|
226,626
|
|
Total
Assets
|
|
$
|
1,740,105
|
|
|
$
|
1,485,250
|
|
Common
Stock and Stock Grants
From
January to September 2017, the Company granted 271,210 shares of Common Stock (valued at $63,000) to non-employee Directors. Under
the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until January 15
th
of
the year following termination of their services as a director. As of September 30, 2017 these shares have yet to be issued.
From
January to September 2017, the Company issued 106,451 shares of Common Stock (valued at $25,314) to members of the NovaVision,
Inc. Scientific Advisory Board as compensation for their services.
From
January to September 2017, the Company issued 644,286 shares of Common Stock (valued at $135,300) to Fountainhead under the terms
of a Consulting Agreement and 1,571,429 shares of Common Stock (valued at $330,000) to Fountainhead following the achievement
of certain enumerated milestones.
From
January to September 2017, the Company issued 9,921 shares of Common Stock (valued at $2,084) to Techmed, Inc. in accordance with
the terms of a consulting agreement.
Private
Placement
.
On
January 11 and February 23, 2017, the Company completed the sale of $1,274,717 in shares of Vycor Common Stock (each a “Share”)
and Warrants (together with the Shares, the “Securities”) to accredited investors (the “Investors”). The
Shares were issued in a private placement (the “Private Placement”) pursuant to the terms of Stock Purchase Agreements
between the Company and each of the Investors, and was limited to current shareholders of the Company as of November 9, 2016 (the
“Record Date”).
Included
in these gross proceeds was the conversion of $248,000 of debt on the balance sheet at December 31, 2016 and $101,000 funds held
in escrow on the balance sheet at December 31, 2016. The Private Placement raised net cash proceeds, after debt conversion and
expenses, of $943,207, of which $842,207 was received during the period.
The
Securities comprised one Share at a purchase price $0.21 per share and a Warrant to purchase one Share at an exercise price of
$0.27, exercisable over a period of three (3) years. A total of 6,070,079 Shares and Warrants to purchase 6,070,079 Shares were
issued in the Private Placement.
Warrants
and Options
In
August 2014, Fountainhead, Peter Zachariou (“the Related Party Noteholders”) and Craig Kirsch (collectively,
the “Noteholders”) agreed, pursuant to a Securities Exchange Agreement (“Exchange Agreement”), to exchange
their outstanding debt from the Company into shares of Company Series D Convertible Preferred Stock. Pursuant to the Exchange
Agreement, on August 5, 2017 (the 3
rd
anniversary of the exchange) the Noteholders were issued warrants exercisable
into 628,619 shares of Common Stock, at a price of $0.30 per share, of which the Related Party Noteholders were issued warrants
exercisable into 599,651 shares of Common Stock. The warrants expire on August 4, 2020 and were valued at $120,788 (of
which $115,222 related to the Related Party Noteholders) and included in Other Income/Expense, Warrant Issuance Expense for
the three months ending September 30, 2017.
The
details of the outstanding warrants and options are as follows:
|
|
|
|
|
Weighted
average
|
|
STOCK WARRANTS:
|
|
Number
of shares
|
|
|
exercise
price per share
|
|
Outstanding at December 31, 2015
|
|
|
6,007,048
|
|
|
$
|
2.57
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or
expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2016
|
|
|
6,007,048
|
|
|
$
|
2.57
|
|
Granted
|
|
|
6,901,388
|
|
|
$
|
0.27
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or
expired
|
|
|
(5,907,048
|
)
|
|
$
|
1.88
|
|
Outstanding at September 30, 2017
|
|
|
7,001,388
|
|
|
$
|
0.52
|
|
|
|
|
|
|
Weighted
average
|
|
STOCK
OPTIONS:
|
|
Number
of shares
|
|
|
exercise
price per share
|
|
Outstanding at December 31, 2015
|
|
|
25,557
|
|
|
$
|
20.25
|
|
Granted
|
|
|
680,000
|
|
|
$
|
0.79
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or
expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2016
|
|
|
705,557
|
|
|
$
|
20.25
|
|
Granted
|
|
|
20,000
|
|
|
$
|
0.27
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or
expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2017
|
|
|
725,557
|
|
|
$
|
0.95
|
|
As
of September 30, 2017, the weighted-average remaining contractual life of outstanding warrants and options is 2.36 and 1.47 years,
respectively.
6.
|
SHARE-BASED
COMPENSATION
|
Stock
Option Plan
Under
ASC Topic 718, the Company estimates the fair value of option awards on the date of grant using an option pricing model. The grant
date fair value is recognized over the option-vesting period, the period during which an employee is required to provide service
in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite
service. Under these standards, compensation cost for employee cost for employee stock-based awards is based on the estimated
grant-date fair value and recognized over the vesting period of the applicable award on a straight-line basis.
For
the nine months ended September 30, 2017 and 2016, the Company recognized share-based compensation of $1,609 and $198,200, respectively,
for employee stock options.
Stock
appreciation rights may be granted either on a stand-alone basis or in conjunction with all or part of any other stock options
granted under the plan. As of September 30, 2017 there were no awards of any stock appreciation rights.
Non-Employee
Stock Compensation
The
Company from time to time issues common stock, stock options or common stock warrants to acquire services or goods from non-employees.
Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of
their fair value, which is measured as of the “measurement date” using an option pricing model. The “measurement
date” for options and warrants related to contracts that have substantial disincentives to non-performance is the date of
the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a
straight-line basis over the shorter of the period over which services are to be received or the life of the option or warrant.
