10-Q 1 vycorq210q06-2016asof0803.htm FORM 10Q Blueprint
 

 
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended    June 30, 2016
 
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 Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
6401 Congress Ave., Suite 140, 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 ☒  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 
 
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 11,110,594 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of August 5, 2016.
 
Transitional Small Business Disclosure Format (check one):   Yes ☐    No ☒
 
 
 
 
TABLE OF CONTENTS
 
PART I
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015
 
 
Unaudited Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2016 and June 30, 2015.
 
 
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and June 30, 2015.
 
 
Notes to Unaudited Consolidated Financial Statements
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
 
PART II
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
 
 
 
SIGNATURES
 
 
 
 
 
PART I
 
ITEM 1.   FINANCIAL STATEMENTS
 
VYCOR MEDICAL, INC.
Consolidated Balance Sheets
(unaudited)

 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
ASSETS 
 
 
 
 
 
 
Current Assets 
 
 
 
 
 
 
Cash
  $87,709 
  $347,477 
Trade accounts receivable, net of allowance for doubtful accounts of $2,711 and $2,711
    222,636 
    106,340 
Inventory
    239,696 
    292,538 
Prepaid expenses and other current assets
    88,748 
    112,338 
Total Current Assets
    638,789 
    858,693 
Fixed assets, net 
    457,693 
    521,105 
Intangible and Other assets: 
       
       
Trademarks
    251,157 
    251,157 
Patents, net of accumulated amortization
    274,506 
    323,138 
Website, net of accumulated amortization
    17,253 
    19,548 
Security deposits
    42,841 
    49,090 
Total Intangible and Other assets
    585,757 
    642,933 
TOTAL ASSETS 
  $1,682,239 
  $2,022,731 
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
       
Current Liabilities 
       
       
Accounts payable
  $155,181 
  $250,367 
Accrued interest: Other
    113,814 
    88,634 
Accrued liabilities
    258,264 
    222,258 
Notes payable: Related Party
    185,000 
    - 
Notes payable: Other
    312,153 
    315,750 
Total Current Liabilities  and Total Liabilities
    1,024,412 
    877,009 
STOCKHOLDERS’ EQUITY
       
       
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 261,168 and 252,336 issued and outstanding as at June 30, 2016 and December 31, 2015 respectively
  $26 
  $25 
Common Stock, $0.0001 par value, 25,000,000 shares authorized at June 30, 2016 and December 31, 2015, 11,158,069 and 11,032,560 shares issued and 11,054,735 and 10,929,226 outstanding at June 30, 2016 and December 31, 2015 respectively
    1,116 
    1,103 
Additional Paid-in Capital
    24,782,310 
    24,346,057 
Treasury Stock (103,334 shares of Common Stock as at June 30, 2016 and December 31, 2015 respectively, at cost)
    (1,033)
    (1,033)
Accumulated Deficit
    (24,253,779)
    (23,332,538)
Accumulated Other Comprehensive Income
    129,187 
    132,108 
Total Stockholders’ Equity
    657,827 
    1,145,722 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $1,682,239 
  $2,022,731 
 
See accompanying notes to financial statements
 
 
 
 
VYCOR MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
(unaudited)
 
 
 
For the three months ended June 30,
 
 
For the six months ended June 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
  $379,406 
  $286,018 
  $779,492 
  $614,570 
Cost of Goods Sold
    48,086 
    33,981 
    115,325 
    85,674 
Gross Profit
    331,320 
    252,037 
    664,167 
    528,896 
 
       
       
       
       
Operating expenses:
       
       
       
       
Research and development
    - 
    15,672 
    - 
    38,898 
Depreciation and Amortization
    66,310 
    86,708 
    129,595 
    169,357 
General and administrative
    556,512 
    607,750 
    1,340,846 
    1,387,052 
Total Operating expenses
    622,822 
    710,130 
    1,470,441 
    1,595,307 
Operating loss
    (291,502)
    (458,093)
    (806,274)
    (1,066,411)
 
       
       
       
       
Other income (expense)
       
       
       
       
Interest expense: Other
    (12,206)
    (11,842)
    (24,188)
    (23,682)
Interest expense: Related Party
    (1,247)
    - 
    (1,247)
    - 
Gain (loss) on foreign currency exchange
    (408)
    17,723 
    (1,214)
    (74,147)
Change in fair value derivative liability
    - 
    31,945 
    - 
    19,792 
Total Other Income (expense)
    (13,861)
    37,826 
    (26,649)
    (78,037)
 
       
       
       
       
Loss Before Credit for Income Taxes
    (305,363)
    (420,267)
    (832,923)
    (1,144,448)
         Credit for income taxes
    - 
    - 
    - 
    - 
Net Loss
    (305,363)
    (420,267)
    (832,923)
    (1,144,448)
        Preferred stock dividends
    - 
    - 
    (88,318)
    (82,446)
Net Loss available to common shareholders
    (305,363)
    (420,267)
    (921,241)
    (1,226,894)
Comprehensive Loss
       
       
       
       
 Net Loss
    (305,363)  
     (420,267)  
     (832,923)  
      (1,144,448) 
 Foreign Currency Translation Adjustment
    2,921 
    19,076 
    2,921 
    (80,577)
 Comprehensive Loss
    (302,442)
    (401,191)
    (830,002)
    (1,225,025)
 
       
       
       
       
Net Loss Per Share
       
       
       
       
Basic and diluted
  $(0.03)
  $(0.04)
  $(0.08)
  $(0.11)
 
       
       
       
       
Weighted Average Number of Shares Outstanding – Basic and Diluted
    11,007,522 
    10,819,691 
    10,971,203 
    10,806,338 
 
See accompanying notes to financial statements
 
 
 
 
VYCOR MEDICAL, INC.
Consolidated Statement of Cash Flows
(unaudited)
 

 
For the six months ended
 
 
 
June 30,
 
 
 
2016
 
 
2015
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss
    (832,923)
    (1,144,448)
Adjustments to reconcile net loss to cash used in operating activities:
       
       
Amortization of intangible assets
    50,927 
    41,700 
Depreciation of fixed assets
    83,395 
    132,418 
Inventory provision
    2,544 
    15,162 
Share based compensation
    347,950 
    138,460 
Loss on foreign exchange
    1,214
    74,147 
Unrealized gain on change in fair value of derivative liability
    - 
    (19,792)
 
       
       
Changes in assets and liabilities:
       
       
Accounts receivable
    (116,299)
    10,342 
Inventory
    50,299 
    35,570 
Prepaid expenses
    59,468 
    65,259 
Accrued interest related party
    1,247 
    - 
Accrued interest other
    23,934 
    23,803 
Accounts payable
    (95,186)
    (97,137)
Accrued liabilities
      34,298 
    (33,638)
Security Deposit
    6,250 
    6,250 
Cash used in operating activities
    (382,882)
    (751,904)
Cash flows from investing activities:
       
       
Purchase of fixed assets
    (20,231)
    (26,486)
Purchase of website
    - 
    (3,250)
Acquisition of patents
    - 
    (66,276)
Cash used in investing activities
    (20,231)
    (96,012)
Cash flows from financing activities:
       
       
Net proceeds from issuance of Notes Payable - Related Party
    185,000 
    0 
Repayment of Notes Payable – Other
    (39,475)
    (40,280)
Cash provided by (used in) financing activities
    145,525 
    (40,280)
Effect of exchange rate changes on cash
      (2,181) 
    7,256 
Net decrease in cash
    (259,768)
    (880,940)
Cash at beginning of period
    347,477 
    1,891,658 
Cash at end of period
    87,709 
    1,010,718 
 
       
       
Supplemental Disclosures of Cash Flow information:
       
       
Non-Cash Transactions:
       
       
Preferred stock dividends satisfied in new preferred stock
  $88,318 
  $82,446 
 
See Accompanying Notes to Financial Statements
 
 
 
VYCOR MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(unaudited)
 
1.            BASIS OF PRESENTATION
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, 2015 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, 2015.
 
