10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal quarter ended March 31, 2018
   
[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
   
  For the transition period from               to              

 

VYCOR MEDICAL, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware   333-149782   20-3369218
(State of   (Commission   (IRS Employer
Incorporation)   File Number)   Identification No.)

 

951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487
(Address of principal executive offices) (Zip code)

 

Issuer’s telephone number: (561) 558-2020

Securities registered under Section 12(g) of the Exchange Act:

Common Stock par value $0.0001

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer [  ]   Accelerated Filer [  ]
Non-accelerated Filer [  ] (Do not check if a smaller reporting company)   Smaller Reporting Company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [  ] No

 

There were 21,876,140 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of May 9, 2018.

 

Transitional Small Business Disclosure Format (check one): Yes [  ] No [X]

 

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
PART I
 
Item 1. Financial Statements 3
     
  Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 3
     
  Unaudited Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2018 and 2017. 4
     
  Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017. 5
     
  Notes to Unaudited Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 14
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
     
Item 4. Controls and Procedures 18
     
PART II
 
Item 1. Legal Proceedings 19
     
Item 1A. Risk Factors 19
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
     
Item 3. Defaults Upon Senior Securities 19
     
Item 4. Mine Safety Disclosures 19
     
Item 5. Other Information 19
     
Item 6. Exhibits 19
     
SIGNATURES 20

 

2
 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

VYCOR MEDICAL, INC.
Consolidated Balance Sheets

(Unaudited)

 

   March 31, 2018   December 31, 2017 
ASSETS          
Current Assets          
Cash  $101,934   $206,213 
Accounts receivable   130,483    110,422 
Inventory   201,003    213,883 
Prepaid expenses and other current assets   118,166    77,990 
Total Current Assets   551,586    608,508 
           
Fixed assets, net   470,054    489,170 
           
Intangible and Other assets:          
Trademarks   251,157    251,157 
Patents, net of accumulated amortization   69,623    81,064 
Website, net of accumulated amortization   9,246    10,389 
Security deposits   8,113    9,169 
Total Intangible and Other assets   338,139    351,779 
TOTAL ASSETS  $1,359,779   $1,449,457 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)          
Current Liabilities          
Accounts payable  $130,119   $141,319 
Accrued interest: Other   196,601    184,765 
Accrued interest: Related party   12,840    12,840 
Accrued liabilities - Other   227,696    161,328 
Accrued liabilities - Related Party   709,134    549,370 
Notes payable: Other   343,559    318,393 
Notes payable: Related Party   30,000    - 
Total Current Liabilities  $1,649,949   $1,368,015 
           
STOCKHOLDERS’ EQUITY (DEFICIENCY)          
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 270,306 and 270,306 issued and outstanding as at March 31, 2018 and December 31, 2017 respectively  $27   $27 
Common Stock, $0.0001 par value, 25,000,000 shares authorized, 20,175,322 and 19,925,322 shares issued and 20,071,988 and 19,821,988 outstanding at March 31, 2018 and December 31, 2017 respectively   2,018    1,993 
Additional Paid-in Capital   27,039,920    26,921,574 
Treasury Stock (103,334 shares of Common Stock as at March 31, 2018 and December 31, 2017 respectively, at cost)   (1,033)   (1,033)
Accumulated Deficit   (27,454,781)   (26,965,960)
Accumulated Other Comprehensive Income   123,679    124,841 
Total Stockholders’ Equity (Deficiency)   (290,170)   81,442 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)  $1,359,779   $1,449,457 

 

See accompanying notes to financial statements

 

3
 

 

VYCOR MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
(unaudited)

 

   For the three months ended March 31, 
   2018   2017 
         
Revenue  $325,101   $428,399 
Cost of Goods Sold   29,343    47,976 
Gross Profit   295,758    380,423 
           
Operating expenses:          
Depreciation and Amortization   42,003    69,372 
Selling, general and administrative   568,305    610,773 
Total Operating expenses   610,308    680,145 
Operating loss   (314,550)   (299,722)
           
