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| VCRT.OB > SEC Filings for VCRT.OB > Form 10-Q on 13-Nov-2009 | All Recent SEC Filings |
13-Nov-2009
Quarterly Report
Overview of the Business
We are a medical diagnostics company focused on commercializing noninvasive
diagnostic technology products based on our patented, proprietary Point
Correlation Dimension algorithm (the "PD2i® algorithm") and software. The PD2i®
algorithm and software facilitates the ability to accurately risk stratify a
specific target population to predict future pathological events. We are
currently commercializing three(3) proprietary diagnostic medical products which
employ software utilizing the PD2i® algorithm: the PD2i Analyzer™, the PD2i-VS™
(Vital Sign) and the PD2i Cardiac Analyzer TM (CA). Vicor's therapeutic products
have been developed by using an innovative drug discovery platform which focuses
on naturally occurring biomolecules derived from state-dependent physiologies
such as hibernation.
Our first product, the PD2i Analyzer™ displays and analyzes
electrocardiographic (ECG) information that measures heart rate variability
("HRV"). The PD2i Analyzer™ received 510(k) marketing clearance from the Food
and Drug Administration ("FDA") on December 29, 2008. The Company is completing
software programming changes for the PD2i Analyzer™ to enable the capture and
display of HRV information during paced respiration and controlled exercise.
Following completion of these programming changes, the labeling for the original
510(k) will be expanded to include the measurement of heart rate variability
during paced respiration and controlled exercise. This expanded labeling will
facilitate the use of the PD2i Analyzer™ for screening diabetic and cardiac
patients with reimbursement available to the physicians from insurers for these
types of tests. We anticipate the PD2i Analyzer™ will be in use in selected
physicians' practices late in the fourth quarter of this year.
The Company will be performing a normal range study for the PD2i Analyzer™ at
the University of Mississippi Medical Center as soon as routine Institutional
Review Board approval is received. This study of approximately 200 age and
gender matched "normal" patients will enable the establishment of normal ranges
of PD2i® values for these groups for both a resting patient and a patient
performing paced respiration and/or controlled exercise. A 510(k) will then be
filed with the FDA to establish normal ranges for PD2i® values.
The Company's second product, the PD2i-VS™ (Vital Sign), is being developed
in collaboration with the United States Army and is used to assess the severity
of injury of critically injured trauma victims to determine the need for an
immediate life saving intervention in those trauma victims who are at high risk
of imminent death. It is anticipated that the PD2i-VS™ will be used for civilian
triage and trauma emergency response.
The Company's third product, the PD2i Cardiac Analyzer™ is able to accurately
risk stratify patients into those at high or low risk of suffering a fatal
arrhythmic event, or Sudden Cardiac Death ("SCD"), within a six to twelve-month
time frame. The PD2i Cardiac Analyzer™ is the subject of an ongoing research
collaboration. On February 5, 2009 the Company signed a Research Agreement with
the University of Rochester and the Catalan Institute of Cardiovascular Sciences
in Barcelona to collaborate on the PD2i® analysis of data collected for the
Merte Subita en Insufficiencia Cardiaca (MUSIC) trial. The collaboration is
entitled "Prognostic Significance of Point Correlation Dimension Algorithm
(PD2i) in Chronic Heart Failure." Vicor plans to use the PD2i Cardiac Analyzer™
to retrospectively identify those who suffered SCD in the congestive heart
failure patients who participated in the MUSIC trial. When this analysis is
completed the Company believes it will yield a dataset sufficient to support a
510(k) submission to include a claim for SCD.
At September 30, 2009, our cash balance was $1,065,000. Management believes
that we have sufficient funds to continue operations through March 31, 2010.
Our plan of operations includes:
1. Continued progress in various clinical trials and 510(k) submissions as
discussed in the preceding paragraphs:
2. Development of strategies for initial product rollouts in both the United States and overseas. This includes education of physicians regarding existing CPT (current procedural terminology) codes that can be used for tests involving our products.
3. Raising additional capital with which to fund ongoing operations and successfully commencing revenue-generating activities.
4. Securing CE Mark clearance in Europe for the PD2i Cardiac Analyzer™ and PD2i- VS™ .
5. Maintaining the Company's general and administrative expenses at approximately $200,000 to $300,000 per month.
6. Commencing the generation of revenues.
However, we may not be successful in raising additional capital or in generating revenue. Furthermore, even if we raise additional capital and generate revenue, we may never achieve profitability or positive cash flow. If we are not able to timely and successfully
raise additional capital and/or achieve profitability or positive cash flow, our
operating business, financial condition, cash flows and results of operations
may be materially and adversely affected.
Critical Accounting Estimates
The following are deemed to be the most significant accounting estimates
affecting us and our results of operations:
Research and Development Costs
Research and development costs include payments to collaborative research
partners and costs incurred in performing research and development activities,
including wages and associated employee benefits, facilities and overhead costs.
These are expensed as incurred.
Intellectual Property
Intellectual property, consisting of patents and other proprietary
technology, are stated at cost and amortized on the straight-line basis over
their estimated useful economic lives. Costs and expenses incurred in creating
intellectual property are expensed as incurred. The cost of purchased
intellectual property is capitalized. Software development costs are expensed as
incurred.
Revenue Recognition
As a development-stage enterprise, we currently have no significant revenue.
We have received FDA 510(k) marketing clearance for our first product (and will
continue to seek CE Mark clearance in Europe); accordingly, we expect to
recognize revenue as products are shipped or services are rendered.
