RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31,
2019
Revenue and Gross Margin:
Vycor Medical recorded revenue of $1,039,562 from the sale of its products for
the year ended December 31, 2020, a decrease of $260,268 (or 20%) over 2019.
Sales of VBAS devices have been significantly disrupted during 2020 in the US
and internationally by COVID-19. Although neurosurgery is not considered an
elective procedure, general hospital dislocation and diversion of resources away
from non-emergency surgeries, or surgeries that can be postponed for a short
period without harm, has impacted our revenues during the year ended December
31, 2020. In addition, sales and marketing efforts by Vycor's representatives
have been disrupted or curtailed due to lockdown and social distancing, and this
has hindered the recovery of revenues.
Gross margin of 88% was recorded for the year ended December 31, 2020 compared
to 90% in 2019.
NovaVision recorded revenues of $102,483 for the year ended December 31, 2020,
an increase of $9,413 from 2019, and gross margin of 94%, compared to 93% for
2019. New patient starts increased by 20% for the year ended December 31, 2020
compared to 2019.
Selling, General and Administrative Expenses:
Selling, General and Administrative expenses decreased by $119,200 to $1,680,447
in 2020 from $1,799,647 in 2019. Included within Selling, General and
Administrative Expenses are non-cash charges for share-based compensation as the
result of amortizing employee and non-employee shares and options which have
been issued by the Company over various periods. The charge for 2020 was
$520,000, a decrease of $14,940 from $534,940 in 2019, following the departure
from the Board of Oscar Bronsther from July 1, 2020. Also included within
Selling, General and Administrative Expenses are Sales Commissions, which
decreased by $58,753 to $203,707 reflecting the reduced level of sales in the US
due to COVID-19.
The remaining Selling, General and Administrative expenses decreased by $45,507
from $1,002,247 to $956,740. Regulatory fees reduced by $53,311 reflecting the
completion of the transition to a new EU Notified Body for Vycor; patent fees
reduced by $31,107 reflecting the level of patent filing and prosecution
activity in 2019; the professional fees related to the closure of NovaVision
Germany and the license agreement resulted accounting and legal fees increasing
by $22,123.
An analysis of the change in cash and non-cash G&A is shown in the table below:
Cash G&A Non-Cash G&A
Legal, patent, audit/accounting (10,994 ) -
Regulatory (53,311 )
Board, financial and scientific advisory (2,974 ) (14,000 )
Sales, marketing and travel
(7,039 ) -
Payroll 6,744 (940 )
Other (travel/insurance/premises) 22,067 -
Commissions (58,753 ) -
Total change (104,260 ) (14,940 )
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Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for 2020 increased $9,035 following the issuance
of related party notes during 2019 and 2020 to $29,682 from $20,647 for 2019.
Other Interest expense for 2020 increased by $96 to $48,132 from $48,036 for
2019.
Operating loss from Discontinued Operations:
Operating loss from Discontinued Operations decreased by $71,567 to $52,169 in
2020 from $123,736 in 2019, primarily due to a reduction in Selling, general and
administrative expenses as a result of the wind-down of the discontinued
operations in Germany.
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for the years ended
December 31, 2020 and December 31, 2019:
December 31, 2020 December 31, 2019 $ Change
Cash $ 46,002 $ 60,717 $ (14,715 )
Accounts receivable, inventory and
other current assets $ 417,899 $ 595,715 $ (177,816 )
Total current liabilities $ (2,740,828 ) $ (2,446,406 ) $ (294,422 )
Working capital $ (2,276,927 ) $ (1,789,974 ) $ (486,953 )
Cash provided by financing
activities $ 286,552 $ 40,091 $ 246,461
Operating Activities. Cash used in operating activities comprises net loss
adjusted for non-cash items and the effect of changes in working capital and
other activities. The net repayment of normal insurance financing should also be
taken into account when considering cash used in operating activities.