Aggregate
stock-based compensation expense charged to operations for stock and warrants granted to non-employees for the nine months ended
September 30, 2017 and 2016 was $420,696 and $224,471, respectively, of which $245,197 and $167,471, respectively, related to
stock issued during the periods. The expense related to stock not issued during the periods comprise: $63,000 and $57,000, respectively,
related to stock granted but not issued to directors under the Directors Deferred Compensation Plan; and $112,500 and $0, respectively
of fee4s payable in stock to Fountainhead that were accrued but not issued during the period.
During
the nine months ended September 30, 2017 warrants with a value of $86,754 were granted with performance vesting conditions; the
value of these options will not be recognized as share-based compensation unless or until the Company concludes that it is probably
the performance conditions will be achieved.
Stock-based
Compensation Valuation Methodology
Stock-based
compensation resulting from the issuance of Common Stock is calculated by reference to the valuation of the Stock on the date
of issuance, the expense being recognized as the compensation is earned. Stock-based compensation expenses related to employee
options and warrants granted to non-employees are recognized as the stock options and warrants are earned. The fair value of the
stock options or warrants granted is estimated at the grant date, using the Black-Scholes option pricing model, and the expense
is recognized on a straight-line basis over the shorter of the period over which services are to be received or the life of the
option or warrant. The grant date fair value of employee share options and similar instruments is estimated using the Black-Scholes
option pricing model on the basis of the fair value of the underlying common stock on the measurement date, adjusted for the unique
characteristics of those equity instruments, using the assumptions noted in the table below. Expected volatility is based on the
historical volatility of a peer group of publicly traded companies. The expected term of options and warrants was based upon the
expected life of the option or warrant, and the risk-free rate is based on the U.S. Treasury Constant Maturity rate.
The
following assumptions were used in calculations of the Black-Scholes option pricing model for the nine months ended September
30, 2017 and 2016:
|
|
Nine
Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rates
|
|
|
1.50
- 1.72%
|
|
|
|
0.91
|
%
|
Expected life
|
|
|
1.5
– 4.0 years
|
|
|
|
1.5
years
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
102%
- 104%
|
|
|
|
95
|
%
|
Vycor Common Stock fair value
|
|
$
|
0.20
|
|
|
$
|
0.71
|
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
Lease
The
Company leased office space located at 6401 Congress Ave., Suite 140, Boca Raton, FL 33487 from Catexor Limited Partnership for
a gross rent of $15,439 plus sales tax per month. The term of the lease was 5 years and 6 months and terminated July 30, 2017.
Effective August 1, 2017 the Company leased office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487
from WPT Land 2L.P., for a gross rent of approximately $5,700 plus sales tax per month. The lease terminates September 30, 2020.
The Company’s subsidiary in Germany occupies premises on a short-term lease agreement. Aggregate rent expense for the nine
months ended September 30, 2017 and 2016 was $134,229 and $159,176 respectively.
Potential
German tax liability
In
June 2012 the Company’s German subsidiary received a preliminary assessment for Magdeburg City trade tax of approximately
€75,000 (approximately $85,000). This assessment is for the 2010 fiscal year and relates to the Company’s acquisition
of the assets of the former NovaVision, Inc. An initial assessment for corporate tax for the same period has been preliminarily
reduced to zero. The Company has not accepted this trade tax assessment and is in discussion with the relevant tax authorities
with a view to its reduction. The tax authorities have agreed to suspend the assessment pending the outcome of certain court hearings,
and the Company has agreed to make limited monthly payments on account. To the extent that this assessment (either a higher or
a reduced amount) is ultimately confirmed by the tax authorities, the Company believes it has a very strong claim against certain
professional advisors which would offset the liability in full. Accordingly, the Company has made no provision for this liability
in the nine months ended September 30, 2017 and the year ended December 31, 2016 respectively, other than recording the monthly
payments as an expense.
Potential
Patent Infringement
The
Company was made aware in 2012 that a competitor in China had been granted a patent for related technology, and appeared to be
entering the market with products that infringe the Company’s own issued patent in China. Following investigation, the Company
initiated an invalidation of the competitor’s patent; in March 2014 the Patent Re-examination Board issued an Examination
Decision invalidating all the claims of the competitor’s patent. The competitor appealed the decision, but the Patent Review
Board denied the appeal and affirmed the Examination Decision, and the time for appeal has now passed. The Company has
been made aware that an additional two or more Chinese companies are marketing the products that appear to infringe the Company’s
Chinese patent, and is investigating this information to determine whether infringing products are being sold and the extent of
such sales. As a general rule the Company intends to take all necessary action to protect its patent portfolio to address any
material violation thereof, and the success of the above case confirms to competitors the priority of the Company’s Chinese
patent. As with all patent infringement actions, there is some risk that the accused infringer will not be found to infringe
the claims, and an additional risk that the accused infringer will successfully challenge the validity of the asserted claims.
8.
|
CONSULTING
AND OTHER AGREEMENTS
|
The
following agreements were entered into or remained in force during the nine months ended September 30, 2017:
During
the period ended September 30, 2017, following the achievement of certain milestones established in the March 2016 Compensation
Plan, the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued
during the year ended December 31, 2016, was paid to Fountainhead by the issuance of 1,571,429 shares of Common Stock (valued
at $330,000) during the period ended September 30, 2017.
In
March 2017 and effective April 1, 2017, as part of a streamlining of compensation arrangements with executive management, the
Company established the March 2017 Compensation Plan. Under this Plan, the Company amended the Fountainhead Consulting Agreement
(“the Amendment”) to increase the annual fees payable to Fountainhead by $330,000 to a total of $37,500 per month.