The consolidated financial statements for the three and six months ended June 30, 2016 and 2015, 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 six months ended June 30, 2016 and 2015 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.
 
2.            GOING CONCERN
The Company’s financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $823,923 for the six months ended June 30, 2016, and the Company expects to continue to incur additional losses in the future, including additional development costs, costs related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of June 30, 2016 the Company had a stockholders’ equity of $657,827 and cash and cash equivalents of $87,709. The Company believes it would not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease some or all of its operations. These conditions raise substantial doubt about the Company’s 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.
 
3.            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. Certain reclassifications and format changes have been made to prior year amounts to conform to the current year presentation.
 
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:
 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
Stock options outstanding
    705,557 
    25,557 
Warrants to purchase common stock
    6,007,048 
    6,007,048 
Debentures convertible into common stock
    229,204 
    215,908 
Preferred shares convertible into common stock
    2,444,275 
    1,188,471 
Directors Deferred Compensation Plan
    59,083 
    - 
Total
    9,445,167 
    7,436,984 
 
 
 
 
4.            NOTES PAYABLE
 
 
Related Party Notes Payable
 
As of June 30, 2016 and December 31, 2015 Related Party Notes Payable consists of:
 
 
 
June 30, 2016
 
 
December 31, 2015
 
In the period the Company issued promissory notes to Fountainhead Capital Management Limited and Peter Zachariou for $185,000. 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.
    185,000 
    - 
Total Related Party Notes Payable
    185,000 
    - 
 
Other Notes Payable
 
As of June 30, 2016 and December 31, 2015, Other Notes Payable consists of:
 
 
June 30, 2016
 
 
December 31, 2015
 
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 June 30, 2016 the Company made payments of $41,066. The notes are due over the next twelve months.
    12,153 
    15,750 
Total Other Notes Payable:
    312,153 
    315,750 
 
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.
 
 
 
 
5.            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 June 30,
 
 
Six Months Ended June 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
     Vycor Medical
  $333,085 
  $221,258 
  $682,006 
  $480,107 
     NovaVision
  $46,321 
  $64,760 
  $97,486 
  $134,463 
 
  $379,406 
  $286,018 
  $779,492 
  $614,570 
Gross Profit 
       
       
       
       
     Vycor Medical
  $288,812 
  $193,743 
  $575,420 
  $412,794 
     NovaVision
  $42,508 
  $58,294 
  $88,747 
  $116,102 
 
  $331,320 
  $252,037 
  $664,167 
  $528,896 
 

 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
Total Assets:
 
 
 
 
 
 
Vycor Medical
  $911,025 
  $1,150,291 
NovaVision
    771,214 
    872,440 
Total Assets
  $1,682,239 
  $2,022,731 
 
(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 June 30,
 
 
Six Months Ended June 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
     United States
  $356,170 
  $248,059 
  $728,476 
  $531,998 
     Europe
  $23,236 
  $37,959 
  $51,016 
  $82,572 
 
  $379,406 
  $286,018 
  $779,492 
  $614,570 
Gross Profit 
       
       
       
       
     United States
  $309,318 
  $217,977 
  $616,556 
  $456,328 
     Europe
  $22,002 
  $34,060 
  $47,611 
  $72,568 
 
  $331,320 
  $252,037 
  $664,167 
  $528,896 
 

 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
Total Assets:
 
 
 
 
 
 
     United States
  $1,399,124 
  $1,699,589 
     Europe
    283,115 
    323,142 
Total Assets
  $1,682,239 
  $2,022,731 
 
6.            EQUITY 
 
Preferred Stock
 
During the six months ended June 30, 2016, the Company paid an aggregate of 8,831 shares of Preferred D Stock, valued at $88,318, representing preferred stock dividends. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 41,074 shares. An aggregate of 8,424 shares of Preferred D Stock dividends were in respect of related parties (See Note 11).
 
Common Stock and Stock Grants
 
During January to June 2016, the Company granted 59,083 shares of Common Stock (valued at $36,000) 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.
 
During January to June 2016, the Company issued 32,254 shares of Common Stock (valued at $20,000) to members of the NovaVision, Inc. Scientific Advisory Board in respect of their services.
 
During January to June 2016, in accordance with the terms the Consulting Agreement, the Company issued 33,333 shares of Common Stock (valued at $60,000) to Fountainhead.
 
In April 2016, the Company entered into a Consulting Agreement with Techmed Inc. and issued 9,921 share of Common Stock (valued at $6,250) under the agreement.
 
In May 2016, the Company entered into a Consulting Agreement with Valeo Consulting and issued 50,000 share of Common Stock (valued at $27,500) under the 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, 2014
    5,911,715 
  $2.57 
Granted
    100,000 
  $2.56 
Exercised
    - 
    - 
Cancelled or expired
    (4,667)
    - 
Outstanding at December 31, 2015
    6,007,048 
  $2.57 
Granted
    - 
    - 
Exercised
    - 
    - 
Cancelled or expired
    - 
    - 
Outstanding at June 30, 2016
    6,007,048 
  $2.57 
 
STOCK OPTIONS:
       
 
Weighted average
 

    Number of Shares 
 
exercise price per share
 
Outstanding at December 31, 2014
    5,557 
  $20.25 
Granted
    20,000 
  $2.00 
Exercised
    - 
    - 
Cancelled or expired
    - 
    - 
Outstanding at December 31, 2015
    25,557 
  $20.25 
Granted
    680,000 
  $0.79 
Exercised
    - 
    - 
Cancelled or expired
    - 
    - 
Outstanding at June 30, 2016
    705,557 
  $0.97 
 
As of June 30, 2016, the weighted-average remaining contractual life of outstanding warrants and options is 0.76 and 3.89 years, respectively. 
 
7.            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 six months ended June 30, 2016 and 2015, the Company recognized share-based compensation of $198,200 and $25,011, 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 June 30, 2016 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 six months ended June 30, 2016 was $149,750.
 
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 six months ended June 30, 2016 and 2015:
 
 
 
Six Months Ended June 30,
 
 
 
2016
 
 
2015
 
Risk-free interest rates 
    0.91%
    1.07%
Expected life 
    1.5 years   
    3 years   
Expected dividends
    0%
    0%
Expected volatility 
    95%
    101%
Vycor Common Stock fair value
  $0.71 
  $2.00 
 
8.            FAIR VALUE MEASUREMENTS
 
The Company has adopted ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The adoption of ASC 820 did not have an impact on the Company’s financial position or results of operations.
 