The following table shows the principal components of cash used in operating
activities during the years ended December 31, 2020 and 2019, with a commentary
of changes during the years and known or anticipated changes:
December 31, 2020 December 31, 2019 $ Change
Net loss $ (822,482 ) $ (796,202 ) $ (26,280 )
Adjustments to reconcile net loss
to cash used in operating
activities:
Amortization and depreciation of
assets $ 57,895 $ 61,638 $ (3,743 )
Stock based compensation $ 520,000 $ 534,940 $ (14,940 )
Other $ 12,558 $ 12,558 $ 0
$ 590,453 $ 609,136 $ (18,683 )
Net loss adjusted for non-cash
items $ (232,029 ) $ (187,066 ) $ (44,963 )
Changes in working capital
Accounts receivable $ 115,313 $ (19,237 ) $ 134,550
Accounts payable and accrued
liabilities $ (182,319 ) $ 162,395 $ (344,714 )
Inventory $ 14,699 $ (21,654 ) $ 36,353
Prepaid expenses and net insurance
financing repayments $ 14,754 $ (13,271 ) $ 28,025
Accrued interest (not paid in
cash) $ 77,814 $ 68,647 $ 9,167
Changes in discontinued
operations, net $ (59,071 ) $ 6,384 $ (65,455 )
$ (18,810 ) $ 183,264 $ (202,074 )
Cash (used in) provided by
operating activities, adjusted for
net insurance repayments $ (250,839 ) $ 3,802 $ (247,037 )
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The adjustments to reconcile net loss to cash used of $590,453 in the year have
no impact on Liquidity. The change in Net loss adjusted for non-cash items of
($44,963) was primarily due to the impact of COVID-19 on the Vycor division
sales, offset by reduced expenses, primarily regulatory and patent fees. The
reduced Vycor division sales also accounts for the reduction in accounts
receivable of $115,313. At December 31, 2019 there was an increase in accounts
payable and accrued liabilities mainly due to expenditure on regulatory for the
transition to a new EU Notified Body, and regulatory and testing for the VBAS
development occurring during the fourth quarter. The reduction in accounts
payable and accrued liabilities of $182,319 was mainly due to the settlement of
these accounts during the year. The net change of $59,071 in discontinued
operations comprised: a reduction of $78,611 in liabilities being transferred to
the license partner, or to NovaVision, Inc. or eliminated; offset by a $19,540
reduction in assets being transferred to the license partner, or to NovaVision,
Inc. or written off.
Additional inventory of $78,076 was purchased during the year ended December 31,
2020 as part of normal production, and the Company anticipates purchasing
additional new inventory of approximately $125,000 during the next twelve months
for VBAS and VBAS AC. In January 2020 the Company received FDA 510(k) clearance
for its new VBAS AC model range, and is in the technical review stage for EU
clearance. The VBAS AC provides significantly greater integration with IGS by
enabling an IGS pointer to be held securely within the device.
Investing Activities. Cash used in investing activities of continuing operations
for the year ended December 31, 2020 was $62,052, which primarily reflected
expenditure on the VBAS AC. The Company anticipates additional expenditures for
the VBAS AC, including work to obtain regulatory clearances and approvals and
bringing the model into service, of approximately $30,000. The $9,574 change in
investing activities of discontinued operations was due the writing off of long
term assets.
Financing Activities. During the year ended December 31, 2020 the Company
received funds of $80,000 in respect of loans from Fountainhead. The Company
also received a loan of $58,600 during the year, pursuant to the Paycheck
Protection Program (the "PPP") under Division A, Title I of the CARES Act, and a
$150,000 loan from the Small Business Administration ("SBA") EIDL program. The
Company received an additional PPP loan of $58,600 in January 2021.