Concurrently, annual compensation payable to executive management under the March 2016 Compensation Plan was reduced by $330,000
to $0. These changes had no financial impact on the Company. The other terms of the Consulting Agreement remained the same, including
the ability of Fountainhead at its option to receive $5,000 per month in cash and the remainder payable in Company Common Stock
issued at the recent Private Placement price ($0.21) and deliverable at the end of each fiscal quarter. The Consulting Agreement
also contains provisions for Fountainhead to receive a higher proportion of its fees in cash subject to certain future liquidity
events and Board approval. Under the Amendment, Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2008 Stock
Option Plan, to purchase 660,000 shares of Company Common Stock at the same $0.27 exercise price as that of the warrants issued
in the Private Placement. Vesting of these options is subject to the achievement of certain milestones by March 31, 2018. These
options are consistent with the options granted to executive management under the March 2016 Compensation Plan.
During
the nine months ended September 30, 2017, under the terms of this amended Consulting Agreement, Fountainhead received total fees
of $255,000, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock, $7,200 was paid in cash
and $112,500 was accrued but not yet paid.
9.
|
RELATED
PARTY TRANSACTIONS
|
Peter
Zachariou, and David Cantor, directors of the Company, are investment managers of Fountainhead which is a related party due
to the size of its shareholding. Adrian Liddell, Chairman is a consultant for Fountainhead.
During
the period ended September 30, 2017, following the achievement of certain milestones established in the March 2016 Compensation
Plan, the Company accrued deferred compensation of $82,500. This together with the balance of the deferred compensation accrued
during the year ended December 31, 2016, was paid to Fountainhead through the issuance 1,571,429 shares of Common Stock (valued
at $330,000) during the period ended September 30, 2017.
During
the nine months ended September 30, 2017, under the terms of this amended Consulting Agreement referred to in Note 8, Fountainhead
received total fees of $255,000, of which $135,300 was paid through the issuance of 644,286 shares of Company Common Stock, $7,200
was paid in cash and $112,500 was accrued but not yet paid.
On
January 11, and February 23, 2017 the Company completed the sale of $1,274,717 in shares of Common Stock and Warrants to accredited
investors (the “Private Placement”). Fountainhead purchased a total of $477,939 of shares in the Private Placement
of which approximately $248,000 represented amounts that Fountainhead had already advanced to the Company and was held by the
Company in the form of notes. As a result, Fountainhead was issued 2,275,901 shares of Common Stock and three-year Warrants to
purchase 2,275,901 shares of Common Stock at an exercise price of $0.27.
During
the three months ended September 30, 2017 $112,500 of fees payable in stock were accrued; however these shares were not issued.
In
August 2014, Fountainhead and Peter Zachariou (collectively, the “Related Party Noteholders”) agreed, pursuant to
a Securities Exchange Agreement (“Exchange Agreement”), to exchange their outstanding debt from the Company into shares
of Company Series D Convertible Preferred Stock. Pursuant to the Exchange Agreement, on August 5, 2017 (the 3
rd
anniversary
of the exchange) the Related Party Noteholders were issued warrants exercisable into 599,651 shares of Common Stock, at a price
of $0.30 per share. The warrants expire on August 2, 2020 and were valued at $115,222.
The
Company evaluated subsequent events through the date the financial statements were issued and filed with this Quarterly Report:
None
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward
Looking Statements
This
Interim Report on Form 10-Q contains, in addition to historical information, certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (“PLSRA”), Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
regarding Vycor Medical, Inc. (the “Company” or “Vycor,” also referred to as “us”, “we”
or “our”). Forward-looking statements give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve
risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans
and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,”
“should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,”
“continuing,” “ongoing,” “expects,” “management believes,” “we believe,”
“we intend” or the negative of these words or other variations on these words or comparable terminology. These statements
may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
“Description of Business,” as well as in this Form 10-Q generally. In particular, these include statements relating
to future actions, prospective products or product approvals, future performance or results of current and anticipated products,
sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.
Any
or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions
we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Risk
Factors” and matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these
forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except to the
extent required by federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether
as the result of new information, future events, or otherwise. We intend that all forward-looking statements be subject to the
safe harbor provisions of the PSLRA.
1.
Organizational History
The
Company was formed as a limited liability company under the laws of the State of New York on June 17, 2005 as “Vycor Medical
LLC”. On August 14, 2007, we converted into a Delaware corporation and changed our name to “Vycor Medical, Inc.”.
The Company’s listing went effective on February 2009 and on November 29, 2010 Vycor completed the acquisition of substantially
all of the assets of NovaVision, Inc. (“NovaVision”) and on January 4, 2012 Vycor, through its wholly-owned NovaVision
subsidiary, completed the acquisition of all the shares of Sight Science Limited (“Sight Science”), a previous competitor
to NovaVision.
2.
Overview of Business
Vycor
is dedicated to providing the medical community with innovative and superior surgical and therapeutic solutions and operates two
distinct business units within the medical device industry. Vycor Medical designs, develops and markets medical devices for use
in neurosurgery. NovaVision provides non-invasive rehabilitation therapies for those who have vision disorders resulting from
neurological brain damage such as that caused by a stroke. Both businesses adopt a minimally or non-invasive approach. Both technologies
have strong sales growth potential, address large potential markets and have the requisite regulatory approvals. The Company has
66 issued or allowed patents and a further 11 pending. The Company leverages joint resources across the divisions to operate in
a cost-efficient manner.
The
Company periodically engages in discussions with potential strategic partners for or purchasers of each or both of our operating
divisions.
Vycor
Medical
Vycor
Medical designs, develops and markets medical devices for use in neurosurgery. Vycor Medical’s ViewSite Brain Access System
(“VBAS”) is a next generation retraction and access system that was fully commercialized in early 2010 and is the
first significant technological change to brain tissue retraction in over 50 years in contrast to significant development in most
other neuro-surgical technologies. Vycor Medical is ISO 13485:2003 compliant, and VBAS has U.S. FDA 510(k) clearance and CE Marking
for Europe (Class III) for brain and spine surgeries, and regulatory approvals in Australia, Brazil, Canada, China, Korea, Japan,
Russia and Taiwan.