Under the terms of the Offering during the period January 2 to April 25, 2014, in five separate closings, a total of 2,397,631 Series A Warrants and Placement Agent Warrants were issued, which carried anti-dilution rights. Effective May 15, 2014 these anti-dilution rights were waived for all but 34,723 of the Series A Warrants and for all of the Placement Agent Warrants. The Company accounted for the Series A Warrants in accordance with the guidance contained in ASC 815-40-15-7D, whereby under that provision, because they had anti-dilution rights, they did not meet the criteria for equity treatment and needed to be recorded as a liability. Accordingly, the Company classified the warrant instrument as a liability at its fair value and adjusted the instrument to fair value at each reporting period. The anti-dilution provisions expired on June 11, 2015 and accordingly the liability was extinguished at that date.
 
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis (the 34,723 Series A Warrants above) as of June 30, 2016 and December 31, 2015 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the liability, and includes situations where there is little, if any, market activity for the liability:
 
Description
 
June 30, 2016 and December 31, 2015
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant Liability
  $0 
  $- 
  $- 
  $0 
 
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured using fair significant unobservable inputs (Level 3):
 
 
 
Six months ended June 30,
 
 
 
2016
 
 
2015
 
Balance at start of period
  $- 
  $19,792 
 
       
       
Change in fair value to June 11, 2015
    - 
    485 
Extinguishment of liability June 11, 2015
       
    (20,277)
 
       
       
Balance at end of period
  $- 
  $- 
 
The fair value of the Series A Warrants Warrants was determined using a Monte Carlo Simulation. This model requires the input of highly subjective assumptions, including the expected price volatility, which is based on the historical volatility of a peer group of publicly traded companies. Changes in the subjective input assumptions can materially affect the estimate of fair value of the warrants and the Company’s results of operations could be impacted.
 
The following assumptions were used in calculations of the Monte Carlo Simulation model for the six months ended June 30, 2016 and 2015:
 
 
 
Six Months Ended June 30,
 
 
 
2016
 
 
2015
 
Risk-free interest rates 
    - 
    0.56-.73%
Expected life 
    - 
 
1.65 years
 
Expected dividends
    - 
    0%
Expected volatility 
    - 
    90-93%
Vycor Common Stock fair value
    - 
  $1.59-1.84 
 
9.            COMMITMENTS AND CONTINGENCIES
 
Lease
The Company leases approximately 10,000 sq. ft 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 is 5 years and 6 months terminating July, 2017. The Company’s subsidiaries in Germany and the UK occupy properties on short term lease agreements. Rent expense for the six months ended June 30, 2016 and 2015 was $53,654 and $47,211 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 six months ended June 30, 2016 and the year ended December 31, 2015 respectively, other than recording the monthly payments as an expense.
 
Potential Patent Infringement
The Company was made aware in 2012 that a competitor 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. 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 Company has contested the appeal. A final decision on the appeal is pending. The Company has, in the interim, also prepared to enforce its own patent against this competitor, however this competitor appears to have abandoned its product offering, making an enforcement action moot for the time being. The Company has also been made aware that a second competitor has filed a patent application for related technology and also may be producing a product that potentially infringes the Company’s patent, and has filed documents with the State Intellectual Property Office opposing grant of the patent application. As a general rule the Company intends to take all necessary action to protect its patent portfolio. 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.
 
10.            CONSULTING AND OTHER AGREEMENTS
 
The following agreements were entered into or remained in force during the six months ended June 30, 2016:
 
Under the terms of an amended Consulting Agreement between the Company and Fountainhead, Fountainhead is paid a monthly retainer of $10,000 per month, payable $5,000 in cash and $5,000 payable in Company Common Stock at the end of each quarter. Effective September 2015, Fountainhead agreed to receive all of the fees in Common Stock.
 
In January 2015, as amended in May 2015, the Company entered into a twelve month agreement, subject to early termination, to provide financial advisory, strategic business planning and professional relations services, with Acorn Management Partners (“Acorn”). Under the terms of the Agreement, as amended in May and July 2015, Acorn received a total of $53,000 in cash and $50,000 in shares of Restricted Common Stock during the period. The Acorn Agreement was terminated in October 2015.
 
In May 2016 the Company entered into a Consultancy agreement with Valeo Consulting LLC to assist in the raising of capital and related financial matters by dealing with potential investors, banks and brokers on behalf of the Company. Under the agreement the Company issued 50,000 shares of Vycor Common Stock on execution and 50,000 on August 1, 2016.
 
11.            RELATED PARTY TRANSACTIONS
 
Peter Zachariou, director and David Cantor, director are investment managers of Fountainhead Capital Management which is a related party due to the size of its shareholding. Adrian Liddell, Chairman is a consultant for Fountainhead Capital Management.
 
During the period ended June 30, 2016, in accordance with the terms of the Consulting Agreement, the Company issued 33,333 shares of Common Stock (valued at $60,000) to Fountainhead.
 
During the six months ended June 30, 2016, the Company paid an aggregate of 8,424 shares of Preferred D Stock, valued at $84,248 representing preferred stock dividends to related parties. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 39,181 shares.
 
During the period ended June 30, 2016, the Company issued unsecured loan notes to Fountainhead for a total of $140,000. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary.
 
During the period ended June 30, 2016, the Company issued unsecured loan notes to Peter Zachariou for a total of $45,000. The loan notes bear interest at a rate of 10% and are due on demand or by their one-year anniversary
 
12.             SUBSEQUENT EVENTS
 
The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10Q:
 
In August 2016 the Company issued 50,000 shares of Vycor Common Stock (valued at $13,200) to Valeo Consulting LLC under the terms of the Consultancy Agreement.
 
In August 2016 the Company paid an aggregate of 9,140 shares of Preferred D Stock, valued at $91,409, representing preferred stock dividends. The Preferred D shares are convertible on their terms at $2.15 per share of Common Stock into 42,512 shares. An aggregate of 8,718 shares of Preferred D Stock dividends were in respect of related parties.
 
 
 
 
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 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 54 issued or allowed patents and a further 14 pending. The Company leverages joint resources across the divisions to operate in a cost-efficient manner.
In addition to our existing products and products in development we actively seek acquisition, joint venture and in-licensing opportunities in the medical device field which we believe are complementary, can benefit from our existing infrastructure and will add shareholder value.
 
Vycor Medical
Introduction
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 Medical’s Products
VBAS
To access a surgical site in the brain, a surgeon usually needs to remove part of the skull (craniotomy) and then make an entry incision in the outer protective brain tissue (corticotomy); the soft brain tissue is then parted (retracted) to access the targeted site. The current standard of care, the blade retractor, utilizes a metal blade retractor to pull the tissue apart; to maintain the opening the blades are attached to a head frame and parting tension is applied to the tissue. In a typical procedure 2 or more blades are used.
 
Many clinical studies have shown that retractors can cause excessive pressure on brain tissues, resulting in damage and a prolonged patient recovery. The incidence of contusions (tissue injuries) or infarctions (blockage of blood supply) from brain retraction is as great as 5-10%.
Vycor’s VBAS is a significant improvement over current technologies for accessing regions within the brain. A disposable product that can be used with microscopic, endoscopic and neuro-navigation systems (IGS), the VBAS includes an introducer and working channel. Available in multiple sizes, the current series consists of 14 disposable products, offered in five different port (working channel) diameters of 6mm, 12mm, 17mm, 21mm, and 28 mm and a choice of three lengths: 3cm, 5cm, and 7cm; the 6mm model is offered in lengths of 5cm and 7cm only. The surgeon makes a smaller corticotomy, inserts the clear, elliptical-shaped VBAS introducer through the brain tissue, removes the introducer and is left with a clear hollow working channel to provide access to the precise location desired for surgery.
 