Other income (expense)          
Interest expense: Related Party   -    (678)
Interest expense: Other   (12,026)   (12,043)
Loss on foreign currency exchange   (60)   (348)
Total Other Income (expense)   (12,086)   (13,069)
           
Loss Before Credit for Income Taxes   (326,636)   (312,791)
Credit for income taxes   -    - 
Net Loss   (326,636)   (312,791)
Preferred stock dividends   (162,185)   (162,186)
Net Loss available to common shareholders   (488,821)   (474,977)
Comprehensive Loss          
Foreign Currency Translation Adjustment   (1,162)   - 
 Comprehensive Loss  $(327,798)  $(312,791)
           
Net Loss Per Share          
Basic and diluted  $(0.02)  $(0.03)
           
Weighted Average Number of Shares Outstanding – Basic and Diluted   19,985,877    15,247,264 

 

See accompanying notes to financial statements

 

4
 

 

VYCOR MEDICAL, INC.
Consolidated Statement of Cash Flows
(unaudited)

 

   For the three months ended March 31, 
   2018   2017 
Cash flows from operating activities:          
Net loss  $(326,636)  $(312,791)
Adjustments to reconcile net loss to cash used in operating activities:          
Amortization of intangible assets   12,972    43,059 
Depreciation of fixed assets   32,346    29,992 
Inventory provision   -    2,544 
Stock based compensation   25,871    61,047 
Accrued liabilities - Related Party   112,500    82,500 
           
Changes in assets and liabilities:          
Accounts receivable   (20,061)   (98,944)
Inventory   12,880    14,982 
Prepaid expenses   (40,175)   27,030 
Security Deposits   1,056    - 
Accrued interest - Related Party   -    679 
Accrued interest - Other   11,836    11,836 
Accounts payable   (11,200)   (136,403)
Accrued liabilities - Other   43,945    31,668 
Cash used in operating activities   (144,666)   (242,801)
Cash flows from investing activities:          
Purchase of fixed assets   (13,230)   (71,331)
Cash used in investing activities   (13,230)   (71,331)
Cash flows from financing activities:          
Proceeds from issuance of common stock, net   -    842,207 
Proceeds from Notes Payable - Related Party   30,000    - 
Proceeds net of repayments Notes Payable - Other   25,166    (23,385)
Cash provided by financing activities   55,166    818,822 
Effect of exchange rate changes on cash   (1,549)   - 
Net increase (decrease) in cash   (104,279)   504,690 
Cash at beginning of period   206,213    56,859 
Cash at end of period  $101,934   $561,549 
           
Supplemental Disclosures of Cash Flow information:          
Cash paid for interest  $0   $0 
Cash paid for income tax  $0   $0 
Non-Cash Transactions:          
Common stock issued upon conversion of debt  $0   $248,000 
Common stock issued in respect of funds held in escrow  $0   $101,000 
Common stock issued to related party for payment of accrued liabilities  $92,500   $0 

 

See Accompanying Notes to Financial Statements

 

5
 

 

VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(unaudited)

 

1. BASIS OF PRESENTATION

 

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 8 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote disclosures normally included in consolidated financial statements have been omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2017 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, 2017.

 

The unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and 2017, 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 months ended March 31, 2018 and 2017 are not necessarily indicative of the results to be expected for any other interim period or for the entire year. Certain prior period amounts have been reclassified to conform to the current presentation.

 

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 $326,636 and $312,791 for the three months ended March 31, 2018 and 2017 respectively and has not generated cash flows from operations. As of March 31, 2018 the Company had a working capital deficiency of $346,389, excluding related party liabilities of $751,974. As a result, these conditions, among others, raise substantial doubt regarding our ability to continue as a going concern. The 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.