We
believe VBAS offers several advantages over other brain retractor systems, commonly known as ribbon or blade retractors that are
metallic, including having the potential to significantly reduce brain tissue trauma that arises from excessive pressure at the
edges of the blade. The design of VBAS can minimize the size of the brain entry access necessary for surgical procedures, and
is believed to significantly reduce the pressure and hence trauma on the surrounding brain tissue.
NovaVision
NovaVision
provides non-invasive, computer-based rehabilitation targeted at a substantial and largely un-addressed market of people who have
lost their sight as a result of stroke or other brain injury. NovaVision addresses a significant target market, estimated at approximately
$2 billion in each of the U.S. and the EU and over $13 billion globally.
NovaVision
has a family of therapies that both restore and compensate for lost vision:
|
●
|
Restoration
of vision: NovaVision’s VRT and Sight Science’s Neuro-Eye Therapy (NeET), aim to improve visual sensitivity in
a person’s blind area. VRT delivers a series of light stimuli along the border of the patient’s visual field loss.
These programmed light sequences stimulate the border zone between the “seeing” and “blind” visual
fields, repetitively challenging the visual cortex in the border zone with a large number of stimuli over the course of time.
NeET targets deep within the blind area by repeated stimulation, allowing patients to detect objects within the blind field.
|
|
|
|
|
●
|
Compensation
and re-training: Normal eye movements are also affected after brain injury adding to the problems of blindness. NeuroEyeCoach
provides a complementary therapy to VRT and NeET, which re-trains a patient to move their eyes, re-integrate left and right
vision and to make the most of their remaining visual field.
|
VRT
and NeuroEyeCoach are therefore highly complementary and are provided in an Internet-delivered suite to ensure broad benefits
to NovaVision’s patients.
NovaVision
also has models of VRT and NeuroEyeCoach for physicians and rehabilitation clinics, as well as VIDIT, a diagnostic program that
enables therapists to perform high-resolution visual field tests in less than ten minutes.
NovaVision’s
VRT is the only medical device aimed at the restoration of vision lost as a result of neurological damage which has FDA 510(k)
clearance to be marketed in the U.S; and NeuroEyeCoach is registered in the US as a Class I 510(k) exempt device. VRT, NEC and
NeET have CE Marking for the EU. NovaVision has 45 granted and 1 pending patents worldwide.
Competition
The
VBAS device is both a brain access system and a retractor and is therefore unique with no direct competitors. Competitive manufacturers
of brain retractors include Cardinal Health (V. Mueller line), Aesculap, Integra Life Science and Codman (Division of Johnson
& Johnson). Nico Corporation has a brain access device specifically designed to work with its Myriad resection and suction
product.
NovaVision
provides restoration therapies (VRT and NeET) and compensation or saccadic therapies (NeuroEyeCoach) for those suffering vision
loss as a result of neurological trauma. The other therapy type for this condition is substitution (optical aids such as prisms)
and is not considered by NovaVision as competition.
In
restoration, competition has been reduced through NovaVision’s acquisition of Sight Science and there are a few very small
companies or entities offering some form of vision rehabilitation product in Germany. Within compensation there are no real direct
competitors. Other companies in the general rehabilitation space include RevitalVision, PositScience and Dynavision. In the professional
market, NovaVision competes with aggregator products or those that provide a range of non-specific therapies, such a Rehacom,
Sanet Vision Integrator and Bioness BITS. NovaVision’s products are dedicated to vision.
The
Market For the Company’s Products And Therapies
VBAS
is used for craniotomy procedures. Based on statistics from the American Association of Neurological Surgeons (AANS), management
estimates 700,000 such procedures are performed in the US annually. Of this, management believe approximately 225,000 (32 percent)
are addressable by the VBAS range currently, with another 100,000 (total of 325,000 or 46 percent) addressable by an expanded
future range. Management estimates, for the global market, there exists a current addressable market of approximately 1,100,000
procedures with another 500,000 addressable by an expanded VBAS range.
The
market for NovaVision’s therapies comprises those suffering from vision loss resulting from neurological trauma such as
stroke or other brain injury. The U.S. Centers for Disease Control (CDC) estimates there are approximately 8 million Americans
who have previously had a stroke incident, with 795,000 additional strokes occurring annually; adjusting for repeat strokes and
deaths, there are 481,000 new stroke survivors each year. Additionally, approximately 5.3 million Americans live with the long-term
effects of a TBI, with 275,000 hospitalizations each year. The most recent scientific research estimates that approximately 28.5%
experience some visual impediment and 20.5% of these patients experience a permanent visual field deficit, reducing mobility and
other activities of daily living. The target market for VRT and NeET is this 20.5% subset of patients who have suffered a permanent
visual field deficit; NeuroEyeCoach addresses all 28.5% of patients who experience visual impediments. Management estimates that
the addressable target market for its therapies is approximately 2.9 million people in the US, approximately 2.8 million people
in Europe and approximately 12.9 million people throughout the rest of the world.
Our
Growth Strategy
Vycor
Medical
Vycor
Medical’s growth strategy includes:
1.
Increasing U.S. market penetration through broader hospital coverage and targeted direct physician marketing. Vycor Medical’s
sales and marketing strategy is to penetrate a well-defined US target market of 4,500 neurosurgeons. Vycor markets direct to surgeons
as well as marketing and distributing through independent distributors, with a focus both on adding new hospitals and expanding
to additional surgeons in hospitals where VBAS is already approved, and to expand usage to a broader range of procedures. Vycor
is pursuing a policy of continually evaluating and upgrading its distributors as well as adding additional distributors in regions
where it has little to no presence.