Liquidity and Plan of Operations, Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
losses since its inception, including a net loss of $822,482 and $796,202 for
the years ending December 31, 2020 and 2019 respectively and has not generated
sufficient cash flows from operations. As at December 31, 2020 the Company had a
working capital deficiency of $593,971, excluding related party liabilities of
$1,682,956. As a result these conditions, among others, raise substantial doubt
regarding our ability to continue as a going concern. The consolidated 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
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As described earlier in this ITEM 1 "Strategy", the Company is continuing to
execute on a plan to achieve revenue growth and a reduction in cash operating
losses2. For Vycor Medical this plan includes: increasing market penetration in
the US; increasing international growth in territories where we are not
represented or under represented and continued new product development. In the
US the Company is focused on increasing market penetration through targeting
neurosurgeons systematically, both through its distribution network and also
directly by leveraging existing KOL neurosurgeon VBAS supporters to access new
neurosurgeon users. The Company continues to target key international
territories including Europe where it intends to drive adoption of its VBAS
product through selected key KOL neurosurgeon VBAS users to identify both new
potential users and also high quality distribution partners to bolster our
existing network. The Company has for some time been working to better integrate
its VBAS with neuronavigation. The first phase of the modification of the
existing VBAS product range was completed in September 2017 and has been well
received by surgeons. The second phase involves the introduction of an optional
Alignment Clip accessory that will snap onto the VBAS and allow for a
neuronavigation pointer to be fully integrated with the VBAS. This VBAS AC model
range has received FDA 510(k) clearance and is in the final review stage for EU
clearance; it is envisaged that it will be available by the summer of 2021. The
Company will continue to work with neuronavigation companies to seek ways to
further integrate the VBAS with neuronavigation and with other companies with
complementary technologies used in neurosurgery. We will also be exploring with
surgeons and focus groups additional selected development work targeted at
increasing the ease and applicability of our products to additional common
procedures. For NovaVision, given the company's resources, and the large size
and diversity of its end markets, we believe that the most efficient way to
tackle the distribution of its broad range of patient and professional products
is by partnering with entities in selected geographies that have either direct
access to the end users or a desire and financial wherewithal to leverage the
NovaVision therapy platform. As a result, the Company has now closed the
NovaVision German office and entered into a license agreement with HelferApp, a
cognitive therapy specialist, for Germany, Austria and Switzerland, and is
seeking similar partnerships in other territories with regional companies able
to leverage NovaVision's clinically supported vision therapies. Management is
also open to a broad range of alternatives for NovaVision as a whole, which
could comprise distribution and marketing partnerships, licensing, merger or
sale.
However, the Company believes it may not have sufficient cash to meet its
various cash needs through March 31, 2021 unless the Company is able to obtain
additional cash from the issuance of debt or equity securities. Included within
the working capital deficiency above is a term note for $300,000 to EuroAmerican
Investment Corp. ("EuroAmerican"), together with accrued interest of $328,897,
which has a maturity date of June 30, 2021, having been extended on a number of
occasions from its initial due date of June 11, 2011. At this time it is not
known whether any further extension of the note beyond June 30, 2021 will be
available. Fountainhead, the Company's largest shareholder, has provided working
capital funding to the Company on an as-needed basis, although there is no
guarantee that this will continue to be the case. The Company may consider
seeking additional equity or debt funding, although there is no assurance that
this would be available on acceptable terms or at all. If adequate funds are not
available, the Company may have to delay or curtail development or
commercialization of products, or cease some of its operations.