VBAS’ clinical advantages are supported by a number of leading peer-reviewed articles (see Peer Review and Other Clinical Studies). Clinical benefits cited include: minimally invasive shape and less invasive procedure; resultant reduction of pressure on the brain; improved visual field; improved working channel; and more accurate target access. Management also believes, from anecdotal surgeon feedback, that although a disposable product VBAS offers potential cost savings from shorter operating theater time and reduced post-operative recovery time.
 
The Market For Vycor Medical’s VBAS Product
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.
 
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.
 
Sales and Marketing
 
Domestic
According to the American Board of Neurological Surgery (ABNS), there are approximately 4,500 neurosurgeons in the US, providing a well-defined target audience. Vycor Medical’s sales channels are to stocking regional distributors and direct to hospitals through independent representatives, all of whom have existing relationships with neurosurgeons and provide an experienced and efficient distribution infrastructure without the need for a large and costly dedicated Vycor regional sales team. The distributors and representatives are supported by Vycor Medical Sales, Marketing and Customer Service.
 
Vycor Medical has found that the learning curve is only 1-2 cases for surgeons, who like the simplicity of design and ease of use after trialing the product. However, Hospital Administration is required to approve the purchase of a new product and sometimes even a trial or evaluation of the product in the hospital by the neurosurgeon and this is one of the key barriers to the speed of adoption as this process can take several months.
 
International Sales
Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. Vycor Medical has regulatory approvals for VBAS in Australia, Brazil, Canada, China, Europe (Class III), Korea Japan and Taiwan, and is seeking or has partial regulatory approvals in India, Russia and Vietnam with distribution agreements in place or being sought.
 
Peer Review and Other Clinical Studies
The publication of clinical papers in neurosurgery journals by surgeon-users of VBAS regarding their experiences with the products (peer review papers), and the publication of other clinical data, is important for Vycor Medical. Such papers continue to evidence the clinical superiority of VBAS, which in turn drives its adoption and accelerates the hospital approval process, which in turn drives revenues. To date the Company has already had 10 Peer Reviewed published and 4 other clinical papers, including the following during 2015 and 2016:
 
 
 
 
 
“Endoscopic hematoma evacuation in patients with spontaneous supratentorial intracerebral hemorrhage”. Published in the Journal of the Chinese Medical Association, Feb 2015. By Wei-Hsin Wang, Yi-Chieh Hung, Sanford P.C. Hsu, Chun-Fu Lin, Hsin-Hung Chen, Yang-Hsin Shih, Cheng-Chia Lee of the Taipei Veterans General Hospital, and National Yang-Ming University School of Medicine. Taipei, Taiwan Conclusion: “With the introduction of the minimally invasive techniques and the evolution of the neuro-endoscope and hemostatic agents the median operative time and blood loss have been significantly decreased. Although the hematoma evacuation rates were similar between the endoscope (90%) and craniotomy (85%) groups, the median intensive care unit stay was decreased from 11 days to 6 days due to reduced surgical invasiveness. In addition, several series have reported a lower rate of rebleeding, morbidity and mortality in endoscopic hematoma evacuation surgery than in traditional craniotomy. The main reasons were less adjacent tissue injury, less blood loss, and less operation time. True minimally invasive surgery includes not only a minimal wound size but also minimal brain tissue trauma during the surgery”.
“Rigid endoscopic resection of deep-seated or intraventricular brain tumors”, by Yukinori Akiyama, Masahiko Wanibuchi, Takeshi Mikami, Yoshifumi Horita, of the Dept of Neurosurgery, Sapporo Medical University, School of Medicine, Hokkaido Japan. Published in Neurological Research, Mar 2015. Conclusion: Strong retraction may cause significant brain and vascular damage; tubular retractors can help minimize retraction injury. The rigid endoscopic technique using a thick tubular sheath [VBAS] provides an alternative medial approach that improves visualization and increases working space. We believe that this technique [rigid endoscope resection through a sheath] is a safer, more reliable, and less invasive method for the treatment of deep-seated brain tumors.
“3D Endoscope Transcallosal Approach to the Third Ventricle” by Alireza Shoakazemi, Alexander I. Evins, Justin C. Burrell, Philip E. Stieg and Antonio Bernardo of the Weill Cornell Medical Center. Published in The Journal of Neurosurgery, Mar 2015. Conclusion: A transtubular approach [utilizing VBAS] to the third ventricle is feasible and facilitates blunt dissection of the corpus callosum that may minimize retraction injury. This technique also provides an added degree of safety by limiting the free range of instrumental movement. The combination of 3D endoscopic visualization with a clear plastic retractor facilitates safe and direct monitoring of the surgical corridor.
“Microsurgical resection for lateral ventricular meningiomas with neuronavigation and tubular retractor”. Published in the China J Neurosurgery, April 2015. By Xiong Tao, Wanggou Siyi, Chen Xiaoyu, Peng Zefeng, Liu Qing, Yan Xianrui, Li Xuejun, Department of Neurosurgery , Xiangya Hospital, Central South University; Changsha, China. Conclusion: The study’s objective was to study the microsurgical modality for lateral ventrical meningiomas with neuronavigation and tubular retractor system [VBAS] and evaluate its long term outcome. The study concluded that the use of neuronavigation and the VBAS does not reduce the ability to achieve total tumor resection but did have a positive post operative impact through reduced intra operative brain trauma and reduced intra operative complications. The study concluded that it led to an improvement in post-operative quality of life.
“Exoscope-Assisted Surgery for Deep-Seated Intraparenchymal Tumor”. Published in the Jpn J Neurosurg April 2015. Hideo Osada, M.D., Kimihiro Nagatani, M.D., Terushige Toyooka, M.D. Kojiro Wada, M.D., Naoki Otani, M.D., Arata Tomiyama, M.D., Satoshi Tomura, M.D., Hideaki Ueno, M.D., and Kentaro Mori, M.D of the Department of Neurosurgery, National Defense Medical College and Department of Neurosurgery, Kuki General Hospital. Conclusion: “The exoscope can provide a long working distance and a clear view from outside the operation field, so combined use with the ViewSite is very promising for surgery of deep-seated tumors”.
“Use of a Minimally Invasive Retractor System for Retrieval of Intracranial Fragments in Wartime Trauma”. Published in the World Neurosurgery, May 2015. George N. Rymarczuk, Laurence Davidson, Meryl A. Severson, Rocco A. Armonda of the Walter Reed Army Medical Center and the National Naval Medical Center Conclusion: “Wartime penetrating brain injury can result in deep-seated shrapnel, bullets and bone, posing risk of secondary injury. It has been recommended that aggressive removal of fragments be avoided. The goal of this study it to report our technique of minimally invasive removal of deep-seated fragments using a tubular retractor system [VBAS]. The authors feel that this technique offers a valid and safe option for treatment of patients that have incurred penetrating brain injuries and that have retained foreign bodies under circumstances in which removal is desirable”. In all cases the fragment was successfully removed. No patient had worsening of their neurological condition following surgery. The study concluded, “With this series of 6 service-
 
