Dror Ortho-Design, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements included elsewhere in this report and the “Cautionary Note Regarding Forward-Looking Statements” above. Overview Novint Technologies, Inc. (the “Company” or “Novint”) was originally incorporated in the State of New Mexico in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging with Novint Technologies, Inc., a Delaware corporation. This merger was accounted for as a reorganization of the Company. Nature of Business The Company currently is engaged in the development and sale of 3D haptics products and equipment. Haptics refers to one’s sense of touch. The Company’s focus is in the consumer interactive computer gaming market, but the Company also does project work in other areas. The Company’s operations are based in New Mexico with sales of its haptics products primarily to consumers through retail outlets. During the earlier years of Novint, the Company sold its products primarily directly to consumers and through retail channels. When the new team came on to try to save the Company in 2013, the Company continued to sell individual units to consumers through the Novint online store in an effort to capture a larger percentage of the sale rather than sell through the retail channel. At the same time, the Company adopted a new strategy of trying to sell Falcons to professional users, small developers and institutions, such as schools, which were more likely to make purchases of multiple units at a time and create near-term revenue for the Company.. This shift in strategy was somewhat successful as evidenced by the higher level of sales during the next few years. In 2017, the Company shifted strategy to try to partner with one or more larger OEMs in the gaming space to help introduce the existing Falcon, a cost reduced version of the Falcon and/or the Xio controller that was in development. There has been significant interest and testing from two well-known OEMs in the gaming space but the process with large OEMs is extremely long process and there can be no assurances that the Company will be able to successfully conclude a partnering arrangement. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Use of Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions made in the preparation of the financial statements relate to accrued royalties and contingent consideration. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times, balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts. Revenue and Cost Recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued amendments thereto (collectively referred to as “ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. The five-step process to achieve this principle is as follows: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. ASC 606 also mandates additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. 10 Revenue from product sales relates to the sale of the Falcon haptics interface, which is a human-computer user interface and related accessories. The Falcon allows the user to experience the sense of touch when using a computer, while holding its interchangeable handle. The Falcons are manufactured by an unrelated party. Revenue from product sales is recognized when the products are shipped to the customer and the Company has earned the right to receive and retain reasonable assured payments for the products sold and delivered. Consequently, if all these revenue from product sales requirements are not met, such sales will be recorded as deferred revenue until such time as all revenue recognition requirements are met. Income Taxes The Company accounts for its income taxes under the provisions of ASC Topic 740, “Income Taxes”. The method of accounting for income taxes under ASC 740 is an asset and liability method which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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 Statements of Operations in the period that includes the enactment date. Fair Value of Financial Instruments The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB ASC establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below: ● Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. ● Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. ● Level 3: Pricing inputs that are generally observable inputs and not corroborated by market data. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The carrying amounts of the Company’s financial assets and liabilities, including cash, inventory, prepaid expenses, accounts payable, accrued expenses, payroll and related liabilities, and advances approximate their fair values because of the short maturity of these instruments. RESULTS OF OPERATIONS Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020 Revenues Year Ended December 31, 2021 2020 Change Revenue $ 2,568 $ 1,000 $ 1,568 During the year ended December 31, 2021, the Company earned revenue of $2,568 through sales of its Falcon. During the year ended December 31, 2020, the Company earned revenue of $1,000 through sales of its Falcon. Operating Expenses Year Ended December 31, 2021 2020 Change Operating Expenses $ 172,870 $ 168,707 $ 4,163 Operating Expenses for the year ended December 31, 2021 and 2020, were $172,870 and $168,707, respectively, an increase of $4,163 or 2.5%. The increase was primarily due to a increase in legal fees relating to regular filings with SEC. 11 Other Expense Year Ended December 31, 2021 2020 Change Other Expense $ 207 $ 279 $ (72) Other expenses for the year ended December 31, 2021 and 2020, were $207 and $279, respectively, a decrease of $72 or 26%. The decrease was primarily due to a decrease in finance charges of $72 in 2021. Net Loss Year Ended December 31, 2021 2020 Change Net Loss $ 170,509 $ 167,986 $ 2,523 Net loss for the years ended December 31, 2021 and 2020, were $170,509 and $167,986, respectively, an increase of $2,523. The increase was primarily due to increase in operating expenses. We expect to continue to incur expenses and operating losses for the foreseeable future. Our net loss may fluctuate significantly from quarter to quarter and year to year. Impact of Inflation The impact of inflation upon our revenue and income / (loss) from operations during each of the past two fiscal years has not been material to our financial position or results of operations for those years. Liquidity and Capital Resources Management has evaluated whether there is substantial doubt about our ability to continue as a going concern and has determined that substantial doubt exists as of the date of this filing. This determination was based on the following: the Company has incurred recurring losses and at December 31, 2021, had an accumulated deficit of $41,624,630 and a working capital deficit of $545,106 and for the year ended December 31, 2021, the Company sustained a net loss of $170,509. In the opinion of management, these factors, among others, raise substantial doubt about our ability to continue as a going concern. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. Management intends to source new inventory and generate revenue. The Company will continue to seek to raise additional funding through debt or equity financing during the next twelve months. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Cash Flow Activities As of December 31, 2021, we had a total cash balance of $185,935. Our cash flow from operating activities for the fiscal year ended December 31, 2021 resulted in net cash used in operating activities of $136,097 compared with net cash used in operating activities of $109,683 for the previous year ended December 31, 2020. We did not have any cash flow from investing activities or financing activities for the years ended December 31, 2021 or 2020. Contractual Obligations We do not currently have fixed contractual obligations or commitments that include future estimated payments. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to our investors. We have no guarantees or obligations other than those that arise out of our ordinary business operations. Recent Accounting Standards See Item 15 — Note 3 to the Consolidated Financial Statements, Summary of Significant Accounting Policies, for a discussion of recent accounting standards. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company. Accordingly, we are not required to provide the information required by this Item. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See our consolidated financial statements filed with this Annual Report on Form 10-K under Item 15 below. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None