 

The Company is executing on a plan to achieve growth in revenues for both the Vycor Medical and NovaVision divisions as well as a reduction in costs, thereby reducing its cash operating usage. However, the Company believes it may not have sufficient cash to meet its various cash needs through May 30, 2019 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. Fountainhead, the Company’s largest shareholder, is currently providing 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.

 

6
 

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The unaudited 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

 

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:

 

   March 31, 2018   March 31, 2017 
Stock options outstanding   720,000    725,557 
Warrants to purchase common stock   6,829,386    8,469,239 
Debentures convertible into common stock   2,364,765    248,112 
Preferred shares convertible into common stock   1,272,052    1,272,052 
Directors Deferred Compensation Plan   558,612    297,690 
Total   11,744,815    11,012,650 

 

3. NOTES PAYABLE

 

Related Party Notes Payable

 

Related Party Notes Payable consists of:

 

   March 31, 2018   December 31, 2017 
Promissory notes payable to Fountainhead Capital Management Limited. 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.  $30,000   $- 
Total Related Party Notes Payable  $30,000   $- 

 

7
 

 

Other Notes Payable

 

Other Notes Payable consists of:

 

   March 31, 2018   December 31, 2017 
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, and has been extended on a number of occasions. On the note’s most recent due date, the note was amended and extended to December 31, 2018. See further note below.  $300,000   $300,000 
Insurance policy finance agreements.   43,559    18,393 
Total Notes Payable:  $343,559   $318,393 

 

On January 24, 2018 the Company entered into an amendment agreement (the “Amendment”) with EuroAmerican Investments (“EuroAmerican”) regarding its $300,000 loan note (the “Note”). Under the Amendment, the Note was extended until December 31, 2018 and the conversion terms of the Note reduced to $0.21, the same as the offering price of the 2018 Offering. Conversion of the Note and accrued interest would result in the issuance of 2,308,405 shares of Common Stock. Notwithstanding, EuroAmerican agreed that the Note could not be converted without first offering the Company the right to redeem the Note at principal and accrued interest, and secondly Fountainhead the right to purchase the Note, which cannot be converted prior to such offer and the failure of the Company and Fountainhead to exercise such option in accordance with the amendment terms. In addition, the Company agreed to issue warrants to purchase the same number of shares of Common Stock at $0.27, the same terms as the 2018 Offering, exercisable for three years from January 1, 2018, if and when the conversion option is exercised. The amendment was recognized as a modification, based on the guidance in ASC 470-50.

 

The Company routinely finances all their insurance policies through a third party finance company which requires a down payment and subsequent monthly payments, the time periods vary from 10 months to 12 equal monthly payments.

 

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 March 31, 
   2018   2017 
Revenue:          
Vycor Medical  $277,811   $369,887 
NovaVision  $47,290   $58,512 
   $325,101   $428,399 
Gross Profit          
Vycor Medical  $253,569   $328,596 
NovaVision  $42,189   $51,827 
   $295,758   $380,423 

 

8
 

 

   March 31, 2018   December 31, 2017 
Total Assets:          
Vycor Medical  $902,791   $977,145 
NovaVision   456,988    472,312 
Total Assets  $1,359,779   $1,449,457 

 

(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 March 31, 
   2018   2017 
Revenue:          
United States  $300,171   $401,072 
Europe  $24,930   $27,327 
   $325,101   $428,399 
Gross Profit          
United States  $273,581   $355,701 
Europe  $22,177   $24,722 
   $295,758   $380,423 

 

   March 31, 2018   December 31, 2017 
Total Assets:          
United States  $1,175,125   $1,263,197 
Europe   184,654    186,260 
Total Assets  $1,359,779   $1,449,457 

 

9
 

 

5. EQUITY

 

Common Stock and Stock Grants

 

During January to March 2018, the Company granted 48,085 shares of Common Stock (valued at $21,000) to non-employee Directors. Under the terms of the Directors Deferred Compensation Plan, the receipt of these shares is deferred until the January 15th following the termination of their services as a director. As of March 31, 2018 these shares have yet to be issued.