 
 
 
members the authors have shown that VBAS can be used to successfully remove deep-seated foreign bodies from injuries sustained in war. Deep parenchymal and intraventricular fragments can be safely removed using a tubular retractor system [VBAS]”
“Single-Port Endoscopic Technique for the Treatment of Primary Intracerebral Hemorrhage” poster presented at the VII World Congress of Neuroendoscopy held in Mexico, November 2015. By Juan Antonio Ponce-Gomez M.D. Luis Alverto Ortega-Porcayo M.D. Victor Alcocer-Barradas M.D. Juan Barges-Coll M.D. Juan Luis Gomez Amador M.D.Department of Neurological Surgery, National Institute of Neurology and Neurosurgery “Manuel Velasco Suarez” Mexico City, Mexico. In a retrospective study done three different treatments were compared; medical management and observation, hematoma drainage through a single port [VBAS] with endoscopic assistance and finally drainage through a conventional crainiotomy. 64 patients were analysed 28 patients underwent medical treatment, 24 patients conventional crainiotomy and 12 patients were treated with the VBAS. Main risk in all cases was hypertension. The study showed that complete drainage using the VBAS was achieved in 83.3% of cases and that the average stay in hospital was 8 days which was statistically significantly shorter than the other two groups. Mortality after 6 months was also statistically significantly better than the medical treatment group. Conclusion: Treatment using the endoscope and VBAS offers lower morbidity and fewer days of hospital stay in the management of primary supratentorial intracerebral hemorrhage.
“Comparison of endoscope-versus microscope-assisted resection of deep-seated intracranial lesions using a minimally invasive port retractor system [VBAS]”. Published in the Journal of Neurosurgery March, 2016 by Department of Neurological Surgery, The Ohio State University Wexner Medical Center. The study set out to see if microscope-assisted resection of lesions using VBAS was superior to endoscope assisted surgery also with VBAS due to technological advancements associated with our tubular port system and surgical microscopes.The study looked at data from 20 patients who had a wide range of deep-seated lesions located in different parts of the brain (basal ganglia, cerebellum, frontal lobe, temporal lobe and parietal lobe). The study goes into great detail on the technique used by the neurosurgeons with the VBAS and an entire section entitled “Port Technique” explains the insertion of the VBAS, the use of IGS with the device, how de-bulking of the tumor is performed and how to reposition the port if needed. The article states that the transparency of the device “allows visualization of the entire surgical corridor, and is compatible with the majority of current frameless neuronavigation systems”. The study also states “the attachment flange is compatible with most surgical arms in order to facilitate secure fixation of the port during surgery”.
Manufacturing
Vycor Medical uses a sub-contract manufacturer to manufacture, package, label and sterilize its VBAS products. The Company is in the process of migrating all its VBAS manufacturing in phases to Life Science Outsourcing, Inc. in Brea, California which 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 13 granted/allowed and 12 pending patents.
 
Trademarks
VYCOR MEDICAL is a registered trademark and VIEWSITE is a common law trademark.
 
Vycor Growth Strategy
Vycor Medical’s growth strategy is centered around:
 
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 target market of 4,500 neurosurgeons by trade shows, significantly increased direct marketing with VBAS samples and existing clinical data, and through its existing distributors which it is continually evaluating and upgrading as well as adding additional distributors in regions where it has little to no presence. In marketing to these hospitals and surgeons, Vycor Medical leads with those neurosurgical procedures where VBAS’ competitive advantages are most easily understood – deep seated tumors and other complicated deep procedures. The focus is 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 Medical prioritizes its attention on teaching hospitals, which not only carry out more relevant procedures but also provide a natural way to drive adoption through the conversion of new surgeons.
 
2. Provision of more Clinical and Scientific Data supporting the products superiority over the current standard of care blade retractors and to demonstrate the products 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 which helps VBAS move further up the hospital cost/benefit curve. To date the Company has already had 10 Peer Reviewed studies and 4 other clinical papers and anticipates further studies to be published.
 
3. International Market Growth
Vycor Medical utilizes select medical device distributors with experience in neurosurgical devices in their countries or regions. VBAS has full regulatory approvals in Australia, Brazil, Canada, China, Europe (EU – Class III), Korea, Japan and Taiwan and is seeking or has partial regulatory approvals in India, Russia and Vietnam. Vycor Medical is actively pursuing new distribution agreements in the countries where it does not have any in place.
 
4. New Product Development
New Product Development is targeted at both driving the use of its existing VBAS product range through ancillaries 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 Medical released two new smaller VBAS devices (the "VBAS Mini") in March 2016, and is in the advanced stages of development on a new set of VBAS devices that will be integrated with selected Image Guided Systems. Management strongly believes that the existing VBAS rigid structure lends itself well to being incorporated into the increasing trend of IGS surgery.
 
NovaVision, Inc.
Introduction
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, Traumatic Brain Injury (TBI) or other neurological brain damage. 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 persons 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 multiple 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, provided in the US in an Internet-delivered suite since June 2015 and in Europe since December 2015, are therefore highly complementary and 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 operates in the US through our wholly-owned subsidiary, NovaVision, Inc., in Germany through our wholly-owned subsidiary, NovaVision GmbH and in the UK through our wholly-owned subsidiary, Sight Science Limited.
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 41 granted and 2 pending patents worldwide.
NovaVision’s Products
VRT and NeET
VRT and NeET are aimed at those suffering from vision loss resulting from neurological brain damage such as stroke and traumatic brain injury (TBI). It is estimated that approximately 30% experience a visual field disorder (of which approximately 20% permanently), reducing mobility and other activities of daily living.
Both VRT and NeET work on the basis that repeated stimulation of the blind or transition areas by either bright points of light (VRT) or specific spatial patterns (NeET) can lead to increases in sensitivity of the blind areas. Patient progress after VRT appears to be initiated at the blind and sighted borders whereas NeET results in changes deep within the blind field. Both therapies are able to demonstrate improvements in both visual sensitivity and activities of daily living.
VRT and NeET are patient-specific diagnostic and therapeutic platforms with extensive clinical data supporting their ability to increase a patient’s visual field. The diagnostic algorithm first maps the visual field and defines the areas of defect in patients suffering vision loss. The therapeutic algorithm is then specifically designed for each patient based upon the results of the diagnostic program. The therapies are delivered through a computer device in the patient’s home and are generally performed over a six month period, twice a day for approximately an hour total, five to six days a week.
With VRT therapy, the patient first focuses on a fixation point on a display screen. Then, a series of light stimuli are presented 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 thousands of stimuli over the course of the therapy. With NeET, the patient responds to the images that appear on the screen, initially in the border area of the patient’s visual field loss and over time deeper within the damaged field of vision.
NeuroEyeCoach
NeuroEyeCoach is also a computer-based program providing eye-movement training to those who have suffered a visual field loss as a result of neurological damage.
The program is supported by several decades of scientific findings and was developed as collaboration between NovaVision and Josef Zihl, a NovaVision Scientific Advisor who is a world thought leader in saccadic training and the pioneer of this computer based training technique. The program is designed to re-train the ability of a patient to scan the environment, re-integrate left and right vision and make the most of their remaining visual field. The therapy can be completed in two to four weeks to result in a meaningful improvement in the patients visual search performance resulting in improvements in their navigation and object finding skills. Given that NeuroEyeCoach addresses the patient’s difficulty with their eye movements and their ability to integrate visual information while VRT and NeET focuses on the restoration of lost vision the two therapy types are highly complementary.
NeuroEyeCoach is provided by NovaVision in one Internet-delivered therapy suite with VRT, providing broad benefits to patients, and is also provided on a standalone basis; those suffering non-permanent defects or those otherwise unsuited to VRT can benefit from NeuroEyeCoach. The program is also provided as a clinic-based version to enable healthcare professionals to provide the therapy to patients under supervision.
Vision Diagnostic (VIDIT)
NovaVision VIDIT is a diagnostic system that enables therapists in rehabilitation centers and other clinics to perform high-resolution visual field tests to screen for central visual field deficits commonly associated with stroke or brain injury. As an undetected visual field deficit may adversely impact other rehabilitation modalities, early detection and treatment are critical steps towards improving overall patient care and this diagnostic is therefore a valuable tool for such centers and clinics. Tests take less than 10 minutes while the patient is in the facility’s care.
The Market For NovaVision’s Therapies
The market for NovaVision’s therapies comprises those suffering from vision loss resulting from neurological trauma such as Stroke and Traumatic Brain Injury (TBI). 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.
Competition
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 really only leaves two small companies, Teltra and Visiontrainer in Germany. Within compensation, competitors include RevitalVision, PositScience, Dynavision and Rehacom.
Clinical Data
 