2.
Provision of more Clinical and Scientific Data supporting the products superiority over the current standard-of-care blade retractors
and to demonstrate VBAS’ potential for cost savings. Clinical and scientific data (in the form of peer reviewed articles,
clinical studies and other reports and case studies) are critical in driving adoption, and in turn revenues, further and faster
by demonstrating VBAS’ superiority as a minimally invasive access system that helps VBAS move further up the hospital cost/benefit
curve. To date the Company has already had 11 Peer Reviewed studies and 6 other clinical papers published or presented.
3.
International Market Growth
Vycor
Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. VBAS
has regulatory approvals in Australia, Brazil, Canada, China, Europe (EU – Class III), Korea, Mexico, Japan, Russia and
Taiwan. Vycor Medical is actively pursuing new distribution agreements in the countries where it does not have any market presence.
4.
New Product Development
New
Product Development is targeted at both driving the use of its existing VBAS product range through ancillary products and modalities
that will facilitate the product’s use and through new product extensions to broaden VBAS applicability to procedures currently
not addressed by the existing product line.
Vycor
is modifying its existing VBAS product suite to make it easier to integrate with Image Guidance Systems (IGS) by re-engineering
its VBAS product range so that the entire range of 12 devices, excluding the VBASmini, will be able to more easily accommodate
pointers from the leading IGS system providers, the first phase of this was completed in September 2017. Increasingly,
all major neuro centers have image guidance systems, and where this is in place management believes over 90% of surgeries are
carried out using IGS and management strongly believes that the existing VBAS rigid structure lends itself well to being incorporated
into this increasing trend.
NovaVision
While
speech, physical, and occupational therapies are the long-standing treatment standards for stroke and TBI survivors, VRT is the
first and only FDA-cleared clinical component of vision restoration to physically enhance the visual field after a stroke or brain
injury. Increasingly the healthcare community, partly driven by strong lobbying by stroke associations worldwide, are recognizing
that vision is not only a significant issue post stroke or brain injury, but that visual field loss can have a significant impact
on the success of other rehabilitation modalities and the quality of life.
NovaVision
is now able to provide a clinically supported, cost-effective and scalable visual therapy solution offering broad benefits to
those suffering visual impairment following neurological brain damage, to both patients and medical professionals alike.
NovaVision
has four routes-to-market aimed at patients and professionals, comprising: direct-to-patient; rehabilitation centers and clinics;
stroke associations and support groups; and physicians. Given the company’s resources NovaVision is initially focused on
direct-to-patient, with a website lead-driven inbound and outbound marketing strategy targeted at prospective patients and relatives.
Following
the pilot launch of our NovaVision Center Model, comprising the Vision Diagnostics program and the NeuroEyeCoach training program,
we have substantially broadened the delivery and licensing model in response to feedback from clinics. The new Center Model has
a complete suite for the professional market, including options for software download, CD Rom, Cloud based and Hardware delivery
with flexible and cost-effective pricing options, and is now being offered in both the US and Europe.
Manufacturing
Vycor
Medical uses a sub-contract manufacturer to manufacture, package, label and sterilize its VBAS products. The Company has migrated
all its VBAS manufacturing to Life Science Outsourcing, Inc. in Brea, California that is FDA-registered and meets ISO standards
and certifications.
Intellectual
Property
Patents
Vycor
Medical maintains a portfolio of patent protection on its methods and apparatus for its Brain and Spine products and technology
in the form of issued patents and applications, both domestically and internationally, with a total of 21 granted/allowed and
10 pending patents.
NovaVision
maintains a portfolio of patent protection on its methods and apparatus in the form of issued patents and applications, both domestically
and internationally, with a total of 45 granted and 1 pending patents (including Sight Science).
Trademarks
VYCOR
MEDICAL
is a registered trademark and
VIEWSITE
is a common law trademark.
NovaVision
maintains a portfolio of registered trademarks for
NOVAVISION, NOVAVISION VRT
,
VRT VISION RESTORATION THERAPY
and
NEUROEYECOACH, amongst others, along with relevant logos, both in the US and internationally.
Employees
We
currently have 12 employees.
Comparison
of the Three Months Ended September 30, 2017 to the Three Months Ended September 30, 2016
Revenue
and Gross Margin:
|
|
Three
months ended
|
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
%
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vycor Medical
|
|
$
|
326,843
|
|
|
$
|
279,815
|
|
|
|
17
|
%
|
NovaVision
|
|
$
|
52,230
|
|
|
$
|
45,962
|
|
|
|
14
|
%
|
|
|
$
|
379,073
|
|
|
$
|
325,777
|
|
|
|
16
|
%
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Vycor Medical
|
|
$
|
277,324
|
|
|
$
|
245,412
|
|
|
|
13
|
%
|
NovaVision
|
|
$
|
46,417
|
|
|
$
|
42,849
|
|
|
|
8
|
%
|
|
|
$
|
323,741
|
|
|
$
|
288,261
|
|
|
|
12
|
%
|
Vycor
Medical recorded revenue of $326,843 from the sale of its products for the three months ended September 30, 2017, an increase
of $47,028, or 17%, over the same period in 2016. Vycor has been in the process, during 2017, of modifying its existing VBAS product
suite to make it easier to integrate with Imaging Guided Systems. The Company experienced manufacturing delays in connection with
this re-engineering during the first half of 2017 and as a result was unable to fulfil shipments of certain models, particularly
for some large international orders. These delays were resolved and back orders were filled during the third quarter. Gross margin
of 85% was recorded for the three months ended September 30, 2017 compared to 88% for the same period in 2016.
NovaVision
recorded revenues of $52,230 for the three months ended September 30, 2017, an increase of 14% over the same period in 2016, and
gross margin of 89%, compared to 93% for the same period in 2016.
