Brian Marckx, CFA
Q1 2011 Financial Results
Vicor Technologies, Inc. (VCRT) filed its 10-Q for the first quarter ending March 31, 2011 on May 16, 2011. Revenue of $168k was slightly ahead of our $156k estimate. The components of revenue (system placements versus testing revenue) were not disclosed in the filing, nor was the total installed base. We estimate that the installed base grew by about 25 units during Q1 to approximately 77 units. Of note was that gross margin came in at 50%, a significant improvement over the 31% for all of 2010 and better than our 27% estimate. Vicor attributed the improvement in GM to "an improved pricing structure and the efforts of our sales representatives." We have made some adjustments to our model to incorporate an assumption that GM remains near this level.
Q1 EPS was $0.01 compared to our ($0.05) estimate. The difference almost entirely attributable to a $3.2MM gain related to valuation of embedded derivatives in the company's various financial instruments.
Cash used in operations was $933k and was $1,313k ($438k/month) when excluding changes in working capital. This compares to a quarterly average of $1,404k and $1,338k ($446k/month) excluding changes in working capital for all of 2010. Vicor exited Q1 with $121k in cash and equivalents but pro forma for sale of 15% promissory notes during April and May, had approximately $370k in cash. In the 10-Q management notes that they believe they have sufficient capital to continue operations through at least July 15, 2011.
Vicor will continue to look to raise additional capital which may include through proceeds from the exercise of outstanding warrants. Subsequent to Q1 Vicor reduced the strike price to $0.25 (for exercise from April 25th – June 30, 2011) on warrants with exercise prices varying from $0.50 to $3.12. While Vicor notes that, if all warrants are exercised, proceeds to the company would total roughly $4.5MM, as of the date of this report the warrants had again fallen out-of-the-money (VCRT last trade @ $0.17). Management will likely also be looking for other financing alternatives, including the sale of additional debt.
Business Update
• Vicor had 50 independent sales reps at the end of Q1, up from just 27 at the end of 2010
• Vicor was served with a derivative lawsuit in April 2011 which also names CEO David Fater as a defendant. The lawsuit alleges breach of fiduciary duty, abuse of control and gross mismanagement against all of the directors, as well as a claim for unjust enrichment against Mr. Fater. Vicor notes in their most recent 10-Q that they are reviewing the lawsuit with attorneys to determine their response.
• Prior to filing of the lawsuit a special committee had been formed to investigate the plaintiff's claims (made in January 2011) that Mr. Fater had engaged in activities that required the board of directors to terminate him with cause. The committee, consisting of four independent directors, concluded their investigation in April which found no basis for the termination with cause of Mr. Fater and no evidence of willful gross neglect or willful gross misconduct on the part of Mr. Fater. In May Vicor's board of directors took certain actions as a result of the special committee's findings including separation of the CEO and Chairman of the Board roles, adoption of amended by-laws and establishment of a Lead Independent Director position. An 8-K filing made on May 19, 2011 outlines changes made to the bylaws.
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