VRT
 
NovaVision has accumulated significant amounts of clinical data as a result of company-sponsored trials as well as studies conducted by independent third parties, of which some of the key findings can be summarized as:
 
Approximately 70% of patients experience positive outcome reflected by an increase in their visual field and studies have indicated an average increase of 4.9 degrees (Mueller I, et al., 2007; Romano JG, et al., 2008).
Elapsed time since injury does not seem to impact VRT and NeET therapies success. Therefore, a large historical backlog of patients can potentially be treated (Romano JG, et al., 2008).
Improvements are permanent and do not appear to be age or gender dependent.
NeuroEyeCoach
The PC-based treatment approach was originally developed by Prof. Zihl (1988, 1990) and has since been used with various modifications in 13 studies on a total of 551 patients with homonymous visual field loss and persistent visual disabilities.
The main outcome is a significant improvement in visual search performance accompanied by more efficient oculomotor strategies, and a reduction in visual disability as assessed with standardized questionnaires and behavioral measures. The efficacy of this treatment approach for the improvement of visual overview and visual exploration is superior to practice with reading (Schuett et al., 2012), non-specific visual training (Roth et al., 2009), standard occupational therapy (Mödden et al., 2012) or counseling with regards to coping strategies (Zihl, 2011). Importantly, time since brain injury (Zihl, 2011) and age of hemianopic patients (Schuett & Zihl, 2012) d not play a significant role for the treatment effect. In conclusion, there is convincing scientific empirical evidence for the efficacy of the visual search treatment method. It is important to note that visual field borders do not change after the treatment, indicating that visual search training represents a compensatory technique and not a restorative approach; by addressing both compensation and restoration NovaVision is providing a broad solution to this large patient demographic.
Intellectual Property
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 41 granted and 2 pending patents (including Sight Science).
Trademarks
NovaVision maintains a portfolio of registered trademarks for NOVAVISION, NOVAVISION VRT, VRT VISION RESTORATION THERAPY and NEUROEYCOACH, amongst others, along with relevant logos, both in the US and internationally.
 
NovaVision’s Growth Strategy
Our strategic vision for NovaVision has been to develop and provide a clinically supported, affordable and scalable visual therapy solution offering broad benefits to those suffering visual impairment following neurological brain damage; and to offer solutions for both patients and physicians alike. VRT was, in effect, a prototype with a delivery and service model too costly to be affordable and scalable, and with 70% of patients experiencing significant positive outcome but 30% of patients therefore experiencing little to no improvement.
Our first steps were to build a world-class scientific advisory board and acquire Sight Science, the only credible competitor, from Prof. Arash Sahraie and the University of Aberdeen. Prof. Sahraie, Chair in Vision Sciences at the University, became a member of our scientific advisory board and led the advisory board made up of experts in the field from Harvard Medical School, Univ. of Miami Miller School of Medicine and the Max Planck Institute in Germany, to develop the strategy to deliver our vision:
Broadening Patient Benefits: the creation of NeuroEyeCoach. Two things happen when someone suffers from vision related disorders following a stroke or the like: there is a loss of visual field as well as difficulty with eye movement, affecting the ability to integrate visual information. NeuroEyeCoach addresses patients' difficulty with their eye movements and their ability to integrate visual information. While VRT addresses the restoration of lost vision, NeuroEyeCoach enables the patient to make the most of their remaining vision; the two therapies provided in a suite are therefore highly complementary and ensure broad benefits to NovaVision's patients.
Cost Effective and Affordable. Migrated therapy delivery from provided-hardware to internet-delivered onto patients' computers, significantly reducing cost without changing the therapy itself. Further cost reduction has been achieved through considerable business process streamlining. The Internet-delivered therapy suite was made commercially available in June 2015 in the US and in Europe in December 2015.
Scalable. NovaVision's therapy is now affordable, with broader benefits and truly scalable and deliverable to the mass market.
NovaVision completed its development work and launched its Internet-based therapy suite in June 2015 in the US, and December 2015 in Europe, and is now positioned for the first time with the suite of therapies and product offerings to deliver on our strategic vision: to provide a clinically supported, affordable and scalable visual therapy solution offering broad benefits to those suffering visual impairment following neurological damage; and to offer solutions for both patients and physicians alike.
For Patients:
VRT and NeuroEyeCoach Therapy Suite. NovaVision's two complementary therapies are offered in internet-delivered in a package for $900 in the US and equivalent pricing in Europe.
NeuroEyeCoach. For patients with visual impairments who are not suitable, for whatever reason, for VRT, we provide NeuroEyeCoach on its own for $450 in the US and equivalent pricing in Europe.
For Physicians:
Vision Diagnostic (VIDIT). A diagnostic system that enables therapists to perform high-resolution visual field tests in less than 10 minutes to screen for visual field deficits as a result of neurological brain damage. NovaVision has received approval for and entered into an agreement to offer VIDIT throughout the 100+ network of HealthSouth rehabilitation centers in the U.S.; therapists are then able to refer patients to NovaVision. We are marketing this to the HealthSouth network as well as to other rehabilitation chains and centers.
NeuroEyeCoach Pro Center. Enables stroke rehabilitation and other centers to treat patients while in their care, both as in-patient and out-patient. NovaVision has entered into an additional agreement with HealthSouth to be able to offer NeuroEyeCoach Pro Center to the HealthSouth rehabilitation centers in the U.S. We are marketing this to the HealthSouth network as well as to other rehabilitation chains and centers.
NovaVision Pro Physician. Enables physicians to register patients in their clinic who complete our therapies at home, supported by NovaVision but monitored by the physician through a dedicated portal.
We believe NovaVision's therapy and product offerings for patients and physicians are unique, and that we are now well placed to deliver value from this large potential market.
 