Research
and Development Expense:
Research
and development (“R&D”) expenses were $0 for the three months ended September 30, 2017 and $4,153 for the three
months ended September 30, 2016.
General
and Administrative Expenses:
General
and administrative expenses increased by $11,080 to $546,615 for the three months ended September 30, 2017 from $535,535 for the
same period in 2016. Included within General and Administrative Expenses are non-cash charges for share based compensation from
the amortization of employee and non-employee shares, warrants and options which have been issued by the Company over various
periods. The charge for the three months ended September 30, 2017 was $141,937, an increase of $67,216 over $74,721 in 2016. Also
included within General and Administrative Expenses are Sales Commissions, which decreased by $4,796 to $43,712. The remaining
General and Administrative expenses decreased by $51,340 from $412,306 to $360,966.
An
analysis of the change in cash and non-cash G&A is shown in the table below:
|
|
Cash
G&A
|
|
|
Non-Cash
G&A
|
|
Legal, professional and
other consulting
|
|
|
14,351
|
|
|
|
-
|
|
Board, financial and scientific advisory
|
|
|
6,091
|
|
|
|
80,416
|
|
Sales, marketing and travel
|
|
|
5,201
|
|
|
|
-
|
|
Commissions
|
|
|
(4,796
|
)
|
|
|
|
|
Other (travel/regulatory/premises)
|
|
|
(21,337
|
)
|
|
|
-
|
|
Investor relations and road show costs
|
|
|
(21,411
|
)
|
|
|
(13,200
|
)
|
Payroll
|
|
|
(34,235
|
)
|
|
|
-
|
|
Total
change
|
|
|
(56,136
|
)
|
|
|
67,216
|
|
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, 2017 and 2016 was $0 and $4,663, respectively. Other Interest expense for 2016 decreased by $988 to $11,360
from $12,348 for 2016.
Comparison
of the Nine months Ended September 30, 2017 to the Nine months Ended September 30, 2016
Revenue
and Gross Margin:
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
%
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vycor Medical
|
|
$
|
949,053
|
|
|
$
|
961,821
|
|
|
|
-1
|
%
|
NovaVision
|
|
$
|
166,102
|
|
|
$
|
143,448
|
|
|
|
16
|
%
|
|
|
$
|
1,115,155
|
|
|
$
|
1,105,269
|
|
|
|
1
|
%
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Vycor Medical
|
|
$
|
824,176
|
|
|
$
|
820,830
|
|
|
|
0
|
%
|
NovaVision
|
|
$
|
148,226
|
|
|
$
|
131,596
|
|
|
|
13
|
%
|
|
|
$
|
972,402
|
|
|
$
|
952,426
|
|
|
|
2
|
%
|
Vycor
Medical recorded revenue of $949,053 from the sale of its products for the nine months
ended September 30, 2017, a decrease of $12,786, or 1%, over the same period in 2016.
Sales grew by 6% in the US in 2017 compared to 2016, offset by reduced international
sales. International sales tend to be irregular as international distributors follow
a pattern of placing large stocking orders. In addition, Vycor has been in the process,
during 2017, of modifying its existing VBAS product suite to make it easier to integrate
with Imaging Guided Systems. The Company experienced manufacturing delays in connection
with this re-engineering during the first half of 2017 and as a result was unable to
fulfil shipments of certain models, particularly for some large international orders.
These delays were resolved and back orders were filled during the third quarter. Gross
margin of 87% was recorded for the three months ended September 30, 2017 compared to
85% for the same period in 2016.
NovaVision
recorded revenues of $166,102 for the nine months ended September 30, 2017, an increase of 16% over the same period in 2016, and
gross margin of 89%, compared to 92% for the same period in 2016.
Research
and Development Expense:
Research
and development (“R&D”) expenses were $0 for the nine months ended September 30, 2017 and $4,153 for the nine
months ended September 30, 2016.
General
and Administrative Expenses:
General
and administrative expenses decreased by $166,138 to $1,710,244 for the nine months ended September 30, 2017 from $1,876,382 for
the same period in 2016. Included within General and Administrative Expenses are non-cash charges for share based compensation
from the amortization of employee and non-employee shares, warrants and options which have been issued by the Company over various
periods. The charge for the nine months ended September 30, 2017 was $422,305, an increase of $366 over $422,671 in 2016. Also
included within General and Administrative Expenses are Sales Commissions, which increased by $20,085 to $162,699. The remaining
General and Administrative expenses decreased by $185,857 from $1,311,097 to $1,125,240.
An
analysis of the change in cash and non-cash G&A is shown in the table below:
|
|
Cash
G&A
|
|
|
Non-Cash
G&A
|
|
Commissions
|
|
|
20,085
|
|
|
|
-
|
|
Board, financial and scientific advisory
|
|
|
10,352
|
|
|
|
43,622
|
|
Sales, marketing and travel
|
|
|
2,676
|
|
|
|
-
|
|
Other (travel/regulatory/premises)
|
|
|
(13,782
|
)
|
|
|
-
|
|
Legal, professional and other consulting
|
|
|
(14,406
|
)
|
|
|
-
|
|
Investor relations and road show costs
|
|
|
(50,849
|
)
|
|
|
(40,700
|
)
|
Payroll
|
|
|
(119,848
|
)
|
|
|
(3,288
|
)
|
Total
change
|
|
|
(165,772
|
)
|
|
|
(366
|
)
|
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, 2017 was $679 compared to $5,910 for 2016. Other Interest expense for 2016 decreased by $4,318 to $32,217
from $36,535 for 2016.