Vycor Medical experienced a reduction in demand during the year ended December
31, 2020 in the US and Europe, particularly in the second quarter, with some
recovery in the third and fourth quarters. Although neurosurgery is not
considered an elective procedure, general hospital dislocation and diversion of
resources away from non-emergency surgeries, or surgeries that can be postponed
for a short period without harm, has impacted our revenues during the year ended
December 31, 2020 and could continue to do so. In addition, sales and marketing
efforts by Vycor's representatives have been disrupted or curtailed due to
lockdown and social distancing, and this has and may continue to hinder the
recovery of revenues. While our operations are principally located in the United
States, and our sub-contract manufacturers are located in the United States, we
participate in a global supply chain, and COVID-19 may impact our ability to
conduct normal business operations, which could adversely affect our results of
operations and liquidity. Disruptions to our supply chain and business
operations, or to our suppliers' or customers' supply chains and business
operations, could include disruptions from supplier staff absences due to
COVID-19 illness or isolation requirements, the closure of supplier and
manufacturer facilities, interruptions in the supply of raw materials and
components, or restrictions on the shipment of our or our suppliers' or
customers' products, any of which could have adverse ripple effects on our
manufacturing output and delivery schedule. Although we have implemented
business continuity plans for our offices and personnel to enable continuity of
service remotely, if a critical number of our employees become too ill to work,
or we are not able to access a sufficient quantity of our inventory for shipment
due to enforced office closures, our production ability could be materially
adversely affected in a rapid manner. Similarly, if our customers experience
adverse business consequences due to COVID-19, or any other, pandemic, demand
for our products could also be materially adversely affected in a rapid manner.
Global health concerns, such as COVID-19, could also result in social, economic,
and labor instability in the countries and localities in which we or our
suppliers and customers operate. Any of these uncertainties could have a
material adverse effect on our business, financial condition or results of
operations.
2 Operating Loss or Profit before Depreciation, Amortization and non-cash Stock
Compensation
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Off-Balance Sheet Arrangements
As of December 31, 2020, we had no off-balance sheet arrangements.
Seasonality
Our operating results are not affected by seasonality.
Inflation
Our business and operating results are not affected in any material way by
inflation.
Critical Accounting Policies and Estimates
Accounting for forgivable loan received under the Small Business Administration
Paycheck Protection Program
During the year ended December 31, 2020 the Company received a loan of $58,600
pursuant to the Paycheck Protection Program (the "PPP") under Division A, Title
I of the CARES Act. Under the terms of the PPP, the Loan may be forgiven if they
are used for qualifying expenses as described in the CARES Act. The Company's
use of the Loan qualifies and the Company intends to apply during 2021.
The Company accounts for the loan as a financial liability in accordance with
FASB ASC 470 and accrues interest in accordance with the interest method under
FASB ASC 835-30. For purposes of derecognition of the liability, FASB ASC
470-50-15-4 refers to guidance in FASB ASC 405-20. Based on this guidance, the
proceeds of the loan will remain recorded as a liability until either (1) the
loan is, in part or wholly, forgiven and the Company has been "legally
released", or (2) the Company pays off the loan. Once the loan is, in part or
wholly, forgiven and legal release is received, the Company will reduce the
liability by the amount forgiven and record a gain on the extinguishment.
The Company received an additional PPP loan of $58,600 in January 2021.
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, provision for inventory obsolescence, useful life of intangible
assets, and the fair values of options and warrant included in the determination
of debt discounts and stock based compensation.
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 December 31, 2020 and 2019 patient deposits amounted to $28,704 and
$24,601, 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.
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Leases
The Company has one leased building in Boca Raton, Florida that is classified as
operating lease right-of use ("ROU") assets and operating lease liabilities in
the Company's consolidated balance sheet as per ASC 842. ROU assets and lease
liabilities are recognized based on the present value of the future minimum
lease payments over the lease term at the commencement date for leases exceeding
12 months. Minimum lease payments include only the fixed lease component of the
agreement. Operating lease expense is recognized on a straight-line basis over
the lease term and is included in cost of Selling, General and Administrative
expenses.
The standard was effective for us beginning January 1, 2019. The Company elected
the available practical expedients on adoption. The adoption had a material
impact on our consolidated balance sheets, but did not have a material impact on
our consolidated statements of comprehensive loss. The most significant impact
was the recognition of ROU assets and lease liabilities for operating leases.
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 basis 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.
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Revenue Recognition
On January 1, 2018, the Company adopted the new accounting standard, ASC 606,
Revenue from Contracts with Customers and all the related amendments (new
revenue standard) to all contracts. The adoption of the new accounting standard
had no impact on company's consolidated financial statements.