3. Other Matters
 
Product Liability Insurance
We presently have Product Liability insurance for both Vycor Medical and NovaVision.
Government Regulations
We are committed to an integrated total quality management system. We believe that we have completed the necessary procedures and Vycor Medical is certified to the ISO standards expected of medical device manufacturers as follows:
ISO 13485:2003 Medical Devices — Quality Management Systems
The certification of a quality management system to ISO 13485, specifically for medical devices, is advantageous and often essential for medical companies to export their products to the global market, as well as maintain and enter into certain agreements and business growth opportunities within the U.S. For example, Canada requires that medical device manufacturers marketing their products in Canada must have a quality system certified to ISO 13485:2003. The certification is also required for placement of branded devices into the European Union.
Vycor Medical has the following certification/licensing:
 
Fully Quality Assurance System Directive 93/42/EEC for Medical Devices, Annex II (3)
EC Design-Examination Certificate Directive 93/42/EEC for Medical Devices, Annex II (4)
ISO 13485.2003
Continuing Regulatory Requirements
 
quality system regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;
labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.
 
Vycor Medical’s products have been classified as Class II products by the FDA and cleared for marketing through the 510(k) process. NovaVision’s VRT product has been cleared as a Class U product through the 510(k) while its NeuroEyeCoach is registered as an exempt Class 1 device.
 
After a device is placed on the market, numerous regulatory requirements apply. Failure to comply with applicable regulatory requirements, and failure to respond to requested corrective actions on an ongoing basis, can result in enforcement action by the FDA.
 
Medical device laws are also in effect in many of the countries outside of the United States in which we do business. These laws range from comprehensive device approval and quality system requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. In June 1998, the European Union Medical Device Directive became effective, and all medical devices must meet the Medical Device Directive standards and receive CE mark certification. CE mark certification involves a comprehensive Quality System program, and submission of data on a product to the Notified Body in Europe.
 
Vycor Medical has obtained the CE marking approval to allow for distribution of its VBAS products in Europe as a Class III device and has received HPB licensing approval for distribution in Canada as a Class II device. VBAS also has full regulatory or partial approvals in Australia, Brazil, China, Korea, Japan, Russia and Taiwan. NovaVison’s VRT, NeuroEyeCoach and Sight Science’s NeET have CE mark registrations as Class I devices in Europe.
 
Employees
We currently have 14 employees.
 
Website. The Company operates websites at www.vycormedical.com, www.novavision.com, www.novavision.de and www.sightscience.com.
 
 
 
 
Comparison of the Three Months Ended June 30, 2016 to the Three Months Ended June 30, 2015
 
Revenue and Gross Margin:
 
 
 
Three months ended
 
 
 
June 30,
 
 
 
2016
 
 
2015
 
 
% Change
 
Revenue:
 
 
 
 
 
 
 
 
 
Vycor Medical
  $333,085 
  $221,258 
    51%
NovaVision
  $46,321 
  $64,760 
    -28%
 
  $379,406 
  $286,018 
    33%
Gross Profit 
       
       
       
Vycor Medical 
  $288,812 
  $193,743 
    49%
NovaVision 
  $42,508 
  $58,294 
    -27%
 
  $331,320 
  $252,037 
    31%
 
 
Vycor Medical recorded revenue of $333,085 from the sale of its products for the three months ended June 30, 2016, an increase of $111,827, or 51%, over the same period in 2015. This reflected increased sales in the US and internationally. Gross margin of 87% was recorded for the three months ended June 30, 2016 compared to 88% for the same period in 2015.
 
NovaVision recorded revenues of $46,321 for the three months ended June 30, 2016, a decrease of $18,439 over the same period in 2015, and gross margin of 92%, compared to 90% for the same period in 2015. The U.S. accounted for $3,716 of the decrease with the balance in Europe, where the Internet-delivered model was launched 6 months later than the U.S. Since the launch in the U.S. of the Internet-delivered model, NovaVision has achieved a reduction in price to patients of 65%, from $2,500 for a six-month course of VRT alone to $900 for VRT and NeuroEyeCoach together. Given the price reduction, the company anticipated an initial decrease in revenues as volumes ramp up due to the new affordable and scalable therapy suite. New patient starts in the U.S. for the three months ended June 30, 2016 increased by 64% over the same period in 2015. The Internet-delivered therapy suite was launched in Europe in December 2015, where similar price reductions have been achieved. New patient starts in Europe for the three months ended June 30, 2016 increased by 41% over the same period in 2015.
 
Research and Development Expense:
Research and development (“R&D”) expenses were $0 for the three months ended June 30, 2016, as compared to $15,672 for the same period in 2015. Capitalized software development costs for the three months ended June 30, 2016 and 2015 were $0 and $13,989, respectively.
 
General and Administrative Expenses:
 
General and administrative expenses decreased by $51,238 to $556,512 for the three months ended June 30, 2016 from $607,750 for the same period in 2015. Included within 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 June 30, 2016 was $93,188, an increase of $42,874 over $50,314 in 2015. Also included within General and Administrative Expenses are Sales Commissions, which increased by $5,385 to $41,674. The remaining General and Administrative expenses decreased by $99,497 from $521,147 to $421,650.
 
 
 
 
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
 
Investor relations and road show costs
    (50,534)
    14,999 
Other (travel/regulatory/premises)
    (29,721)
    - 
Board, financial and scientific advisory
    (24,588)
    27,875 
Sales, marketing and travel
    (21,942)
    - 
Legal, professional and other consulting
    16,620 
    - 
Payroll
    10,668 
    - 
Total change
    (99,497)
    42,874 
 
 
Interest Expense:
 
Interest comprises expense on the Company’s debt and insurance policy financing. Interest expense for 2016 increased by $1,611 to $13,453 from $11,842 for 2015. The increase includes interest on Related Party of $1,247.
 
Comparison of the Six Months Ended June 30, 2016 to the Six Months Ended June 30, 2015
 
Revenue and Gross Margin:
 
 
 
Six months ended
 
 
 
June 30,
 
 
 
2016
 
 
2015
 
 
% Change
 
Revenue:
 
 
 
 
 
 
 
 
 
Vycor Medical
  $682,006 
  $480,107 
    42%
NovaVision
  $97,486 
  $134,463 
    -27%
 
  $779,492 
  $614,570 
    27%
Gross Profit 
       
       
       
Vycor Medical 
  $575,420 
  $412,794 
    39%
NovaVision 
  $88,747 
  $116,102 
    -24%
 
  $664,167 
  $528,896 
    26%
 
 
Vycor Medical recorded revenue of $682,006 from the sale of its products for the six months ended June 30, 2016, an increase of $201,899, or 42%, over the same period in 2015. This reflected increased sales in the US and internationally. Gross margin of 84% was recorded for the three months ended June 30, 2016 compared to 86% for the same period in 2015; the difference in margin is mainly attributed to costs related to the migration to a new manufacturer and the manufacturing of the VBASMini.
 