Liquidity
and Capital Resources
Liquidity
The
following table shows cash flow and liquidity data for the periods ended September 30, 2017 and December 31, 2016:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
$
Change
|
|
Cash
|
|
$
|
315,017
|
|
|
$
|
56,859
|
|
|
$
|
258,158
|
|
Accounts receivable, inventory and other
current assets
|
|
$
|
537,939
|
|
|
$
|
480,230
|
|
|
$
|
57,709
|
|
Total current liabilities
|
|
$
|
1,328,209
|
|
|
$
|
1,511,688
|
|
|
($
|
183,479
|
)
|
Working capital
|
|
($
|
475,253
|
)
|
|
($
|
1,031,458
|
)
|
|
$
|
556,205
|
|
Cash provided by financing activities
|
|
$
|
777,169
|
|
|
$
|
183,534
|
|
|
$
|
593,635
|
|
Operating
Activities. Cash used in operating activities comprises net loss adjusted for non-cash items and the effect of changes in working
capital and other activities. The net repayment of normal insurance financing should also be taken into account when considering
cash used in operating activities.
The
following table shows the principle components of cash used in operating activities during the nine months ended September 30,
2017 and 2016, with a commentary of changes during the periods and known or anticipated future changes:
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
$
Change
|
|
Net loss
|
|
($
|
1,101,909
|
)
|
|
($
|
1,164,822
|
)
|
|
$
|
62,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and
depreciation of assets
|
|
$
|
222,643
|
|
|
$
|
200,688
|
|
|
$
|
21,955
|
|
Share based compensation
|
|
$
|
309,805
|
|
|
$
|
422,671
|
|
|
($
|
112,866
|
)
|
Warrant issuance
expense
|
|
$
|
120,788
|
|
|
|
-
|
|
|
$
|
120,788
|
|
Accrued share based
compensation
|
|
$
|
112,500
|
|
|
|
-
|
|
|
$
|
112,500
|
|
Loss on foreign
exchange
|
|
$
|
988
|
|
|
$
|
877
|
|
|
$
|
111
|
|
Other
|
|
$
|
2,544
|
|
|
$
|
7,631
|
|
|
($
|
5,087
|
)
|
|
|
$
|
769,268
|
|
|
$
|
631,867
|
|
|
$
|
137,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss adjusted for non-cash items
|
|
($
|
332,641
|
)
|
|
($
|
532,955
|
)
|
|
$
|
200,314
|
|
Changes in working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable,
accounts payable and accrued liabilities
|
|
($
|
169,067
|
)
|
|
($
|
54,333
|
)
|
|
($
|
114,734
|
)
|
Inventory
|
|
($
|
10,678
|
)
|
|
$
|
61,796
|
|
|
($
|
72,474
|
)
|
Prepaid expenses,
change in security deposit and net insurance financing repayments
|
|
$
|
59,554
|
|
|
$
|
33,410
|
|
|
$
|
26,144
|
|
Accrued
interest (not paid in cash)
|
|
$
|
36,582
|
|
|
$
|
41,942
|
|
|
($
|
5,360
|
)
|
|
|
($
|
83,609
|
)
|
|
$
|
82,815
|
|
|
($
|
166,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in
operating activities, adjusted for net insurance repayments
|
|
($
|
416,250
|
)
|
|
($
|
450,140
|
)
|
|
$
|
33,890
|
|
The
adjustments to reconcile net loss to cash used of $769,268 in the period have no impact on Liquidity. The reduction in
net loss (as adjusted for non-cash items) by $200,314 to $332,641 was primarily due to a reduction of $170,925 in cash operating
expenses during the period. The net change in accounts receivable, accounts payable and accrued liabilities is primarily
the result of: the payment during the first quarter of $69,314 of accounts payable deferred at the end of December 2016; and an
increase in accounts receivable of $89,381 due in particular to a large customer order placed prior to the quarter end. During
the period the Company purchased VBAS inventory for $85,748. Vycor is in the process of modifying the VBAS product suite to make
it easier to integrate with IGS and as a result will be purchasing additional new inventory in the fourth quarter of approximately
$35,000.
Investing
Activities.
Cash used in investing activities for the nine months ended September 30, 2017 was $160,324, of which $146,793
reflected expenditure on modifying the VBAS product suite to make it easier to integrate with IGS; there will be additional mold
expenditure of approximately $20,000 in the fourth quarter.
Financing
Activities.
On January 11, and February 23, 2017 the Company completed the sale of $1,274,717 in shares of Common Stock and
Warrants to accredited investors (the “Private Placement”). Included in these gross proceeds is the conversion of
$248,000 of debt on the balance sheet at December 31, 2016, so that proceeds net of debt conversion were $1,026,717. The Private
Placement raised net cash proceeds, after debt conversion and expenses, of $943,207. $101,000 of these proceeds and $7,050 of
these expenses were reflected in the in the balance sheet at December 31, 2016 and so the net increase in liquidity during the
period from the Private Placement was $849,259.
During
the year ended December 31, 2016 Vycor’s largest shareholder, Fountainhead, had provided $248,000 of funding in the form
of notes payable, which was converted into Common Stock as part of the Private Placement Initial Closing. Fountainhead also advanced
$101,000 during the year ended December 31, 2016 in respect of the Private Placement. This amount was held in escrow at December
31, 2016 and represented part of the Private Placement Initial Closing.
Liquidity
and Plan of Operations
The
balance of cash at September 30, 2017 is $315,017. Management has evaluated the effects of the Private Placement described above
on the Company’s financial condition, as well as the continued revenue growth coupled with improved margins and control
of expenses. Management is of the opinion that any potential going concern uncertainty that previously existed has been remediated,
and that its existing cash and cash equivalents following the Private Placement, together with the continued reduction in losses
as a result of initiatives outlined below and short-term funding from Fountainhead, will be sufficient to meet its anticipated
cash requirements through at least November 30, 2018.