 

During January to March 2018, the Company issued 250,000 shares of Common Stock to Fountainhead for fees of $92,500 accrued at December 31, 2017 in accordance with the terms of a Consulting Agreement.

 

Warrants and Options

 

The details of the outstanding warrants and options are as follows:

 

STOCK WARRANTS:

 

       Weighted average 
   Number of shares   exercise price per share 
Outstanding at December 31, 2017   6,929,386   $0.31 
Granted   -    - 
Exercised   -    - 
Cancelled or expired   (100,000)   2.56 
Outstanding at March 31, 2018   6,829,386   $0.27 

 

STOCK OPTIONS:

 

       Weighted average 
   Number of shares   exercise price per share 
Outstanding at December 31, 2017   725,557   $0.95 
Granted   20,000    0.46 
Exercised   -    - 
Cancelled or expired   (25,557)   5.97 
Outstanding at March 31, 2018   720,000   $0.75 

 

On March 23, 2017 options to purchase 660,000 shares of Common Stock were granted to Fountainhead under the terms of a Consulting Agreement. These options will vest on July 1, 2018 subject to the achievement of certain milestones by June 30, 2018. On March 26, 2018 options to purchase 660,000 shares of Common Stock were granted to Fountainhead under the terms of a Consulting Agreement. These options will vest on April 1, 2019 subject to the achievement of certain milestones by March 31, 2019. These options are not included in the above table until such a time as they vest.

 

As of March 31, 2018, the weighted-average remaining contractual life of outstanding warrants and options is 1.89 and 1.06 years, respectively.

 

10
 

 

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 three months ended March 31, 2018 and 2017, the Company recognized share-based compensation of $4,871 and $1,609, 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 March 31, 2018 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 for stock and warrants granted to non-employees for the three months ended March 31, 2018 and 2017 was $133,500 and $141,938 of which $0 and $38,438, respectively, related to stock issued during the periods. The expense related to stock not issued during the periods comprise: $21,000, respectively for both periods, related to stock granted but not issued to directors under the Directors Deferred Compensation Plan; and $112,500 and $82,500, respectively of fees payable in stock to Fountainhead that were accrued but not issued during the period. As of March 31, 2018, there was $0 of total unrecognized compensation costs related to warrant and stock awards and non-vested options.

 

During the three months ended March 31, 2018 and 2017, options with a value of $216,582 and $86,754, respectively, were granted to Fountainhead with performance vesting conditions, (see Note 8); the value of these options will not be recognized as share-based compensation unless or until the Company concludes that it is probable 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.

 

11
 

 

The following assumptions were used in calculations of the Black-Scholes option pricing model for the three months ended March 31, 2018 and 2017:

 

   Three Months Ended March 31, 
   2018   2017 
Risk-free interest rates   2.41%   1.5%
Expected life   1.5 years    1.5 years 
Expected dividends   0%   0%
Expected volatility   107%   104%
Vycor Common Stock fair value  $0.49   $0.20 

 

7. COMMITMENTS AND CONTINGENCIES

 

Lease

 

The Company leases office space located at 951 Broken Sound Parkway, Suite 320, Boca Raton, FL 33487 from WPT Land 2 L.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. Rent expense for the three months ended March 31, 2018 and 2017 was $25,168 and $51,513 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 which were completed in October 2016. 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 three months ended March 31, 2018 and the year ended December 31, 2017 respectively, other than recording the monthly payments as an expense.

 

8. CONSULTING AND OTHER AGREEMENTS

 

The following agreements were entered into or remained in force during the period ended March 31, 2018:

 

Consulting Agreement with Fountainhead

 

In March 2017 and effective April 1, 2017, the Company amended the Fountainhead Consulting Agreement (“the Amendment”). Under the Amendment, fees of $450,000 are payable to Fountainhead, with an option to receive $5,000 per month in cash and the remainder payable in Company Common Stock issued at the higher of the Private Placement price ($0.21) and the average price for the 30 days prior to issuance, 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. In March 2018 the Company extended the time period for the achievement of these milestones to June 30, 2018.