NovaVision recorded revenues of $97,486 for the six months ended June 30, 2016, a decrease of $36,977 over the same period in 2015, and gross margin of 91%, compared to 86% for the same period in 2015. The U.S. accounted for $5,421 of the decrease with the balance in Europe, where the Internet-delivered model was launched 6 months later than the U.S. Since the launch in the U.S. in late June, NovaVision has achieved a reduction in price to patients of 65%, from $2,500 for a six-month course of VRT alone to $900 for VRT and NeuroEyeCoach together. Given the price reduction, the company anticipated an initial decrease in revenues as volumes ramp up due to the new affordable and scalable therapy suite. New patient starts in the US for the six months ended June 30, 2016 increased by 68% over the same period in 2015. The Internet-delivered therapy suite was launched in Europe in December 2015, where similar price reductions have been achieved. New patient starts in Europe for the six months ended June 30, 2016 increased by 28% over the same period in 2015.
 
Research and Development Expense:
Research and development (“R&D”) expenses were $0 for the six months ended June 30, 2016, as compared to $38,898 for the same period in 2015. Capitalized software development costs for the six months ended June 30, 2016 and 2015 were $0 and $26,486, respectively.
 
General and Administrative Expenses:
 
General and administrative expenses decreased by $46,206 to $1,340,846 for the six months ended June 30, 2016 from $1,387,052 for the same period in 2015. Included within General and Administrative Expenses are non-cash charges for share based compensation as the result of amortizing employee and non-employee shares, warrants and options which have been issued by the Company over various periods. The charge for the six months ended June 30, 2016 was $347,950, an increase of $209,488 over $138,462 in 2015. Also included within General and Administrative Expenses are Sales Commissions, which increased by $8,890 to $94,108. The remaining General and Administrative expenses decreased by $264,584 from $1,163,372 to $898,792.
 
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
 
Investor relations and road show costs
    (80,108)
    (10,326)
Payroll
    (71,487)
    (20,114)
Other (travel/regulatory/premises)
    (70,401)
    - 
Board, financial and scientific advisory
    (64,371)
    239,928 
Legal, professional and other consulting
    11,030 
    - 
Sales, marketing and travel
    10,753 
    - 
Total change
    (264,584)
    209,488 
 
Interest Expense:
 
Interest comprises expense on the Company’s debt and insurance policy financing. Interest expense for 2016 increased by $1,753 to $25,435 from $23,682 for 2015. The increase includes interest on Related Party of $1,247.
 
Liquidity and Capital Resources
 
Liquidity
 
The following table shows cash flow and liquidity data for the periods ended June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
 
December 31, 2015
 
 
$ Change
 
Cash
  $87,709 
  $347,477 
  $(259,768)
Accounts receivable, inventory and other current assets
  $551,080 
  $511,216 
  $39,864 
Total current liabilities
  $(1,024,412)
  $(877,009)
  $(147,403)
Working capital
  $(385,623)
  $(18,316)
  $(367,307)
Cash provided by (used in) financing activities
  $145,525 
  $(85,300)
  $230,825 
 
Going Concern
 
The Company’s financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and assumes the Company will continue as a going concern. The Company has incurred losses since its inception, including a net loss of $823,923 for the six months ended June 30, 2016, and the Company expects to continue to incur additional losses in the future, including additional development costs, costs related to marketing and manufacturing expenses. The Company has incurred negative cash flows from operations since inception. As of June 30, 2016 the Company had a stockholders’ equity of $657,827 and cash and cash equivalents of $87,709. The Company believes it would not have enough cash to meet its various cash needs unless the Company is able to obtain additional cash from the issuance of debt or equity securities. There is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms. If adequate funds are not available, the Company may have to delay development or commercialization of products or technologies that the Company would otherwise seek to commercialize, or cease some or all of its operations. These conditions raise substantial doubt about the Company’s 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.
 
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 June 30, 2016 and December 31, 2015 patient deposits amounted to $31,074 and $31,377, 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.
 
Derivative Liability
 
The Company accounted for the 34,723 Series A Warrants issued in connection with the 2014 Offering (all as defined in Note 8), the holders of which had not waived their anti-dilution rights (as detailed further in Note 8) in accordance with the guidance contained in ASC 815-40-15-7D, whereby under that provision, because they had anti-dilution rights, they did not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classified the warrant instrument as a liability at its fair value and adjusted the instrument to fair value at each reporting period. This liability was subject to re-measurement at each balance sheet date until exercised or until the anti-dilution provisions contained within the warrant agreements expired, and was classified in the balance sheet as a current liability. Any change in fair value of the warrant liability was recognized in the Company’s statement of operations as other income (loss). The anti-dilution provisions expired on June 11, 2015 and accordingly the liability has been extinguished
 
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 June 30, 2016 and 2015 was $5,087 and $15,162, 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.
 
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.
 
(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 April 25, 2016, 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
 
Name of Purchaser
Issue Date
Security
 Shares
Consideration
ALVARO PASCUAL-LEONE M.D.
1/31/2016
Common
3,801
Consulting Fees
JOSEF ZIHL
1/31/2016
Common
4,223
Consulting Fees
FOUNTAINHEAD CAPITAL MANAGEMENT LIMITED
2/5/2016
Series D. Pref.
6,154
Series D Dividend
PETER C. ZACHARIOU
2/5/2016
Series D. Pref.
2,720
Series D Dividend
CRAIG KIRSCH
2/5/2016
Series D. Pref.
407
Series D Dividend
JASON BARTON
  3/31/16
  Common
4,464 
  Consulting Fees
JOSE ROMANO
  3/31/16
  Common
4,464 
  Consulting Fees
FOUNTAINHEAD CAPITAL MANAGEMENT LIMITED
  3/31/16
  Common
16,667 
  Consulting Fees
TECHMED, INC.
4/2/2016
Common
9,921
Consulting Fees
ALVARO PASCUAL-LEONE M.D.
4/30/2016
Common
4,688
Consulting Fees
VALEO CONSULTING
5/6/2016
Common
50,000
Consulting Fees
JASON BARTON
6/30/2016
Common
5,307
Consulting Fees
JOSE ROMANO
6/30/2016
Common
5,307
Consulting Fees
FOUNTAINHEAD CAPITAL MANAGEMENT LIMITED
6/30/2016
Common
16,667
Consulting Fees
ALVARO PASCUAL-LEONE M.D.
7/31/2016
Common
5,859
Consulting Fees
VALEO CONSULTING
8/1/2016
Common
50,000
Consulting Fees
FOUNTAINHEAD CAPITAL MANAGEMENT LIMITED
8/5/2016
Series D. Pref.
6,369
Series D Dividend
PETER C. ZACHARIOU
8/5/2016
Series D. Pref.
2,349
Series D Dividend
CRAIG KIRSCH
8/5/2016
Series D. Pref.
421
Series D Dividend
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION
 
None
 
Index to Exhibits
 
 
 
 
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 August 9, 2016.
 
 
 
Vycor Medical, Inc.
 
 
 
(Registrant)
 
 
 
 
 
 
By:
/s/ Peter C. Zachariou
 
 
 
Peter C. Zacharion
 
 
 
Chief Executive Officer and Director (Principal Executive Officer)
 
 
Date
August 9, 2016
 
 
 
 
 
 
 
 
 
 
By:
/s/ Adrian Liddell
 
 
 
Adrian Liddell
 
 
 
Chairman of the Board and Director
 
 
 
(Principal Financial and Accounting Officer)
 
 
Date
August 9, 2016