Accounting for Stock-Based Compensation
We recorded equity-based compensation expense for employees and nonemployees
in accordance with the fair-value provisions of FASB Codification Topic 718,
principally the result of granting stock options and warrants to employees with
an exercise price below the fair value of the shares on the date of grant.
Accounting for Derivative Financial Instruments
We evaluate financial instruments using the guidance provided by FASB
Codification Topic 815 and apply the provisions thereof to the accounting of
items identified as derivative financial instruments not indexed to our stock.
Fair Value of Financial Instruments
The Company follows the provisions of FASB Codification Topic 820. This Topic
defines fair value, establishes a measurement framework and expands disclosures
about fair value measurements.
The Company uses fair value measurements for determining the valuation of
derivative financial instruments payable in shares of its common stock. This
primarily involves option pricing models that incorporate certain assumptions
and projections to determine fair value. These require management judgment.
Results of Operations
Three months ended September 30, 2009 compared to the three months ended
September 30, 2008
Research and Development
Research and development expenses represent 5.6% and 25.2% of total operating
expenses for the three months ended September 30, 2009 and 2008, respectively.
Research and development costs decreased by $48,000 to $141,000 for the three
months ended September 30, 2009. The principal reason for the decrease was the
VITAL Trial with costs of $56,000 in 2008 that did not occur in 2009 due to the
trial being suspended in March 2009.
General and Administrative Expenses
General and administrative expenses represent 61.7% and 67.0% of total
operating expenses for the three months ended September 30, 2009 and 2008,
respectively.
General and administrative expenses were $1,540,000 for the three months
ended September 30, 2009 compared with $502,000 for the three months ended
September 30, 2008. The $1,038,000 increase was due to increases of $487,000 in
consulting and computer programming fees, $237,000 in legal and accounting fees,
$223,000 in offering costs and $120,000 in note conversion fees.
Interest Expense
Interest expense represents 39.7% and 6.4% of total operating expenses for
the three months ended September 30, 2009 and 2008, respectively.
Interest expense was $1,112,000 for the three months ended September 30, 2009
compared with $48,000 for the three months ended September 30, 2008. The
$1,064,000 increase is due to incurring $972,000 in noncash interest upon
conversion of 8% notes to common stock and $103,000 in amortization of discounts
on derivative financial instruments.
Nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008
Research and Development
Research and development expenses represent 13.4% and 12.8% of total
operating expenses for the nine months ended September 30, 2009 and 2008,
respectively.
Research and development expenses decreased by $76,000 to $611,000 for the
nine months ended September 30, 2009. This decrease primarily results from
decreased 2008 costs for the VITAL Trial (suspended in March 2009) of $276,000
and $217,000 of costs for the MUSIC Trial and programming costs incurred in
2009.
General and Administrative Expenses
General and administrative expenses represent 60.6% and 29.3% of total
operating expenses for the nine months ended September 30, 2009 and 2008,
respectively.
General and administrative expenses were $2,762,000 for the nine months ended
September 30, 2009 compared with $1,567,000 for the nine months ended
September 30, 2008. The principal reason for the increase was due to increases
of $487,000 in consulting and computer programming fees, $237,000 in legal and
accounting fees, $223,000 in offering costs and $120,000 in note conversion
fees.
Interest Expense
Interest expense represents 30.1% and 57.3% of total operating expenses for
the nine months ended September 30, 2009 and 2008, respectively.
Interest expense was $1,460,000 for the nine months ended September 30, 2009
compared with $3,065,000 for the nine months ended September 30, 2008. The
$1,605,000 decrease is the result of significant reductions in debt since
April 1, 2008, including $2,056,000 related to the conversion of notes to common
and preferred stock and more than $664,000 of interest-related fees incurred in
2008. These decreases were offset by $666,000 in noncash interest upon
conversion of 8% notes to common stock and $103,000 in amortization of discounts
on derivative financial instruments.
Liquidity and Capital Resources
As a development-stage company, we have no revenue and must raise capital to
execute our business plan and commercialize our products. At September 30, 2009
we had a working capital deficiency of $507,000 and $1,065,000 in cash. Our
working capital is not sufficient to meet our objectives.
Management recognizes that the Company must generate additional resources to
successfully commercialize its products. Management plans include the sale of
additional equity and debt securities. We have raised approximately $23,600,000
since our inception in 2000 in a series of private placements of our common
stock, convertible preferred stock and convertible notes to accredited
investors, a number of which are physicians.
However, we may not be successful in raising additional capital. Further,
assuming that we raise additional funds, the Company may not achieve
profitability or positive cash flow. If we are not able to timely and
successfully raise additional capital and/or achieve profitability or positive
cash flow, our operating business, financial condition, cash flows and results
of operations may be materially and adversely affected.
Going Concern
We have prepared our financial statements for the three and nine months ended
September 30, 2009 on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. We incurred a net loss of $6,698,000 for the nine months ended
September 30, 2009 and had a net capital deficiency of $8,208,000 at
September 30, 2009. We expect to incur substantial expenditures to further the
commercial development of our products, and our working capital at September 30,
2009 will not be sufficient to meet such objectives. Management recognizes that
the Company must generate additional cash to successfully commercialize its
products. Management plans include the sale of additional equity or debt
securities, establishing alliances or other partnerships with entities
interested in and that have resources to support the further development of the
Company's products as well as other business transactions to assure continuation
of our operations.
Off-Balance Sheet Arrangements
We have not entered into any transaction, agreement or other contractual
arrangement with an unconsolidated entity under which we have:
• A retained or contingent interest in assets transferred to the unconsolidated
entity or similar arrangement that serves as credit;
• Liquidity or market risk support to such entity for such assets; or
• An obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us.
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