As
described earlier in this ITEM 2 “
Our Growth Strategy
”, the Company is executing on a plan to achieve a growth
in revenues for both the Vycor Medical and NovaVision divisions, and thereby further reduce its cash operating usage. For Vycor
Medical this includes in particular: increasing penetration in the US market through targeted marketing; increased international
market growth; and new product development centered around the modification of its VBAS product range to make it easier to integrate
with IGS systems, the first phase of which was completed in September 2017. For NovaVision, after a prolonged and now complete
period of re-development, the Company is focusing its resources on direct-to-patient marketing through a website lead-driven inbound
and outbound marketing strategy. In addition, the Company is now starting to market its NovaVision Center Model to medical professionals,
with a broad and flexible range of delivery and licensing options.
Critical
Accounting Policies and Estimates
Uses
of estimates in the preparation of financial statements
The
preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimated. To the extent management’s estimates prove to be incorrect, financial
results for future periods may be adversely affected. Significant estimates and assumptions contained in the accompanying consolidated
financial statements include management’s estimate of the allowance for uncollectible accounts receivable, amortization
of intangible assets, and the fair values of options and warrant included in the determination of debt discounts and share based
compensation.
Research
and Development
The
Company expenses all research and development costs as incurred.
Cash and cash equivalents
The Company maintains cash balances at various
financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000.
Cash balances may at times exceed the FDIC insured limits. Cash also includes a US investment account in a money market backed
by government securities up to 105% of the account balance. The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Included within cash are deposits paid by patients, held by the
Company until the patient returns the VRT device or chinrest at the end of therapy. At September 30, 2017 and December 31, 2016
patient deposits amounted to $40,073 and $33,351, respectively, and are included in Accrued Liabilities.
Fixed
assets
The
Company records fixed assets at cost and calculates depreciation using the straight-line method over the estimated useful life
of the assets, which is estimated to be between three and seven years. Maintenance, repairs and minor renewals are charged to
expense when incurred. Replacements and major renewals are capitalized.
Income
taxes
We
use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Patents
and Other Intangible Assets
The
Company capitalizes legal and related costs associated with the establishment and enhancement of patents for its products once
patents have been applied for. Costs associated with the development of the patented item or processes are charged to research
and development costs as incurred. The capitalized costs are amortized over the life of the patent. The Company reviews intangible
assets on an annual in accordance with the authoritative guidance. Trademarks have an indefinite life and are reviewed annually
by management for impairment in accordance with the authoritative guidance.
Software
Development Costs
The
authoritative accounting guidance requires software development costs to be capitalized upon completion of the preliminary project
stage. Accordingly, direct internal and external costs associated with the development of the features and functionality of the
Company’s software, incurred during the application development stage, are capitalized and amortized using the straight-line
method over the estimated life of five years.
Revenue
Recognition
Vycor
Medical generates revenue from the sale of its surgical access system to hospitals and other medical professionals. Vycor Medical
records revenue when a completed contract for the sale exists, the product is invoiced and shipped to the customer. Vycor Medical
does not provide for product returns or warranty costs.
NovaVision
generates revenues from various programs, therapy services and other sources such as license sales. Therapy services revenues
represent fees from NovaVision’s vision restoration therapy software, eye movement training software, diagnostic software,
clinic set up and training fees, and the professional and support services associated with the therapy. NovaVision provides vision
restoration therapy directly to patients. The typical vision restoration therapy consists of six modules, performed on average
over 6 months. A patient contract comprises set-up fees and monthly therapy fees. Set-up fees are recognized at the outset of
the contract and therapy revenue is recognized ratably over the therapy period. Patient therapy is restricted to being completed
by a patient within a specified time frame. NovaVision’s saccadic training software is generally completed within 2-4 weeks
and revenue is therefore recognized fully at commencement.
Deferred
revenue results from patients paying for the therapy in advance of receiving the therapy.
Accounts
Receivable and Allowance for Doubtful Accounts Receivable
The
Company’s accounts receivable are due from the hospitals and distributors in the case of Vycor Medical, and from patients
directly for therapy or physicians for diagnostic products in the case of NovaVision. Accounts receivable are due once products
have been delivered or at the time the therapy is initiated; however, some NovaVision therapy patients make monthly payments during
the therapy program. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its
allowance by considering a number of factors, including the length of time accounts receivable are past due, and the customer’s
ability to pay its obligations. The Company writes off accounts receivable when they become uncollectible.
Inventory
Inventories
are stated at the weighted average cost method. Net realizable value is the estimated selling price, in the ordinary course of
business, less estimated costs to complete and dispose of the product. If the Company identifies excess, obsolete or unsalable
items, its inventories are written down to their realizable value in the period in which the impairment is first identified. The
provision for inventory for the years ended September 30, 2017 and 2016 was $2,544 and $7,630, respectively. Shipping and handling
costs incurred for inventory purchases and product shipments are recorded in cost of sales.
Foreign
Currency
The
Euro is the local currency of the country in which NovaVision GmbH conducts its operations and is considered the functional currency
of this entity; the GB Pound is the local currency of the country in which Sight Science Limited conducts its operations and is
considered the functional currency of this entity. All balance sheet amounts are translated to U.S. dollars using the U.S. exchange
rate at the balance sheet date except for the equity section which is translated at historical rates. Operating statement amounts
are translated using an average exchange rate for the period of operations. Foreign currency translation effects are accumulated
as part of the accumulated other comprehensive income (loss) and included in shareholders’ (deficit) in the accompanying
Consolidated Balance Sheet.
Educational
marketing and advertising expenses
The
Company may incur costs for the education of customers on the uses and benefits of its products. The Company will include education,
marketing and advertising expense as a component of selling, general and administrative costs as such costs are incurred.