Vycor Medical generates revenue from the sale of its surgical access system to
hospitals and other medical professionals. Vycor Medical records revenue from
product sales when obligations under the terms of a contract with customers are
satisfied. Generally, this occurs with the transfer of control of the goods to
customers. Vycor Medical does not provide for product returns or warranty costs.
Vycor determines revenue recognition through the following steps:
? Identification of the contract, or contracts, with a customer
? Identification of the performance obligations in the contract
? Determination of the transaction price
? Allocation of the transaction price to the performance obligations in the
contract
? Recognition of revenue when Vycor satisfy a performance obligation
NovaVision generates revenues from various programs, therapy services and other
sources such as software 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 therapy
program consists of NeuroEyeCoach, performed over 2-4 weeks, and six modules of
Vision Restoration Therapy, performed 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.
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, for NovaVision therapy patients sometimes credit is extended through
various payment plans based on individual financial conditions, generally not to
exceed the 9 or 10 month therapy period. The outstanding balances are stated net
of an allowance for doubtful accounts.
We have a policy of reserving for uncollectible accounts based on our best
estimate of the amount of probable credit losses in our existing accounts
receivable. We extend credit to our customers based on an evaluation of their
financial condition and other factors. We generally do not require collateral or
other security to support accounts receivable. We perform ongoing credit
evaluations of our customers and maintain an allowance for potential bad debts
if required. We determine whether an allowance for doubtful accounts is required
by evaluating specific accounts where information indicates the customers may
have an inability to meet financial obligations. In these cases, we use
assumptions and judgment, based on the best available facts and circumstances,
to record a specific allowance for those customers against amounts due to reduce
the receivable to the amount expected to be collected. These specific allowances
are re-evaluated and adjusted as additional information is received. The amounts
calculated are analyzed to determine the total amount of the allowance. We may
also record a general allowance as necessary. Direct write-offs are taken in the
period when we have exhausted our efforts to collect overdue and unpaid
receivables or otherwise evaluate other circumstances that indicate that we
should abandon such efforts.
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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 December 31, 2020
and 2019 was $12,558, respectively. Shipping and handling costs incurred for
inventory purchases and product shipments are recorded in cost of sales.
Discontinued Operations
In accordance with ASU No. 2014-08, Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity, a disposal of a component
of an entity or a group of components of an entity is required to be reported as
discontinued operations if the disposal represents a strategic shift that has
(or will have) a major effect on an entity's operations and financial results
when the components of an entity meets the criteria in paragraph 205-20-45-1E to
be classified as held for sale. When all of the criteria to be classified as
held for sale are met, including management, having the authority to approve the
action, commits to a plan to sell the entity, the major current assets, other
assets, current liabilities, and noncurrent liabilities shall be reported as
components of total assets and liabilities separate from those balances of the
continuing operations. At the same time, the results of all discontinued
operations (which we presented as operations to be disposed and operations
disposed), less applicable income taxes (benefit), shall be reported as
components of net income (loss) separate from the net income (loss) of
continuing operations in accordance with ASC 205-20-45.
Foreign Currency
The Euro is the local currency of the country in which the discontinued
operations of NovaVision GmbH conducted 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 stockholders'
deficiency in the accompanying Consolidated Balance Sheets.
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.
Stock Compensation
The Company recognizes the cost of all stock-based payments under the relevant
authoritative accounting guidance. Stock-based payments include any remuneration
paid by the Company in shares of the Company's common stock or financial
instruments that grant the recipient the right to acquire shares of the
Company's common stock. For stock-based payments to employees, which consist
only of awards made under the stock option plan described below, the Company
accounts for the payments in accordance with the provisions of ASC Topic 718,
"Stock Compensation". Stock-based payments to consultants, service providers and
other non-employees are accounted for under in accordance with ASC Topic 718,
ASC Topic 505, "Equity Payments to Non-Employees" or other applicable
authoritative guidance.
Contractual Obligations
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the
Company is not required to provide this information.
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