| Significant Accounting Policies | 2. SIGNIFICANT ACCOUNTING POLICIES Principles of
Consolidation and Basis of Presentation The consolidated financial
statements include the accounts of Vycor Medical, Inc., and its wholly-owned subsidiaries, NovaVision, Inc. (a Delaware corporation),
NovaVision GmbH (a German corporation) and Sight Science Limited (a UK corporation), both wholly owned subsidiaries of NovaVision,
Inc. The Company is headquartered in Boca Raton, FL. All material inter-company accounts, transactions, and balances have been
eliminated in consolidation. 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 vision restoration therapy consists of six modules, performed on average over 6 months
in the U.S. and U.K. and 10 months in Germany. 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. NovaVision’s saccadic training software is generally
completed within 2-4 weeks and revenue is therefore recognized fully at commencement. Deferred revenue results
from patients paying for the therapy in advance of receiving the therapy. As part of the adoption
of ASC 606, see Note 5 to the Consolidated Financial Statements for further disaggregation of revenue. Cash and cash
equivalents The Company maintains
cash balances at various financial institutions. Accounts at each institution in the U.S. 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, 2018 and 2017 patient
deposits amounted to $44,605 and $41,172, respectively, and are included in Accrued Liabilities. 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. Inventories Inventories consist
of raw materials, work in process and finished goods that are stated at the lower of cost determined using the weighted average
cost method or net realizable value. 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
obsolescence for the years ended December 31, 2018 and 2017 was $6,729 and $44,760, respectively. Shipping and handling costs incurred
for inventory purchases and product shipments are recorded in cost of sales in the Company’s consolidated statements of comprehensive
loss. Foreign Currency The Euro is the local
currency of the country in which NovaVision GmbH conducts 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’ equity in the accompanying Consolidated Balance
Sheet. 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. 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. Fixed assets Fixed assets are stated
at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets.
Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred. 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 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. Impairment of
long-lived assets Long-lived assets
are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that
are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group
of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value,
and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted
market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at
the lower of carrying value or estimated net realizable value. While the Company
believes there is real intrinsic value in NovaVision, it has made clear in its filings that the business needs to be partnered
with an entity with the cash resources and routes to market to enable NovaVision to fulfill its potential. Under the applicable
guidance, the intangible assets and capitalized software must be assessed on the basis of the potential future cash flows of the
business as it currently exists today; on this basis the Company has concluded the certain assets of NovaVision are impaired and
has made a full provision of $307,576 against these assets during the year ended December 31, 2018, of which $256,790 is in respect
of Trademarks and Website and $50,786 is in respect of unamortized software development costs. Research and
Development The Company expenses
all research and development costs as incurred. For the years ended December 31, 2018 and 2017, the amounts charged to research
and development expenses were $0 and $3,015, respectively. Software Development
Costs The Company accounts
for software development costs in accordance with ASC 350-40, whereby all costs incurred during the preliminary stage of a development
project should be charged to expense as incurred. Capitalization of costs begins after the preliminary stage has been completed,
management commits to funding the project, it is probable that the project will be completed, and the software will be used for
its intended function. All post-implementation costs are charged to expense as incurred. 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 of the estimated life of five years. For the years
ended December 31, 2018 and 2017, the amounts capitalized for software development were $0 and $2,745 respectively, for the Company’s
VRT 7.0 and NeuroEyeCoach programs. As part of the impairment review referred to above, software development costs were written
down by $50,786 to $0 during the year ended December 31, 2018. Uses of estimates
in the preparation of financial statements The preparation of
consolidated financial statements in conformity with GAAP 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 warrants included in the determination of debt discounts and share based compensation. Stock Compensation The Company recognizes
the cost of all share-based payments under the relevant authoritative accounting guidance. Share-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 share-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”. Share-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. Convertible
Instruments We evaluate and account
for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires
companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial
instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks
of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured
at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with
the same terms as the embedded derivative instrument would be considered a derivative instrument. We account for convertible
instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments)
as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in
debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the
note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their stated date of redemption. The embedded conversion option in connection with our convertible
debt could not be exercised unless and until we completed a Qualifying Financing transaction. Accordingly, we determined based
on authoritative guidance that the embedded conversion option is deemed to be a contingent conversion rather than active conversion
option that did not require accounting recognition at the commitment dates of the issuances of the Notes. Common Stock
Purchase Warrants and Other Derivative Financial Instruments We classify as equity
any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement
in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined
in ASC 815-40 (“Contracts in Entity’s Own Equity”). We classify as assets or liabilities any contracts that require
net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our
control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
We assess classification of our common stock purchase warrants and other free-standing derivatives at each reporting date to determine
whether a change in classification between assets and liabilities is required. Fair Value Measurements We adopted the provisions
of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The estimated fair
value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
The carrying amounts of our short and long-term credit obligations approximate fair value because the effective yields on these
obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants
and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk. ASC 820 defines fair
value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure
fair value: Level 1 — quoted
prices in active markets for identical assets or liabilities Level 2 — quoted
prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — inputs
that are unobservable (for example cash flow modeling inputs based on assumptions) The Company has no
Financial instruments measured at Fair value on a recurring basis. Net Loss Per
Share Basic net loss per
share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net
loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred
stock and convertible debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share.
No dilution adjustment has been made to the weighted average outstanding common shares in the periods presented because the assumed
exercise of outstanding options and warrants and the conversion of preferred stock and debt would be anti-dilutive. The following table
sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share:
December 31, December 31,
2018 2017
Stock options outstanding 1,380,000 725,557
Warrants to purchase common stock 3,717,826 6,929,386
Debentures convertible into common stock 2,652,568 2,308,405
Preferred shares convertible into common stock 1,272,052 1,272,052
Directors Deferred Compensation Plan 775,911 510,527
Total 9,798,357 11,745,927 Recent Accounting
Pronouncements In February 2018,
the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This guidance is effective for all
entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted.
The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the
effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently
evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures. In February 2016,
the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires a lessee to record
a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the
balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements.
ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease
is allocated over the lease term. ASU 2016-02 requires classification of all cash payments within operating activities in the statement
of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified
retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Early application is permitted. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. The
Company has not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s consolidated financial statement
presentation or disclosures. In June 2018, the
FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting, or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments made to nonemployees so the accounting
for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will
be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance
conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”)
718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees.
This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
The Company does not believe the adoption of this ASU will have a material effect on the Company’s unaudited condensed consolidated
financial statements. From time to time
new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may
have an impact on the Company’s accounting and reporting. The Company believes that other recently issued accounting pronouncements
and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting
or that such impact will not be material to its financial position, results of operations and cash flows when implemented. |