 

In March 2018 Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2018 Stock Option Plan, to purchase 660,000 shares of Company Common Stock at an exercise price of $0.46 (the average closing price for the 5 trading days before the grant). Vesting of these options is subject to the achievement of certain milestones by March 31, 2019.

 

12
 

 

During the three months ended March 31, 2018, under the terms of this amended Consulting Agreement, Fountainhead received total fees of $112,500, which were paid after the period end through the issuance of 234,375 shares of Company Common Stock.

 

9. RELATED PARTY TRANSACTIONS

 

Peter Zachariou, and David Cantor, directors of the Company, are investment managers of Fountainhead which owned, at March 31, 2018, 47% of the Company’s Common Stock and 95% of the Company’s Preferred D Stock. Adrian Liddell, Chairman is a consultant for Fountainhead.

 

As referred to in Note 3, on January 24, 2018 the Company entered into the Amendment with EuroAmerican. regarding its $300,000 Note. Under the Amendment, EuroAmerican granted a right of first refusal prior to converting or selling or the Note a) first to Vycor to redeem the Note and accrued interest at face value and b) if not exercised second to Fountainhead to purchase the Note and accrued interest at face value on the same terms.

 

In March 2018 Fountainhead was granted options pursuant to the Vycor Medical, Inc. 2018 Stock Option Plan, to purchase 660,000 shares of Company Common Stock at an exercise price of $0.46 (the average closing price for the 5 trading days before the grant). Vesting of these options is subject to the achievement of certain milestones by March 31, 2019.

 

During the three months ended March 31, 2018, under the terms of the Consulting Agreement referred to in note 8, the Company issued 250,000 shares of Common Stock to Fountainhead for fees of $92,500 accrued at December 31, 2017 and accrued fees of $112,500, which were paid after the period end through the issuance of 234,375 shares of Company Common Stock.

 

During the three months ended March 31, 2018, the Company accrued an aggregate of $162,185 of Preferred D Stock dividends, of which an aggregate of $154,712 Preferred D Stock dividends were in respect of related parties.

 

During March 2018 the Company issued unsecured loan notes to Fountainhead for a total of $30,000. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary.

 

10. CONCENTRATION

 

Vycor sells its neurosurgical devices in the US primarily direct to hospitals, and internationally through distributors who in turn sell to hospitals. The sales to one international distributor represented 0% and 17%, respectively, of total sales for the three months ended March 31, 2018 and 2017.

 

11. SUBSEQUENT EVENTS

 

  (1) On April 20, 2018, under the terms of the Consulting Agreement referred to in note 8, the Company issued an aggregate of 690,216 shares of Company Common Stock to Fountainhead for fees of $245,000 accrued at March 31, 2018.
     
  (2) Also on April 20, 2018, the Company issued an aggregate of 1,113,936 shares of Company Common Stock on the cashless exercise of an aggregate of Warrants to purchase 3,111,560 shares of Common Stock.
     
  (3) On April 23, 2018, a Certificate of Amendment was filed with the Delaware Secretary of State, effecting the change in the Company’s authorized capital from 35,000,000 shares (comprising 25,000,000 Common Shares and 10,000,000 Preferred Shares) to 65,000,000 shares (comprising 55,000,000 Common Shares and 10,000,000 Preferred Shares). All shares have a par value of $0.0001 per share.

 

Other than the foregoing, the Company has evaluated the existence of events and transactions subsequent to the balance sheet date through the date the consolidated financial statements were issued and has determined that there were no significant subsequent events or transactions which would require recognition or disclosure in the financial statements.

 

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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”).

 

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 68 issued or allowed patents and a further 7 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner.

 

The Company periodically engages in discussions with potential strategic partners for or purchasers of each or both of our operating divisions.

 

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. Vycor has 23 granted and 6 pending patents worldwide.

