RESULTS OF OPERATIONS
Comparison of the Year Ended December 31,2021 to the Year Ended December 31,
2020
Revenue and Gross Margin:
Vycor Medical recorded revenue of $1,273,602 from the sale of its products for
the year ended December 31,2021, an increase of $234,040 (or 23%) over 2020.
This reflected continued recovery in the US and certain international markets
following the easing of COVID-19 related issues as well as positive results from
Vycor's strategy to increase penetration described under "Strategy" above. Gross
margin of 90% was recorded for the year ended December 31,2021 compared to 88%
in 2020.
NovaVision recorded revenues of $119,385 for the year ended December 31, 2021,
an increase of $16,902 from 2020, and gross margin of 93%, compared to 94% for
2020.
Research & Development:
Research & Development expenses were $15,159 for the year ended December 31,
2021compared to $0 in 2020, reflecting early-stage product development for the
Vycor division.
Selling, General and Administrative Expenses:
Selling, General and Administrative expenses decreased by $67,463 to $1,612,984
in 2020 from $1,680,447 in 2020. 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 2021 was
$341,098, a decrease of $178,902 from $520,000 in 2020, following an amendment
to the Fountainhead Consulting Agreement and the departure from the Board of
Steven Girgenti and Lowell Rush. Also included within Selling, General and
Administrative Expenses are Sales Commissions, which increased by $56,801 to
$260,508 reflecting increased level of sales in the US.
The remaining Selling, General and Administrative expenses increased by $54,638
from $956,740 to $1,011,378. Patent costs increased by $61,396 due to Vycor
division patent activity during the period and higher costs of NovaVision
patents; software development and associated scientific and clinical costs
related to additional development in NovaVision increased by $48,254; regulatory
costs decreased by $11,407 due to the costs of international regulatory costs
during the 2020 period and there was also a reduction in professional costs
related to the closure of NovaVision Germany during 2020 of $19,558.
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
Commissions 56,801 -
Scientific, clinical and software development 48,254 -
Legal, patent, audit/accounting 46,137 -
Other (travel/regulatory/premises) 1,892
Board and financial - (178,902 )
Regulatory (11,407 ) -
Payroll (15,078 ) -
Total change 126,599 (178,902 )
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Interest Expense:
Interest comprises expense on the Company's debt and insurance policy financing.
Related Party Interest expense for 2021 increased $2,159 following the issuance
of related party notes during 2021 and 2020 to $31,841 from $29,682 for 2020.
Other Interest expense for 2020 increased by $7,838 to $55,970 from $48,132 for
2020.
Other Income:
Other Income of $117,200 was recorded during the year ended December 31, 2021
from the forgiveness of Paycheck Protection Program loans
Operating loss from Discontinued Operations:
Operating loss from Discontinued Operations increased by $5,241 to $27,413 in
2021 from $22,172 in 2020; this reflected some continued costs during the first
half of 2021 which, although were at a much lower level than in 2020, were not
offset by revenues as they were in 2020.
Liquidity and Capital Resources
Liquidity
The following table shows cash flow and liquidity data for the years ended
December 31, 2021 and December 31, 2020:
December 31, 2021 December 31, 2020 $ Change
Cash $ 90,941 $ 46,002 $ 44,939
Accounts receivable, inventory and
other current assets $ 396,470 $ 417,899 $ (21,429 )
Total current liabilities $ (3,149,997 ) $ (2,740,828 ) $ (409,169 )
Working capital $ (2,662,586 ) $ (2,276,927 ) $ (385,659 )
Cash provided by financing
activities $ 61,945 $ 286,552 $ (224,607 )
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.
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The following table shows the principal components of cash used in operating
activities during the years ended December 31, 2021 and 2020, with a commentary
of changes during the years and known or anticipated changes:
December 31, 2021 December 31, 2020 $ Change
Net loss $ (435,662 ) $ (822,482 ) $ 386,820
Adjustments to reconcile net loss
to cash used in operating
activities:
Amortization and depreciation of
assets $ 68,418 $ 57,895 $ 10,523
Share based compensation $ 341,098 $ 520,000 $ (178,902 )
Forgiveness of PPP loan $ (117,200 ) $ - $ (117,200 )
Other $ 12,360 $ 12,558 $ (198 )
$ 304,676 $ 590,453 $ (285,777 )
Net loss adjusted for non-cash
items $ (130,986 ) $ (232,029 ) $ 101,043
Changes in working capital
Accounts receivable $ 33,142 $ 115,313 $ (82,171 )
Accounts payable and accrued
liabilities $ 58,521 $ (182,319 ) $ 240,840
Inventory $ (38,785 ) $ 14,699 $ (53,484 )
Prepaid expenses and net insurance
financing repayments $ 13,379 $ 14,754 $ (1,375 )
Accrued interest (not paid in
cash) $ 83,423 $ 77,814 $ 5,609
Changes in discontinued
operations, net $ (3,980 ) $ (59,071 ) $ 55,091
$ 145,700 $ (18,810 ) $ 164,510
Cash provided by (used in)
operating activities, adjusted for
net insurance repayments $ 14,714 $ (250,839 ) $ 265,753
The adjustments to reconcile net loss to cash of $304,676 in the period have no
impact on liquidity. The positive change in net loss adjusted for non-cash items
of $101,043 was primarily due to the increase in sales as a result of recovery
from the impact of COVID-19 on the Vycor division and results from the Company's
strategic initiatives. At December 31, 2019 there had been 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 which occurred during the fourth quarter of 2019. The change in
accounts payable and accrued liabilities of $240,840 between the 2021 and 2020
periods was mainly due to the settlement of these accounts during the first few
months of 2021.
Additional inventory of $141,512 was purchased during the year ended December
31, 2021 as part of normal production and for marketing inventory for the VBAS
AC, and the Company anticipates purchasing additional new inventory of
approximately $100,000 during the next twelve months for VBAS and VBAS AC.
Investing Activities. Cash used in investing activities of continuing operations
for the year ended December 31, 2021 was $38,375 compared to $62,052 in 2020,
which primarily reflected completion of expenditure on the VBAS AC.
Financing Activities. During the year ended December 31, 2021 the Company
received funds of $10,000 in respect of loans from Fountainhead. The Company
also received a second loan of $58,600 during the period pursuant to the
Paycheck Protection Program (the "PPP") under Division A, Title I of the CARES
Act. Both loans received under the Paycheck Protection Program were forgiven in
August 2021 and have resulted in an extinguishment of debt for $117,200, which
is included in the adjustment to reconcile net loss to cash used in operating
activities section on the cash flow statement.
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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 $435,662 and $822,482 for
the years ending December 31, 2021 and 2020 respectively and has not generated
sufficient cash flows from operations. As at December 31, 2021 the Company had a
working capital deficiency of $613,419, excluding related party liabilities of
$2,049,167. 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
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 and
demonstrating applicability in a broader range of pathologies. 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 US FDA 510(k) clearance, EU clearance and is going through
the regulatory process elsewhere internationally; it is envisaged that it will
be available during 2022. 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, including into new
areas. 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, 2023 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 $376,897,
which has a maturity date of March 31, 2023, 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 March 31, 2023 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.
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, 2021, 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
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.
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.
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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, 2021
and 2020 was $12,360 and $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.
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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