VYCOR MEDICAL, INC. RESULTS OF OPERATIONS
Comparison of the Year Ended
Revenue and Gross Margin:
Gross margin of 88% was recorded for the year ended
Selling, General and Administrative Expenses:
Selling, General and Administrative expenses decreased by
The remaining Selling, General and Administrative expenses decreased by
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 )
8
Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for 2020 increased
Operating loss from Discontinued Operations:
Operating loss from Discontinued Operations decreased by
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for the years ended
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 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 )
9
The adjustments to reconcile net loss to cash used of
Additional inventory of
Investing Activities. Cash used in investing activities of continuing operations
for the year ended
Financing Activities. During the year ended
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
10
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
However, the Company believes it may not have sufficient cash to meet its
various cash needs through
2 Operating Loss or Profit before Depreciation, Amortization and non-cash Stock Compensation
11
Off-Balance Sheet Arrangements
As of
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
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
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
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.
12 Leases
The Company has one leased building in
The standard was effective for us beginning
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.
13 Revenue Recognition
On
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
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
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.
14 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
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
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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