 

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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.

 

Comparison of the Three Months Ended March 31, 2018 to the Three Months Ended March 31, 2017

 

Revenue and Gross Margin:

 

   Three months ended March 31, 
   2018   2017   % Change 
Revenue:               
Vycor Medical  $277,811   $369,887    -25%
NovaVision  $47,290   $58,512    -19%
   $325,101   $428,399    -24%
Gross Profit               
Vycor Medical  $253,569   $328,596    -23%
NovaVision  $42,189   $51,827    -19%
   $295,758   $380,423    -22%

 

Vycor Medical recorded revenue of $277,811 from the sale of its products for the three months ended March 31, 2018, a decrease of $92,076 over the same period in 2017. One international distributor that did not place an order in the first quarter of 2018 accounted for $61,750 of the decrease; international sales tend to be irregular as international distributors follow a pattern of place large stocking orders. Gross margin of 91% was recorded for the three months ended March 31, 2018 compared to 89% for the same period in 2017.

 

NovaVision recorded revenues of $47,290 for the three months ended March 31, 2018, a decrease of $11,222 over the same period in 2017, and gross margin of 89%, for both periods. There was an unusually large number of new patient starts in the first quarter of 2017; new patient starts for the first quarter of 2018 were the same as the average for the whole of 2017.

 

Selling,General and Administrative Expenses:

 

Selling, general and administrative expenses decreased by $42,468 to $568,305 for the three months ended March 31, 2018 from $610,773 for the same period in 2017. 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 three months ended March 31, 2018 was $138,371, a decrease of $5,176 over $143,547 in 2017. Also included within Selling, General and Administrative Expenses are Sales Commissions, which decreased by $21,992 from $70,930 to $48,938 in 2018. The remaining Selling, General and Administrative expenses decreased by $15,300 from $396,296 to $380,996 in 2018.

 

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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 
Payroll   4,723    3,262 
Board, financial and scientific advisory   (514)   (8,438)
Sales, marketing and travel   (2,093)   - 
Other (travel/regulatory/premises)   (30,144)   - 
Legal, professional and other consulting   12,728    - 
Commissions   (21,992)     
Total change   (37,292)   (5,176)

 

Interest Expense:

 

Interest comprises expense on the Company’s debt and insurance policy financing. Related Party Interest expense for the three months ended March 31, 2018 was $0 compared to $678 for 2017. Other Interest expense for 2018 increased by $17 to $12,026 from $12,043 for 2017.

 

Liquidity and Capital Resources

 

Liquidity

 

The following table shows cash flow and liquidity data for the periods ended March 31, 2018 and December 31, 2017:

 

   March 31, 2018   December 31, 2017   $ Change 
Cash  $101,934   $206,213   $(104,279)
Accounts receivable, inventory and other current assets  $449,652   $402,295   $47,357 
Total current liabilities  $(1,649,949)  $(1,368,015)  $(281,934)
Working capital  $(1,098,363)  $(759,507)  $(338,856)
Cash provided by financing activities  $55,166   $863,851   $(808,685)

 

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.

 

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The following table shows the principle components of cash used in operating activities during the three months ended March 31, 2018 and 2017, with a commentary of changes during the periods and known or anticipated future changes:

 

   March 31, 2018   March 31, 2017   $ Change 
Net loss  $(326,636)  $(312,791)  $(13,845)
                
Adjustments to reconcile net loss to cash used in operating activities:               
Amortization and depreciation of assets  $45,318   $73,051   $(27,733)
Share based compensation  $25,871   $61,047   $(35,176)
Accrued share based compensation  $112,500   $82,500   $(30,000 
Other  $0   $2,544   $(2,544)
   $183,689   $219,142   $(35,453)
                
Net loss adjusted for non-cash items  $(142,947)  $(93,649)  $(49,298)
Changes in working capital               
Accounts receivable, accounts payable, security deposit and accrued liabilities  $13,740   $(203,679)  $217,419 
Inventory  $12,880   $14,982   $(2,102)
Prepaid expenses and net insurance financing repayments  $(15,009)  $3,645   $(18,654)
Accrued interest (not paid in cash)  $11,836   $12,515   $(679)
   $23,447   $(172,537)  $195,984 
                
Cash used in operating activities, adjusted for net insurance repayments  $(119,500)  $(266,186)  $146,686 

 

The adjustments to reconcile net loss to cash of $183,689 in the period have no impact on liquidity. The increase in net loss (as adjusted for non-cash items) by $49,298 to $142,947 was primarily a result of reduced revenues. During the first quarter of 2017 a number of material and unusual items impacted the net accounts receivable, accounts payable and accrued liabilities; these have been reversed in the first quarter of 2018. In addition, the Company typically renews a large number of annual expense contracts such as insurances and licenses during the first quarter, which has an impact on cash usage. The Company is in the process of modifying the VBAS product suite to make it easier to integrate with IGS. The first phase of this project was completed in September 2017 and additional inventory of $10,306 was purchased during the period. The Company anticipates completing the second phase of this project during 2018 and as a result will purchase additional new inventory of approximately $45,000.

 

Investing Activities. Cash used in investing activities for the three months ended March 31, 2018 was $13,230, which primarily 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 during 2018 of approximately $90,000.

 

Financing Activities. During and subsequent to the period ending March 31, 2018 the Company received funds of $73,000 in respect of a loan from Fountainhead.

 

Liquidity and Plan of Operations, Ability to Continue as a Going Concern

 

The Company has incurred losses since its inception, including a net loss of $326,636 and $312,791 for the three months ended March 31, 2018 and 2017 respectively and has not generated cash flows from operations. As of March 31, 2018 the Company had a working capital deficiency of $346,389, excluding related party liabilities of $751,974. As a result, these conditions among others raise substantial doubt regarding our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

As described earlier in this ITEM 2 “Our Growth Strategy”, the Company is executing on a plan to achieve growth in revenues for both the Vycor Medical and NovaVision divisions as well as reduction in costs, thereby further reducing its cash operating usage. For Vycor Medical this includes in particular: increasing penetration in the US market through targeted marketing and a potential new medical education program; increased international market growth; and new product development centered around the modification of its existing VBAS product range to make it more easy to use with the most common 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. Given the company’s resources, and the size and diversity of the professional market, NovaVision believes the best route to the professional market for its products is by partnering with entities who have already established distribution channels and expertise in the various professional target markets. The Company is identifying and is in dialogue with such qualified entities; the range of alternatives for NovaVision could comprise distribution partnerships, merger, sale and/or restructuring of its activities.

 

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However, the Company believes it may not have sufficient cash to meet its various cash needs through May 31, 2019 unless the Company is able to obtain additional cash from the issuance of debt or equity securities. Fountainhead, the Company’s largest shareholder, is currently providing 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 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.

 

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, 2017.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Disclosure Controls and Procedures

 

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

 

The Company’s management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and our CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports its files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and its CFO, as appropriate, to allow timely decisions regarding required disclosure. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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(b) Changes in Internal Controls

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of May 9, 2018, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

 

ITEM 1A. RISK FACTORS.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Issuance Type   Security   Shares
FHC Management Fees   Common   940,215
FHC Warrant Exercise   Common   979,283
Director Warrant Exercise   Common   48,856
Shareholder Warrant Exercise   Common   85,797

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

Index to Exhibits

 

31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 11, 2018.

 

  Vycor Medical, Inc.
  (Registrant)
     
  By: /s/ Peter C. Zachariou
    Peter C. Zachariou
    Chief Executive Officer and Director (Principal Executive Officer)
     
  Date May 11, 2018
     
  By: /s/ Adrian Liddell
    Adrian Liddell
    Chairman of the Board and Director
    (Principal Financial and Accounting Officer)
     
  Date May 11, 2018

 

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